Loan Policy Document 2019-20 Part-A PDF

UCO BANK
HEAD OFFICE
RISK MANAGEMENT DEPARTMENT
LOAN POLICY DOCUMENT
(Revised and updated upto 31.05.2019)

FOR INTERNAL CIRCULATION ONLY
PART – A
(Policy Guidelines)
INDEX
LOAN POLICY DOCUMENT 2019 PART - A
Chapter Contents Page
1 SCOPE AND OBJECTIVE OF THE POLICY 1
1.1 Scope of the Policy 1
1.2 Objectives of the Policy 1
2 POLICY DIRECTIVES ON STRATEGIES TO ACHIEVE THE TARGET 2
2.1 Alignment of products and pricing with market demand 2
2.2 Product Development 2
2.3 Standardization in credit dispensation 2
2.4 Thrust Areas 3
3 POLICY DIRECTIVE ON PORTFOLIO EXPOSURE 4
3.1 Prudential Exposure Ceilings 4
3.1.1 Prudential Exposure norms for NBFC 5
3.1.2 Exemptions 6
3.1.3 Exposure ceilings for advances based on constitution of borrowers 6
3.1.4 Guidelines on enhancing Credit supply for Large Borrowers through 6

Market Mechanism
3.2 Indicative list of various forms of Exposures 7
3.2.1 Measurement of Credit Exposure under Current Exposure Method 8

and Credit Conversion factors
3.3 Infrastructure Lending 9
3.4 Substantial Exposure 11
3.5.1 Unsecured Exposure 11
3.5.2 Undrawn/ partially drawn exposures other than CC facility 12
3.5.3 Moratorium limits for different types of products/ facility type 12
3.5.4 Tenor-wise exposure limits for different types of funded facilities 13
3.6 Capital Market Exposure 14

3.7 Country Exposure 14
3.8 Counter Party Exposure 15
3.9 Industry/Sectorial Exposure 15
3.10 Prior clearance for sanctioning credit proposals under restricted 15

sectors, industries etc.
3.11 Proposals prohibited 17
3.12 Statutory and Regulatory Restrictions 18
4 POLICY DIRECTIVES ON CREDIT RATING 24
4.1 Rating of Accounts 25
4.1.1 Aggregate FB and NFB limit up to Rs 25 lac 25
4.1.2 Enhanced Credit Rating Models 25
4.1.3 Rating of NBFCs 28
4.1.4 Provision of awarding Bonus marks 28
4.1.5 Quarterly monitoring of rating of accounts in the Private Sector 28

having short term unsecured exposure of Rs.100 crore and above
4.1.6 Rating Nomenclature and its meaning 28
4.1.7 Other guidelines 29
4.1.8 Validity of Internal Credit rating 29
4.1.9 External Credit Rating 29
4.2 Rating and Rating Review 30
4.3 Rating Based Action Points 31
4.3.1 Review and Renewal of Accounts 31
4.3.2 Pricing 31
4.3.3 Concessionary Rate of Interest 31
4.4 Portfolio Rating 31
4.5 Score card Models 32
5 POLICY DIRECTIVES ON CREDIT DISPENSATION 34
5.1 Credit sanction processes 34
5.1.1 Existing Accounts 34
5.1.2 New Accounts - Standardized Products 34

5.1.3 New Accounts - Other than Standardized Products 34
5.1.4 Sanctioning Authority/Committee at Different levels 34
5.1.4.1 Validity of Sanction 35

5.1.5 Looping system 36
5.1.6 Clearance by New Business Committee(NBC) 36
5.1.7 Risk Evaluation - Credit Appraisal Grid/s 36
5.2 Mandatory Components of Sanction Processes 37
5.3 Discretionary Power 37
5.3.1 Mandatory requirement for exercising Emergency lending Powers 43
5.3.2 Exercise of Emergency Lending Power in Current Account 45
5.3.3 Discretionary power for opening of LCs for capital goods and 45
Revolving LCs
5.3.4 Discretionary power for advances granted to two or more group 45
5.3.5 Command Area Defined 46
5.3.6 Transfer of Accounts 46
5.3.7 Accounts with multiple of Branches 47
5.4 Lines of Credit 47
5.5 Maturity Norms 47
5.6 Secured/Partly Secured/Unsecured Loans & Advances 48
5.6.1 Valuation of land and building 48
5.6.2 Discretionary Power structure for allowing dilution of security and 49

allowing 2nd loan against the residual value of the security already
charged to the bank
5.7 Proposal Processing Directives 50
5.8 Guidelines for taking over of accounts from other banks/financial 50

institutions
5.9 Management of NPAs including provisioning and Recovery Processes 52
5.10 Issue of fresh LC/BG in the event of devolvement/invocation of LC/BG 52

and/or other irregularities in the borrower accounts
6 POLICY DIRECTIVES ON PRICING 53
6.1 Communication of Interest Rate & Interest Rate Structure 53
6.2 Marginal Cost of Funds based Lending Rate(MCLR) 53

6.3 Competent Authority for Interest Rate & Interest Rate Structure 55
6.4 Pricing of standardized Products 55
6.5 Pricing of Loans under Consortium / JLA 55
6.6 Loans & Advances at Fixed Rate of Interest 55
6.7 Uniform Interest Clause in Sanction Advices and in Loan Documents 55
6.8 Concessionary Rate of Interest 56
6.9 Penal Rate of Interest 60
6.10 Exchange, Commission and other Service Charges 60
6.10.1 Recovery of processing Charges 61
6.10.2 Pre-payment Charges 61
6.10.3 Commitment Charges 62
6.10.4 Discretionary powers to relax/waive processing/Other Charges 62
6.10.5 Concessionary powers for Margin Stipulation 63
6.11 Continuance of concession in ROI, Margin and Processing and other 63

Service charges.
7 PROPOSAL PROCESSING DIRECTIVES 64
7.1 Borrower standards 64
7.1.1 Investment grade rating for considering fresh proposals or fresh entry 64
into the consortium
7.1.2 Obtaining of CIBIL/CRIF High Mark Report 65
7.1.3 Obtaining report from Central Economic Intelligence Bureau( CEIB) 66
7.1.3.1 Legal entity Identifier (LEI) for large corporate borrower 66
7.1.4 Borrowers‟ Standards / Financial strength of the borrower/Benchmark 67

financial Ratios
7.1.5 Treatment of Deferred Tax Liability & Deferred Tax Assets 70
7.1.6Verification of KYC/search in MOCA website etc before sanction of 70

Credit proposal/submitting proposal to Sanctioning Authority for their
consideration,
7.1.7 Obtaining authorization letter from borrower for accessing 71
information from Income Tax and other authorities
7.2 Appraisal Standards 70
7.2.1 Methods of Lending & Assessment of Working Capital finance 70

7.2.2 Project Finance - Appraisal 74
7.2.3 Operational instructions in respect of working capital 75
7.2.4 Appraisal of proposals of group concerns 77
7.2.5 Exit criteria for recalling/closing existing borrowal accounts 77
7.2.6 Loan system for delivery of bank credit 78
7.2.7 Non-fund based business 80
7.2.7.1 Trade Credits For Imports Into India 81
7.2.7.2 Letter Of Comfort (LOC) 81
7.2.7.3 Stand By Letters of credit (SBLC) 81
7.2.8 Bank guarantees & co-acceptances 82
7.2.9 Issue of commercial paper (CP) by corporate borrowers 84
7.2.10 Bridge loan 85
7.2.11 Short term loans 86
7.2.12 Adhoc facilities 88
7.2.13 Deposit- linked advances 88
7.2.14 Security and safety of advance 89
7.2.15 Collateral security norms for advances to traders not covered 90

under „UCO Trader‟ scheme
7.3 Guarantee standard 91
7.4 Personal guarantees of Directors and other managerial personnel of 91

borrowing concerns
7.5 Time norms for disposal of Loan Application 94
7.6 Approach to consortium finance/ Joint Lending arrangement 94
7.6.1 Guidelines On Acceptance Of Assessment Of WC Fund Based and 95

Non-Fund Based Limits For The Consortium Where Our Bank Is The
Leader of Consortium By The Respective Functional General
Managers At Head Office Level
7.7 Industry/sector specific policy 95
7.7.1 Infrastructure projects 95
7.7.2 Information technology (IT) and software industry 96
7.7.3 Financing of receivables through bills 97

7.7.4 Discounting / Rediscounting of Bills Under Letter of Credit 97
7.7.4.1 Discounting of Bills Under Letter of Credit 98
7.7.4.2 Rediscounting of Bills Under Letter of Credit 101
7.7.5 Financing Margin Trading 102
7.7.6 Advances To Micro-Finance Institutions (MFIs) 102
7.7.7 Advances to NBFC sector 102
7.7.8 Loans to Real Estate Promoters/Developers and Construction Sector 104
7.7.9 Loans to State Industrial Development/Financial Corporations 104
7.7.10 Advances Against Gold Ornaments / Other Jewellery 105
7.7.11 Advances Against Bullion / Primary Gold 105
7.7.12 Advances Against Selective Credit Control Commodities 106
7.7.13 Advances to Tea Industry 106
7.7.14 Advances against shares to individuals, share and stockbrokers etc. & 106
issue of guarantees
7.7.15 Advances Against Deposits 108
7.7.16 Financing PSU Disinvestments 108
7.7.17 Financing of acquisition of equity in overseas companies by Indian 108

entities
7.7.18 Financing to Indian Joint Ventures / Wholly Owned Subsidiaries (WOS) 108
and Overseas step-down subsidiaries of Indian Corporate
7.7.19 Equipment Finance Scheme 109
7.7.20 Scheme for Financing of ATMs / Cash Dispensers 109
7.7.21 Micro, Small & Medium Enterprises (MSME) 109
Policy for issuing and participating in interbank participation 110

7.7.22 certificate
7.7.23 Conflict Diamonds 116
8 POLICY GUIDELINES FOR ACQUIRING OF POOL ASSETS 118
8.1 Purchase of Pool Assets Defined 120
8.1.1 Assets for Transfer 121
8.2 Criteria for selecting Pool Originators 121
8.3 Pool selection Criteria 121

8.4 KYC & Standard of due diligence 124
8.5 Credit quality of the underlying assets 125
8.6 Stress Testing 125
8.7 Obligations of the Servicer 126
8.8 Securities and charge thereon 126
8.9 Documentation 126
8.10 Re-purchase of Assets 127
8.11 Monitoring of the Pool 127
8.12 Disclosures by the originating Bank 127
8.13 True sale criteria 128
8.14 Representations and warranties 129
8.15 Applicability of Capital Adequacy & other Prudential Norms 130
8.16 Exposure Norm in Pool Advance 131
8.17 Sanctioning Authority 131
8.18 Power to allow deviations 131
8.19 Treatment of exposure norm meeting the requirement stipulated 131

above
8.20 Miscellaneous 132
9 Policy Directive on Credit Monitoring 138
9.1 Monitoring Objectives /Goals 138
9.2 Monitoring Process 139
9.2.1 Legal audit 139
9.2.2 Credit Audit 140
9.2.3 Inspection of Stocks & Book Debts 141
9.2.4 Stock Audit 142
9.2.5 Unit Inspection 143
9.2.6 Special Investigation [ SIA] 143
9.2.7 Annual Review/Renewal of Borrowal Account 143
9.3 Preventive Measure 145

9.4 Monitoring setup 147
9.5 Holding on operation for irregular accounts 149
9.6 Recall of Advance and Invocation of Personal guarantee 150
9.7 Engagement of Agency for special Monitoring 150
10 Policy guidelines for financing to MICRO Finance Institution 151
10.1 Policy guidelines for financing to Non_NBFC Micro Finance Institution – 151
( Non-NBFC MFIs)
10.1.1 Scope 151
10.1.2 Eligibility 151
10.1.3 Internal Rating 152
10.1.4 External Rating 152
10.1.5 NBC Clearance 152
10.1.6 Discretionary Authority to sanction 152
10.1.7 Disbursement of Loan to MFIs 152
10.1.8 End-use verification 152
10.1.9 Categorization of the loans as Priority Sector Advances 152
10.1.10 Review / Renewal of credit facility 153
10.2 Policy guidelines for financing to NBFC MICRO finance Institutions ( 153
NBFC-MFIs)
10.2.1 Scope 154
10.2.2 Eligibility 154
10.2.3 Internal Rating 155
10.2.4 External Rating 155
10.2.5 Prudential Exposure norms for NBFC-MFIs 155
10.2.6 NBC clearance 155
10.2.7 Discretionary Authority to sanction 155
10.2.8 Disbursement of loans to MFIs 155
10.2.9 End-use verification 156
10.2.10 Categorization of loans as priority sector Advances 156
10.2.11 Review /Renewal 156

11 GENERAL 157
11.1 Discretionary authority for allowing deviations from Policy angle 157
other than pricing
11.2 Registration with Central Registry of Mortgages created on 157

Immovable Properties
11.3 Coverage of collateral free loans under Credit Guarantee Fund Trust 158
Scheme for Micro & Small Enterprises (CGTMSE/CGFMU/CGSSI)
11.4 Coverage of Export Credit ( Pre-shipment & Post Shipment) under 158
Export Credit Guarantee Scheme
11.5 Fresh Exposure on Compromise Accounts 158
11.6 Appropriation of amount received in term loan accounts towards 158

principal/ interest
11.7 Discretionary authority for allowing changes/ modifications in terms of 159

sanction
11.8 Conclusion 160
12 Credit Audit 161
12.1 Objectives of Credit Audit 161
12.2 Scope of Credit Audit 161
12.3 Criteria for identification of Accounts for Credit audit 162
12.4 Frequency of Credit Audit 163
12.5 Assignment of Credit audit 163
12.6 Identification of Credit Auditors and formation of Task Force 163
12.7 Authority for recommendation for closure of Credit Audit 163
12.8 Authority for closure of Credit Audit 163
12.9 Accounts sanctioned by ZLCC and above levels ( Other than FC 164
Branch
CHAPTER-1
SCOPE AND OBJECTIVE OF THE POLICY
1.1 Scope of Policy
The Loan Policy Document provides necessary directives covering all loans and
advances to borrowers/proposed borrowers but does not cover loans and advances to
 Bank‟s own staff
 Bank‟s Directors
 Relatives of Directors
 Directors and their relatives on reciprocal basis

Loans and advances to Bank‟s own staff would be governed by schemes approved by
the Board of Directors in terms of guidelines on the matter received from Govt. of India.
Personnel Services Department shall have the administrative jurisdiction in this regard.
Provided further that loan to staff members not covered in terms of guidelines on the
matter received from Government of India, may be dealt with in terms of the provisions
of the particular scheme framed by the bank subject to admissibility of such loans to
staff members.
Loans and advances to Bank‟s Directors, Relatives of Directors, Directors and their
relatives on reciprocal basis would be based on specific approval of the Board of
Directors and should conform to the Statutory and Regulatory directives in force.
This Loan Policy shall be operative till further review by the Board and it overrides all the
earlier Policy Documents /circulars/guidelines issued by our Bank having reference to
Loan Policies or otherwise prior to this Policy.
1.2 Objectives of Loan Policy

The Loan Policy Document-2019 seeks to respond to the present requirements in the light
of expected environment. Its objectives are:
1) The policy aims at sizing opportunities and revamping our products and delivery
mechanism as well as innovating new products well ahead of peers.
2) Incremental credit deployment as per Bank‟s business plan keeping in mind Risk
Weight Optimization.
3) A well diversified fully rated credit portfolio.
4) Control credit quality such that default rate over the year is contained.
5) Improvement of fee based credit facilities for higher non-interest income.
6) To see that the Economic Value Addition to Shareholders is maximized and the
interest of all the stakeholders are protected alongside ensuring corporate
growth and prosperity with safety of Bank‟s available resources.
7) To comply with various regulatory requirements, more particularly on Exposure

norms, Priority Sector norms, Income Recognition and Asset Classification
guidelines, Capital Adequacy, Credit Risk Management guidelines etc. of RBI/
other authorities.
Loan Policy Document Part-A Page 1

CHAPTER – 2
POLICY DIRECTIVES ON STRATEGIES TO ACHIEVE THE TARGET
The Bank would seek to achieve the target set for credit expansion through emphasis on
thrust areas as per Bank‟s business plan, distribution of targets across its branches based
on credit deployment/ absorption capacity of branches and their command areas and
delegation of discretionary powers across field functionaries. Additionally, the Bank
would provide marketing support, products aligned with market demand, and
competitive pricing. Effective client contact on a regular basis would be encouraged.
The Bank would also seek to standardize its products, as far as possible, for ease of
handling and to reduce operational costs.
Monitoring of credit accounts will receive priority at all levels. Bank will take effective
steps to constantly improve credit appraisal and account maintenance skills of its
personnel. These steps would help the Bank to achieve its objective of minimizing
slippage to NPA.
2.1 Alignment of Products and Pricing with Market Demand
The Bank has adopted a strategy to design and market standardized credit products for
various segments in the credit market. This would continue. Additionally, Bank would
also, based on its experience and feed-back received on market and demand, modify
its products with a view to improve its market share. Bank would also recognize price
competition and align its pricing, subject to other relevant factors, with the market.
In case of credit proposals specific to a unit, the Bank would continue to take into
account their specific needs keeping in view Bank‟s profitability, Loan Policy and other
directives/guidelines.
2.2 Product Development
Banking product is a package of deliverables/services, which is specifically designed by

the bank for a set of target customers with a purpose that customer and the bank are
mutually benefited on an ongoing basis. Various operational departments viz., Retail,
Agriculture & Rural Business and Corporate Credit etc. are developing various schemes
from time to time in this regard.
2.3 Standardisation in Credit Dispensation
Retail, Corporate Credit, Agriculture & Rural Business Departments at Head Office will
take steps to standardize respective credit products to the extent possible.
Standardization of various schemes incorporating process note, Scoring Models,
documentation, monitoring and follow up will be carried out to simplify credit
dispensation process. This will also help in handling volumes by field functionaries and
reducing costs.
Zonal Offices would also be encouraged to recommend schemes suitable to various

groups of borrowers within their command area to the competent authority at H.O.

2.4 Thrust Areas
a) Advances under Retail Schemes including Affordable Housing
b) Advances to MSME.
c) Advances to Service Sector.
d) Advances to Agriculture & other priority sector.
e) Export Finance.
f) Discounting of bills under LCs.
g) Loan to Traders
h) Accounts with credit ratings AAA, AA & A.
i) Advances to Logistics Sector
j) Advance to Drug & Pharmaceuticals Sector
k) Hybrid annuity projects
l) Advance to NBFC ( IFC/HFC/AFC)
m) Loans under LRD
n) Loans having ESCROW mechanism

CHAPTER - 3
POLICY DIRECTIVES ON PORTFOLIO EXPOSURE
The Bank would adhere to the following guidelines in achieving its objective of portfolio
diversification. The guidelines restrict Bank‟s exposure on single borrower, group
borrower, counter-parties (i.e. commercial banks, RRB etc.) and foreign countries. It also
restricts overall unsecured exposure, exposure on capital market and provides for
monitoring aggregate exposure on high value individuals/groups. It seeks to avoid
industry concentration and limits further exposure in specified industries.
Definitions
Exposure:
Exposure shall include credit exposure (funded and non-funded credit limits), investment
exposure (including underwriting and similar commitments) and credit exposure of
derivative products. The sanctioned limit or outstanding, whichever is higher, shall be
reckoned for arriving at exposure limit. However, in case of fully drawn term loans, where
there is no scope for re-drawl of any portion of the sanctioned limit, the outstanding
would be reckoned as exposure.
Eligible Capital Base:

The eligible capital base for the purpose of Large Exposure Framework is the effective
amount of Tier-1 Capital fulfilling the criteria defined in Master Circular on Basel-III –
Capital Regulation/ Master Direction on Basel –III Capital Regulations‟ as per the last
audited balance sheet.
However, the infusion of capital under Tier I after the published balance sheet date may
also be taken into account for the purpose of Large Exposures Framework. Bank shall
obtain an external auditor‟s certificate on completion of the augmentation of capital
and submit the same to the Reserve Bank of India (Department of Banking Supervision)
before reckoning the additions to capital funds.
Profits accrued during the year, subject to provisions contained in para 4.2.3.1 (vii) of
Master Circular on Basel III – Capital Regulation dated July 1, 2015 (as amended from
time to time), will also be reckoned as Tier I capital for the purpose of Large Exposures
Framework.
3.1 Prudential Exposure ceilings
The Bank shall limit its Exposure on a single borrower and borrowers belonging to a group
within the following limits prescribed by Reserve Bank of India:
1. Single Borrower 20% of Bank‟s Tier-1 Capital
2. Group Borrower 25% of Bank‟s Tier-1 Capital

Borrowers belonging to a Group
a) Business entities, whether proprietorship or partnership firm or private, limited

companies or public limited companies having one or more common Partner
/Director. However, in case of Public Limited Companies, the group approach
will be based on the concept of commonality of management and effective
control on the basis of relevant information available with the Bank. In other
words, if a professional (i.e. non-promoter) Director is common between two
Public Limited Companies, who does not have substantial shareholding/
management control, such companies will not be treated as group companies
merely on this ground,
OR
b) All Limited Company, which is subsidiary of another limited company or closely
held company with substantial interest [i.e. more than 50% of the equity share capital
of the Company is owned by another company.
Note:
1. In exceptional circumstances, the Board may permit additional credit exposure

of 5% of Bank‟s Tier-1 Capital over and above the prudential limits, subject to the
disclosure requirements.
2. The above exposure ceilings are maximum ceilings as per RBI Guidelines. The
Bank would fix from time to time its own limits within RBI prescribed ceilings in
percentage terms / absolute terms based on its risk appetite.
3. In the case of a split in the group, if the split is formalized the splinter groups will be
regarded as separate groups. If the banks have any doubt about the bonafides
of the split, a reference may be made to RBI for its final view in the matter to
preclude the possibility of a split being engineered in order to prevent coverage
under the Group Approach.
3.1.1 Prudential Exposure norms for NBFC (prescribed by RBI):
Borrower Category Exposure ceiling as percentage

of Bank‟s Capital Funds
Single Borrower NBFC 15.00%
Group Borrower NBFC 25.00%
The above exposure ceilings are maximum ceiling as per RBI Guidelines, the Bank would
fix from time to time its own limits within RBI prescribed ceilings in percentage terms /
absolute terms based on its risk appetite.

3.1.2 Exemptions
Under the LEF, a bank‟s exposure to all its counterparties and groups of connected
counterparties, excluding the exposures listed below, will be considered for exposure
limits.
The exposures that will be exempted from the LEF are listed below:
 Exposures to the Government of India and State Governments which are eligible
for zero percent Risk Weight under the Basel III – Capital Regulation framework of
the Reserve Bank of India;
 Exposures to Reserve Bank of India;
 Exposures where the principal and interest are fully guaranteed by the
Government of India;
 Exposures secured by financial instruments issued by the Government of India, to
the extent that the eligibility criteria for recognition of the credit risk mitigation
(CRM) are met in terms of paragraph 7.III of this circular;
 Intra-day interbank exposures;
 Intra-group exposures4 ;
 Borrowers, to whom limits are authorised by the Reserve Bank for food credit;
 Banks‟ clearing activities related exposures to Qualifying Central Counterparties
(QCCPs),
 Rural Infrastructure Development Fund (RIDF) deposits placed with NABARD.
However, bank‟s exposure to an exempted entity which is hedged by a credit

derivative shall be treated as an exposure to the counterparty providing the credit
protection notwithstanding the fact that the original exposure is exempted.
3.1.3 Exposure ceilings for advances based on constitution of borrowers:

Risk in case of credit exposure to individuals / sole-proprietorship concerns / partnership
firms /private Limited companies is often higher as compared to advances to widely
held corporate. To take care of the same on such borrower constituents, the bank fixes
exposure ceilings for these categories of borrowers which are advised to branches/
offices through circulars from time to time.
3.1.4 Guidelines on enhancing Credit supply for Large Borrowers through Market
Mechanism:
RBI has issued guidelines on enhancing credit supplies for large borrowers through
Market Mechanism. The summary of RBI guidelines is as under
i. “Aggregate Sanctioned Credit Limit (ASCL)” means the aggregate of the fund
based credit limits sanctioned or outstanding; whichever is higher, to a
borrower by the banking system. ASCL would also include unlisted privately
placed debt with the banking system.
ii. “ Specified borrower‟, means a borrower having an ASCL of more than
a. Rs.25,000 crore at any time during FY 2017-18;

b. Rs.15,000 crore at any time during FY 2018-19;
c. Rs.10,000 crore at any time from April 1, 2019 onwards;

iii. “Reference date” means the date on which a borrower becomes a “
specified Borrower”
iv. Normally permitted lending limit (NPLL), means 50 percent of the incremental
funds raised by the specified borrower over and above its ASCL as on the
reference date (date on which a borrower becomes a specified borrower‟) in
the financial years (FYs) succeeding the FY in which the reference date falls.
For this purpose, any funds raised by way of equity shall be deemed to be
part of incremental funds raised by the specified borrower (from outside the
banking system) in the given year;
v. Provided that where a specified borrower has already raised funds by way of
market instruments and the amount outstanding in respect of such instruments
as on the reference date is 15 per cent or more of ASCL on that date, the NPLL
will mean 60 percent of the incremental funds raised by the specified
borrower over and above its ASCL as on the reference date, in the financial
years (FYs) succeeding the FY in which the reference date falls.
vi. The guidelines on enhancing credit supply for large Borrower through market
mechanism shall be applicable on all single counterparties. Due-diligences
should be applied while deciding NPLL for a single borrower in order that
borrower do not circumvent the cut-off ASCL criteria by borrowing through
dummy/fictitious group companies.
vii. From 2017-18 onwards, incremental exposure of the banking system to a

specified borrower beyond NPLL shall be deemed to carry higher risk which
shall be recognized by way of additional provisioning and higher risk weights
as per RBI guidelines.
3.2 The indicative list of various forms of exposure:
Any credit facility funded or non-funded (both secured and unsecured) for all types of
borrowers which is not specifically prohibited by regulatory authority. This may include
the following but not limiting to these activities.
 All types of funded and non-funded credit limits including long term working capital,
Ongoing Capex , NWC funding , Line of credit , Corporate Loan etc.
 Facilities extended by way of equipment leasing, hire purchase finance and
factoring services.
 Advances against shares, debentures, bonds, units of mutual funds etc.
 Bank loan for financing promoter‟s contributions.
 Bridge loans.
 Financing of future receivable /cash flows.
 Refinancing of existing Debt
 Financing of Initial Public Offerings (IPOs) / Employee Stock Options (ESOPs).

 Underwriting obligations.
 Buy back Commitments.
 Investment in shares and debentures/bonds of companies acquired through direct
subscription, devolvement arising out of underwriting obligations or purchased from
secondary markets or on conversion of debt into equity/Bond.
 Investment in PSU bonds through direct subscription, devolvement arising out of
underwriting obligations or purchase made in the secondary market.
 Investment in Commercial Papers (CPs) issued by Corporate Bodies/PSUs.
 Investment in debentures /bonds /security receipts /pass through certificates (PTCs)
issued by a Securitization Company (SC)/ Reconstruction Company (RC).
 Credit exposure equivalent of derivative products.
3.2.1 Measurement of Credit Exposure under Current Exposure Method and Credit
Conversion factors
For the purpose of computing credit exposure of all derivative products Current
Exposure Method as given below should be followed.
Under Current Exposure Method, credit exposure equivalent of off-balance sheet

interest rate and exchange rate instruments shall be the sum of:
1. The total of replacement cost (obtained by “marked to market”) of all contracts

with positive value (i.e. when the Bank has to receive money from the counter
party).
2. An amount for potential future changes in credit exposure calculated on the basis
of the total notional principal amount of the contract multiplied by the following
credit conversion factors according to the residual maturity:
Residual Maturity Conversion factor to be applied on

Notional Principal Amount
Interest Rate Exchange Rate
Contract Contract
One year or less than one year 0.50% 2.00%
Over one year and upto 5 years 1.00% 10.00%
Over 5 years 3.00% 15.00%
The derivative products shall be marked to market at least on a monthly basis. The Bank
would follow the internal methods of determining the marked to market value of the
derivative products.
The credit exposure for single currency floating / floating interest rate swaps would be
evaluated solely on the basis of their mark-to-market value.

Note:
1. Investment made by the Bank in bonds and debentures of corporate, which are
guaranteed by a Public Financial Institution (PFI) will be treated as exposure by the
Bank on the PFI and not on the corporate.
2. Prudential exposure ceiling arising out of investment in debentures/ bonds/security

receipts/pass through certificates (PTCs) issued by a Securitization Company (SC)/
Reconstruction Company (RC) may be exceeded with due approval from Reserve
Bank of India on case-to-case basis.
3. Bills discounted under letter of credit issued by prime bankers in accordance with
the terms of LC and duly accepted by the LC issuing Bank shall be considered as
exposure on issuing bank.
3.3 Infrastructure Lending
RBI has issued guidelines for identifying infrastructure projects covering criteria for
financing, types of financing, appraisal, regulatory compliance/concerns, asset liability
management, administrative arrangements and inter-institutional guarantees. Bank will
continue to follow these guidelines meticulously and will comply with the guidelines
circulated by RBI from time to time in this regard.
As per extant guidelines of RBI, credit facility extended by lenders (i.e. banks and select
All India term-Lending and Refinancing Institutions) to a borrower for exposure in the
following infrastructure sub-sectors will qualify as „infrastructure lending:
Sl. No. Category Infrastructure sub-sectors

1. Transport i. Roads and bridges
ii. Ports (see Note 1 below)
iii. Shipyard(see Note 2 below)
iv. Inland Waterways
v. Airport
vi. Railway Track, tunnels, viaducts, bridges (see Note 2 below)
vii. Urban Public Transport (except rolling stock in case of
urban road transport)
2. Energy i. Electricity Generation

ii. Electricity Transmission
iii. Electricity Distribution
iv. Oil pipelines
v. Oil/Gas/Liquefied Natural Gas (LNG) storage facility (see
Note 3 below)
vi. Gas pipelines (see Note 4 below)

3. Water & i. Solid Waste Management
Sanitation
ii. Water supply pipelines
iii. Water treatment plants
iv. Sewage collection, treatment and disposal system
v. Irrigation (dams, channels, embankments etc)
vi. Storm Water Drainage System
vii. Slurry Pipelines
4. Communication i. Telecommunication (Fixed network)(see Note 5 below)

ii. Telecommunication towers
iii. Telecommunication & Telecom Services
5. Social and i. Education Institutions (capital stock)

Commercial
ii. Sports Infrastructure (see Note 7 below)
Infrastructure
iii. Hospitals (capital stock) (see Note 6 below)
iv. Three-star or higher category classified hotels located
outside cities with population of more than 1 million
v. Common infrastructure for Industrial parks and other parks
with industrial activity such as food parks, textile parks,
Special Economic Zones, tourism facilities and agriculture
markets.
vi. Common infrastructure for industrial parks, SEZ, tourism
facilities and agriculture markets
vii. Fertilizer (Capital investment)
viii. Post harvest storage infrastructure for agriculture and
horticultural produce including cold storage
ix. Terminal markets
x. Soil-testing laboratories
xi. Cold Chain (see Note 7 below)
xii. Hotels with project cost of more than Rs.200 crores each in
any place in India and of any star rating. (See note 8
below).
xiii. Convention centers with project cost more than Rs.300
crore each. (See note 8 below).
Notes:
1. Includes Capital Dredging.

2. ‟Shipyard‟ is defined as a floating or land-based facility with the essential features
of waterfront, turning basin, berthing and docking facility, slipways and /or ship
lifts, and which is self-sufficient for carrying on shipbuilding / repair / breaking
activities.
3. Includes supporting terminal infrastructure such as loading/unloading terminals,
stations and buildings.
4. Includes strategic storage of crude oil.
5. Includes city gas distribution network.
6. Includes optic fiber/wire/cable networks which provide broadband / internet.
7. Includes the provision of Sports Stadia and Infrastructure for Academies for
Training/ Research in Sports and Sports- related activities.
8. Includes Medical Colleges, Para Medical Training Institutes and Diagnostics
Centers.
9. Includes cold room facility for farm level pre-cooling, for preservation or storage
of agriculture and allied produce, marine products and meat.
10. Applicable with prospective effect for three years from 08/10/2013(reference
Gazette Notification No 225) for eligible projects; Eligible costs exclude cost of
land and lease charges but include interest during construction.
The exposure to projects under sub-sectors which were included under RBI definition of
infrastructure prior to 20.11.2012, but not included under the above revised definition,
will continue to get the benefits under „infrastructure lending‟ for such exposures till the
completion of the projects. However, any fresh lending to those sub-sectors from the
date of RBI circular dated 20.11.2012 will not qualify as „infrastructure lending‟.
3.4 Substantial Exposure
In its guidelines on Risk Management Systems, Reserve Bank of India advised the banks
to lay down “Substantial Exposure Limits” and advised that as a prudent practice, banks
may ensure that their aggregate exposure (including non fund based exposure) to all
“large borrowers” does not exceed at any time 800% of their eligible Capital Base.
Under the Large Exposure Framework ( LEF) , the sum of all exposure to a counterparty
or a group of connected counterparties is defined as a „Large Exposure(LE)‟, if it is equal
to or above 10 percent of the bank‟s eligible capital base i.e., Tier 1 capital.
A report on accounts, where the exposure has crossed threshold limit of 10% of bank‟s
Tier-1 Capital, will be placed before the Board every six months for review.
3.5.1 Unsecured Exposure
Unsecured exposure is an exposure comprising all funded and non-funded exposures

(including underwriting and similar commitments) where the realizable value of security,
as assessed by the Bank/ approved valuers/ Reserve Bank‟s Inspecting Officers, is not
more than 10 percent, ab-initio, of the outstanding exposure. But the classification of

advances as secured or unsecured would be revisited at the time of review of
advances and also as part of preparation of final statements.
Security will mean tangible security properly charged to the Bank and will not include
intangible securities like guarantees (including State Government Guarantees), comfort
letters, charge on rights, licenses, authorizations etc.
The bank will limit its unsecured exposure, based on the above definition, at the level of
15% of its total outstanding advances. Monitoring of unsecured exposure at aggregate
level will be done at Head Office. Zones will submit the position of unsecured exposure
in BS-27, every quarter to HO Risk Management. The position of Unsecured Exposure of
the Bank as a whole will be monitored every quarter by Risk Management Department,
Head Office and reported to the Board.
3.5.2. Undrawn/ partially drawn exposures other than CC facility:
Undrawn balances (other than CC) shall not exceed 10% of the total fund based
exposure and shall be monitored on half yearly basis.
Further undrawn balances in term loans shall be allowed to continue beyond the date
of commercial production/completion of project or moratorium period whichever is
earlier by the authority one level higher with proper justification.
3.5.3 Moratorium limits for different types of products/ facility type:
a) Repayment schedule shall be fixed taking into account the sustenance

requirements, surplus generating capacity, the breakeven point, the life of the
asset, etc. and not in an” ad-hoc” manner.
b) Interest accrued during moratorium period may be capitalized as per

requirement of the project and accordingly loan installment may be fixed.
Repayment under retail schemes, SME Credit and priority Sector Credit should be
complied with as per respective scheme guidelines/ advised by Retail banking,
MSME Credit & ARBD respectively from time to time.
c) The moratorium period for infrastructure lending shall not exceed 3 years and in
case of loans other than infrastructure sector, educational loan, housing loan,
should not exceed 2 years. However, in deserving cases moratorium period may
be considered for maximum 5 years in case of infrastructure & 3 years for other
than infrastructure, considering the cash flow position by the authority one step
higher than the sanctioning authority up to the level of HLCAC-II and in case of
proposals falling under the sanctioning powers of HLCAC-I/ BLCAC and MCB
respective sanctioning authority.
d) In case of financing under consortium/multiple banking/ JLF, the sanctioning

authority may accept repayment schedule as accepted by lead Bank/ majority
lenders.
e) In case of proposals falling under any particular Scheme shall be put out of the
preview of the Moratorium Policy and be governed by guidelines under
respective schemes.

3.5.4. Tenor-wise exposure limits for different types of funded facilities
a) For Asset-Liability Management, the maturity period of Term Loan will be defined
on remaining of loan tenure as under:
Advances with a maturity of less than 3 years Short Term Loan

3 years and upto 7 years Medium Term Loan
Loans with maturity period above 7 years Long Term Loan
b) The Long Term Loan and financing of infrastructure projects may lead to Asset-
Liability Mismatches, particularly when such financing Is not in conformity with the
maturity profile of the bank‟s liabilities. Therefore, before financing, asset-liability
position of bank should be examined so that Bank does not run into liquidity
mismatches on account of lending to such projects.
c) The authority to permit / sanction of the Term Loan at various maturities is as

under:
i. Proposals under Infra structure:
Repayment period Sanctioning Authority

including moratorium
Upto 07 years Respective sanctioning authority
Above 7 Years Proposals upto the sanctioning power of ZLCC-
HLCAC-II and beyond ZLCC- respective
sanctioning authority.
ii. Proposals under Non-infra Sectors
Repayment period Sanctioning Authority

including moratorium
Upto 5 years Respective sanctioning authority
Above 5 year Proposals upto the sanctioning power of

ZLCC- HLCAC-II and beyond ZLCC- respective
iii. Exemption
Such permission will not be necessary in case of term loans extended to
Housing Sector ( both direct and indirect) , Agriculture Loan, Government
Sponsored Schemes, Educational Loan and nay other specific schemes
etc., Restructured Loan, Rehabilitations package undertaken for revival of
Sick/ Weak units.

3.6 Capital Market Exposure
Following exposures shall qualify as Capital Market Exposure:
I. Direct investment in equity shares, convertible bonds, convertible debentures

and units of equity-oriented mutual funds the corpus of which is not exclusively
invested in corporate debt;
II. Advances against shares/bonds/debentures or other securities or on clean basis
to individuals for investment in shares (including IPOs /ESOPs), convertible bonds,
convertible debentures or units of equity-oriented mutual funds etc;
III. Advances for any other purposes where shares or convertible bonds or
convertible debentures or units of equity oriented mutual funds are taken as
primary security;
IV. Advances for any other purposes to the extent secured by the collateral security
of shares or convertible bonds or convertible debentures or units of equity
oriented mutual funds i.e. where the primary security other than
shares/convertible bonds/convertible debentures/units of equity oriented mutual
funds does not fully cover the advances;
V. Secured and unsecured advances to stockbrokers and guarantees issued on
behalf of stockbrokers and market makers;
VI. Loans sanctioned to Corporates against security of shares /bonds/debentures or
other securities or on clean basis for meeting promoter‟s contribution to the
equity of new companies in anticipation of raising resources;
VII. Bridge loans to companies against expected equity flows/issues;
VIII. Underwriting commitments taken by the Bank in respect of primary issue of shares
of convertible bonds or convertible debentures or units of equity oriented mutual
funds. However, with effect from April 16, 2008, Bank may exclude its own
underwriting commitments, also the underwriting commitments of its subsidiaries,
if any, through the book running process for the purpose of arriving at the capital
market exposure of the solo bank as well as well the consolidated Bank;
IX. Financing to stockbrokers for margin trading;
X. All exposures to Venture Capital Funds (both registered and unregistered). This
exposure will be deemed to be at par with equity.
All Such Exposures, as mentioned above, shall be governed in terms of Policy Guidelines
on Capital Market Exposure circulated separately from time to time.
The extant policy guidelines in the matter are being circulated separately in Chapter 2
of Part B of Loan Policy Document - 2019.
3.7 Country Exposure
Bank‟s funded and non-funded exposure on different countries would form country
exposure. Such exposures would be governed in terms of the Policy Guidelines on
Country Risk Management issued separately from time to time.
3.8 Counter Party Exposure
Bank‟s exposure on Clearing Corporation of India Limited (CCIL), Scheduled

Commercial Banks, Regional Rural Banks, Co-operative Banks, Banks incorporated
outside India- as approved by the Board, Mutual funds and Primary Dealers shall form
counter party exposure.
Such exposures would be governed in terms of the policy guidelines on counterparty

exposure circulated separately from time to time.
3.9 Industry/Sectoral Exposure
Bank shall fix exposure Ceiling on different industries/Sectors annually, in order to avoid
credit concentration in any industry/Sector, taking into consideration of the following
factors:
 Banking Sector Advances to different sectors/industries vis-à-vis our bank‟s

Exposure to different sectors/industries.
 Compounded annual Growth Rate (CAGR) for last 3 years and Annual Growth
Rate (AGR) of our Bank‟s Exposure to each industry.
 Compounded Annual Growth Rate (CAGR) for last 3 years and Annual Growth
Rate (AGR) of Bank‟s outstanding advances to each industry.
 Level of Non-Performing Assets (NPA) in each industry/sector of our Bank.
 Economic growth/Industry outlook for the current year-Expected GDP growth.
 Relevant RBI guidelines regarding Prudential Exposure Norms, wherever applicable.
The industry/sector wise credit exposure limits fixed by the bank will be advised by the
Risk Management Department on year to year basis.
3.10 Prior clearance for sanctioning credit proposals under restricted sectors, industries
etc.-
Keeping in view the present economic scenario and the Bank‟s Credit portfolio, it is
proposed to put following sectors/industries under restricted category.
a. Educational Institutions other than Schools

b. Holiday Resorts/ Private clubs/ community or marriage halls/ cinema &
theatres
c. Fertilizer, Sugar, Jute Polymer, HDPE woven Sacks Units
d. Infrastructure, Civil Aviation, Steel Re-rolling Mills, Mini Steel Plants, Mini
Cement Units, Paper Mills

e. IT & Software, SIDCs / SFCs, Capital Market – Stocks / Share Brokers, Lottery
agents without 100% cash / FDR margin, Rigs for digging Oil Well
f. Film Production
g. Base Metals including Iron & Steel
h. Mining
i. Telecom
j. Financing to Indian joint Ventures
k. Textile Sector ( for exposure above Rs 5 Crore)
l. Financing to NBFC
Proposals falling under the aforesaid restricted Industries/sectors prior clearance shall be
obtained as under:
Loan Amount Clearance level

UptoRs 5 Crore HLNBC
Above Rs 5 Crore BLNBC
In case of exposure to Real Estate Sector, prior permission of the Head Office Level New
Business Committee (HLNBC)/ Bank Level new Business committee (BLNBC), is to
obtained for any fresh/additional exposure of Rs 5 core and above.
Note:
a. Head Office may add /delete any industry/sector from this schedule
depending upon future outlook.
b. In addition to above, Fund clearance in all cases for disbursement of Rs. 5

crore and above is to be obtained from Treasury Branch, Mumbai.
c. Trading of above mentioned industrial products will not come under the
restriction of obtaining prior clearance before sanctioning new credit
proposals.
d. Film distribution and other ancillary activities under Film Industry shall not
come under restricted sector.
e. No prior clearance is required in case of existing accounts .

f.
g. If the exposure is backed by 100% liquid collateral security such as FDR,

NSC, KVP, LIC Policies etc and duly complied due diligence, then above
restriction shall not be applicable.
Negative List:
 Gems & Jewellery Industry has been put under negative list.
 The sanctioning authority in case of fresh proposals /enchantment in existing

account shall be BLCAC and above.
 However renewal at existing level shall continue to be done by respective

 In case of manufacturing units the existing provision shall continue and in case of
trading units under Gems and Jewellery which are falling under UCO Trader
Scheme, shall be exempted from the existing provisions provided the borrower is
an existing customer of our bank having six months satisfactory operations in
current account in case of fresh sanctions and in case of enhancement under
UCO Trader – respective sanctioning authority.
3.11 Proposals Prohibited
This lending policy prohibits loans & advances (including non-fund based facilities) for
the following purposes or to the following categories of borrowers.
1. Loans & advances for speculative purposes.

2. Proposal from willful defaulters of our Bank / the borrower appearing in RBI willful
defaulter list. Proposals from the borrowers of our bank appearing in the willful
defaulter‟s list may be considered under Rehabilitation/Restructuring package
without any additional funding. However in case of proposals for additional
funding/ proposals from willful Defaulter of our Bank as well as other Bank, MCB
shall be the sanctioning authority.
3. Loans and advances to borrowers dealing in sensitive commodities as notified by
RBI from time to time, which directly or indirectly violate the spirit of the Selective
Credit Control directives
4. Loans against commodities, possession/ production of which are prohibited by the
law of the land.
5. Sanction of fresh loans to clear the NPA accounts in the group/associates.
6. Loans and advances against company shares to promoters of such companies
(however, promoters holding given as additional collateral for specific approved
purposes may not come under such prohibition).
7. Purchase and discount of bills, which are accommodative in nature.
8. Loans and advances to industries consuming/ producing ODS (Ozone Depleting
Substance).
9. Loans and advances to industries, whose application for clearance from Pollution
Control Board/s have been turned down or are under dispute/litigation.
10. Proposals from borrowers whose name appearing in ECGC Caution List/ CIBIL/CRIF
High Mark or other RBI registered Credit Information Companies (CICs) may be
considered subject to proper justification and same to be incorporated in the
proposal. The authority level for considering such cases are as under:
Proposal falling under the sanctioning power of - Competent Authority

Upto the level of ZLCC ZLCC
HLCAC-II/HLCAC-I /BLCAC/MCB Respective sanctioning Authority
11. Loans and advances on the security of UCO Bank‟s shares and for the purpose of
purchase/subscription to public issues of UCO Bank‟s shares.
3.12 Statutory and Regulatory Restrictions
The Bank will ensure compliance with the guidelines issued by RBI from time to time in
the matter.
Statutory restrictions:
a) Advances against Bank‟s own shares.

b) Advances to Bank‟s Directors.
c) Restrictions on holding shares in Companies.
d) Restrictions on Credit to Companies for Buy-back of their securities.
Regulatory Restrictions:
a) Granting Loans and Advances to relatives of Directors.

b) Restrictions on Grant of Loans and Advances to the relatives of senior Officers of
Banks.
c) Restrictions on grant of financial assistance to Industries producing/ Consuming
Ozone Depleting Substances (ODS).
d) Restrictions on Advances against Sensitive Commodities under Selective Credit
Control (SCC).
e) Restriction on payment of commission to staff members including officers. But
incentive / prize for achieving targets will not be covered under this restriction.
Restrictions on other Loans and advances:
Loans/Advances/Exposures covering following areas should comply with the extant

directives of regulatory authority.
a) Loans and advances against Shares, Debentures & Bonds-
Following restrictions are applicable on grant of loans and advances against

shares and debentures:
- No loan to be granted against partly paid shares.
- No loan to be granted to partnership/proprietorship concerns against the
primary security of shares and debentures.
- Banks and their subsidiaries should not undertake financing of “Badla”
transactions.
b) Advances against Money Market Mutual Funds-
Bank is required to take necessary clearance from RBI for undertaking this
additional activity before approaching SEBI for registration. Banks are to be guided
by SEBI Regulations in this regard. Guidelines issued by Reserve Bank of India have
since been withdrawn.
c) Advances against Fixed Deposit Receipts issued by other Banks:

Bank should desist from sanctioning advances against FDRs, or other term deposits
of other banks.
d) Advances to Agents/ Intermediaries for Deposit Mobilization-
Bank should desist from being party to unethical practices of raising of resources
through agents/intermediaries to meet the credit needs of the existing/prospective
borrowers or from granting loans to the intermediaries, based on the consideration
of deposit mobilization, who may not require the funds for their genuine business
requirements.
e) Loans against Certificate of Deposits (CDs)-
Bank may lend against CDs and buy back their own CDs only in respect of CDs
held by mutual funds, subject to the provisions of paragraph 44(2) of the SEBI
(Mutual Funds) Regulations, 1996.
Further, such finance if extended to equity-oriented mutual funds will form part of
banks‟ capital market exposure, as hitherto.
f) Finance for and Loans/Advances against Indian Depository Receipts (IDRs)-
Bank shall not grant any loan / advance for subscription to Indian Depository
Receipts (IDRs). Further, Bank shall not grant any loan / advance against security /
collateral of IDRs issued in India.
g) Housing Projects-
For Housing Projects, apart from compliance of the Board approved policy for
housing finance, the following additional conditions are to be stipulated as a part
of the terms and conditions while financing specific housing/development
projects:
(i) The builder/developer/company would disclose in the Pamphlets/Brochures

etc., the name(s) of the bank(s) to which the property is mortgaged.
(ii) The builder/developer/company would append the information relating to

mortgage while purchasing advertisement of a particular scheme in
newspaper/magazines etc.
(iii) The builder/developer/company would indicate in their

pamphlets/brochures, that they would provide No Objection Certificate
(NOC) / permission of the mortgage bank for sale of flats /property, if
required.
Bank shall ensure compliance of the above terms and conditions and funds should
not be released the builder/developers/company fulfills the above requirement.
h) Issue of Bank Guarantees in favour of financial institutions-

Bank may issue guarantees favouring other banks/FIs/other lending agencies for
the loans extended by the latter, subject to strict compliance with the RBI
guidelines from time to time.
i) Grant of Loans for acquisition of Kisan Vikas Patras (KVPs)-
No loans shall be sanctioned for acquisition of Small Savings Instruments Including

Kisan Vikas Patra.
j) 7% Savings Bonds 2002, 6.5% Savings Bonds 2003 (Non-taxable) & 8% Savings
(Taxable Bonds 2003-Collateral facility-
Government of India has allowed pledge or hypothecation or lien of the bonds

issued under captioned schemes as collateral for obtaining loans from scheduled
banks. Accordingly, branches are advised to facilitate extension of collateral
facility and it may be noted that collateral facility is available only for the loans
extended to the holders of the bonds and, as such, the facility is not available in
respect of the loans extended to third parties.
k) Guidelines on Settlement of Non-Performing Assets –
Obtaining Consent Decree from Court- Branches to invariably ensure that once a
case is filed before a Court / DRT / BIFR, any settlement arrived at with the borrower
is subject to obtaining a consent decree from the Court /DRT/BIFR concerned.
l) Bridge Loans against receivables from Government-
Branches should not extend bridge loans against amounts receivables from
Central/State Governments by way of subsidies; refund reimbursements, capital
contributions etc. except in cases permitted by RBI.
There are also certain restrictive provisions on Bank Finance to Non-bank financial
Companies (NBFCs), Financing of Infrastructure, Discounting /rediscounting of Bills by
banks, Advances against Bullion/primary gold / Gold (Metal) loans, Advances against
Gold Ornaments & Jewellery, Loans and advances to Real Estate Sector, Loans and
advances to medium and small-scale industries, Loan system for delivery of Bank Credit,
Lending under Consortium Arrangement/ Joint Lending Arrangement, Working Capital
Finance to Information technology & Software Industry, Guidelines for Bank Finance for
PSU Disinvestments of Govt. of India, Grant of Loans for acquisition of Kisan Vikas Patras
(KVPs)&Project Finance, which are given in Chapter 7 of Loan Policy Document.
In addition, the following directives may be adhered to:
1) Loans & advances to Bank‟s Directors:
Section 20(1) of Banking Regulation Act 1949 lays down restrictions on loans and
advances to the directors and the concerns in which they hold substantial interest.
Accordingly, the proposals should be sent to the Secretary to Board, for necessary
clearance before taking up the proposal. Such proposals have a reporting/clearance

requirement either from Reserve Bank of India or from Board of Directors. The bank will
ensure compliance with the guidelines issued by RBI from time to time in this regard.
2) Loans & advances to Relatives of directors/Lending to directors and their relatives on

reciprocal basis.
Every borrower should furnish a declaration -
 (where the borrower is an individual) he is not a director or specified near relation of

director of a banking company;
 (where the borrower is a partnership firm) none of its partners is a director or
specified near relation of a director of a banking company; and
 (Where the borrower is a joint stock company) none of its directors is a director or
specified near relation of a director of a banking company.
Where the declaration in respect of the above is in affirmative, the proposal shall be
dealt with in the following manner:
I. Loans and advances aggregating Rs.25 lacs& above to Directors including MD&
CEO of other banks, relative of Bank‟s own MD & CEO or other Directors, Relatives of
MD & CEO or other Directors of other banks etc. are to be sanctioned by the MCB.
II. The proposal for credit facility for an amount aggregating less than Rs.25 lacs to the
above types of borrowers may be sanctioned by the appropriate authority under
their delegated power but the same will be reported to the MCB.
Note:
These stipulations would also apply to Directors of Scheduled Co-operative Banks and
their relatives, Directors of subsidiaries/ Trustees of Mutual Funds/ Venture Capital Funds
set up by the financing banks or other banks.
3. Loan and advances to Staff and relatives of senior Officers:
Every Borrower should furnish a declaration:
 (where the borrower is an individual) he is not a specified near relation of any senior
officer of the Bank;
 (where the borrower is a partnership firm or HUF firm) none of partners or none of the
members of HUF is a specified near relation of any senior officer of the Bank; and
 (Where the borrower is a joint stock company) none of its directors is a specified
near relation of any senior officer of the Bank.
In case of senior officer or their relatives where the declaration is affirmative, the
proposals other than Retail/MSME should be sent to the General Manager, Credit for
necessary pre sanction clearance before taking up the proposal. Such proposals to be
reported to Board of Directors on quarterly basis.

The term „relative‟ shall include:
 Spouse
 Father
 Mother (including step-mother)
 Son (including step-son)
 Son‟s wife
 Daughter (including step-daughter)
 Daughter‟s Husband
 Brother (including step-brother)
 Brother‟s wife
 Sister (including step-sister)
 Sister‟s husband
 Brother (including step-brother) of the spouse
 Sister (including step-sister) of the spouse
The term „senior officer‟ will refer to any officer in senior management level in Grade IV
and above in the Bank.
Minimum sanctioning Authority shall be ZLCC for sanctioning the Loan proposals of staffs
and their relatives
Loans under Staff Welfare Scheme shall be sanctioned as per the respective Staff
Welfare Schemes.
Loans under Retail & MSME Scheme shall be sanctioned as per the guidelines issued by
Retail & MSME Dept, HO.
No officer/ Sanctioning Authority or any Committee/ comprising, inter alia, an officer as

member, shall exercise powers of sanction of any credit facility to himself or his/her
relative.
Note: In respect of the items 1, 2 and 3 above
(A) The following credit facilities will not fall under the above restrictions:
a) Loans and advances against Government securities, Life Insurance Policies,

Stocks & Shares, Fixed or other deposits.
b) Temporary overdrafts for small amount i.e. upto Rs.25,000/-
c) Casual purchase of cheques upto Rs.15000/- at a time.
d) Loans and advances under retail schematic lending subject to fulfillment of
all parameters prescribed under scheme.

(B) It is provided further that if the declaration made by borrower with reference to the
above is found to be false then Bank shall, forthwith, recall the credit facility.
3) Restrictions on Grant of Financial Assistance to Industries Producing / Consuming

Ozone Depleting Substances (ODS):
Bank shall not extend finance for setting up of new units consuming/producing the
Ozone Depleting Substances (ODS).
No financial assistance should be extended to small/medium scale units engaged in

the manufacture of the aerosol units using chlorofluorocarbons (CFC) and no refinance
would be extended to any project assisted in this sector.

CHAPTER- 4
POLICY DIRECTIVES ON CREDIT RATINGAND SCORE CARD MODELS
4.1 Rating of accounts
Rating has to be assigned to all the Credit accounts with the Bank in terms of the
guidelines prescribed for the purpose. In addition, credit portfolio of the branches, Zones
and the Bank as a whole are also to be rated.
Ratings of accounts having exposure upto Rs 25 lacs and those under retail segment
irrespective of their exposure are determined based on aggregate default performance
of group of similar accounts (pooled assets). For example, all accounts under „UCO
Home Loan‟ may have one rating assigned to it. All accounts under this category would
be assigned the said rating. Classification of all accounts having exposure of Rs 25 lacs
and below into various asset pools and their respective rating would be communicated
by Head Office, Risk Management Department over a period of time.
Portfolio rating of the entire credit exposure at branches, Zones and the Bank as a whole
is determined based on weighted average rating (based on outstanding balance as
well as limit sanctioned) of all credit accounts at branches, Zones and Bank as a whole
respectively.
Portfolio rating of the entire credit exposure at branches, Zones and the Bank as a whole
is determined based on weighted average rating (based on outstanding balance as
well as limit sanctioned) of all credit accounts at branches, Zones and Bank as a whole
respectively.
As per bank‟s extant guidelines internal credit rating is required for advance accounts
having exposure above Rs 25 lacs (other than Schematic and Retail loans). The loans to
Agriculture and MSE borrowers having exposure up to Rs.1.00 crore are also kept out of
the purview of rating guidelines.
In the Policy document wherever External Rating has been referred it includes (+) and (-)
of that particular rating.
In case of proposals covered under CGTMSE above Rs 50 lac and upto Rs 200 lac will
also have to be internally rated as per extant guideline.
In case of UCO Trader scheme, rating is to be done as under:
a) For proposals upto Rs 100.00 lacs internal credit rating is not required. Pricing of the
proposals shall continue to be done as per interest rate applicable to the scheme.
Acceptability of the proposals will be based on the scoring under score card model.
b) For proposals beyond Rs 100.00 lacs the internal credit rating is mandatory. Pricing and
acceptability of the proposal will be based on the internal rating as per Bank‟s credit
rating model.

4.1.1 Aggregate FB and NFB limit upto Rs.25 lac:
Accounts with aggregate FB & NFB limit upto Rs.25 lac and those under retail segment
except „UCO Trader‟ scheme would be rated on portfolio basis.
4.1.2 Enhanced Credit Rating Models
Existing credit rating models have been calibrated, rechristened and also new risk
drivers/parameters having high default predictive power have been added to make
the models more robust.
Salient Features of the models:
 Keeping in view the Basel II guidelines, two dimensional rating has been introduced
i.e. obligor rating and facility rating in Enhanced Credit rating Models.
 Total 8 models have been developed. Description and usage criteria of the
Enhanced Credit Rating Models is given below:
S No Model Description Usage Criteria

1. Large Corporate Borrowers Applicable to borrower having Average Turnover
(LC) for last three years above Rs.500 crores.
2. Mid Corporate Borrowers Applicable to borrower having Average Turnover
(MC) for last three years above Rs.100 crores and up to
Rs.500 crores.
3. Small Corporate Borrowers Applicable to borrower having Average Turnover
(SC) for last three years up to Rs.100 crore
4. Greenfield Project (GFP) Applicable to new projects (started by a new
company having no past financial or a project by
an existing company where proposed investment
is more than 50% of the tangible net worth of the
company) having proposed investment more
than MSME investment ceiling.
5. Greenfield Account (GFA) Applicable to new borrower accounts, having no
past financials and track record & having
proposed investment within MSME investment
ceiling.
6. Commercial Real Estate Irrespective of exposure
(CRE)
7. NBFCs Irrespective of exposure
8. Facility Rating Model Applicable for all accounts where credit rating is
to be done

The rating scale and nomenclature will be as under:
1. Large Corporate Model (LC)
Weighted Score Rating as per Enhanced

credit rating models
>=80 UCO 1
>=70 < 80 UCO 2
>=62.5 < 70 UCO 3
>=55 < 62.5 UCO 4
>=50 < 55 UCO 5
>=45 < 50 UCO 6
Less than 45 UCO 7
2. Mid Corporate Model

>=85 UCO 1
>=80 < 85 UCO 2
>=75 < 80 UCO 3
>=65 < 75 UCO 4
>=55 < 65 UCO 5
>=50 < 55 UCO 6
Less than 50 UCO 7
3. Small Corporate Model

>=85 UCO 1
>=80 < 85 UCO 2
>=75 < 80 UCO 3
>=65 < 75 UCO 4
>=55 < 65 UCO 5
>=50 < 55 UCO 6
Less than 50 UCO 7

3. NBFC Model

>=76 UCO 1
>=65 < 76 UCO 2
>=55 < 65 UCO 3
>=50 < 55 UCO 4
>=45 < 50 UCO 5
>=40 < 45 UCO 6
Less than 40 UCO 7
 In Greenfield Project/ Accounts, the rating grade will vary from UCO 2 to UCO 7;
there will be no rating of “UCO 1”.
 The Enhanced rating models capture four main risks viz financial risk, management
risk, business risk and industry risk as against only three risks captured in existing rating
models.
 The investment grade rating in Enhanced model will be UCO 5.
 Credit rating of the account shall be done by the originating branch and then the
same shall be sent to the Zonal Office for vetting. Zonal Office shall award rating in
respect of loans sanctioned upto Zonal Office level and Head Office, Risk
Management Department, for all loans sanctioned at the Head Office level. The
rating awarded by Zonal Office and/or Head Office only shall be treated as final
rating.
Applicability of the Models:
The Enhanced Credit Rating Models shall be used for rating of advances having
exposure above Rs.25 lacs(other than Schematic loans, Agriculture & MSE loans
uptoRs.1.00 crore and Retail loans) depending upon the nature of activity and turnover
in account. All loans & advances under Schematic, Retail, and Agriculture& MSE
segments up to Rs.1.00 crore have been covered under Score card models.
No rating models shall be required for the following types of advances:
(i) Loans against Bank‟s own term deposits;

(ii) Staff Loans;
(iii) Gold Loans
(iv) UCO securities Scheme.
(v) Duly accepted Discounting of Bills under LC
All these shall be assigned “UCO 1” rating.

4.1.3 Rating of NBFCs: with FB and NFB limit of Rs.25 lacs & above.
One rating model for all types of NBFCs and for companies akin to NBFCs has been
introduced.
4.1.4 Provision of awarding Bonus marks:
In respect to following activities, the rating officers is authorised to add bonus marks in
the following manner to obtain the final score
 3 Marks, for boosting Priority Sector advances, if the advance falls under Priority
Sector category and
 2 Marks for boosting clean energy (Solar and wind power projects) / units using any
special energy friendly technology (e.g. Electronic waste recycling, Storage and
Disposal Facilities facility for toxic waste, Usage of non-conventional energy sources,
Steps taken to control emissions of GHGs (Green House Gases) etc.
4.1.5 Quarterly Monitoring of Rating of Accounts in the Private Sector having Short Term
Unsecured Exposure of Rs.100 Crore and above
In order to have better control on unsecured exposure, the credit ratings of the
accounts pertaining to short term unsecured exposure of Rs.100 crore and above to
private companies in FC segment would be re-drawn on quarterly basis, on the strength
of latest available information on their financials and conduct.
4.1.6 Rating Nomenclature and its meaning:
Rating carried out by using the above models shall have the following meaning of the
rating nomenclature used.
Rating Meaning
Nomenclature Working Capital Finance Term/Project Finance
UCO 1 Indicates high position of Indicates high position of
(Negligible Risk) sustainable strength- absolute as sustainable strength- absolute as
well as relative over short to well as relative over medium term
medium term
UCO 2 Indicates high position of Indicates high position of strength
(Very Low Risk) strength at relative level over at relative level over medium
short to medium term term
UCO 3 Indicates moderate degree of Indicates moderate degree of

(Low Risk) strength at relative level over strength at relative level over
short to medium term medium term
UCO 4 Indicates moderate degree of Indicates moderate degree of
(Medium Risk) strength with marginally strength with marginally uncertain
uncertain stability over short to stability over medium term
medium term

UCO 5 Indicates low degree of strength Indicates low degree of strength
(Medium Risk) with uncertain stability over a with uncertain stability over short
period of one to two years to medium term
UCO 6 Indicates very low degree of Indicates very low degree of
(High Risk) strength with uncertain stability strength with uncertain stability
over a period of one to two over short to medium term
years
UCO 7 Indicates fundamental Indicates fundamental weakness
(High Risk) weakness likely to affect likely to affect performance in
performance in near future near future
4.1.7 Other guidelines:
Rating would be determined on the basis of scores in Management Risk, Financial Risk,
Industry Risk and Business Risk based on audited balance sheet/ financial statements as
at the end of the immediate preceding financial year.
In rating of green field accounts/projects the assessment of rating would be based on

available information and projections.
In rating accounts, apart from management rating, financial rating and business rating,
industry rating is also to be taken into account. Industry score as a proxy for industry
rating shall be made available by Risk Management Department by way of issuing
periodical circulars.
4.1.8 Validity of Internal Credit Rating:
Internal Rating shall be Valid for 15 months from the date of rating or till the next date of
review/renewal whichever is later.
4.1.9 External Credit Rating:
Fresh sanction / enhancement in existing accounts in respect of non-retail exposures

(exposure of Rs 5 Crore and above) shall be as under:
i. For fresh exposure , borrowers have a credit rating of BBB or above

ii. For enhancement of pre-existing exposure:
 Borrowers have a external credit rating of BBB or above , or
 There has been no downgrade in external credit rating since the last
sanction
Provided that additional exposures may also be taken in such accounts for which
resolution is approved in accordance with Resolution Plan approved as per RBI
stress resolution framework.
In respect of borrower having exposure above Rs 5 Crore for fresh/ enhancement,

permission for deviation from existing external Credit Rating guidelines, may be given by
MCB based on merit of the proposal.

4.2 Rating and Rating Review:
To ensure greater accuracy, objectivity and consistency of the ratings assigned, the
Bank has introduced Centralized Credit Rating System as stated below:
1) Credit Rating Officers, posted at Zonal Office will operate under the direct
administrative control of Head Office, Risk Management Department and will vet
the credit ratings of all accounts done by the Branches/ Hubs/ Zonal Office which
are falling upto the sanctioning powers of ZLCC. In cases of proposals emanating
from FC Branches irrespective of exposure, vetting shall be done by Head Office,
Risk Management Department.
2) A dedicated Rating Cell under Risk Management Department, Head Office will
vet the ratings of all accounts to be sanctioned at Head Office and FC Branches.
Corporate Departments at Head Office will continue to get the rating done by
the loan originating branches / offices and submit the original rating sheet
received from them to Risk Management Department for vetting.
3) The Rating Cell at Risk Management Department, Head Office will review all the
ratings assigned to accounts sanctioned by ZLCC and will review randomly 20%
of the ratings (Accounts sanctioned by Branches/Hubs) vetted by the Credit
Rating Officers posted at Zonal Office.
4) The ratings vetted by the designated Rating Officers posted at Zonal Offices and
the Rating Cell at Head Office will be treated as the final rating and loan pricing
shall be determined accordingly.
5) Credit Rating Officer will send a copy of the rating sheet along with relevant
papers / documents in respect of the rating assigned to accounts falling under
the power of ZLCC to the Rating Cell at Risk Management Department, Head
Office for review of the rating assigned. Relevant papers / documents include
process note, audited financial statements for the relevant year(s), MCMR in
respect of the existing account, project report in respect of Greenfield account /
project.
6) In case of rating of accounts sanctioned by Branches / Hubs, Credit Rating
Officer will send a list of accounts, rating of which has been vetted by him during
the quarter, to the Rating Cell at Risk Management Department, Head Office
within 15 days from the end of the quarter for random review.
7) Rating should be preferably discussed with borrower for transparency of work.
8) In case of grievances/ different opinion about the rating at any level, the matter
will be referred to In-charge Risk Management Department, Head Office who will
take the final decision in the matter in consultation with General Manager, Credit
Monitoring and General Manager, Corporate Credit at Head Office and such
decisions shall be duly recorded.
9) Credit rating vetted by HO Risk Management Department in respect of Head
Office controlled accounts will be audited by Inspection Dept. on an ongoing
basis.

10) Rating Migration to be done on Quarterly basis and the same is to be placed
before the RMCB.
Note: Credit ratings carried out by the persons associated with credit appraisal/sanction
process would be treated as „Unauthorized‟ and the sanctioning authorities may not
exercise their discretionary powers relating to loans and advances based on such
„unauthorized‟ credit ratings.
4.3 Rating Based Action Points:
4.3.1 Review and Renewal of accounts:
Short review in accounts, having below investment grade internal rating, should be
carried out every 6 month with emphasis on operations and primary securities. In other
accounts including Term Loans, annual review/renewal exercise should be carried out.
4.3.2 Pricing:
The ratings vetted by the designated Credit Rating Officers posted at Zonal Offices and
the Rating Cell at Head Office will be treated as the final rating and loan pricing shall be
determined accordingly.
On review of rating by HO Risk Management Department the pricing may require

revision. In such cases, the branch will put up a review note to the sanctioning authority
/ committee, incorporating the revision of credit rating and other relevant particulars for
taking decision on revision in pricing. Such note to be submitted by the branch within 15
days from the date of receipt of revised credit rating from Head Office Risk
Management Department.
4.3.3 Concessionary Rate of Interest:
In permitting concessionary rate of interest, the competent authority will use the rating
assigned by Credit Rating Officer at Zonal office or rating assigned / reviewed by Risk
Management Department, Head Office as the case may be. Power for allowing
concession in rate of interest shall be in accordance with the provision contained in
section 6.8.
4.4 Portfolio Rating:
Portfolio Rating (Exposure) is the weighted average of rating-wise exposure (i.e., total
limits, fund based as well as non-fund based). Similarly, Portfolio rating (Outstanding) is
the weighted average of rating-wise outstanding balances (i.e. total outstanding, both
fund based and non-fund based). Portfolio ratings are a major determinant of portfolio
quality and it needs to be monitored. Portfolio rating also provides an indication of
available risk appetite of the Bank and can be used to optimize return on the credit
portfolio. Accordingly, it is desirable that this is tracked on a regular basis.
Rating-wise exposure volume in respect of all the operating units i.e. Branches/ Zones
including Corporate Credit should be directed in a manner so that qualitative

improvement in portfolio is achieved. BS-28 (revised) format may be used to assess the
improvement effected in the credit portfolio.
For this purpose all branches are required to submit BS-28 relating to rating-wise limits
and outstanding to their respective Zonal Offices. Zonal Office will submit the
consolidated to Head office Risk Management Department.
The Bank shall endeavor to achieve rating wise credit portfolio distribution as under:
 Investment Grade & Above: Min 80% of Credit portfolio.
 Non-Investment Grade & Below: Max 20% of Credit portfolio.
4.5 Score Card Models

Bank has developed 19 Score Card models for standardizing & bringing uniformity to its
sanctioning processes under Retail, Agriculture & MSE lending. Processing of loans under
Score Card models is a technique combining several financial characteristics to form a
single score to access borrower‟s credit worthiness. The scores obtained predict the
willingness of the borrower to pay in a timely manner.
Description of 20 Score Card Models are given below:
The Score Card models developed for the 20 Credit products along with their usage
criteria are given hereunder:
S No. Model Description Usage Criteria

1 Home Loan
2 Vehicle Loan
3 Personal Loan
4 Education Loan Irrespective of exposure
5 Mortgage Loan
6 UCO Rent
7 Commercial Vehicle Loan Scheme
8 Trader Loan (Including UCO Trader)
9 MSE Manufacturing
10 MSE Services
11 Fruit, Plantation and Perennial Crops Loan
12 Crop Loans
13 Dairy Loans
Exposure up to Rs.1 crore
14 Poultry Loans
15 Fishery Loans
16 Piggery Loans
17 Farm Mechanization Loans
18 Minor Irrigation and Land Development Loan
19 Indirect Agriculture (New Accounts)
20 Indirect Agriculture (Existing Accounts)

Decision Rules for sanctioning credit proposals:
The Credit Scoring models shall give different scores to each applicant and based on
the credit scores the decision will be arrived at which may be in the form of immediate
Approval/Decline/Grey areas. Approvals escalate to disbursement stage, Declines are
knocked off and proposals falling under Grey areas shall require additional
assessment/review in greater depth. The cut-off score and decision rule are given
hereunder:
I. In case the weighted score of any borrower falls under White Zone, the proposal is
considered as accepted and shall be sanctioned by the Delegated Authority
within his sanctioning power.
II. In case the weighted score falls under Dark Zone, the proposal would be
considered as Rejected.
III. In case the weighted score falls under Grey Zone, it means the proposals is neither
unqualified „Yes‟ nor unqualified „No‟ and as such shall be referred to the Next
Higher Authority i.e. ZLCC who shall take decision based on the merit of the
particular case.
IV. In exceptional cases, ZLCC may also sanction even the proposal falling under Dark
Zone. However, the cogent and specific reasons are to be recorded while
sanctioning such proposals.
V. The proposals under Government sponsored schemes which fall under Grey and
Dark Zones would invariably be referred by the branches to their respective Zonal
Offices for decision.
Detailed Guidelines: The extant guidelines on score card models and credit rating
models are being circulated separately in Chapter 12 and 13 of Part B of Loan Policy
Document - 2019.

CHAPTER – 5
POLICY DIRECTIVES ON CREDIT DISPENSATION
Credit dispensation shall be carried out at all levels, by those assigned with the
responsibility, within the ambit of Loan Policy, extant directives of the Bank, RBI and other
relevant authorities. Unless specifically authorized credit decisions shall be in
accordance with the guidelines and authority delegated. Roles and responsibility in the
matter of credit administration would be in accordance with, what has been provided
in Bank‟s Policy Guidelines in force and any amendment thereto.
5.1 Credit sanction processes

5.1.1 Existing Accounts
Credit sanction process of existing accounts shall include-
 Review/Renewal/Enhancement of limit in existing accounts within due date and as

far as applicable, with due regard to, among others, conduct of the account,
performance and financial position of the unit, movement of critical ratios,
marketing ability and demand and variations in projected and actual performance.
 Assessment of Credit rating, where applicable.
5.1.2 New Accounts – Standardized Products
Sanction in new accounts shall be in accordance with the schemes designed and
circulated for the relevant product.
5.1.3 New Accounts – Other than Standardized Products
Sanction of new accounts would follow due diligence on promoters and line of business
and be in accordance with Prudential Guidelines. New accounts should, in general, be
marketed in the Thrust Areas identified.
5.1.4 Sanctioning Authority/ Committee at different levels:
Bank has constituted Credit Approval Committees (CACs) at Head Office level, and
Zonal Office level with different lending powers and power to approve sacrifice in case
of compromise settlement, prudential write off and write off in ML accounts. With the
setting up of the committees, delegated powers to individual officers above branch
level, with regard to lending and compromise /write off proposals would cease to exist.
However, the powers to recommend the proposal for the consideration of competent
committee shall remain with the individual officers.
Proposal falling under the power of ZLCC, Zonal head should study the proposal and
clear the same for placing before ZLCC in the prescribed Format.
Constitution of CACs at different levels and other provisions as per extant guidelines are
being circulated separately in Chapter 8 of Part B of Loan Policy Document - 2019

5.1.4.1. Validity of Sanction:
Communication of the sanction by the branch to the borrower may take some time
when the same is sanctioned by Higher Authority. Further borrower is also required to
complete some formalities and take the necessary action for fulfilling pre-disbursement
conditions such as tie-up, passing resolutions, obtaining clearance from different
authorities, security creation etc. In case of Project loan, it may take some time to get
the statutory approvals including land clearance and achieving financial closure.
In view of the above, Bank shall follow guidelines as stated below:
(i) All sanctions must carry specific condition in the Sanction Advice with regard
to validity of the sanction namely – the sanction of the facilities is valid for a
maximum period of 180 days for working capital advances as well as Term
Loan from the date of sanction within which the documentation needs to be
completed and first disbursement to be taken place. Further if the drawdown
schedule is beyond 180 days, then disbursement will be made as per
drawdown schedule.
(ii) Revalidation should be done only once i.e for a further period of 90 days only
and thereafter the sanction should be treated as lapsed.
(iii) Any request for second time re-validation should not be entertained as
a matter of routine and the proposal should be taken up for fresh
processing thereafter. Total period including revalidation period should
not be more than 180 days plus 90 days i.e. 270 days from the date of
original sanction or drawdown schedule whichever is later. Fresh
proposal for approval needs to be obtained after expiry of period
(iv) In case of term loan if revalidated drawdown schedule falls beyond one year
from the date of sanction then review from competent authority is required
before disbursement stating the reason for delay.
(v) In case of Retail and Schematic Loan, Validity of Sanction/Revalidation

shall be as per norms given in the respective Scheme.
5.1.5 Looping System
The following guidelines in respect of looping of will be applicable-
A. Proposals under the delegated authority of Zonal Office level Credit Approval
Committee (ZLCC): Proposals which fall under the delegated authority of Zonal
Office level Credit Approval Committee (ZLCC) will be recommended by the Head
of the Branch from which the proposal originated.
B. Proposals under the delegated authority of Board level Credit Approval Committee
(HLCAC-II/HLCAC-I /BLCAC)/MCB:
The originating branch will submit the proposal to Head Office, Corporate Credit
Department with recommendation of the Branch Head and will endorse the copies
of the proposals to the Zonal Office. Zonal Head will submit their recommendation/
comments to Corporate Credit Department within 15 days of receipt of such
proposal from the branch.

Under Looping System, recommendation of Branch Head / Zonal Head is
mandatory.
In case no recommendation/comments received from the ZM within 15 days, it

shall be treated as deemed recommended.
In case of FC Branches, the recommending authority should be AGM or above.
FCC Branches should handle the proposal having exposure Rs 40 Crore and above.
For sanctioning of proposals below Rs 40 Cr, permission has to be taken from G M, Credit
Dept, HO on case to case basis.
Existing portfolio below Rs 40 Crore, if any, shall continue.
Exceptions:
FCC branches will submit their proposals directly to concerned corporate department
at Head Office. Recommendation of Zonal Head is not necessary.
5.1.6 Clearance by New Business Committee (NBC)

NBC will give clearance on the group behind the units and the line of business for further
processing for all credit proposals for new units/existing units diversifying into different
line of activities. All clearances given by New Business Committee will be valid for a
maximum period of 90 days only and thereafter the proposals will have to be re-
submitted to NBC to obtain fresh clearance.
NBC Clearance may be communicated to the customer stating that it is only an in-
principle clearance for accepting the proposal for detail appraisal and doesn‟t amount
to sanction.
Constitution of NBCs at different levels and other provisions as per extant guidelines are
being circulated separately in Chapter 7 of Part B of Loan Policy Document - 2019.
5.1.7 Risk Evaluation by Credit Appraisal Grid/s:
For the purpose of risk evaluation of credit proposals – both domestic and foreign,
Committees christened as „Credit Appraisal Grids‟ have been constituted at Head
Office and Zonal Office levels for vetting credit proposals ( for Fresh Exposure or
enhancement ) from risk angle, falling within the delegated authority of Credit Approval
Committees at Head Office & Zonal Office respectively.
In case of CAG-I at Head Office, the presence of Chief Risk Officer (CRO) or in his
absence Alternate GM/DGM/2nd in command is mandatory. Similarly in case of CAG-II
at Head office, the presence of DGM or in his absence senior most AGM is mandatory.
In case of CAG at Zonal, the existing constitution shall continue.
Constitution of CAGs at different levels and other provisions as per extant guidelines are
being circulated separately in Chapter 8 of Part B of Loan Policy Document - 2019.

5.2 Mandatory Components of Sanction Processes
 Recording of Loan proposal in Loan Application received sanctioned/ disposed
register.
 Reporting to next higher authority in prescribed format.
 Communicating sanction with terms and conditions to borrowers and obtaining
their consent.
 Creating/updating party file with relevant records, process notes and related
correspondence, papers etc.
 Master data of all new / renewed loan accounts shall be checked either by
Concurrent Auditor or Inspecting Officers or any officer deputed by Zonal Office.
5.3 Discretionary Power
Discretionary power for credit dispensation will be used:
 by the delegatee authorized for the purpose,

 for borrowers within the command area (defined below),
 as per the guidelines and
 Within the ceiling prescribed in operational guidelines and delegation of

authorities for sanction of loans and advances issued from time to time.
(A) Lending Powers of Credit Approval Committees& MCB:
Lending Powers of Credit Approval Committees at Zonal Office, Head Office & MCB are
given below:
(Amt Rs. in crore)
Name of ZLCC HLCAC 2 HLCAC 1 BLCAC MCB
Committee
Committee AGM DGM GM GM ED MD &
headed by / (Zonal (Zonal (Zonal CEO
Lending Powers Head) Head) Head)
(A) Single
Borrower
Secured 15 20 40 60 100 250 Proposals,
(Unsecured )* beyond
(5) (7.50) (15) (20) (100) (250)
the power
(B) Group of BLCAC,
Borrower shall be
Secured sanctione
15 20 80 120 200 500
(Unsecured) * d by MCB.
(5) (7.50) (15) (40) (200) (500)
(C ) Total Limit not MCB shall
to exceed have full
(a) Single Borrower 15 20 40 60 100 250 power.
(b) Group
Borrower 15 20 80 120 200 500

* Unsecured exposure includes fully unsecured / unsecured portion of partly secured exposure.
Note:
Lending powers of committees as above are applicable for sanction/ review/ renewal
of Credit proposals.
Zonal Head should study the proposal and clear the same for placing before the ZLCC.
ZLCC may exercise 20% higher discretionary power in respect of accounts having
internal credit rating UCO 2 and above & External Credit Rating should be BBB or above
wherever applicable.
Where a higher authority sanctions a particular facility to a borrower or any borrower

belonging to a group, and when the borrower or any borrower belonging to the same
group subsequently requires another /additional limit which falls within the delegated
powers of a lower authority, the lower authority shall not exercise its powers but forward
the proposal to the same authority for consideration.
All Credit Approval Committees will have full powers for allowing discounting/
negotiation of bills under Prime bank‟s (Indian and Foreign banks) Letter of Credit
outside aggregate delegated powers. However, power of different CACs for allowing
discounting / negotiation of bills under Inland Letter of Credits before acceptance shall
be in accordance with the provision given in Point No. C(iii) below.
(B) Lending Powers of Branch Heads in Scale IV to VI

(Amt. Rs. in Crore)
Revised
Per Single/ Group Borrower Branch Head in Scale
(IV) (V) (VI) (VII)
A Aggregate FB and NFB limit 1.50 5.00 10.00 20.00
Out of A
B Secured FB/ NFB Limit 1.50 5.00 10.00 20.00
C Unsecured / Unsecured portion of partly 0.50 1.50 3.00 6.00

secured FB/NFB limit
Out of B
1. DABP or Discounting of duly accepted 1.50 3.00 8.00 16.00
domestic usance bills
2. Letter of Credit on DA terms 1.50 3.00 8.00 16.00
3. Drawing against cheques sent in clearing or 1.00 3.00 6.00 12.00

for collection / purchase of cheques drawn on
Govt./Semi Govt. Deptts/ Bodies/
Undertakings/ First rated Public Ltd Co./ Bank
Draft
D Clean Overdrafts 0.10 0.25 0.30 1.00

(C) Lending powers for discounting/ negotiation of bills under Letter of Credits:
(i) All Credit Approval Committees will have full powers for allowing discounting/
negotiation of bills under Prime bank‟s (Indian and Foreign banks) Letter of
Credit outside aggregate delegated powers. However, power of different
CACs for allowing discounting / negotiation of bills under Inland Letter of
Credits before acceptance shall be in accordance with the provision given
in Point No. (iii) below.
(ii) Branch Heads in scale IV to VI I shall have under mentioned powers (over
and above the aggregate delegated powers stated herein above) for
discounting / negotiation of bills under Letter of Credits:
(Amt. Rs. in Crore)
Delegated powers Branch Head in scale

IV V VI VII
Max. exposure per borrower 100 100 300 500
Max. amount per transaction 15 25 50 100
(iii) Lending powers for discounting/ negotiation of bills under LCs before
acceptance:
Lending powers of CACs and Branch Heads for discounting/ negotiation of

bills under Inland Letter of Credits before acceptance, within the overall
sanctioning power for bill discounting under LC [as mentioned in point No. (ii)]
shall be as under:
(Amt. Rs. in Crore)
Delegated powers Branch Head in scale

IV V VI VII
Max. exposure per borrower 10 20 50 100
Max. amount per transaction 3 8 15 40
ZLCC headed by AGM /DGM/GM shall have the same power as given to the
Branch Heads in Scale V /VI/VII respectively as indicated in above table.
Exercise of above delegated powers is subject to following conditions:
i. The Letter of Credit must be received through SFMS.
ii. Bills and Documents submitted under the LC for negotiation must be
strictly in conformity with the LC terms.
HLCAC-2 shall have full power for negotiation of bills under LC before
acceptance subject to fulfilment of above conditions.

(D) Lending Powers of Branch Heads in Scale I to III
(Amt.Rs. in lacs)
Lending Powers Branch Head in Scale
Per Single/ Group borrower I II III
A Aggregate FB and NFB limit 10.00 30.00 50.00
Out of A
B Secured FB/NFB Limit 10.00 30.00 50.00
C Unsecured FB/ NFB limit 2.00 5.00 10.00
Sub-limit within Secured FB/NFB (B)
1. DABP or Discounting of duly accepted 2.00 5.00 10.00
domestic usance bills
2. Letter of Credit on DA terms 2.00 5.00 10.00
Sub-limit within Un-Secured FB/NFB (C)
1. Drawing against cheques sent in clearing 1.50 3.00 5.00
or for collection/ purchase of cheques
drawn by Govt. / Semi Govt. deptts/
Bodies/ Undertakings / First rated Public Ltd.
Co./ Bank Drafts
2. Drawing against all other cheques sent in 0.25 0.50 2.00
clearing for collection/ purchase of all
other cheques
3. Clean Overdrafts 0.25 0.50 1.00
Notes
1. Lending powers as stated above shall be applicable to all types of advances.
2. Lending powers with regard to schematic advances under Retail and non-Retail
products shall be governed by the stipulation under the respective scheme.
3. There shall be no power up to the level of Scale III for granting advances against
shares, debentures, units of Mutual funds and securities other than securities covered
under UCO Securities scheme.
4. There shall be no power up to Scale III for granting construction loan to land lords for
leasing premises to Bank.
5. Discretionary Powers for sanctioning of loans and advances (FB & NFB) against bank‟s
own term deposits ( Self / third party) shall be as under:
Branch Head in Scale I Upto Rs 1.00 Cr

Branch Head in Scale II and III Upto Rs 5.00 Cr
Branch head in Scale IV,V & VI Up to Rs 20.00 Cr
FCC Branches headed by Scale V & VI Upto Rs 20.00 Cr
ZLCC Full Power
HLCAC-2 ( For FC Branches) Full Power

Where the fund based and Non fund Based facilities are sanctioned by ZLCC/HLCAC-
1/HLCAC-II/BLCAC/MCB, as the case may be and in those accounts the FB and NFB
facility is allowed by lower sanctioning authority against 100% FDR/Cash Margin as per
the discretionary power mentioned above, same must be placed before the concerned
committee for noting.
The above Lending power for loan against FDR shall be over and above the normal
lending power defined in para 5.3 for various Credit approval committee/MCB/Branch
Heads .
6. Delegation of powers for Letter of Credit for imports/ procurements of capital goods
and Limit for Revolving Letter of Credit will not be exercised below HLCAC-II level even if
backed by 100% margin in the form of Cash and/ or term deposits with our bank.
However, LC for procurement/ import of Capital goods can be sanctioned by ZLCC as
a sub limit of Term Loan sanctioned for the procurement of Capital goods.
7. In case of FLC, LOC, LOU and SBLC, proper arrangement for hedging by forward
contract/ natural hedge must be there to take care of currency fluctuation.
8. Branch Heads shall have power to issue solvency certificate up to their aggregate
lending power to a single unit/ group subject to compliance of extant guidelines.
9. All credit approval committees shall have powers for allowing issuance of solvency
certificates irrespective of any threshold limit subject to compliance of extant guidelines.
10. Limits for Deferred Payment Guarantees (DPGs) for acquisition of fixed assets
including plant and machinery shall be treated at par with fund based limits.
11. Limits for Deferred Payment Guarantees (DPGs)/ Co-acceptance facilities under
IDBI/ ICICI etc. Bills Rediscounting scheme will be treated within delegated powers for
fully secured non fund based limits.
12. Powers of Scale IV and above Branch Heads / Credit Approval Committees for
advance by way of purchase of and drawing against clearing cheques/ instruments
drawn by Government, Semi Government Departments, Bodies and Undertakings and
top rated Public Limited Companies , Bank Drafts, TTs, Pay Orders will be two times of
fund based unsecured delegated powers.
13. Only for the purpose of determining and exercising delegated powers for fully
secured and/ or secured portion of partly secured guarantees , the value of security
taken into account will comprise of-
a. Margin amount held in cash/ FDR
b. The value of immovable properties in the form of land & building exclusively
mortgaged in favour of the Bank. Such valuation must be strictly as per extant guidelines
of the Bank. The delegatee must be fully satisfied that on the basis the above
evaluation, the guarantee shall remain fully secured during the validity period including
the claim period. Although charge/ pari-passu charge / extension of charge over
current assets, movable, immovable plant and machinery and other fixed assets should
be taken as security to cover the guarantee, the same should not be taken into
account for purpose of determining and exercising delegated powers for fully secured
guarantees.

However, BLCAC may sanction Bank guarantee facility against security of current
assets, movable and immovable assets in addition to margin and immovable property
in the form of land and building and the same would be taken into account for the
purpose of determining and exercising delegated powers for fully secured guarantees.
14. For guarantee issued on behalf of share brokers to stock exchanges, in addition to
securities held as margin in cash/ FDR and immovable properties exclusively mortgaged
to the bank in the form of land and buildings, the valuation of Demat shares pledged to
the bank computed in accordance with guidelines of the Bank.
15. Sanctioning of loans under Retail Schemes and MSME Bank‟s Staff and their relative:
A) Retail Loans to Staff Members:
Bank allows staff members to avail Retail Loans under following Schemes:
1) UCO Home
2) UCO Car
3) UCO Two Wheeler
The procedure and sanctioning authority for sanctioning these loans shall be as
under:
a) The Loans under the above Retail Schemes shall be applied by staff members
directly to the branch from where he/she wants to avail the loan. However, the
loan proposals of staff members under the above schemes shall be sanctioned
by sanctioning authority not below ZLCC.
The employee whose Loan proposal is under consideration should not be
involved in the sanction process i.e. raising PSVRs, recommending the proposal to
ZLCC etc. or member of ZLCC for the said Loan Proposal.
b) Loans of ZLCC Head i.e. Zonal Manager will be sanctioned by next level Credit
Approval Committee i.e. HLCAC-II.
c) The procedure and sanctioning authority for loans to staff members under Staff
Welfare Schemes shall continue to be in terms of the guidelines issued by
Personal Services Department of the Bank.
B) Retail Loans to relatives of Staff Members:
Relatives of staff members shall be allowed to avail loans under all Retail Loan schemes.
The procedure and sanctioning authority for Retail Loans to relatives of staff members
shall be as under:
a) The Loans under the Retail Schemes shall be applied by relatives of Bank‟s staff
directly to the branch from where he/she wants to avail the loan. However, the
loan proposals of relatives of Bank‟s staff shall be sanctioned by sanctioning
authority not below ZLCC.
b) The employee whose relative‟s loan proposal is under consideration should not
be involved in the sanction process i.e. raising PSVRs, recommending the
proposal to RLH/ZLCC etc or member of ZLCC for the said Loan Proposal.
c) Loans of relatives of ZLCC Head i.e. Zonal Manager will be sanctioned by next
level Credit Approval Committee i.e. HLCAC-II.

C) MSME Loans to relatives of Staff Members:
a) The MSME Loans shall be applied by relatives of Bank‟s staff directly to the branch
from where he/she wants to avail the loan. However, the MSME Loan Proposals of
relatives of Bank‟s staff are to be sanctioned by sanctioning authority not below
ZLCC.
b) The employee whose Loan proposal is under consideration should not be involved
in the sanction process i.e. raising PSVRs, recommending the proposal to ZLCC etc
or member of ZLCC for the said Loan Proposal.
c) Loans of relatives of ZLCC Head i.e. Zonal Manager will be sanctioned by next
level Credit Approval Committee i.e. HLCAC-II.
d) Loans sanctioned to relatives of Senior Staff (Scale-IV and above) under MSME,
shall be reported to Head Office, Retail Banking & MSME Department on quarterly
basis for onward submission to Board of Directors.
16. Exercise of Lending power by the Branch Heads/Zonal Heads six months before
retirement:
While exercising Lending Power by Branch Heads /Zonal Heads, the following guidelines to
be adhered to:
I. Branch Heads retiring within 6 Months, should exercise Lending Power jointly with
the Asst. Branch Head.
The retirement position of Branch Heads, retiring within 6 months , to be reviewed
by Zonal Head on monthly basis and ensure the above compliance.
II. In case of Zonal Heads, exercise of any Lending Powers shall be by ZLCC only.
Other Provisions:
5.3.1 Guidelines for allowing excess over sanctioned limits and delegation of authority for
exercising emergency lending powers:
(a) When the exposure level (inclusive of the proposed requirement) is beyond the
sanctioning authority of the Branch Head:
Where advance/facility in excess of the limit is required to be allowed to meet the urgent
requirement of the borrower, the appropriate Executive depending on the authority level of
the Credit Approval Committee under whose Jurisdiction the exposure level (Inclusive of
the proposed requirement) falls, will be contacted through Letter/Email/ Fax and obtain
approval from the authority.
Such permission shall be given by the Head of the committee within their respective
lending power and In case of HLCAC-II, General Manager (Credit) shall give the
permission.
Permission so given will require subsequent ratification from ZLCC/HLCAC-1/HLCAC-II/

BLCAC/MCB as the case may be.
In such cases, advance/facility in excess of the sanctioned limit may be permitted purely
on temporary basis up to 10% of total sanctioned limit(s) both fund based and non-fund

based subject to the maximum ceiling stated hereunder for a period not exceeding 15
days.
Emergency CMD ED GM DGM AGM CM BH BH BH

Lending Powers (VII) ( VI) (V) (IV) (III) (II) (I)
Max. Ceiling 800 600 300 100 50 15 2 1 0.50
Within which 300 200 100 30 25 10 1 0.50 0.25
unsecured partly
secured/ Clean
There could be occasion when the Zonal Head /Executive Director or Chairman &
Managing Director, cannot be contacted and the requirements of the borrower are such
that a decision is required to be taken without delay. In such cases, advance/facility in
excess of the sanctioned limit may be permitted purely on temporary/emergency basis by
the Branch Head up to 10% of total sanctioned limit(s) both fund based and non-fund
based subject to the maximum ceiling stated above for a period not exceeding 15 days.
The excess over sanctioned limits allowed by the delegatee has to be reported to the
concerned sanctioning authority/ committee as well as the immediate controlling
authority of the delegatee, without exception in the format CMR - 7A as contained in
Credit Monitoring Policy.
Where such excess is not adjusted within 15 days, the same shall be reported by the
branch In the statement of irregular accounts with suitable remarks.
Such powers to sanction excess limits should not be exercised by delegatees in scale JMG-
I to TMG-VI for granting:
(i) Term Loans or Deferred Payment Guarantees.
(ii) Advance against commodities falling under, the Selective Credit Control directives of
Reserve Bank of India.(
(iii) Advances to members of the bank's staff.
(iv) Purchasing /discounting bills drawn on associate/identical firms.
(v) Additional limit/facilities/drawings which require prior clearance from NBC at

different levels.
(b) When the exposure level (inclusive of the proposed requirement) is within the
sanctioning authority of the Branch Head:
Temporary excess over sanctioned limit may be allowed within the sanctioning power of
the Branch Head, to meet the urgent requirement of the borrower, only in case of parties
having satisfactory track record to the extent permitted under “ Emergency Lending
Power” for a maximum period of 15 days.
Where such excess is not adjusted within 15 days, the same shall be reported by the
branch in the statement of irregular accounts with suitable remarks even though the
excess is within the delegated powers of the branch head.

Exercise of Emergency Lending Powers will have following mandatory requirements:
a) It will be exercised only in case of sanctioned facilities.
b) It is to be recorded in a register with relevant details maintained specifically for

the purpose. Marking off should be carried out as soon as it is adjusted and the
date of adjustment is to be recorded.
c) It is to be immediately reported to sanctioning authority and controlling authority.
d) Higher authorities visiting branches should inspect this register without fail and
advise appropriate authority of any reportable matter.
5.3.2 In current accounts where there is no sanctioned limit, temporary overdraft may
be allowed only in case of parties having satisfactory track record and who are
maintaining current account with the branch or having very good depository
relation by way of savings or term deposits to the extent of overdraft permitted
under “Emergency Lending Power”.
However, the powers for purchase of cheques /drafts and accommodation

against uncleared effects on casual basis may be exercised as per delegation of
powers in vogue.
Extant operational guidelines on exercise of Emergency Lending Powers are

being circulated separately in Chapter 9 of Part B of Loan Policy Document –
2017.
5.3.3 Discretionary power for opening of LCs without Term Loan/100% Cash Margin for
capital goods and for Revolving LCs would be ZLCC and higher authorities.
However in case LC is a sub-limit for TL sanctioned for procuring the goods, the
above restriction shall not be applicable.
5.3.4 Total of all advances granted to two or more group concerns by the delegatee
up to the level of ZLCC shall not exceed the permissible limit of power of the
delegatee per borrower.
Note:
Exposure on Director(s)/Partners(s)/ proprietor of a borrowing company in personal
capacity under Bank‟s Retail schemes as mentioned below shall be outside the scope
of “Group Exposure” and shall be governed by the following guidelines:
 Exposure on Director(s)/Partners(s)/ proprietor of a borrowing company/ firm in

personal capacity as co-obligant/ borrower/ guarantor for the below mentioned
Retail Loan schemes shall be outside the ambit of “Group Exposure”.
 The Bank may consider requests for loans in personal capacity of the
Director(s)/Partners(s)/ proprietor under the following Retail Loan Schemes:

UCO Home Loan UCO Two Wheeler
UCO Car Loan UCO Securities
UCO Education Loan UCO Swabhiman
UCO Cash Loan UCO Gold
UCO Pension
 The respective sanctioning authorities may sanction such loans within their
discretionary powers if such proposals are otherwise found in order. The
sanctioning authorities shall also take into account the present IRAC status of the
company‟s account and the possibility of ensuring loans being put to proper end-
use.
 While reporting such sanction in CMR-1, the limits sanctioned to the company and
its associates and their present IRAC status should also be reported.
5.3.5 Command Area Defined
In case of Rural Branches, one of the contact points with the borrower i.e., either the
factory/ business premises or residence should be within 30 kms radius. However in case
of government Sponsored Schemes wherever Service Area of the branch has been
defined, the command area shall also include the service area.
In case of Semi Urban/Urban / Metro branches, command area would be the city limits
or 30 kms radius from the sanctioning branch whichever is higher within which either
factory/business premises/residence/office/ place of work should be located including
villages allotted to them by District Level Credit Committee(DLCC). However in case of
government Sponsored Schemes wherever Service Area of the branch has been
defined, the command area shall also include the service area. Collateral security may
be accepted anywhere in India irrespective of distance only after verification of the
security/title deeds etc, by the nearest branch of the bank.
Exceptions may be permitted by Zonal Manager on case to case basis to the branches
falling under their respective jurisdiction.
Proposals falling under the sanctioning power of ZLCC and above including FC
branches would be exempted from these provisions.
5.3.6 Transfer of Accounts
For transfer of accounts from one branch to another branch following modalities are to
be followed:
 For intra-zone transfer of loan accounts – Zonal Head would approve the transfer.
 For inter-zone transfer of loan accounts –GM, Corporate Credit would be the
competent authority to allow the transfer of accounts.

5.3.7 Account with multiple Branches
Accounts of a business entity, group or allied/associate/connected concerns may, at
the request of customer(s), be maintained at more than one of the branches but with
prior permission from the authority having jurisdiction over all the branches involved.
Sub-limit allocation to different branches would be carried out by the sanctioning

authority. However, in case of accounts falling in the power of BLCAC and MCB, BLCAC
will have the authority in this respect. It is also clarified that in case a borrower wants to
avail credit facility from our bank from more than one branch, in such a situation one
branch will act as controlling branch and other branch(s) will report to the controlling
branch at the regular intervals with respect to that account maintained with them.
5.4 Lines of Credit

Credit shall be made available in one or more of the following norms as under:
a) Fund Based facilities
 Overdraft
 Cash Credit
 Demand Loan
 Bills Purchase/Discounting
 Pre-shipment Export Packing Credit
 Post-shipment Foreign Bills Purchase
 LC Negotiation
 Bridge Loan/Interim Finance
 Foreign Currency Loan
 Term Loan
 Short term Loan
b) Non-Fund Based facilities

 Performance guarantees including Bid Bonds etc.
 Financial guarantees
 Deferred Payment guarantees
 Letter of Credit
 Letter of Comfort / Standby Letter of Credit
5.5 Maturity Norms
 Short Term Financing – Advances with a maturity of less than 3 years.

 Medium Term Loans – Maturity range from 3 years and above up to and
inclusive of 7 years.
 Long Term Loans –Loans with maturity period above 7 years.
Normally loans upto 10 years shall be considered by the bank. However, housing loans,
education loans, and plantation loans may be considered for longer duration as
prescribed in the schemes.
In case of Highly Capital Intensive Long Term Loans and Infrastructure Projects /
Restructured Loans, duration of the loan may be allowed upto 15 years depending

upon the Cash Generation of the project. However, in exceptional circumstances, ZLCC
and above sanctioning authority including the sanctioning authority at FC branches
may permit longer tenure depending upon the nature of industry / extant regulatory
guidelines.
5.6 Secured / Partly secured / Unsecured Loans & Advances
Secured loans/advances mean loan or advance made against security of assets whose
market value net of prescribed margin is more than or equal to the amount of such loan
and advance. Where market value net of prescribed margin is less than the amount of
such loan and advance, it is partly secured. Unsecured advance means a loan or
advance not secured as defined above.
Indicative list of secured/unsecured advances are being circulated as a part of extant

operational guidelines for sanction of loans and advances in Chapter 9 of Part B of Loan
Policy Document –2019.
5.6.1 Valuation of Land and Building:
All landed properties must be valued by the registered valuers who are in the current
empanelled list of the Bank and having good market reputation. In assessing market
value of landed property the following approach will be adopted.
The value of the land will be assessed separately and would be compared with
valuation on record by Govt. Authorities including Municipal Bodies. The Branch Head/
Loan Manager should satisfy themselves on any excess over Govt. valuation and the
same should be recorded in the proposal. For the purpose of insurance coverage,
valuation of construction should be done separately. Where the insurance cover falls
short of the market valuation, it would need to be duly explained by the branch where
the relevant proposal has been originated.
The minimum period between the two consecutive valuations should be three years.
However, Valuation may be done before 3 years, if it is warranted. However the
properties financed under UCO-Home Loans, UCO Property (TL)/UCO Mortgage (TL),
UCO Education Loan & Agriculture Loans below Rs 1.00 crores are exempted from
revaluation at periodicity of three years unless compelling reasons warrant fresh
valuation.
Further, where the valuation of property as a whole exceeds Rs.100 lacs, second
valuation is required to be obtained. However if the quantum of the Loan amount is less
than Rs 50 lacs second valuation may not be obtained.
If the purchased property is less than 12 month old, valuation should be ascertained
from the Sale Deed. However valuation Certificate to be obtained from Bank‟s
Empanelled Valuer as per bank‟s extant guidelines to ascertain marketability of the
property. The valuation report should indicate the market realizable value of the
property assessed.
For the purpose of arriving valuation at the time of assessment, realization value of
security should normally be considered.

5.6.2 Discretionary Power structure for allowing dilution of security and allowing 2nd loan
against the residual value of the security already charged to the bank
Allowing further loans and advances, enhancements and adhoc facilities etc. against
the security, which is already charged to the Bank, results in higher loan to value (LTV)
ratio. In view of this, discretionary power structure for allowing further credit facilities
against the security already charged to the Bank has been put in place as detailed
below:
Particulars Sanctioning Authority

1 Allowing enhancements and Delegatee under whose sanctioning powers the
adhoc facilities by extending proposal falls.
charge on the collateral
security. In case of Schematic Lending, the sanctioning
authority has to ensure the collateral security norms
of respective Scheme, under which the loan is
sanctioned/enhanced/ renewed.
In case of Lending of other than schematic, the

respective sanction authority has to take call before
allowing enhancements and adhoc facilities by
extending charge on the collateral security.
2 Allowing further loan/s against Same as proposed above

the residual value of property
charged as collateral security
in the first loan (except those in
item no. 3 below).
3 Loans and advances against Same as proposed above
the property mortgaged as
primary security in the first loan
(e.g. UCO Home Loan, UCO
Mortgage) and taking it as
collateral in the second loan.

4 Allowing partial/full release of It would normally be not permitted.
collateral security and/or
substitution of collateral security However on case to case basis partial/full release of
with lower valued security. collateral security and/or substitution of collateral
security with lower valued security may be allowed
by one Level Higher than the Sanctioning Authority
subject to the condition that the account is standard
since inception.
In case of UCO Property/UCO Mortgage, the

collateral norm stipulated in the scheme is to be
maintained.
Before release/ substitution of collateral securities,

valuation of both existing (if valuation is more than 1
year old) as well as proposed security has to be
done.
5 Second loan against the Second loan against the property mortgaged as
property mortgaged in case of collateral security in case of UCO Real Estate and
UCO Real Estate and UCO Rent. UCO Rent, would require prior permission of BLCAC
when the loans are classified as Commercial Real
Estate.
In case of UCO rent which is not classified under

Commercial Real Estate, the authority will vest with
the sanctioning authority under whose powers the
proposal falls. However the sanctioning authority has
to ensure that the collateral security norms with
respect to the scheme under which the loan is
sanctioned or otherwise complied.
5.7 Proposal Processing Directives
Policy directives for processing new accounts, renewal and enhancement of existing
accounts, borrower standards, appraisal standards, reporting requirements, security and
safety of advances, non-fund based business etc., are given in Chapter 7.
5.8 Guidelines for taking over of accounts from other banks/financial institutions
The Bank shall consider, in appropriate cases, taking over of accounts from other
banks/financial institutions during the course of its business within the framework of RBI
guidelines on transfer of borrower accounts from one bank/ financial institution to the
other. The main feature of the takeover mechanism is as follows:
A. While taking over of borrowal accounts from other bank / financial institution,
entire liabilities in respect of both fund based and non-fund based facilities
enjoyed by the concerned borrower should be taken over.
B. Before taking over an account necessary credit information should be obtained
from the transferor bank on the RBI prescribed format which should set out not
merely the state of the borrower‟s account with it but also his financial position
and credibility. The transferor bank should indicate its relationship with the
borrower has been largely satisfactory and if not the specific adverse features
noticed etc.
C. No cases (except loans under retail schematic lending) should be taken over
from any Bank where any of the Executive Directors or MD&CEO has worked
earlier. In case, any such case needs to be taken over, the proposal shall be put
up to the Board with specific reasons justifying the need for taking over the
account.
D. Standard accounts with internal credit rating of UCO 4 and above under priority
sector and UCO 3 and above under non-priority sectors will be eligible for
takeover from other banks/ financial institutions. If the account under take over is
eligible for External Rating, the same should be minimum BBB or equivalent. In
case of the borrowers who left the bank during the last 2 years for some reason
and are now willing to bank with us, are to be dealt with as existing borrowers
and beyond the period of 2 years the borrower shall be treated as per takeover
norms.
E. Business of the borrower / borrowing company or firm should have run at least for
last two years.
F. Statement of Account at least for the last one year should be obtained directly
from the existing banker and the account should depict satisfactory conduct.
G. The account to be taken over should not have been re-phased / rescheduled
restructured in the preceding 2 years.
H. All accounts proposed to be taken over from other banks/financial institutions
(except UCO Home Loan) are to be cleared by the New Business Committee at
appropriate levels.
I. The requirement of NBC clearance for takeover of Home Loan accounts under
UCO Home (Comfort) shall not apply.
J. Any deviation / relaxation in the norms may be allowed by HLCAC-2 upto the
sanctioning power of HLCAC-2 and beyond the sanctioning power of HLCAC-2,
the same will be allowed by respective Sanctioning Authorities at HO Level on a
case to case basis on merit.
K. In case of accounts where credit rating is not required as per credit rating policy
of the bank, acceptability of the proposals will be based on the scoring under
score card model.
Extant Policy guidelines in this matter in detail are being circulated separately in
Chapter 6 of Part B of Loan Policy Document - 2019.

5.9 Management of NPAs including provisioning and Recovery Processes
The Policy guideline / operational instructions in the matter are issued by HO Recovery
Department separately.
5.10 Issue of fresh LC/BG in the event of devolvement/invocation of LC/BG and/or other
irregularities in the borrowal accounts
Bank shall follow the guidelines as stated hereunder for issuance of LC / BG in SMA2
accounts:
1) Branches to take prior permission as under:
(a) In case of total exposure (FB+NFB) above Rs 10 Crores in a borrowal account,

branches to take prior permission of HLCAC-2 for issuing LCs/BGs in SMA2
accounts irrespective of the availability of sanctioned limits.
(b) In case of total exposure (FB+NFB) up to Rs 10 Crore in a borrowal account,

branches to take concerned Zonal Office‟s (ZLCC) prior permission for issuing
LC/BGs in SMA2 accounts irrespective of the availability of sanctioned limits.
2) As the LCs (other than Capex LCs) is a part of working capital limits, the branches
to ensure the same are issued as per business requirement of the borrower.
3) In case of any devolvement of LC/Invocation of BG, the concessions in LC/BG, if
any allowed, to be withdrawn immediately with prior intimation to the borrower.
Inspection Department is required to verify compliance in this regard. Inspecting Officers

/ Concurrent Auditors at the time of inspection are required to verify the compliance in
the matter of issuance of LCs/BGs, more particularly in the SMA accounts. Any
noncompliance is to be brought to the knowledge of appropriate authority by
highlighting the same in the inspection report.

CHAPTER – 6
POLICY DIRECTIVES ON PRICING
It would be the responsibility of branches to ensure that interest rates charged on

customers‟ accounts are strictly in accordance with interest rate circulars of the Bank
except where specifically permitted by competent authority. Branches should also
ensure correctness of interest computation. The controlling offices would also have the
responsibility to ensure that branches are applying proper interest rates and charging
interest appropriately on the accounts maintained by them.
6.1 Communication of Interest Rate & Interest Rate Structure
Risk Management Department, at the beginning of each financial year will issue a
Master Circular on Interest Rates on Loans and Advances providing in detail the interest
rate structure of the Bank as it prevails at that time. Subsequent changes during the
course of the year will be advised through circulars. This will ensure proper
communication of the Bank‟s interest rate as it prevails from time to time.
Interest rates as determined by ALCO shall be communicated to Branches/ Offices by

Risk Management Department.
6.2 Marginal Cost of Funds based Lending Rate (MCLR)
Based on RBI directives, BPLR (Benchmark Prime Lending Rate) system was introduced in
the Bank effective from 1st January 2004 and interest rates were circulated time to time
linked with BPLR with certain exceptions. In 2010, RBI issued directives to banks to switch
over to Base Rate System with effect from 1st July 2010. Accordingly, Base Rate system
was introduced in the Bank replacing BPLR System with effect from 1st July 2010. Further
RBI issued guidelines to banks for pricing their loans and advances with reference to
Marginal Cost of Funds based Lending Rate (MCLR) effective from 01.04. 2019.
In consonance with above RBI directives, Bank has issued guidelines on pricing of Loans
& Advances as under:
All rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2019 shall be priced
with reference to Marginal Cost of Fund based Lending Rate i.e. MCLR. Important
provisions of the new system are:
(1) No rupee loans shall be sanctioned / renewed with effect from 01.04.2019 below
the MCLR of a particular maturity.
(2) Actual lending rates i.e. effective rate shall be determined by adding a spread to
the MCLR.
(3) The spread charged to a borrower shall not be increased except on account of
deterioration in the credit risk profile of the customer. Any such decision regarding
change in spread on account of change in credit risk profile is to be supported by
a full- fledged risk profile review of the customer.

(4) The reference benchmark rate i.e. MCLR used for pricing the loans shall form part
of the terms of the loan contract.
(5) In case of floating rate loans, MCLR prevailing on the date of first disbursement
(Partial / full) of the loan/credit limits shall be applicable i.e. the interest should be
referenced to the MCLR prevailing on the date of disbursement. Future reset date
shall be determined accordingly.
(6) In case of hybrid loans, where the interest rates are partly fixed and partly floating,
interest rate on the floating portion should adhere to the MCLR guidelines. Interest
rate on fixed loan as well as floating loan shall be mentioned in the sanctioned
letter.
(7) Exemptions from MCLR:
A) Loans covered by schemes specially formulated by Government of India
wherein banks have to charge interest rates as per the scheme.
B) Working Capital Term Loan (WCTL), Funded Interest Term Loan (FITL), etc.
granted as part of the rectification/restructuring package.
C) Loans granted under various refinance schemes formulated by Government of
India or any Government Undertakings wherein banks charge interest at the
rates prescribed under the schemes to the extent refinance is available.
Interest rate charged on the part not covered under refinance is to adhere to
the MCLR guidelines.
D) The following categories of loans can be priced without being linked to MCLR
for determining interest rate:
i) Advances to banks‟ depositors against their own deposits.
ii) Advances to banks‟ own employees including retired employees.
iii) Advances granted to the Chief Executive Officer / Whole Time Directors.
iv) Loans linked to a market determined external benchmark.
v) Fixed rate loans above three years granted by banks. However, in case of
hybrid loans where the interest rates are partly fixed and partly floating,
interest rate on the floating portion should adhere to the MCLR guidelines.
(8) Reset of interest rates:
The rest of MCLR linked loans and advances shall be in accordance with the tenor
of MCLR with which the loans is linked i.e loans linked to one year MCLR shall be
reset after one year.
The periodicity of reset shall form part of the terms of the loan contract.
(9) Transition to MCLR from Base Rate / BPLR:
Existing loans and credit limits linked to the Base Rate / BPLR shall continue till
repayment or renewal, as the case may be. Provided that existing borrowers shall

have the option to move to the Marginal Cost of Funds based Lending Rate
(MCLR) at mutually acceptable terms.
(10) Documentation requirements for MCLR System:
Documentation requirements for MCLR System have been issued by Risk

Management Department Head Office which is to be followed.
6.3 Competent Authority for Interest Rate & Interest Rate Structure
ALCO is the competent authority in the matter of deciding interest rate structure,
interest rate on various products and delegation of authority to allow concessionary
rate of interest in respect of all loans and advances.
ALCO will review the MCLR monthly or from time to time as may be called for on
account of changes of elements constituting MCLR.
6.4 Pricing of Standardized Products:
ALCO will determine the pricing of standardized products taking into account the MCLR
fixed as above, risk perception, market dynamics and other relevant factors. Such
pricing shall be linked to MCLR.
6.5 Pricing of Loans under Consortium / JLA:
As per RBI guidelines, Banks need not charge a uniform rate of interest even under a
consortium arrangement. In case of JLA also, bank has been given freedom for
deciding pricing of loans. Accordingly bank will decide its own pricing and while
deciding pricing, bank may consider among others, the price fixed by the leader of the
consortium/JLA and other member banks. However, in no case rate of interest shall be
below applicable MCLR of the Bank.
6.6 Loans& Advances at Fixed Rate of Interest:
At present only BLCAC is authorized to allow fixed rate of interest. Besides this, certain
standardized products, where so mentioned in the relevant circulars, may have fixed
rate of interest.
However, the Bank discourages fixed rate loans keeping in view the interest rate risk
involved, because of possibility of upward revision in interest rates. In order to minimize
the impact of upward revision in interest rate on net interest income, all fixed rate
exposures would be covered under appropriate interest rate swap.
6.7 Uniform Interest Clause in Sanction Advices and in Loan Documents
Sanction advice and the relative loan documents to contain a uniform interest rate
clause as under depending on the rate of interest approved by the bank:
(a) Fixed rate without reset:
Where the loans are sanctioned at Fixed Rate of Interest, Sanction Advice must clearly
state the word „Fixed‟ which shall be suffixed to the rate of interest. In this situation, rate

of interest shall remain fixed for the entire tenor of facility. Interest rate clause shall be
worded as under:
“Interest shall be charged at ______ % p.a. (Fixed) with monthly rest.”
(b) Fixed rate with reset clause:
In case of loans which are sanctioned at Fixed Rate of Interest but with a Reset Clause,
the sanction advice must clearly state the period after which rate of interest is to be
reset. Interest rate clause in such cases shall be worded as: “Interest shall be charged at
______ % p.a. (Fixed) with monthly rest. Interest to be reset after _____ year(s) at mutually
agreed terms”.
(c) Floating rate without reset:
Where loans are sanctioned at Floating Rate of Interest without reset clause, the
benchmark must be clearly stated with agreed spread. Sanction advice must also
stipulate that the effective rate of interest shall go on changing with a change in the
benchmark rate. Interest rate clause shall be worded as under:
“Interest shall be charged at MCLR + ______ % (spread), presently being ______ % p.a.,
with monthly rest. Effective rate of interest shall change with change in MCLR after the
Tenor to which it is linked i.e. _________.”
(d) Floating rate with reset clause:
In case of loans sanctioned at floating rate of interest plus a mark-up, with a clause that
the Rate of Interest shall be reset after a certain period of time, the sanction advice
must clearly state that only spread shall be reset after a specified time and in the
intervening period the interest will go on changing with the change in the Benchmark
rate. Interest rate clause in such cases shall be worded as under:
“Interest shall be charged at MCLR + ______ % (spread), presently being ______ % p.a.,
with monthly rest. Effective rate of interest shall change with change in MCLR after the
Tenor to which it is linked i.e. _________ and Spread shall be reset after _____
year(s)/Month(s).”
Any specific situation not covered above shall be referred to Head Office, Risk
Management Department.
6.8 Concessionary Rate of Interest
Bank may offer, depending on business considerations, concessionary rate of interest to

its valued clients. The authority for reduction in applicable interest rate shall lie with ZLCC
and above committees.
In case of general loans and advances, the final rate of interest after the concession
shall not be below MCLR for the respective tenor.
The concessionary rate would be determined keeping in view –
I. The tenor of the facility

II. The actual cost of fund for the tenure (for example actual cost of fund for shorter
tenure is less than that of longer tenure)
III. The transaction cost of the facilities (for example transaction cost in case of bullet
payments is less)
IV. Cost of provisions (based on risk perception – for example Govt. guaranteed
accounts may have zero risk)
V. Capital charge
VI. Return on capital
VII. Market dynamics
In permitting concessionary rate of interest, the competent authority shall consider

rating and business consideration including ROI being charged by lead bank / other
member banks or competitors, value of account, risk weightage and would exercise
discretionary powers as under:
A. In case of general loans & advance:
I. Zonal Level Credit Approval Committee (ZLCC) shall have discretion to allow
concession in rate of interest up to a maximum of 0.50% in the applicable rate of
interest in respect of credit proposals falling up to the lending power of ZLCC and
having credit rating UCO 4 and having better rating.
However the final ROI after the concession shall not be below applicable MCLR+
1.00%.
II (a) HLCAC-2 shall have discretion to allow concession in ROI upto the maximum of
1.50% in the applicable ROI in respect of credit proposal falling upto the lending
power of HLCAC-2 and having credit rating UCO 5 and having better rating.
However the final ROI after the concession shall not be below applicable MCLR+
1.00%.
II (b) HLCAC-1shall have discretion to allow concession in ROI upto the maximum of
2.00% in the applicable ROI in respect of credit proposal falling upto the lending
power of HLCAC-1 irrespective of internal credit rating of account. However the
final ROI after the concession shall not be below applicable MCLR+ 1.00%.
III (c) Concession beyond 2.00% shall be under the authority of Board Level Credit
Approval Committee (BLCAC) in respect of proposal falling upto the lending
power of BLCAC irrespective of internal credit rating of account.
In case of proposal sanctioned by MCB, any ROI concessionary power shall be

exercised by MCB.
Wherever interest reset clause is a term of sanction, same should be reviewed at

the time of review /renewal, subjected to the condition that there is no
deterioration in credit rating.
However, the final ROI after the concession shall not below applicable MCLR.
III. It is clarified that the power to allow concessional rate of interest at the time of
reset shall also rest with respective credit approval committee as is applicable

incase of allowing concession in rate of interest for general loans and advances
as stated above.
IV. Quotation of Rate of Interest - Power for quoting ROI for credit proposals shall rest
with the following authorities:
a. In case of credit proposals falling upto the lending power of ZLCC, ROI shall be
quoted by ZLCC and quoted interest shall not fall below the Concessionary
Rate of Interest allowable by ZLCC.
b. In case of credit proposals beyond the lending power of ZLCC, respective
Head Office Level Credit Approval Committees will quote ROI and quoted
interest shall not fall below the Concessionary Rate of Interest allowable by
that Committee.
c. In case quotation of ROI beyond the concessionary power of ZLCC or above
Committee, respective Credit Approval Committee at HO in whose power the
concessionary ROI lies, will quote the ROI. In case of proposals falling under the
power of MCB, BLCAC will quote the ROI. However, the quoted ROI shall not
be below the applicable MCLR.
d. In case of exigencies, for proposals falling under the power of BLCAC/MCB,

General Manager, Credit Department in consultation with MD & CEO (in his
absence Executive Director) may quote the ROI and the same shall be put up
to BLCAC in its next meeting for ratification.
VI. Rate of Interest in case of credit proposal under CDR, JLF, and SDR:
In case of credit proposals under CDR, JLF, SDR etc, the respective sanctioning
authorities shall have the power to decide ROI in terms of decision taken in the
meeting of CDR, JLF, SDR etc. by super majority. However, the final ROI after the
concession shall not be below applicable MCLR.
VIII. In addition to the concession in ROI prescribed as above , accounts having

exposure above Rs 5 Crores and falling under the categories of Agriculture/MSME
including UCO Udyog Bandhu and UCO Doctor / Other Priority sector Advances ,
Tea Advances , Micro finance Institutions (MFIs) and Retail Trade Advances other
than “UCO Trader Scheme having exposure more than Rs 2 crore”, the
sanctioning authority can allow additional concession in rate of interest at the
time of sanction if the borrower is having External Rating a under:
External Rating Additional concession
AAA or equivalent 0.75% below the ROI prescribed
AA or equivalent 0.50% below the ROI prescribed
A or equivalent 0.25% below the ROI prescribed
Below A No additional concession
The ROI so arrived after concession shall not fall below the MCLR to which the
loan account is linked.
If the external rating detoriates or improves, then accordingly the above

concession will be relooked and revised based on the revised rating. If the

borrower does not submit the new rating after it expires the concession will cease
till the time borrower submits fresh External Rating. The concession so allowed in
ROI shall form part of terms and conditions in the sanction letter.
IX. The power to allow concession in Rate of Interest for proposals under NBFCs (
AFC/IFC/HFC/), CRE-H, CRE-OTHERS, Central Govt. & State Govt. account,
Central Govt./State Govt. guaranteed account & PSU shall be as under:
Sanctioning Authority Extant of concession

HLCAC-II Upto 0.25%
HLCAC-I Upto 0.50%
BLCAC Above 0.50%
The ROI so arrived after concession shall not fall below the MCLR to which the
account is linked.
B. In case of Advances against Bank‟s Term Deposits:
ZLCC and above committee may exercise discretionary powers for allowing concession
up to percentage stated below:
Authority Power for allowing concession
Level
Advances to the Deposit holder Advances against 3rd party FDR
ZLCC 0.50% 0.25%
HLCAC-2 1.25% 1.00%
HLCAC-I 1.50% 1.50%
BLCAC may allow ROI on loans BLCAC may allow ROI on loans
upto Deposit Rate. upto Deposit Rate.
C. In case of Schematic loans:
Power to allow concession in ROI in Schematic lending except where the scheme does
not specifically provides for the same as under:
Proposal falling under the sanctioning power of Competent Authority
Branches/ZLCC HLCAC-II
HLCAC-II/HLCAC-I/BLCAC/MCB Respective sanctioning
Authority
However, the final ROI after the concession shall not be below MCLR for one year.

6.9 Penal Rate of Interest
1. No penal interest should be charged for loans up to Rs. 25,000/-.
2. For limits over Rs.25,000/- terms and conditions covering sanction should invariably
include provision for charging penal rate of interest in the following situations:
 Default in repayment of loans.
 Irregularities in cash credit accounts.
 Excess/additional borrowings
 Non-submission of stock statements, book-debt statements and other
financial data
 Non-payment/ non-acceptance of demand/ usance bills of exchange on
presentation on due date
 Default in borrowing covenants/terms of sanction.
 Other events of default as may be stipulated by the sanctioning authority in
the sanction terms.
3. The aggregate penal/additional interest should not exceed 2 per cent over and
above the rate of interest applicable/charged to the borrowers.
4. The Bank has got a well laid down policy for charging penal interest and the same
is being circulated separately in Chapter 19 of Part B of Loan Policy Document –
2019, which shall be meticulously followed.
5. The provision of charging penal interest will not be applicable where there is no
delay by the borrower in submission of papers for renewal but the renewal is
pending at bank level for some reason or the other.
6. Discretionary powers to relax/waive penal rate shall be with competent authorities

as under:
Loans and Advances sanctioned by (In case of Competent Extent of
Term Loan, Original Sanctioning Authority) Authority waiver
BH ZLCC Full
ZLCC HLCAC-II Full
HLCAC – II & I HLCAC - 1 Full
BLCAC and MCB. BLCAC Full
Note: Refund of penal interest in respect of previous financial year will rest with
BLCAC only.
6.10 Exchange, Commission and other Service Charges–
Applicable service charges, including exchange and commission, on loans and

advance related services extended to Bank‟s customers are advised separately by the
Bank from time to time.

6.10.1 Recovery of processing Charges:
 In all cases of new accounts with exposure of Rs.10 lacs and above, 25% of the
applicable processing charges would be recovered before handing over the
sanction to the borrower.
 Remaining 75% of the processing charges are to be recovered before
disbursement of loan or release of limit.
 25% of the applicable processing charges so recovered, while handing over of
the Sanction, shall not be refunded if disbursement or release of limits does not
take place.
6.10.2 Pre-payment Charges-
Prepayment charges are to minimize the effect on Net Interest Income (NII) and Asset
Liability mismatch in the event of prepayment/non-availment of line of credit
sanctioned.
Objective:
 To discourage such borrowers, who have availed term loan with finer rate of
interest from moving over to other banks/FIs and gain at our cost by forcing Asset
Liability mismatch in our bank.
 To minimize the effect on Net Interest income arising out of prepayment/non-
availment of line of credit sanctioned.
Guidelines:
 Sanctioning authorities shall stipulate prepayment /commitment charges in

sanction terms.
 Prepayment charges shall also be applicable to mid-market products of the
bank unless contrary to that specifically provided in the product.
 There will no prepayment charges in the case of the following: ( based on original
sanctioned amount )
i. Agricultural Loans up to Rs 10 lacs
ii. Other Priority Sector Loans up to Rs 5 lacs
iii. Other Term Loan Accounts with limit up to Rs 2 lacs
iv. Home Loans
In case of prepayment of installment(s), prepayment charges shall be levied on the

prepaid amount at the rates circulated by the bank from time to time.
Waiver of prepayment charges
Individual cases of prepayment charges may be reviewed depending upon the merits
of each case and charges may be waived by the following authorities:

Proposal sanctioned by the authority Competent Extant of waiver may be allowed
upto the level of (In case of Term Authority /
Loan, Original Sanctioning Authority) : Committee
ZLCC ZLCC Upto 50% of the applicable charges
HLCAC-2 HLCAC-2 Upto 75% of the applicable charges
HLCAC-1 HLCAC-1 Upto 100% of the applicable charges
BLCAC / MCB BLCAC Upto 100% of the applicable charges
6.10.3 Commitment Charges
Where average availment of fund-based credit during a month is less than 70% of the
limit sanctioned, commitment charges @ 1/12th percent on the unutilized limit shall be
levied for that month. Service tax at applicable rate shall be added to the commitment
charge.
Note: Assessment of average availment during a month shall be based on the

percentage of actual interest for the month with respect to the interest calculated on
full limit for the entire month.
Waiver of Commitment Charges
A review of individual cases of commitment charges may be made depending on

merits of each case. The competent authorities to waive the commitment charges
partly or fully are as under:
Proposals sanctioned Competent Authority
Branch Level ZLCC
ZLCC and above Respective Sanctioning Authority
Note: Refund of commitment charges in respect of previous financial year will rest with
BLCAC only.
6.10.4 Discretionary powers to relax / waive processing / Other Charges
Discretionary powers to relax/waive processing charges/annual review /renewal

charges including concessions in processing/ renewal/ review charges, commission on
BG/LC/LOC and documentation charges for all loans including Retail, MSME &
Schematic Loans, shall be as under:
Proposals sanctioned Competent Extant of concession may be allowed

Authority /
upto the level of ZLCC Committee
ZLCC Upto 25% of the applicable charges
upto the level of HLCAC-2 HLCAC-2 Upto 75% of the applicable charges
upto the level of HLCAC-1 HLCAC-1 Upto 100% of the applicable charges
BLCAC BLCAC Upto 100% of the applicable charges

6.10.5 Concessionary Powers for Margin Stipulation
Discretionary powers to relax/waive margin stipulations (other than schematic lending)

shall be with competent authorities as under:
(A) Margin on Loans against Bank‟s own Term Deposits:
To whom loan is Minimum Concession may be allowed on merits of the case
granted margin Extent Authority
Loans to the requirement
10%
holders of Full waiver HLCAC- 2
deposits
Loans to 3rd Party 20% Margin may be waived upto 5% ZLCC
upto 10% HLCAC- 2

Full waiver BLCAC
Note: Margin on Loans against Bank‟s own term deposits shall be reckoned on the
present value of the FDR (i.e. principal amount plus accrued interest thereon).
(B) Margin on Non Fund Based Facilities (LC & BG):
I. No minimum margin stipulation for the sanction by HLCAC-II & above committees
i.e. Margin shall be decided by the respective sanctioning authority at the level
of HLCAC-II & above committees.
II. ZLCC can sanction with minimum margin of 10%.
III. Branch Managers can sanction LC & BG with following minimum margin
stipulations:
Nature of Facility Minimum margin requirement
LC (DP) / Performance Guarantee 10%
LC (DA) / Financial Guarantee 20%
(C) Margin on stocks and book debts, LCs, BGs etc in case of proposal under CDR, JLF,
and SDR:
In case of credit proposals under CDR, JLF, SDR etc, the respective sanctioning
authorities shall have the power to decide margin on stocks and book debts, LCs, BGs
etc in terms of decision taken in the meeting of CDR, JLF, SDR etc. by super majority.
6.11 Continuance of Concession in ROI, Margin and Processing and other Service
Charges:
The discretion would not be exercisable by an authority/ committee for such accounts
where concession has been allowed by a higher sanctioning authority / committee.
However, ZLCC and above Authority shall have full powers to continue existing
concession in ROI/Margin/ Processing & other Service Charges, which was earlier
allowed by any Higher Authority for proposal falling within the delegated power of the
concerned Authority (ZLCC and above Authority) at the time of Review at existing level
or rundown level( TL) /Renewal of Limits at existing level( WC) subject to the condition
that there is no deterioration in Internal Credit Rating & External Credit Rating (wherever
applicable) of the borrower.
CHAPTER – 7
PROPOSAL PROCESSING DIRECTIVES
Lending powers will be used judiciously by only those authorized and lending discipline
with regard to appraisal, sanction, monitoring and end use/utilization of fund will be
strictly adhered to.
7.1 Borrower Standards
After receipt of application for any credit / quasi credit facilities in Bank‟s prescribed
format the branch shall open dialogue with the borrower where considered necessary
and obtain all pertinent information / particulars including audited balance sheet,
project details, projections, requirement of credit/quasi-credit limits etc. Credit report in
the prescribed format on proprietors /partners/directors/guarantors etc. will also be
prepared by the branch and credit information report from other financing banks will
also be obtained by the branch.
The branch will ascertain and ensure that the activity of the borrower is permissible
under the Law of the Land, the company/group companies/associates/subsidiaries/
sister concerns and directors/promoters are not defaulters of other banks/other
branches of our bank or have not been caution listed by banks / ECGC/RBI/CIBIL/ CRIF
High Mark etc.
7.1.1 Investment grade rating for considering fresh proposals or fresh entry into the
consortium:
Good credit management warrants the Bank to extend finance to such borrowers who
have sound financial position, satisfactory track record and where the business
relationship will offer good return to the bank and the advance shall remain safe and
secured. Branches and offices will therefore consider the fresh proposals or fresh entry
into the consortium in respect of accounts, which is having minimum investment grade
internal credit rating as under:
Asset classification Standard

Investment grade rating Not below UCO 5
However in the current economic scenario, many industries are not performing upto the
desired level as such the rating (both external and internal) of these
industries/companies is downgraded, although these industries /companies have
inherent strength and competence. Majority of these companies are small and medium
enterprises and at present these industries are the thrust area of the Nation.
In view of the above following exception are provided:
I. In case the borrower Company or its key Promoter Company is having external
rating of BBB- and above , the proposal can be considered for sanction by all the
sanctioning authorities upto their sanctioning power irrespective of internal rating.

II. Proposals from the borrowers, having Internal rating below UCO5 and total
exposure upto Rs 5 Crore , will be considered for sanction as under:-
Proposal falling under the sanctioning power of Competent Authority

Branches/ZLCC Next sanctioning Authority
HLCAC-II/HLCAC-I/BLCAC/MCB Respective sanctioning Authority
Justification for acceptance of such proposal is to be recorded in the process note.
Above provisions will not be applicable to existing accounts and takeover accounts. For
takeover accounts the bank shall be guided by the provision contained in section 5.8
(D) of this policy document.
Clearance from the respective New Business Committee shall be obtained, wherever
required.
New Proposals will continue to be assessed on the basis of prescribed norms on financial
indicators, future potential of the industry and the group to which it belongs, satisfactory
market report etc.
In respect of borrower having exposure above Rs 5 crore for fresh / enhancement, the
guidelines are as under :
i. For fresh exposures, borrowers have an External credit rating of BBB (+ ) or above;
ii. For enhancement of pre-existing exposure,-
1. Borrowers have a External credit rating of BBB(+) or above, or

2. There has been no downgrade in External credit rating since the last sanction
In respect of borrower having exposure above Rs 5 Crore for fresh/ enhancement,

permission for deviation from existing External Credit Rating guidelines, may be given by
MCB based on merit of the proposal.
Additional credit rating if required may be obtained and the cost of obtaining the
additional credit rating shall be borne by the borrowers.
7.1.2 Obtaining of CIBIL/CRIF High Mark Report:
In addition to obtaining market reports, obtaining credit information report (CIR) is

mandatory in all cases of fresh sanction and renewal/review except for staff welfare
loans, Loan against bank deposits, gold ornaments, NSC, KVP, LIC policies and Central
Government and State Government and Public Sector Undertaking( PSU) , where credit
risk is insignificant. No credit proposal should be sanctioned / renewed without search
report (s) from CIBIL and / or CRIF High Mark database as applicable and search report
from the above two Credit information companies, as applicable, would form an
integral part of the appraisal/ sanction process.
The CIBIL report should not be more than 45 days older than the date of Sanction of Loan
Proposal.
The detailed guidelines regarding CIBIL/CRIF High mark are given in Chapter 10 of Part B
of Loan Policy Document - 2019.

7.1.3 Obtaining report from Central Economic Intelligence Bureau (CEIB):
A report is to be obtained by the Branch from CEIB on any prospective borrower except
Central Government and State Government and Public Sector Undertaking( PSU) while
processing a loan proposal exceeding Rs.50 crore at pre-sanction stage. The report shall
be part of the Memorandum and its synopsis is to be incorporated therein.
Similarly a report has to be obtained from CEIB when a loan account turns NPA
exceeding Rs 50 Crores. The report shall be the part of the reporting system which is
required after loan account turns NPA.
The information given by CEIB is to be treated as confidential and branches / offices

can make independent enquiry discretely without disclosing he information or the
source of the information to applicant / public or anybody further.
7.1.3.1 Legal entity Identifier (LEI) for large corporate borrower
RBI has decided that banks are required to make it mandatory for corporate borrowers
having aggregate fund-based and non-fund based exposure of Rs 5 Crore and above
from any bank to obtain Legal Entity Identifier( LEI) registration and capture the same in
the Central Repository of Information on Large Credits( CRILC). This will facilitate
assessment of aggregate borrowing by corporate groups, and monitoring of the
financial profile of an entity/ group.
The requirement will be implemented in a calibrated, but time-bound manner.
Accordingly, the borrower company with exposure of Rs 50 Crore and above should
obtain LEI code within in the time period allowed by RBI.
Borrowers who do not obtain LEI as per the schedule are not to be granted renewal /
enhancement of credit facilities.
Large Borrower should be encouraged to obtain LEI for their parent entity s well as all
subsidiaries and associates.
The LEI code should be renewed as per Global Legal Entity Identifier Foundation (GLEIF)
guidelines.
The detail operational guidelines on Legal entity Identifier (LEI) for large corporate
borrower issued by Credit Monitoring Department, HO, from time to time shall be
adhered to.

7.1.4 Borrowers Standards / Financial strength of the borrower/Benchmark Financial
Ratios
The financial strength of the borrower client should be adequate in relation to the
project size/volume of operations proposed to be undertaken and risks involved therein.
a. Permissible range - Benchmark Ratios

Sl. No Parameter Benchmark Range
1 Current Ratio 1:1 – 1.17 : 1
2 Debt Equity Ratio (DER)
i. Term Debt Equity Ratio (DER) 3:1 – 4:1
ii. TOL to TNW Ratio (Leverage Ratio)- 4:1 – 8:1
3 Debt Service Coverage Ratio (DSCR): 1.05:1 -1.5:1
b. Benchmark Financial Ratio and power for Relaxation:
Sl. Parameter Benchmark Relaxation by Relaxation by respective

No Sanctioning HO Level Sanctioning
Authority Authority for the
proposals falling beyond
the power of ZLCC.
1 Current 1.17:1 Upto 1:1 below 1 : 1
Ratio
For Sugar and Tea
Industries – 1:1 during peak
season

2 Debt Term Debt Equity Ratio Debt Equity Ratio Debt Equity Ratio
Equity (DER) - 3:1 Upto 4:1 Above 4:1
Ratio However, in respect of SME,
(DER): capital intensive
manufacturing unit, the
same may be considered
upto 4:1 on case to case
basis.
TOL to TNW Ratio (Leverage Leverage Ratio Leverage Ratio
Ratio)- less than 4:1 Upto 6:1* Upto 8:1 *
However, in respect of SME,
Capital intensive
manufacturing units and
trading concerns (where
creditors are generally very
high) relaxation in
Leverage Ratio upto 6:1
may be considered on
case to case basis.
*In case of NBFC/MFI, LRD & Traders Loans above Bench Mark Ratio will not
be applicable and the concerned Sanctioning Authority shall take a
decision based on the merits of the individual cases.
4 Debt In case of term loans net Average Gross Average Gross DSCR
Service debt service coverage DSCR upto below 1.20 : 1 but not
Coverage ratio (i.e. exclusive of 1.20:1. below 1.05
Ratio interest payable) shall
(DSCR): normally not go below 2.
Minimum Average Gross

DSCR of 1.5:1 will be
considered as reasonable
requirement for new as well
as existing connection.
In case of highly capital

intensive
projects/infrastructure
projects, DSCR upto 1.2:1
may be considered on
case to case basis.
Similarly, risk factor is

relatively lower where
repayments are assured by
way of annuity payments
from the government

Department / lease rentals.
In such cases, DSCR upto
1.3:1 may be considered.
Besides, in many large

construction contracts/real
estate projects repayment
is projected through other
avenues such as advance
/lease payments. In such
cases cash flows from such
sources may also be taken
into consideration while
calculating DSCR.
@ For accounts under the sanctioning power of Head Office, deviation from the above
standards other than Average Gross DSCR may be permitted by the respective sanctioning
authority. Relaxation in Average Gross DSCR can be permitted up to 1.05:1.
While calculating Debt Equity Ratio/leverage ratio unsecured loans may be taken as
quasi-capital provided they are long term in nature. However, these relaxations will be
subject to obtention of undertaking that the level of such unsecured loans shall remain
at the projected level during the currency of bank finance.
Subordinated debt/mezzanine debt may also be considered as part of quasi capital

keeping in view their nature. These types of debts should be subordinated to all other
creditors.
Relaxation of above benchmark ratios may be allowed by the Sanctioning Authority for
the cases other than takeover of accounts. However, in case of the borrower who left
the bank during last 2 years for some reason, the sanctioning authority may allow these
relaxations to them also on case to case basis, giving proper justification.
In case of takeover of accounts, relaxation in benchmark ratios shall not be permitted

without permission of HLCAC-II for cases falling within the delegated powers upto
HLCAC-II. For cases falling under the sanctioning powers of Head Office, deviation from
the above standards may be permitted by the respective sanctioning authority.
Deviation from the appraisal standards may be permitted by the respective authority on
case to case basis on merit. While taking a final view on the current ratio and/or
projected level of current ratio, the authority may examine various options to improve
the ratio such as exploring possibility of injection of additional funds and/or ploughing
back of profits, stipulations for not declaring dividend/non withdrawal of profits,
reduction in the level of non-current assets and liquidation of investments outside
business, if any, within a reasonable time.
Evaluation of risk mitigants available to the Bank in cases where relaxation is being
permitted shall be done and recorded in the process note.

In case of renewal of accounts, where the benchmark ratios are below the benchmark
levels, the sanctioning authority shall explore all possibilities of improving the ratios to the
benchmark levels.
The Benchmark ratios shall not be applicable for the accounts backed by Central Govt
or State Govt. Guarantee and to Central PSU/State PSU and AAA rated accounts.
Cogent reasons/ justification for deviation/ relaxation shall be clearly brought out in the
appraisal note while placing the same before the sanctioning authority.
7.1.5 Treatment of Deferred Tax Liability & Deferred Tax Assets:
Balance sheets of companies are reflecting DTL / DTA on account of difference in

treatment of certain items, like depreciation, as per Companies Law and Income Tax
Rules. Being merely a book entry, while calculating Net worth / Tangible net worth DTL
may be added and DTA should be deducted from the net worth while calculating the
TNW.
7.1.6 Before sanction of Credit proposal/submitting proposal to Sanctioning Authority for

their consideration, following points are to be adhered:
a. Branches must ensure that the basic criteria like KYC, verification of documents,
verification and admissibility of loan for the stated purposes etc. are fully complied with,
before considering such cases for sanction/submission. In other words, conditional
sanction of loan should be avoided.
b. Sanctions must ensure that in the cases of companies, before accepting the loan
application for further processing, it is mandatory to compare the Balance Sheet, P & L
A/c submitted along with Loan application with the Balance sheet, P & L a/c filed with
MOCA (Corporate affairs) website and the officer concerned should certify that aspect
on file along with a copy of B/S, P & L etc pages as downloaded & printed from the
official website of MOCA. As such , the branches are advised to incorporate the
aforesaid certification in the memorandum to be submitted to Sanctioning authority.
7.1.7 Obtaining authorization letter from borrower for accessing information from Income
Tax and other authorities
At the time of lending, an authorization letter may be obtained from
borrower/guarantor to enable bank for approaching to income tax and other
authorities to cross verify such information with the information submitted by the
borrower and the guarantor.
The Draft authorization Letter to be obtained from borrower/guarantor for accessing
information from Income tax and other authorities is given in Loan Policy document Part-
B.
7.2 Appraisal Standards
7.2.1 Methods of Lending & Assessment of Working Capital finance
In regard to assessment of working capital needs, Reserve Bank of India has withdrawn
in April 1997, the prescription based on the concept of Maximum Permissible Bank

Finance. Banks are now free to evolve, with the approval of their Board, methods for
assessing the working capital requirements of borrowers, within the prudential guidelines
and exposure norms prescribed. Banks, however, have to take into account Reserve
Bank‟s instructions relating to directed credit (such as priority sector, export, etc.)
quantitative limits on lending (such as against shares) and prohibition of/ restriction on
credit (such as bridge finance) while formulating their lending policies.
With the above liberalization, all the instructions relating to MPBF issued by RBI from time
to time stand withdrawn. The operational instructions of RBI which are no longer
mandatory but will continue to be followed by the Bank for ensuring credit discipline
(with certain modifications) have been incorporated.
In the light of the freedom given to the banks following methods of lending have been
adopted.
Method of
Category of borrower Working Capital requirement
assessment
Projected Borrowers in industry For working capital limits below Rs 2 crore from the
Turnover and trade segments banking system, turnover method for all industrial
Method and other borrowers {excluding village /tiny and
other MSE units (new as well as existing)} would be
adopted.
The turnover method will also be applicable for

assessment of credit requirements of all MSE units
(new as well as existing) whose fund based working
capital limits are up to Rs 5 crore from the banking
system.
MSME Borrowers MSME Borrowers

transacting digitally
The Working Capital The working capital
limit sanctioned to limits sanctioned to
MSME units Under MSME units that
different schemes transact digitally with
shall be assessed at their customers shall
minimum 25% of be assessed at
projected annual minimum 30% of
sales. projected annual
sales.
The Margin shall be The Margin shall be
6% of the projected 7.50% of the projected
annual sales annual sales.
Guidelines for identification of enterprises

transacting digitally:
1. All such enterprises having minimum 25% of the

projected turnover as digital transactions shall be
eligible for minimum 30% as working Capital of

Annual projected turnover.
2. However transaction involving cash & paper

based instruments ( Cheque, DDs, POS etc) are to
excluded while working out the volume of digital
transactions.
3. The assessment of limit on digital portion of

projected turnover may be based on past & current
trends.
4. The branches shall review the digital transaction

done in the borrowal account on half yearly basis.
In case of non-confirmation, the branch shall take
up with the borrower for re-assessment of working
Capital limit during the annual renewal of the
borrowal account.
Additionally, the assessment of Working Capital

requirement of such unit should be done as per
traditional method and if the requirement so
computed is higher than the one assessed on
projected turnover method basis, the bank should
consider the same.
The above guidelines have been framed assuming

an average working capital cycle (expressed in
sales value) of 3 months i.e. the working capital
provided would be rolled over 4 times in a year. It is
possible that in certain industries/ trade, the working
capital cycle may be less than or equal to 3 months
and in all such cases the borrower will receive
working capital finance from Bank to the extent of
20 per cent of turn-over. Where the cycle is longer
than 3 months then automatically the assessment as
per traditional method will be higher and the
borrower will be required to bring in proportionately
higher stake in relation to his requirement of Bank
finance so as to ensure borrower‟s stake at
minimum 1/5th of the working capital requirement.
Note: Branch/Sanctioning Authority should
scrutinize the following year‟s projection given by
the borrower vis-à-vis achievement during the last
two years and accept such projection which is
reasonable and achievable. In case of new units,
the capacity, number of working days, number of
shifts, capacity utilization (percentage) etc. should
be duly scrutinized to arrive at the projected level of
operation.

Permissible Borrowers in trade/ Second method of lending will generally be
Bank Finance industry category followed. The level of net working capital (NWC)
(PBF) Method whose working capital will be accepted based on the liquidity ratio
requirements is Rs 2 preferred by the Bank on case to case basis though
crore and above (Rs 5 acceptable bench mark current ratio will be 1.33:1.
crore and above for Relaxation in current ratio may be made in
MSE units) deserving cases by different sanctioning authorities
as stipulated in Section 7.1 of Policy Document. The
bank would continue to follow suggested holding
levels of inventory/ receivables communicated by
RBI for various industries unless relaxation warranted
by past trends.
Relaxation
Financing of working capital is essentially dynamic

in nature and would be dependent on a number of
variables for which precise parameters are difficult
to prescribe. Adequate emphasis on the risk
perception of the advance and borrowers‟ ability
to operate profitably in future without liquidity
constraint based on past record of servicing of
loans and advances and compliance with the
repayment schedule, the integrity of financial
information system provided by the company and
its financial management will be given while
deviation / relaxation is allowed. While allowing
such relaxation a) projected levels of production,
turnover and profitability are to be examined in the
same manner as hitherto done, b) projected level
of inventory / receivables, creditors and other
components of current assets and current liabilities
will be examined with reference to borrowers‟
operating cycle, specific operational strength and
weakness, scale of operation its need to hold the
projected levels of current assets as per business
plan drawn.
Such relaxation in exceptional cases including

where FDRs are offered as collateral security and /
or where the business relationship will give rise to
substantial benefit to the Bank may be permitted by
respective sanctioning committee on case to case
basis. The financing will be made to the extent of
difference between the working capital gap and
acceptable NWC/Contribution from long-term
sources.

Cash Budget Assessment of working The system of assessment is to arrive at cash deficits
Method capital requirement at various intervals viz. Monthly/ quarterly/ half-
for the category of yearly and to fix up suitable limits to cover the
borrowers engaged in
maximum deficit.
seasonal industries like
Sugar, Tea etc, In case of tea and sugar industry because of
Software, Real Estate&
historical background it has not been possible for
Construction
Contractors or any the borrowers in this sector to maintain current ratio
other activity and also of 1.33:1. Nevertheless the advances are
ad-hoc requirements adequately secured by equitable mortgage of tea
be made on Cash estate and therefore the current ratio may be
Budget Method. accepted at minimum level of 1:1.
Maximum Leasing and Hire The Bank will strictly follow the second method of
Permissible Purchase Companies lending for financing Leasing and Hire Purchase
Bank Finance Companies and the existing policy guidelines
Method (MPBF) framed by the Bank.
*For lending under UCO Trader scheme and other schemes of the bank, guidelines
prescribed in the respective scheme is to be followed.
* Wherever assessment of limit can be done through Cash Budget Method the same
should be encouraged.
7.2.2 Project Finance - Appraisal
The feasibility of the project has to be studied from different angles like:
a) Management
b) Commercial
c) Technical
d) Financial
e) Economic
The Techno Economic viability Study provides appraisal of Technological parameters of

a project and its impact on the financial viability of the project. The TEV Study is a risk
mitigation task undertaken in respect of any project financing prior to decision taken by
Bank, whether bank should lend for such project or not.
For obtaining TEV study report following guidelines to be followed:
1. For Greenfield project/ in case of the expansion in different line of activities for
existing customer, TEV study is mandatory forproject cost of Rs.25.00 Crores and
above.
2. In case of existing Project, TEV study report is required for CAPEX loan / loan for
purchase of new machinery in the same line of activities/ purchase of plant and
machinery for replacement or otherwise without any capacity enhancement
having additional project cost more than 10% of the original project cost subject to
ceiling specified in point no.1 above.

3. In case of Road Project, Traffic Survey Report, accepted by NHAI or State Highway
Authority, along with projected financials is sufficient and TEV study report is not
mandatory. If the Road Project is backed by Annuity, then Road Traffic Survey
Report may not be insisted upon.
4. In case of consortium lending, we may accept TEV report of Lead Lender / other
lenders in the consortium.
5. However HO Level Committee may permit relaxation in TEV Study on case to case
basis.
6. TEV report of the Project is to be vetted by Technical Cell at HO, Credit,
Department
7. In case of project funding of above Rs 50 Crore analysis of Group Balance Sheet is
mandatory for assessment of Non funded Exposure and related risk factors
including fund flow to ensure payment on due date on Non Fund based exposure,
is to be carried out ( in process note). In case, where Group Balance Sheet is
neither mandatory nor available, the Balance sheets of each and every Unit/Group
concerns is to be obtained and analysed.
8. For Project finance more than Rs 50 Crores , additional data Litigation Listing for the
Borrower should be obtained from third party Sources .Record of such pre-sanction
checks to be kept as part of the sanction documentation.
7.2.3 Operational instructions in respect of working capital
(Issued by RBI, which have, at present, ceased to be mandatory but will continue to be
followed by the Bank with certain modifications)
I. Bank finance to leasing concerns should be restricted only to “full pay out” leases
i.e. those leases where the cost of the asset is fully recovered during the primary
lease period itself and further it should cover purchase of only new equipment. As
a prudent policy, lease rentals due during the period of next five years should
alone be taken into account for the purpose of lending.
II. Stipulated minimum Net Working Capital may be reckoned after excluding
receivables on account of exports from the current assets.
III. Guidelines issued by RBI on classification of current assets and current liabilities
with certain changes viz. Non-inclusion of receivables in the form of sales bills
(Inland & Export) under LC as Current Assets, non-inclusion of bank borrowing in
the form of LC bills purchase/discounting as Current liability (to be taken as
contingent liability instead) and inclusion of Cash margin for LCs & Guarantees
(for working capital purposes) as Current Assets made by the Bank in Alternative
Method of Assessment.
IV. As per RBI guidelines, review of all borrower accounts enjoying fund-based
working capital credit limits of Rs 10 lacs and above should be undertaken at
least once a year. The Bank will undertake review/renewal of all borrower
accounts at-least once in a year for effective monitoring and control.

V. Every borrower enjoying aggregate working capital fund based limit of Rs 1 crore
and above from the banking system should submit statements under Quarterly
Information System/ Monthly Cash Budget System, as the case may be, to enable
the Bank to monitor the accounts effectively.
Drawals have to be regulated by Monthly Stock Statements. Unpaid stocks,

stocks held under DALC, acceptances till retirement of bills are to be excluded
for the purpose of computation of drawing power.
The Bank has introduced QMR 1 and HMR I in lieu of QIS II & III respectively. QMR 1
and HMR 1 will be made applicable in case of all borrowers (having working
capital limit of Rs 1 crore and above) irrespective of credit rating for effective
monitoring.
For better monitoring of advance accounts, in our Bank, large advance

accounts of Rs 50 lacs and above but less than Rs 1 crore have also been
brought under the purview of QIS on selective basis as per terms of sanction of
the sanctioning authority. Hence, QIS statements, wherever specified, shall
continue to be obtained in respect of these accounts.
VI. Cash margins deposited by the borrower in respect of LC and Guarantee

facilities availed of for working capital purposes will be treated as current assets.
VII. Investments like fixed deposits with Banks, units of UTI, temporary investment in
commercial paper, certificate of deposit will be treated as current assets
provided they are receivable within one year.
VIII. The entire term loan installments due for payment in the next 12 months need not
be treated as an item of Current Liabilities for the purpose of arriving at
Permissible Bank Finance (PBF). However, all overdue term loans should be
treated as current liability unless the loan has been rescheduled by the financial
institutions/Banks. While the entire amount of term loan installments payable
within the next 12 months need not be considered as an item of current liabilities
for computation of PBF and NWC, but for the purpose of calculating the Current
Ratio, the entire amount of term loan installments due within next 12 months shall,
however, continue to be treated as Current Liabilities.
IX. With a view to prevent diversion of fund in respect of working capital limits of Rs
10 crore and above, Branches shall closely monitor the end use of funds by inter-
alia taking the following measures:
a) Chartered Accountants‟ certificate for end use of funds shall be obtained

on quarterly basis.
b) In case of incorrect certification, prompt action as may be warranted,
(which may include withdrawal of the sanctioned facilities and legal
recourse as well) be initiated including suitable steps against the Chartered
accountant who issued the wrong certificate.

X. Guidelines regarding transfer of borrower accounts such as obtaining credit
information report by the transferee bank from the transferor bank, completion of
documentation and other formalities, independent assessment of the borrower
account by the transferee bank etc. as contained in the Policy on Take-over of
borrowal accounts from other banks / financial institutions shall be adhered to.
7.2.4 Appraisal of proposals of Group concerns
Credit proposals of borrowers coming under a group should be assessed keeping in

consideration, among others, the following:
1) The conduct of other accounts of the group with us or with other banks and their
IRAC status.
2) Completion of necessary formalities for creating charge on the securities as

stipulated in the existing accounts.
The controlling branch shall obtain the financial statements and credit information
reports on such accounts regularly and forward the same to the sanctioning authority
and keep it in their records.
It is being emphasized that while considering credit proposal from a group, the financial
strength, operational indicators, credit facilities availed of from banking system, should
be ascertained and analyzed by the sanctioning authority.
Where a higher authority sanctions a particular facility to a borrower or any borrower

belonging to a group, and when the borrower or any borrower belonging to the same
group subsequently requires another /additional limit which falls within the delegated
powers of a lower authority, the lower authority shall not exercise its powers but forward
the proposal to the same authority for consideration.
7.2.5 Exit criteria for recalling/closing existing borrowal accounts
The objective of exiting from an account is to come out from the exposure, which is
proving non-remunerative and undesirable.
There could be a number of signals/symptoms indicating the desirability of exiting an

account. Indicative lists of symptoms which may warrant exit are as under:
1. Conflict amongst the partners/ directors/ trustees, which is detrimental to the

progress of the unit and may cause delinquencies in the account at a later stage.
2. Continuous deterioration in the health of the account.
3. Reports about the Borrower defaulting with other banks/financial institutions.
4. Instances of diversion/ siphoning of Bank‟s funds by the borrower.
5. Steep depletion in value of security.
6. Leaving of key person(s) from the organization.
7. Sudden stoppage of transactions in the account.

On noticing any of the above aberrations or any other detrimental signal in a borrowal
account, functionaries at all levels need to diligently handle the situation on case-to
case basis. Some measures, which may be taken under such circumstances, are given
below for guidance. Since these measures may eventually result in exiting the account,
these should be taken under advice and guidance of the next higher authority.
1. The account may be reviewed immediately and concessions, if any, may be

withdrawn and borrower may be asked to bring in additional security/guarantee.
The borrower may be counseled either to remove the aberrations or look for
alternate source of finance from other bank/financial institution etc.
2. Borrower may be counseled and advised that Bank would not take any further
exposure in his account, in case the aberrations noticed are not removed within a
given timeframe.
3. In cases, where aberrations persist, possibility of bringing down the exposure may
be explored.
4. In case the borrower does not cooperate and remove the aberrations noticed in
the account, the account may be marked for recovery and suitable recovery
measures may be initiated.
5. The exit, if looks inevitable, may be made only after obtaining permission from next
higher authority.
7.2.6 Loan System for delivery of Bank Credit
With a view to enhance credit discipline among the larger borrowers enjoying
working capital facility from the banking system, delivery of bank credit for such
borrowers shall be as under:
a. Minimum level of 'loan component' and Effective date
In respect of borrowers having aggregate fund based working capital limit of Rs.
1500 million and above from the banking system, a minimum level of 'loan
component' of 40 percent shall be effective from April 1, 2019. Accordingly, for
such borrowers, the outstanding 'loan component' (Working Capital Loan) must
be equal to at least 40 percent of the sanctioned fund based working capital
limit, including ad hoc limits and TODs. Hence, for such borrowers, drawings up
to 40 percent of the total fund based working capital limits shall only be allowed
from the 'loan component'. Drawings in excess of the minimum 'loan
component' threshold may be allowed in the form of cash credit facility. The
bifurcation of the working capital limit into loan and cash credit components
shall be effected after excluding the export credit limits (pre -shipment and post-
shipment) and bills limit for inland sales from the working capital limit.

Investment by the bank in the commercial papers issued by the borrower shall
form part of the loan component, provided the investment is sanctioned as part
of the working capital limit.
b. Sharing of Working Capital Finance
The ground rules for sharing of cash credit and loan components may be laid
down by the consortium, wherever formed, subject to guidelines on bifurcation
as stated in paragraph 1 above. All lenders in the consortium shall be individually
and jointly responsible to make sure that at the aggregate level, the 'loan
component' meets the above mentioned requirements. Under Multiple Banking
Arrangements (MBAs), each bank shall ensure adherence to these guidelines at
individual bank level.
c. Amount and tenor of the loan
The amount and tenor of the loan component may be fixed by banks in consultation
with the borrowers, subject to the tenor being not less than seven days. Banks may
decide to split the loan component into WCLs with different maturity periods as per the
needs of the borrowers.
d. Repayment/Renewal/Rollover of Loan Component
Banks/consortia/syndicates will have the discretion to stipulate repayment of the

WCLs in installments or by way of a "bullet" repayment, subject to IRAC norms. Banks
may consider rollover of the WCLs at the request of the borrower, subject to
compliance with the extant IRAC norms.
e. Risk weights for undrawn portion of cash credit limits
Effective from April 1, 2019, the undrawn portion of cash credit/ overdraft limits
sanctioned to the aforesaid large borrowers, irrespective of whether unconditionally
cancellable or not, shall attract a credit conversion factor of 20 percent.
The guidelines are effective from April 1, 2019 covering both existing as well as new
relationships. The 40 percent loan component will be revised to 60 percent, with effect
from July 1, 2019.

7.2.7 Non-Fund Based business
a) Non-fund based business being an important segment, which accounts for

substantial contribution to Bank‟s income will continue to remain thrust area for the
Bank for profit maximization without funds outflow. However, in view of potential
risks of invocation/devolvement the Bank will continue to remain selective and rely
on competence of the borrower for execution of the contract and also financial
strength to meet unforeseen liabilities.
b) The Bank will continue to follow the same standard for appraisal for non-fund
based facilities as in the case of fund based loans and advances. Proper appraisal
should be made in respect of nature of contract, track record of the company,
financial strength, integrity and reputation of the borrower, contents of the
guarantee to satisfy that the terms are unambiguous and the guarantee does not
contain any onerous clause.
c) This loan policy emphasizes requirement of Margin in Cash/FDR for LCs and
Guarantees. The sanctioning authorities are expected to stipulate margin normally
at 25%.However, discretionary powers to relax/waive Margin have been stipulated
in Section 6.10.5 of Loan Policy document.
d) The Bank shall not, in terms of RBI guidelines, execute guarantees covering inter-
company/firms deposits/loans and shall also not issue guarantees for the purpose
of indirectly enabling the placement of deposits with non-banking institutions. This
stipulation shall apply to all types of deposits/loans irrespective of their source e.g.
deposits/ loans received by non-banking companies from trusts and other
institutions.
e) The total guarantee limit should not be disproportionately large vis-à-vis the net
worth of the company.
f) Standard of appraisal for DPG and term loan should be same and the margin
requirement for DPG should be decided in such a manner that cash margin (say
10 per cent) for DPG plus advance payment made (say 15 per cent) to the
supplier should not be less than the margin required for term loan. Acceptable
norm shall be 25% (minimum) comprising the two components stated above.
g) Bank‟s extant guidelines on appraisal standard and procedure to be followed for

non-fund based facilities and detailed guidelines in respect of assessment of
requirement of Bank guarantees and LCs to be adhered to.
h) Going by the past experience the Bank envisages the following approach:
 Non-fund based facilities (LCs and guarantees) shall be considered as part of

working capital requirement of the company. LCs (capital goods) for import /
procurement of machinery / equipment should be sanctioned only after the
Bank is fully satisfied about the tie up of the term loan with the Bank or financial
institutions or availability of requisite funds for retirement of documents under
LC.

 For sanction of LCs (capital goods) only HLCAC-II and above committee
should exercise the lending powers. However, ZLCC may permit opening of
LCs for capital goods against duly sanctioned matching Term Loan facility.
For construction companies and other reputed contractors with good track
record, issuance of guarantees (bid bond performance/ advance payments,
guarantee in lieu of retention money etc.) could be considered on merits as
turnkey contracts awarded by Government Department / other reputed
companies are normally self financing in nature. However, it has to be ensured
that there is no short fall in the cash budget so that the contract could be
executed within scheduled period and possibility of invocation shall be least.
Overdraft/cash credit to meet the shortfall in selected cases may also be
considered on merits.
 Guidelines of RBI/FEDAI/UCPDC 600to be followed in case of foreign LCs and

exchange risk to be covered by proper hedging.
7.2.7.1 Trade Credits for Imports into India
Trade Credits‟ (TC) refer to credits extended for imports directly by the overseas supplier,
bank and financial institution for maturity of less than three years. Depending on the
source of finance, such trade credits include Suppliers‟ Credit or Buyers‟ Credit.
Suppliers‟ credit relates to credit for imports into India extended by the overseas
supplier, while buyers‟ credit refers to loans for payment of imports into India arranged
by the importer from a bank or financial institution outside India for maturity of less than
three years.
It may be noted that buyers‟ credit and suppliers‟ credit for three years and above
come under the category of External Commercial Borrowings (ECB) which are
governed by ECB guidelines.
In connection with the Trade credit and ECB, branches are to follow RBI circulars issued
from time to time.
7.2.7.2 Letter of Comfort (LOC):
Buyer‟s credit is the credit availed by an Importer (Buyer) from overseas Lenders i.e.
Banks and Financial Institutions for payment of Imports on due date. The overseas Banks
usually lend the Importer (Buyer) based on the letter of Comfort (sort of Bank
Guarantee) issued by the Importers (Buyer‟s) Bank. In fact the Importers Bank acts as
mediator between the Importer and the overseas lender for arranging buyer‟s credit by
issuing its Letter of Comfort for a fee.
7.2.7.3 Stand by Letters of credit (SBLC):
Branches must assess the inherent risk in a standby LC covering import of goods. The
facility of issuing standby LC to be extended on a selective basis. The Inland Standby LC
shall also be issued on selective basis only where the beneficiary is a reputed
organization.

Unlike documentary credits, banks do not hold original negotiable documents of titles to
goods (such as original Bill of Lading), while assessing and fixing credit limits for standby
LCs, the limit must be secured by way of tangibles security/cash margin etc.
The issuing branch should obtain satisfactory credit report (having sufficient net worth
vis-à-vis liability) from reputed organization like Dun and Bradstreet on the
beneficiary/supplier before issuing standby LC and should be guided by the UCPDC
and RBI guidelines issued from time to time.
Separate limit should be established for standby LC rather than permitting it under the
regular documentary LC limit.
7.2.8 Bank Guarantees
As regards the purpose of the guarantee, as a general rule, the bank should confine
themselves to the provision of financial guarantees and exercise due caution with
regard to performance guarantee business. The following points should be given
importance:
1. As a rule, bank should avoid giving unsecured guarantees in large amounts and
for medium and long-term periods. Undue concentration of such unsecured
guarantee commitments to particular groups of customers and/or trades should
be avoided.
2. At the time of issuing financial guarantees, bank should be satisfied that the
customer would be in a position to reimburse the bank in case the bank is required
to make payment under the guarantee.
3. In the case of performance guarantee, bank should exercise due caution and
have sufficient experience with the customer to satisfy themselves that the
customer has the necessary experience, capacity and means to perform the
obligations under the contract and is not likely to commit any default.
4. Guarantees issued should be specific and unequivocal as regards
(i)Amount (ii) Period (iii) Beneficiary (iv) Purpose
5. The following type of guarantees should not be issued unless otherwise permitted
by competent authority:
a) Guarantees having unlimited validity /maturity of more than 10 years

excepting in favour of courts backed by 100% margin. However, where the
Bank extends long term loans for period longer than 10 years for various
projects, the Bank Guarantee may be issued for period beyond 10 years.
b) Guarantees in respect of deposits /loans received by any person/Non-

Banking Finance Companies from any source.
6. Guarantee should not contain any onerous clause or liability for payment of interest
and as far as possible will be issued on the „Model Form‟ as approved by Bank. The

liability of the Bank should be clearly determined in terms of amount and time. If
deemed necessary, the guarantee format may be got vetted from the Law
Department at ZO/CO/HO.
7. Guarantees will be issued by the bank on behalf of the borrower without, in any
manner, implying a commitment to allow additional credit facilities to the
borrower for payment of claims against guarantees.
8. Efforts shall be made to ensure that securities available for fund-based limits are also
able to cover BG and vice versa.
8. Whenever Performance/Financial BGs are issued, it is to be ensured that

assessment of non-fund based limits is subjected to the same degree of
appraisal/ scrutiny as in case of fund based limits.
Period of Bank Guarantee:
No bank guarantee shall normally be issued with a maturity of more than 10 years.
However where the bank extends long term loans for period longer than 10 years for
various projects, the Bank Guarantee may be issued for period beyond 10 years.
The guarantee should be for a definite period. However in case of Guarantee in favour
of Director General of Supplies and Disposal (DGS&D) and Customs Department if the
request for renewal is received by the branch within the validity period then the same
can be renewed at branch Level irrespective of its original sanctioning authority.
Sanctioning Authority:
(i) Sanctioning Authority of Branches headed by officer up to the level of Scale IV

can approve, after observing the usual precautions, issuance of guarantees for a
period up to3 (three) years, subject to the condition that such guarantees are
required for the normal genuine business operations of the borrower / customer.
Where 100% cash margin by way of FDR is available, the same authority can
authorize issue of guarantee with period up to 5 (five) years, provided the due
date of FDR and due date of guarantee are co-terminus and business needs of
the borrower justify issuance of such guarantees.
(ii) Sanctioning authority beyond Scale-IV may sanction issuance of Bank Guarantee
for a period exceeding 3 years and up to 10 (Ten) years irrespective of the fact
that the same is covered by 100% Cash Margin or not.
(iii) Issuance of Bank Guarantee beyond 10 years may be allowed by BLCAC/MCB

where the bank extends long term project loan for a period longer than 10 years.
Adequate care should be taken where guarantees are issued with maturity in excess of
three years.
Types of guarantees prohibited:
The following types of guarantees should not be executed by branches, even against
100% margin:

a) Guarantees as to contracts, which are likely to lead to dispute about their actual
performance or which cast on the bank the responsibility to determine the terms of
the contract guaranteed.
b) Guarantees, which are anomalous in their nature and content and create
unknown and undefined responsibilities and liabilities on the bank.
c) Guarantees, which are transferable and assignable in favour of overseas lenders
except for the relaxations permitted under FEMA.
d) Guarantees, which are against good conscience and morality such as to shipping
companies or to railways for converting a claused bill of lading or railway receipt
into a clean one i.e. for not mentioning the actual condition of the goods shipped
or booked which otherwise, would have been mentioned.
e) Guarantees, which restrict the unfettered rights of the bank to pay the amount
guaranteed or call upon them to await decision of a court of law or of arbitration
proceedings before the guaranteed amount can be paid.
f) Guarantees of an unusual nature or with onerous clauses.
g) Guarantees on account of payment of Income Tax may be issued if the same is

backed by 100% margin by way of Cash or FDR.
h) Guarantees for repayment of multiple deposits kept by private financial

companies. Also, guarantees for the purpose of indirectly enabling placement of
deposits with non-banking institutions.
i) Guarantees covering inter-company* deposits / loans. (* Includes firms also)
j) Guarantees on behalf of the State sponsored bodies in respect of loans given by

HUDCO and other financial institutions.
The detailed policy guidelines in the matter are put in place and are being circulated
separately in Chapter 15 of Part B of Loan Policy Document.
7.2.9 Issue of Commercial Paper (CP) by corporate borrowers
As per guidelines issued by RBI a company having a) tangible net worth not less than
Rs.4 crore as per the latest audited balance sheet b) sanctioned working capital limit by
bank(s) or All-India Financial Institution(s) c) borrowing account classified as Standard
Asset and d) THE MINIMUM CREDIT RATING ‘A2’ [AS PER RATING SYMBOL AND
DEFINITION PRESCRIBED BY SECURITIES ANDEXCHANGE BOARD OF INDIA(SEBI)] is
eligible to issue commercial paper.
CPs can now be issued as a stand-alone product. It is not obligatory on the part of
banks and Fis to provide stand-by facility to the issuers of CP. Banks and FIs have
flexibility to provide credit enhancement facility by way of stand-by assistance/credit
backstop facility etc. based on their commercial judgment and as per terms prescribed
by them and also in compliance with prudential norms. Our Bank may extend stand-by
support only for CPs issued by corporates enjoying regular working capital limits with our

Bank on merits. However, BLCAC is authorized to sanction issuance of CPs as a stand-
alone product.
Considering the fact that CPs can be issued for maturities between a minimum of 7 days
and a maximum up to one year from the date of issue, and that the Banks/Fis have
flexibility to fix working capital limits duly taking into account resource pattern of
companies‟ financing including CPs, competent authority for approving stand-by
support by earmarking equivalent amount of CP in the sanctioned fund based limit shall
be as under:
1. Account has not become overdue for renewal i.e. renewal has been done within
last 12 months.
2. Subject to (1) above,
 Accounts falling upto the powers of HLCAC-II: HLCAC-II
 Accounts falling beyond the power of HLCAC-II: Respective Sanctioning

Authority at Head Office level.
Bank may act as Issuing and Paying Agent (IPA) in cases of CPs issued by the
Corporates where our Bank is the leader of the consortium/major bank. While acting as
IPA the Bank would ensure that the issuer has the minimum credit rating as stipulated by
the RBI and amount mobilized through issuance of CP is within the quantum indicated
by Credit Rating Agency for the specified rating. CPs will be held only in dematerialized
form.
7.2.10 Bridge Loan
Banks have been permitted to sanction bridge loans to companies for a period not
exceeding one year against expected equity flows/issues. Such loans should be
included within the ceiling of 40 percent of the banks‟ net worth as on March 31 of the
previous year prescribed for total exposure, including both fund-based and non-fund
based exposure to capital market in all forms.
In terms of RBI guidelines , Bank may also extend bridge loans against the expected
proceeds of Non-Convertible Debentures, External Commercial Borrowings, Global
Depository Receipts and / or funds in the nature of Foreign Direct Investments, provided
the bank is satisfied that the borrowing company has already made firm arrangements
for raising the aforesaid resources / funds.
With relaxation given by RBI, Bank may sanction Bridge Loan/Interim Finance against
commitment made by the financial institutions and/or other banks only in cases, where
lending institutions and/or other banks face temporary liquidity constraints and subject
to the compliance of the following conditions:
1) Prior approval of banks/financial institutions, which have sanctioned the term loan,
is obtained.

2) Commitment from the bank/financial institution that the latter would directly remit
the amount of term loan to our Bank is obtained.
3) The period of loan should not exceed 3 months. In exceptional cases the Bank,
based on the merit of the case and under specific approval of the Board, may
extend repayment period by additional 3 months.
4) The Bridge loan /Interim finance must be utilized for the purpose it has been
sanctioned.
7.2.11 Short Term Loans
Detailed policy guidelines for allowing Short Term Loans to the corporate clients/PSUs
has been put in place and are given as under:
Eligibility:
Bank would consider the proposals from the companies/PSUs, with-in the single / group
borrower prudential ceilings to the existing/ new customers, having internal credit rating
of UCO 5 and above with minimum 2/3rd score in the management rating, based on the
latest financial statements of the company. However, on the strength of corporate
Guarantee/ Central-State Govt. Guarantees, proposals below above-mentioned
benchmarks may also be considered by the Competent Authority as enumerated in the
following para.
Non-Eligible customers:
a) The borrower accounts classified as NPA with any of the lending Bank/Institution will
not be eligible.
b) The restructured accounts, which have not complied with the terms of restructuring.
In other restructured accounts, which are complying with the terms of restructuring,
request of Corporate/ Short Term Loan may be considered to meet genuine
business requirement but not to meet their restructuring obligations, if any.
Purpose:
The loans can be considered for any genuine commercial purpose in line with the
business activity of the customer.
Tenor:
As all Unsecured Short-term loans now would be sanctioned by Board (Management

Committee of the Board), the tenor for such loans may be decided by Board on case to
case basis with maximum tenure of 15 months.
However, secured short term loans may be allowed for period upto 36 months (outer
limit).

Sanctioning Powers:
Proposals for unsecured short term loan would be sanctioned at the level of Board
(Management Committee of the Board).
The secured short term Loan may be sanctioned by BLCAC upto its delegated powers
(and beyond that by MCB) and all such sanctions shall be reported to the Board.
Roll over of short term loan shall be permitted maximum two times in line with RBI
guidelines.
Other unsecured facilities such as TOD etc. shall continue to be governed as per existing
guidelines.
Other Modalities:
a) To get the benefit of Credit Risk Mitigation for lower risk weights in terms of capital
adequacy norms, Bank would strive to have loans, which are guaranteed by state /
central government or guaranteed by the corporate having better external rating
(minimum AA- or its equivalent) than that of the borrowing entity.
b) Mode of repayment may be fixed as equal monthly/quarterly, installments or bullet

payment. Monthly interest is to be serviced in all the cases except where specified
otherwise.
c) The proposals for short-term Loans should carry the future cash-flow statement to
ascertain the repayment of the loan.
d) An undertaking will be obtained from the company to the effect that the funds will
be used strictly for the purpose sought for and these will not be used for any
speculative purpose/ unauthorized purpose.
e) The borrower will undertake that funds are not channeled into the sensitive sector
such as Capital Market, Real Estate or any other sensitive commodities.
f) With regard to utilization of funds, a certificate from CA ensuring end use of funds
should be obtained.
g) In case of non-listed companies, personal guarantee of the principal promoters to

be obtained.
h) In case of short term loans, Post Dated Cheques (PDCs) should be obtained. In case
of PSUs and in exceptional cases from other Corporates, the requirement of post
dated cheques may be waived. However, endeavor should be made to obtain the
same.
i) Any other comfort/security stipulated to mitigate the credit risk.
j) In case of customers availing short term loan from outside the consortium, intimation
about sanction of STL/ Corporate loan will be sent to consortium members prior to
disbursement of the loan.

k) Concerned branch, Zonal office and H.O. Credit Monitoring department would
diaries the due dates of repayment and make necessary follow up to get the facility
adjusted with-in its due date. In case any such loans become NPA, the details shall
be submitted by HO Credit Monitoring Department to MOF, Department of Financial
Services.
7.2.12 Adhoc Facilities
Borrowers many a time approach the Bank for sanction of Adhoc facilities on account
of their sudden need for funds arising out of business compulsions. To ensure that
genuine requirements of the constituents are taken care of, following policy guidelines
have been framed clarifying the scale of finance, period for which it can be allowed
and the sanctioning authority:
a) The proposal for adhoc facility would be considered only when the sanctioning
authority is satisfied that the facility would surely be used for the purpose as
mentioned in the request of the borrower.
b) The branch manager would ensure the genuineness of the adhoc facility
demanded, its period and source of repayment.
c) The delegate who has sanctioned the regular facility would sanction Adhoc facility
within his overall fund-based discretionary powers as prescribed in the
supplementary guidelines. Such authority is restricted to officers in scale-IV and
above and Credit Approval Committees at Zonal Office level and above.
d) Branches headed by lower than scale IV officer would not be having any power to
sanction adhoc facility and proposals from such branches would be considered by
the ZLCC and above within their delegated powers.
e) In accounts where MCB has sanctioned the facility, BLCAC would be the
competent authority to sanction Adhoc facility with a reporting to the Board for
ratification.
f) The amount of Adhoc facility would be restricted to the level of 25% of the regular
sanctioned limits.
g) The Adhoc facility would carry 2% higher rate of interest than that on the regular
limit.
h) The maximum tenor of the adhoc facility shall be three months.
i) Operating guidelines for such facilities shall continue to be followed as contained in

the Bank‟s extant guidelines. Branches should diarise the due date of repayment
and ensure its adjustment with-in the due date.
j) Request for Adhoc facility no to be entertained as a matter of routine.
7.2.13 Deposit- Linked Advances
All credit proposals should be subjected to normal appraisal standards and there should
be no dilution of standards on consideration of receiving deposits. The bank shall avoid
deposit-linked advances in as much as the deposits would remain for short periods while

the credit extended would continue for a much longer period. The unhealthy practices
like those indicated below should be eschewed.
 The existing / prospective borrowers are asked to bring sizeable deposits from
relatives, friends etc.
 The constituents are required to keep a part of the loan amount as deposit
affecting their genuine needs.
 Advances are sanctioned to agents/intermediaries who assisted the banks in

securing the deposits.
7.2.14 Security and safety of advance
While purpose of loan is of utmost importance, proper emphasis has been laid down for
security and safety of advances by obtaining adequate securities with prescribed
/appropriate margin as the case may be.
The Bank has laid down guidelines for obtaining of securities and has specified
approved list of shares, immovable property, and other securities, basis of valuation and
margin thereon which has to be adhered. It has also to be ensured that the credit
facilities/loans/quasi-credit facilities are supported by adequate tangible primary and
collateral securities wherever necessary. Extension of charge over fixed assets and
current assets for securing non-fund based limits should also be obtained, wherever
necessary.
It should also be ensured that the credit facilities/loans are supported by adequate
tangible collateral securities, preferably in the form of liquid securities or fixed assets and
immovable properties, wherever found required based on the credit risks perception.
Nevertheless, availability of collateral securities shall not be the only criterion for arriving
at a credit decision. The purpose for which the funds are being lent and the viability of
the operations for due repayment on schedule shall carry more emphasis over the
security being offered.
An undertaking be taken that security mortgaged are unencumbered.
Collateral security will not be insisted upon in the cases where the RBI directives
specifically prohibit the Banks from doing so, as in the case of priority sector lending or
government sponsored schemes.
Unsecured/clean loans and advances will be granted sparingly and only after careful
appraisal and proper end-use of funds shall be ensured in all such cases.

7.2.15 Collateral Security norms for advances (other than export) to traders not covered
under „UCO Trader‟ Scheme:
Collateral security norms introduced for advances (other than export) to traders not
covered under „UCO Trader‟ scheme are as under:
Credit facilities (FB+NFB) Collateral security norm
For proposals uptoRs 5.00 Crore The same shall be in line with UCO Trader Scheme.
For Proposals beyond Rs 5.00 The proposal shall be sanctioned by ZLCC and the
Crores extent of collateral security to be decided by ZLCC.
No such proposal shall be sanctioned by Branch
Head even if it falls within his powers.
FC Branches may review/renew the existing
Proposals beyond Rs 5.00 Crores for traders not
covered under “UCO Trader Scheme” as per their
delegated lending power.
For Proposals beyond the The proposal shall be sanctioned by respective
sanctioning power of ZLCC sanctioning authority and the extent of collateral
security shall be decided by the respective
For proposals under Consortium Level of collateral security as decided by

/ Joint lending arrangements consortium / joint lending bankers.
Non-fund based credit facilities 1. No minimum margin stipulation for the sanction
by HLCAC-II & above committees i.e. Margin shall
be decided by the respective sanctioning
authority at the level of HLCAC-II & above
committees.
2. ZLCC can sanction with minimum margin of 10%.
3. Branch Managers can sanction LC & BG with
following minimum margin stipulations:
Nature of facility Min Margin
LC(DP)/Performance Guarantee 10%
LC(DA) / Financial Guarantee 20%
Authority for relaxing collateral security shall be as under:

Amount Proposal
Upto Rs.5crore ZLCC
For Proposals beyond Rs.5 Cr, the extent of collateral security to be decided by ZLCC
and above committees, hence no Authority for relaxing collateral security norm is
proposed.
The collateral security may be in the form of:
 Equitable Mortgage of land (not agricultural land) and/or land and building.

 Assignment of LIC Policy (surrender value to be considered).
 Lien/Pledge/Assignment of NSC, Bank‟s own FDR, Govt. Bonds, RBI Bonds (Shares not
to be accepted).
 Any other collateral security acceptable to the sanctioning authority.
External rating is mandatory for all accounts above Rs.5 crores.
Merchandise export related advances to be outside the purview of these norms.
The renewals at existing level will be done by the respective sanctioning authority.
The above norms shall be applicable to all fresh sanction and renewals with
enhancements.
7.3 Guarantee Standard
1) Credit facilities/loans extended to partnership firm and private/public limited

companies will normally be supported by personal guarantees of the
partners/promoters directors. Personal guarantee of its professional directors and
also nominee directors of term lending institutions, etc. will not be insisted upon.
Wherever third party collaterals are obtained, the personal guarantee of such third
party has to be taken.
2) Corporate guarantee of the Flagship Company of the group will be explored

depending on the strength or otherwise of the Applicant Company. Similarly, the
corporate guarantee of the Holding Company to its subsidiary will be normally
insisted depending on the strengths and weaknesses respectively of these
companies.
3) Under consortium lending arrangements, we will be falling in line with the

consortium decision.
4) Independent third party guarantee will be obtained for all small loans, especially
for new loans, unless it is prohibited by the RBI like in the cases of special lending
schemes formulated by the Government. Personal guarantee of close relatives
shall also be acceptable if such guarantees are considered sufficient, going by
their net means.
5) Such personal guarantees will cover both fund based and non-fund based limits.
6) The corporate guarantees shall be registered with ROC. However, the sanctioning
authority will have the discretion to waive this requirement on case to case basis
on merit.
7.4 Personal guarantee of directors and other managerial personnel of borrowing

concerns:
The bank would obtain personal guarantees of directors for the credit facilities, etc.
granted to the corporate, public or private, only, when absolutely warranted after a
careful examination of the circumstances of the case and not as a matter of routine. In

order to identify the circumstances under which the guarantee may or may not be
considered necessary, the bank would follow the following broad considerations:
A. Where guarantees need not be considered necessary:
Ordinarily, in the case of public limited companies, when the bank is satisfied about the
management, its stake in the concern, economic viability of the proposal and the
financial position and capacity for cash generation, no personal guarantee need be
insisted upon. In fact, in the case of widely owned public limited companies, which may
be rated as first class and satisfying the above conditions, guarantees may not be
necessary even if the advances are unsecured. Also, in the case of companies, whether
private or public, which are under professional management, guarantees may not be
insisted upon from persons who are connected with the management solely by virtue of
their professional/technical qualifications and not consequent upon any significant
share holding in the company concerned.
Where the bank is not so convinced about the aspects of loan proposals mentioned
above, it would seek to stipulate conditions to make the proposals acceptable without
such guarantees. In some cases, more stringent forms of financial discipline like
restrictions on distribution of dividends, further expansion, aggregate borrowings, and
creation of further charge on assets and stipulation of maintenance of minimum net
working capital may be necessary. Also, the parity between owned funds and capital
investment and the overall debt-equity ratio would be taken into account.
B. Where guarantees may be considered helpful:
Personal guarantees of directors may be helpful in respect of companies, whether

private or public, where shares are held closely by a person or connected persons or a
group (not being professionals or Government), irrespective of other factors, such as
financial condition, security available, etc. The exception being in respect of companies
where, by court or statutory order, the management of the company is vested in a
person or persons, whether called directors or by any other name, who are not required
to be elected by the shareholders. Where personal guarantee is considered necessary,
the guarantee should preferably be that of the principal members of the group holding
shares in the borrowing company rather than that of the director/managerial personnel
functioning as director or in any managerial capacity.
Even if a company is not closely held there may be justification for a personal
guarantee of directors to ensure continuity of management. Thus, the bank could make
a loan to a company whose management is considered good. Subsequently, a
different group could acquire control of the company, which could lead the bank to
have well-founded fears that the management has changed for the worse and that the
funds lent to the company are in jeopardy. One way by which the bank could protect it
in such circumstances is to obtain guarantees of the directors and thus to ensure either
the continuity of the management or that the changes in management take place with
the bank‟s knowledge. Even where personal guarantees are waived it may be
necessary to obtain an undertaking from the borrowing company that no change in the
management would be made without the consent of the bank. Similarly, during the

formative stages of a company, it may be in the interest of the company, as well as the
bank, to obtain guarantees to ensure continuity of management.
Personal guarantees of directors may be helpful with regard to public limited

companies other than those, which may be rated as first class, where the advance is on
an unsecured basis.
There may be public limited companies, whose financial position and/or capacity for
cash generation is not satisfactory even though the relevant advances are secured. In
such cases personal guarantees are useful.
Cases where there is likely to be considerable delay in the creation of a charge on

assets, guarantee may be taken, where deemed necessary, to cover the interim period
between the disbursement of loan and the creation of the charge on assets.
The guarantee of parent companies may be obtained in the case of subsidiaries whose
own financial condition is not considered satisfactory. Personal guarantees are relevant
where the balance sheet or financial statement of a company disclosed interlocking of
funds between the company and other concerns owned or managed by a group.
C. Worth of the guarantors, payment of guarantee commission, etc.
Where personal guarantees of directors are warranted they should bear reasonable
proportion to the estimated worth of the person. The directors and other management
personnel should not use the system of obtaining guarantees as a source of income
from the company. The Bank would obtain an undertaking from the borrowing
company as well as the guarantors that no consideration whether by way of
commission, brokerage fees or any other form would be paid by the former or received
by the latter directly or indirectly. This requirement should be incorporated in the bank‟s
terms and conditions for sanctioning of credit limits. During the periodic inspections, the
bank‟s inspectors should verify that this stipulation has been complied with. There may,
however, be exceptional cases where payment of remuneration may be permitted e.g.
where assisted concerns are not doing well and the existing guarantors are no longer
connected with the management but continuance of their guarantees is considered
essential because the new management‟s guarantee is either not available or is found
inadequate and payment of remuneration to guarantors by way of guarantee
commission, allowed.
D. Personal guarantees in the case of sick units:
As the personal guarantees of promoters/directors generally instill greater accountability

and responsibility on their part and prompt the managements to conduct the running of
the assisted units on sound and healthy lines and to ensure financial discipline, the bank,
may in its discretion, obtain guarantees from directors (excluding the nominee directors)
and other managerial personnel in their individual capacities. In case, for any reasons, a
guarantee is not considered expedient by the bank at the time of sanctioning the
advance, an undertaking should be obtained from the individual directors and a
covenant should invariably be incorporated in the loan agreement that in case the
borrowing unit show cash losses or adverse current ratio or diversion of fund, the

directors should be under an obligation to execute guarantees in their individual
capacities, if required by the banks. The bank may also obtain guarantees at its
discretion from parent/holding company when credit facilities are extended to
borrowing units in the same Group.
Guarantees of State Government:
The guidelines laid down above for taking personal guarantees of directors and other
managerial personnel should also be followed in respect of proposal of State
Government undertakings/projects and guarantees may not be insisted upon unless
absolutely warranted. In other words, the bank could obtain guarantees of State
Governments on merits and only in circumstances absolutely necessary after thorough
examination of the circumstances of each case and not as matter of course.
7.5 Time norms for disposal of loan applications:

The Bank will follow the time norms for disposal of loan applications in line with Citizens‟
Charter as stated below:
Level of Sanctioning Authority Time limit

Approval granted by Branch Manager Within 30 days
Approval to be granted by Retail Hubs / other processing Centre Within 15 days
Approval to be granted by ZLCC Within 45 days
Approval to be granted byHLCAC II / HLCAC I /BLCAC Within 60 days
Approval to be granted by MCB Within 90 days
 Above time limit will be counted from the date of receipt of complete proposal.
 This time limit is the maximum time within which the loan application is to be
disposed of. Scheme or segment specific time limit fixed / to be fixed by the bank
shall continue subject to the above maximum time limit.
7.6 Approach to Consortium Finance/ Joint Lending Arrangement
Depending upon the financial strength, prospects of the industry, credit rating, value of
the connection and exposure norms, the Bank‟s share in consortium lending would be
determined. The minimum share for participation in consortium lending shall be 10% for
new exposure. MCB shall have the power to approve consortium lending with below
10% share, with proper justification. Our share in consortium where we are the leader will
generally not exceed 60% of the total fund based requirements and where we are the
members, the maximum share will be 40% depending upon the overall share of
respective consortium members and bank‟s risk perception about the account.
Nevertheless because of the said guideline, the present percentage of share need not
be reduced in case of any existing borrower account in case the credit rating is UCO 4
or above and account is regular in all respects. Keeping in view that fee-based income
normally accrues from ad-hoc/additional non-fund based limits to leader of the
consortium; the Bank would explore the possibility of increasing its leadership in as many
consortium accounts as possible. The Bank would also explore avenues to enter into
new consortium keeping in view the credit risk perception and by following laid down

norms for extending credit to new accounts. The Bank will also take pre-emptive
measures to reduce the exposure in case of deterioration in the financial health of the
company.
In order to have meaningful and effective discussion, executives from controlling offices
shall attend the consortium meetings to present the bank‟s view.
A separate policy on Joint Lending Arrangement has been put in place by the Bank
and is being circulated separately in Chapter 18 of Part B of Loan Policy Document -
2019.
7.6.1 Guidelines on acceptance of assessment of WC Fund Based and Non-Fund Based

limits for the Consortium where our bank is the leader of Consortium by the respective
functional General Managers at Head Office level
In the cases where our bank is the leader of the consortium and the limits are within the
delegated powers of HLCAC II/ HLCAC I / BLCAC / MCB, in order to facilitate
expeditious financial closure, following procedure will be adopted:
1. The Borrower Company will submit the detailed proposal to the branch, including
assessment of WC FB & NFB Limits & CMA. The branch will scrutinize the assessment
of the limits and after being fully satisfied with the assessment, the proposal will be
submitted to the controlling office for their recommendations to Head Office on the
said proposal. The branch will also submit the proposal to the respective
departments at Head Office simultaneously.
2. After getting recommendations from Zonal Head the respective functional

department, at HO level will assess the same and put up to respective GM for
approval / acceptance of the assessment for the consortium as a whole. The
acceptance will be conveyed to the branch. On receipt of such acceptance, the
branch being the leader of the consortium will circulate such accepted assessment
of WC FB & NFB Limits to the member banks for sanction of their respective shares in
the assessed WC FB & NFB Limits.
3. In the meantime, the respective departments at HO level will continue processing of

the proposal and will place it before HLCAC II/ HLCAC I / BLCAC / MCB for their
approval of our share in WC FB & NFB.
7.7 Industry/Sector specific Policy
7.7.1 Infrastructure Projects
For financing to Infrastructure projects, prior clearance will be required as per provisions
contained in para (3.10) on Prior clearance for sanctioning credit proposals under
restricted sectors, industries etc.
Infrastructure financing is relatively new and a promising area as this is an area of

National priority. Government has taken certain steps to promote infrastructure projects
and has opened ways for effective public sector and private sector participation in
such projects.

Our participation in infrastructure financing shall be to a large extent by way of sanction
of term loans/DPGs/guarantees/ Capex Lcs for technically feasible and financially
viable and bankable projects undertaken by both private and public sector
undertakings subject to the following conditions:
1. Amount of term loan sanctioned shall be within the prudential exposure norms
prescribed by RBI from time to time as also the exposure limit prescribed by our
Board.
2. Joint participation with All India Financial Institutions and major public sector Banks
like SBI, Bank of Baroda etc. will be preferred. The feasibility reports made by the
leading institutions will also be studied carefully and our approach will be very
selective considering the large quantum of the Credit Facilities involved.
3. Policy Guidelines on Flexible Structuring of Long Term Project Loans to Infrastructure

and Core Industries:
A policy in consonance with RBI guidelines has been framed to restructure term loan
accounts to infrastructure projects and core industries.
 The guidelines are applicable to new as well as existing accounts.
 The tenor of Amortisation schedule i.e. repayment period of such loan may be
fixed up to 25 years if it is not more than 85% of initial concession period or
economic life of the project.
 The initial loan may be sanctioned for 5-7 years. The repayment at the end of
this period can be fixed as bullet repayment, with the intent specified up front
that it will be refinanced.
 Such structuring of existing loans shall not make them restructured one subject
to the guidelines issued by Credit Monitoring Department from time to time.
4. In respect of public undertaking by public sector units, the term loans may be
sanctioned only for corporate entities (i.e. public sector undertakings registered
under Companies Act or a corporation established under the relevant statute).
Further such term loan should not be in lieu of or to substitute budgetary resources
envisaged in the project. The term loan could supplement the budgetary resources
only if such supplementing was contemplated in the project design.
7.7.2 Information Technology (IT) and Software Industry:
Prior clearance for the proposals up to Rs 5 Crore is to be obtained from HLNBC and for
proposals above Rs 5 Crore Prior clearance to be obtained from the BLNBC. Sanctioning
authority for such proposals shall be ZLCC and above Authority according to their
delegated sanctioning power.
While genuine credit needs of the sector will be addressed, considering the fact that the
area is new we will tread cautiously. ECGC cover wherever available shall be taken by
the bank to mitigate the risks.

7.7.3 Financing of receivables through Bills:
Separate Scheme for financing receivables exclusively through bills route has been
approved by the Board. In order to promote payment discipline which would to a
certain extent encourage acceptance of bills, all corporate and other constituent
borrowers having turnover above threshold level of Rs.1000 crores would be required to
disclose „aging schedule‟ of their overdue payables in their periodical returns submitted
to the bank.
7.7.4 Discounting / Rediscounting/Purchasing/Negotiating of Bills under Letter of Credit

(ILC/FLC):
7.7.4.1 Discounting/ Purchasing/Negotiating of Bills under Letter of Credit
Major points of the guidelines for Discounting of Bills under Letter of Credit advised by
HO from time to time are as under:
1) Eligible Borrower:
a. The companies with good market standing, credit worthiness and good track
record with annual Sales Turnover of Rs.10 Crore and above will be
considered for such facility.
b. The Firms (Proprietorship and Partnership) with good market standing,
creditworthiness and good track record with annual sales turnover of Rs.10
crores and above will be considered for such facility only when LCs are
received and accepted through SFMS.
The Firms and companies with good market standing, creditworthiness and good track
record with annual sales turnover less than Rs.10 crores may be permitted by ZLCC on
case to case on merit basis.
2) Branches/ Offices shall sanction/ fix-up regular limit for discounting/ negotiation of
Bills drawn under LCs of the 1st Class Banks as per procedure laid down. However,
for the purpose of overall aggregate commitment per borrower, limit fixed for
Negotiation of inland / foreign discounting bills under irrevocable LCs shall not be
reckoned while calculating the exposure on the Borrower.
3) Bills drawn against “without recourse clause” shall not be discounted.
4) Bills drawn under LC representing genuine trade transaction/ sales only will be
considered for discounting. No accommodation bill shall be accepted for
financing.
5) Bills of services sector may be accepted for discounting if it is ascertained to the

satisfaction of the bank that services have been rendered and bills are not
accommodation bills.
6) LCs must be received through SFMS/SWIFT. Bills should be discounted after
acceptance from LCs issuing Bank through SFMS/SWIFT.
7) The discounted amount of the bill should not be released to the beneficiary of LCs
unless acceptance of payment and due date confirmation of the bills under LCs is

obtained by the branch from the LC opening branch of our Bank/ other Banks.
8) In case of any bill being returned unpaid by the LC opening bank, matter should
be reported to the controlling office with reasons/ factual position and no further
facility to be allowed to the particular borrower till matter is disposed off / settled
by the competent authority.
Discounting of bills for non-constituent customers:
RBI has since relaxed norms and permitted banks to negotiate LC Bills of Non-
Constituent borrowers provided bills drawn under LC are restricted to our bank with a
provision that Customer is KYC compliant and the proceeds are to be remitted strictly to
the bank of beneficiary subject to following terms and conditions.
a) It may be ensured that LCs, under which bills are negotiated, are restricted to our
Bank only.
b) Negotiation of Bills under LC should be taken up within the allocated bank-wise
counterparty exposure limit.
c) The proceeds of the discounted bills should be remitted directly to the bank
account of the beneficiary.
d) Existing provision for negotiation of bills under LC in case of constituent borrowers
and important points mentioned above are also applicable to non-constituent
borrowers.
e) While remitting proceeds, inform the beneficiary bank of the LC Bill negotiation
with reference number etc.
Discounting of Bills under CAPEX LC:
Bills may be discounted under CAPEX LC for procurement of Capital goods as per
following terms:
a) The scheme will be applicable to inland CAPEX LC only.

b) Maximum usance period permitted for CAPEX LC not to be more than 365 days.
c) There should not be any rollover and payment to be received strictly as per due
date.
d) The LC and acceptance of Bill for payment on due date must be received
through SFMS only.
e) All other terms and conditions for LC-BD scheme are applicable to LCBD under
CAPEX LCs.
Discounting/Purchasing /Negotiating of Bills under LC( ILC/FLC) before acceptance:
The guidelines for discounting of bills under Letter of credit before acceptance are as
under:
a. When bills under LC are discounted, the exposure shall be on the LC issuing Banks
only when the bills are accepted and confirmation of payment on due date is

given by them.
b. In case, bills are discounted, without acceptance and confirmation of payment
on due date, the exposure would be on our customer till the bills are accepted
by LC issuing bank.
c. Bills under LC are to be discounted to meet the working capital requirement of
the customer/beneficiary.
d. The letter of Credit must be received through SFMS/SWIFT.
e. Bills and Documents submitted under the LC for discount must be strictly in
conformity with the LC terms.
f. Bank has given separate lending power for discounting of Bills under LC before
acceptance which shall be adhered to.
g. Such facility may be allowed to our corporate clients on selective basis based on
the proven track record of at least for 6months with our bank.
h. Proper appraisal of sanctioning LCBD, to be kept in record.
Discounting of Bills under LC at the request of the Drawee of the Bill (Applicant of LC):
ZLCC and all designated branches may discount/ negotiate Bills under Letter of Credit
at the request of the Drawee of the Bill irrespective of the rating of the beneficiary on
case to case basis on its merit subject to compliance of following terms.
a) Credit needs of the applicant must be assessed and a suitable limit be fixed.
b) The beneficiary of the LC should be limited Company.
c) NOC is to be obtained from the beneficiary of LC for discounting of the bills by the
applicant, except when LC is issued in favour of Central/ State Govt/ PSUs.
d) The proceeds of the bills so discounted are to be remitted directly to the regular
account of the beneficiary.
e) The details of bills so discounted must be communicated to all the regular
bankers/lenders of the beneficiary (Drawee of the bill) on each case at the time of
discounting.
f) LC must be received through SFMS.
g) Acceptance of documents and confirmation of due date must be obtained
through SFMS.
h) Discounting to be allowed only after acceptance of the bill by the LC issuing Bank.
i) In case of drawee based bills, usually the beneficiary does not approach the Bank.
In that case Drawee of the Bill( Applicant of the LC) approaches the bank for
discounting of the Bills with a request to remit the funds to the account of the
beneficiary of the bill under LC.
The Branch should take utmost care, while remitting the proceeds to the account
of the beneficiary. Due enquiry should be made to ensure that the account
belongs to the beneficiary only. Account details of beneficiary to be cross

checked with the beneficiary banker. As far as possible the proceeds should be
remitted to cash credit account of the beneficiary maintained with leader of
consortium/ any member bank. The Beneficiary may also be intimated through
email or through other electronic mode with respect to discounting of the bill and
remittance of the amount to their account. A copy of such intimation to be kept
with the documents for future reference.
Discounting of Bills under LC issued by our Branches:
Only designated Branches should discount bills drawn under LC, issued by our Bank
Branches, when LC is issued in favour of Central/State Govt./PSUs.
However, Branch Heads of FC and AGM Headed branches , may also discount such
LCs issued by our branches , on case to case basis.
While discounting of Bills under LC issued by our Branches, same Branch should not
discount.
Discounting of bills under LC with amounts amended:
Field Functionaries may discount bills under Inland LC with amendment in amount of LC
to the extent of 20% only, on case to case bais provided LC is received through SFMS
mode as per Bank‟s guidelines. Such amendment in amount is restricted to one time
only.
Allowing Bill discounting of LC received through other than SFMS mode at Branches:
As per the existing guidelines the LC should be transmitted by the LC opening bank to
our bank through SFMS platform. However, in many cases the LC transmitted through
SFMS to other banks and they further advise the LC to the beneficiary.
In such cases , the beneficiary will approach our bank for discounting of bills along with
hardcopy of LC duly authenticated/signed by the official of the advising Bank. After
careful examination, we propose to allow the designated branches to discount the bills
under such LCs on case to case basis subject to compliances of following terms:
 Negotiations of such LCs are restricted to UCO bank as per terms of LC.
 Acceptances of documents and confirmation of due date must be obtained
through SFMS Mode.
 A copy of the letter from the advising bank advising the LC to the beneficiary
accompanied with the documents to be obtained for our records.
The field functionary while forwarding the documents to the LC opening bank for
acceptances should verify the authenticity of LR/ MTR on sample basis, through
“Vahanaparivahan.gov.in” site. A copy of such verification report to be kept with the
documents for record
While purchasing/ Discounting/ Negotiating Bills under LCs or otherwise, branches should
establish genuineness of underlying transactions/ documents.
The operational guidelines on discounting of bills against inland letter of credit are given

separately in Chapter 16 of part B of Loan Policy Document 2019.
For financing bills under foreign LC, guidelines issued by Head Office, Treasury &
International Department shall be followed.
7.7.4.2 Rediscounting of Bills under Letter of Credit
Bill Rediscounting is an act of discounting a short-term negotiable debt instrument (Bill)

for a second time. When there is low liquidity in the market, banks can generate cash by
rediscounting short-term negotiable Instrument.
Banks have already been given freedom by RBI to decide their own guidelines for
assessing / sanctioning working capital limits of borrowers. Banks may sanction working
capital limit as also bills limit to borrowers after proper appraisal of their credit needs
and in accordance with the loan policy as approved by their Board of Directors.
Eligibility:
Bills rediscounts should be restricted to usance bills held by other banks.
Eligibility of Bills
Bills eligible for rediscount under the rediscounting bill scheme must be of the following
characteristics:
 Bills rediscounts should be restricted to usance bills held by other banks

 The usance period is not more than ninety days.
 It is not eligible for commodities of the Reserve Bank of India.
Restriction:
 Banks should not rediscount bills earlier discounted by Non-Bank financial

companies (NBFCs) except in respect of bills arising from sale of light commercial
vehicles and two / three wheelers.
 Services sector bills should not be eligible for rediscounting.
 Banks should not enter into Repo transactions using bills discounted /
rediscounted as collateral
Sanctioning Authority:
Sanctioning authority for rediscounting of Bills shall remain with BLCAC.
Pricing:
While sanctioning Rediscounting of Bills, BLCAC at its discretion shall decide the pricing,
Commission etc. However final Rate of Interest shall not be below the respective tenor of
MCLR.
Procedure of Bill Rediscounting:
a) Branch should obtain a Usance Promissory Note from the Bank for the discounted
Bill amount along with interest.
b) The Bank whose Bills are discounted must accept and confirm the payment on
due date through SFMS/SWIFT.

c) If the Acceptance and confirmation is given manually, then signatures are to be
validated by our branch officials
Counter Party Exposure Ceiling:
Branches should rediscount Bills of only those Banks for which Exposure Ceiling is
approved by the Board of Director.
Thus, while rediscounting Bills of a Bank, it is to be ensured that the total exposure ceiling
including the proposed exposure should not exceed the approved ceiling of the
concerned bank.
Realisation of Bills:
 Branches to ensure that Bills rediscounted are realised expeditiously.

 Due date of payment are to diarised and follow up for payment on due date.
7.7.5 Financing Margin Trading
Revised scheme for financing of Margin Trading has been approved by the Board.
Financing Margin trading shall be done by only the designated branches as per scheme
with prior clearance from HO.
7.7.6 Advances to Micro-Finance Institutions (MFI)
Micro Finance Institutions (MFIs) are the financial intermediaries for on-lending to
individuals, Self Help Groups/Joint Liability Groups. Bank will continue financing to NBFC-
Micro Finance Institution and also to Non- NBFC-Micro Finance Institutions in terms of
guidelines issued by the Bank from time to time in line with RBI guidelines. MFIs should
satisfy the RBI norms for categorization of the loan as priority sector.
Financing to Micro-Finance Institutions shall be carried out at all levels by those assigned
with the responsibility, within the ambit of Loan Policy, extant directives of the Bank, RBI
and other relevant authorities. The sanction process shall be in accordance with the
guidelines unless specifically instructed by the Competent Authority.
The policy guidelines for financing to MFIs have been separately given under Chapter -
9 of the Loan Policy Document.
7.7.7 Advances to NBFC sector
The Bank has framed policy guidelines for financing non-banking financial companies
covering new proposals and renewal proposals with/without enhancements. Normally
credit facilities for leasing and hire purchase activities will be restricted to limited
companies only. However, in case of existing accounts, which are not companies but
partnership firms, the existing facilities, subject to compliance with other terms and
conditions as approved by the Board, may be continued and enhanced on merits.
NBFCs, which are accepting public deposit, should maintain SLR deposits as stipulated
by RBI to be eligible for finance/continuation of facilities from our Bank.
Loan to NBFC where security is assigned shall be checked with ROC.
Quality proposals under NBFC sector compliant with Regulatory guidelines shall only be
considered for financing.
For financing under NBFC sector, prior clearance shall be obtained from HLNBC.
Sanctioning authority for such proposals shall be ZLCC and above Authority according
to their normal sanctioning power.
Note:
It is mandatory to obtain the following in case of all credit proposals covering new
accounts and renewal of credit limits with or without enhancements.
1) Registration certificate of the NBFCs issued by RBI.
2) Half-yearly NBS-2 returns to RBI submitted by NBFCs accepting/ holding public
deposits.
The information available in these documents shall, inter-alia, be taken into account in
handling credit proposals/accounts of NBFCs.
The Bank may extend need based working capital facilities as well as term loans to all
NBFCs registered with RBI and engaged in equipment leasing, hire purchase, loan,
factoring and investment activities.
The following activities undertaken by NBFCs are not eligible for bank credit:
i. Bills discounted/rediscounted by NBFCs, except for rediscounting of bills discounted

by NBFCs arising from sale of –
a) commercial vehicles (including light commercial vehicles), and
b) two wheeler and three wheeler vehicles, subject to the following conditions:
o the bills should have been drawn by the manufacturer on dealers only;
o the bills should represent genuine sale transactions as may be ascertained
from the Chassis/engine number; and
o before rediscounting the bills, banks should satisfy themselves about the
bona fides and track record of NBFCs which have discounted the bills.
ii. Investments of NBFCs both of current and long-term nature in any company/entity
by way of shares, debentures, etc. However, Stock Broking Companies may be
provided need-based credit against shares and debentures held by them as stock-
in-trade.
iii. Investments of NBFCs in and advances to subsidiaries, group companies or other

entities.
iv. Investments of NBFCs in other companies and inter-corporate loans/deposits to/in

other companies.
v. Finance to NBFC for further lending to individuals for subscribing to Initial Public
Offerings (IPOs).
Further, the Bank will not grant bridge loans of any nature, or interim finance against
capital/debenture issues and/or in the form of loans of a bridging nature pending

raising of long-term funds from the market by way of capital, deposits, etc. to all
categories of Non-Banking Financial Companies, i.e. equipment leasing and hire-
purchase finance companies, loan and investment companies and also Residuary Non-
Banking Companies (RNBCs).
Banks Finance to Equipment Leasing Companies:
i. Banks should not enter into lease agreements with equipment leasing companies
as well as other Non-Banking Financial Companies engaged in equipment leasing.
ii. As banks can only support lease rental receivables arising out of lease of
equipment/machinery owned by the borrowers, lease rentals receivables arising
out of sub-lease of an asset by a Non-Banking non Financial Company
(undertaking nominal leasing activity) or by Non-Banking Financial Company
should be excluded for the purpose of computation of bank finance for such
company.
Bank Finance for purchase/Lease of Existing Assets:
Bank may finance NBFCs against second hand assets financed by them. However, such
finance would be restricted to second hand vehicles only at present. The bank would
extend such facility to NBFCs which score 80% or more both in management and
financial rating as per rating system adopted by the Bank for NBFCs. Margin on second
hand assets would be 40% of written down value of such second hand assets.
7.7.8 Loans to Real Estate Promoters/Developers and construction sector
Loans and advances to this sector will be governed by the policy guidelines adopted
by the Bank. The bank has also adopted separate policy guidelines for indirect housing
finance including guidelines for allowing term loans to Private Builders.
In case of financing to Private Builders, a condition to be stipulated for opening of

Escrow Account for routing all cash flows of the project and for monitoring of
transactions of the Borrower by the branch. However in genuine cases, the sanctioning
authority may waive the requirement on merit.
Operational guidelines in this regard are circulated separately in Chapter 17 of part B of

Loan Policy Document 2019.
7.7.9 Loan to State Industrial Development / Financial Corporations
In October 1994, banks were permitted to extend term finance to public sector
undertakings registered under the Companies Act, 1956 or established as Corporations
under relevant Acts, for projects including projects for creation of infrastructure facilities.
Effective November 9, 1994 banks have been permitted to sanction, on merit, term
finance/loans in the form of lines of credit to State Industrial Development Corporations
(SIDCs) and State Financial Corporations (SFCs). Such loans, to the extent granted for/to
the small-scale industrial (SSI) units, will be treated as priority sector lending, subject to
observance of the following conditions:

1) The SIDC/SFC should maintain, from the date of obtaining a line of credit/term
loan from Bank(s), separate and distinct accounts of the fresh disbursements made
to SSI units and the outstanding amounts there against.
2) Financing bank(s) should, apart from obtaining periodical statements to enable

them to monitor the position, also obtain from the borrowing SFC/SIDC, at the close
of their accounting year, a certificate issued by their statutory auditors to the
effect that the outstanding borrowings from the scheduled commercial banks
were fully covered by the non-overdue loans outstanding in respect of fresh
disbursements made to SSI units from out of term loans/lines of credit granted by
commercial banks.
For financing to SIDCs / SFCs, prior clearance shall be required from BLNBC. Sanctioning
authority for such proposals shall be ZLCC and above Authority according to their
normal sanctioning power.
7.7.10 Advances against Gold Ornaments / Jewelry
Bank has framed guidelines for financing against Gold Ornament / Jewellery and gold
coins in line with RBI guidelines.
Bank will continue to give advances against Gold Ornament / Jewellery and gold coins
(specially minted and sold by banks or government institutions) for both priority sector
and non-priority sector purposes under UCO Gold Loan Scheme implemented by Bank
from time to time.
7.7.11 Advances against Bullion / Primary Gold
In terms of RBI guidelines-

a) Banks should not grant any advance against gold bullion.
b) Banks should desist from granting advances to the silver bullion dealers which are
likely to be utilized for speculative purposes.
c) Banks should desist from giving loans to finance „Badla‟ transactions in silver (i.e.
buying silver ready and selling forward to earn interest).
d) Further, in terms of RBI guidelines,it is advised that no advances should be granted
by banks for purchase of gold in any form, including primary gold, gold bullion,
gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of
gold Mutual Funds. However, banks can provide finance for genuine working
capital requirements of jewellary. The scheme of Gold (Metal) Loan shall be
guided by RBI guidelines from time to time.
„A‟ Category Foreign Exchange Branches and such other branches as authorized by
International Division, H.O may open LC for import of gold in accordance with RBI‟s
latest guidelines and any other amendments advised by RBI on the matter from time to
time.

7.7.12 Advances against Selective Credit Control Commodities
The bank will comply with directives of Reserve Bank of India from time to time covering
margin requirements and the level and quantum of accommodation that could be
granted against the Selective Credit Control commodities. The Bank shall not open
inland LCs providing a clause therein which could enable other banks to discount
usance bills under LC as and when Selective Credit Control directives shall be
applicable.
Commodities covered under Selective Credit Control:
The commodities, generally treated as sensitive commodities are the following:
o Food grains i.e. cereals and pulses,

o Selected major oil seeds indigenously grown, viz. groundnut,
rapeseed/mustard, cottonseed, linseed and castor seed, oils thereof,
vanaspati and all imported oils and vegetable oils,
o Raw cotton and kapas,
o Sugar/gur/khandsari,
o Cotton textiles which include cotton yarn, man-made fibres and yarn and
fabrics made out of man-made fibres and partly out of cotton yarn and
partly out of man-made fibres.
Prudential margins on advances against these sensitive commodities shall be decided

by Bank. However, in case of advance against Levy Sugar, a minimum margin of 10%
will apply.
iii. Valuation of sugar stocks
(a) The unreleased stocks of the levy sugar charged to banks as security by the sugar
mills shall be valued at levy price fixed by Government.
(b) The unreleased stocks of free sale sugar including buffer stocks of sugar charged to
the bank as security by sugar mills, shall be valued at the average of the price realised
in the preceding three months (moving average) or the current market price, whichever
is lower; the prices for this purpose shall be exclusive of excise duty.
7.7.13 Advances to Tea Industry
Bank has put in place comprehensive policy for exposure on Tea industry. Detailed
guidelines on Tea financing including sanction of need based working capital as well as
Term Loans, monitoring and follow-up of Tea borrowal accounts and Re-structuring and
Nursing of sick Tea units as per Bank‟s extant guideline.
7.7.14 Advances against shares to individuals, share and stock brokers etc& issue of
Guarantees
The Bank has well laid down policy approved by the Board for granting loan against
shares for individuals (ceiling limit Rs 20 lacs against shares in Demat form) and share
and stockbrokers. All advances should be against shares in demat form.

Uniform margin of 50% based on market value of shares in dematerialized form shall be
applied. The shares should invariably be valued on every Friday and drawing power
fixed after deduction of the margin.
All shares should be held in demat whether held as primary or collateral security. Shares
held in physical form should be substituted by Shares of requisite value in demat form in
case the credit facilities are to be continued.
Guarantees on behalf of share and stock brokers in favour of stock exchanges in lieu of
security deposit may be issued to the extent it is acceptable in the form of bank
guarantee as laid down by stock exchanges. Guarantees may also be issued in lieu of
margin requirements as per stock exchange regulations. As per RBI directives, uniform
margin of 50% inclusive of minimum cash margin of 25% should be obtained by the
banks for issue of guarantees on behalf of share brokers.
As per revised guidelines issued by RBI the ceiling of 40% of Net Worth prescribed for
capital market exposure will apply to total exposure including both fund based and
non-fund based, to capital market by a bank in all forms. The ceiling will cover:
i. Advances against shares/bonds/debentures or other securities or on clean basis

to individuals for investment in shares (including IPOs/ESOPs), convertible bonds,
convertible debentures or units of equity-oriented mutual funds etc.
ii. Advances for any other purposes where shares or convertible bonds or
convertible debentures or units of equity oriented mutual funds are taken as
primary security.
iii. Advances for any other purposes to the extent secured by the collateral security
of shares or convertible bonds or convertible debentures or units of equity
oriented mutual funds i.e. where the primary security other than
shares/convertible bonds/convertible debentures/units of equity oriented mutual
funds does not fully cover the advances.
iv. Secured and unsecured advances to stockbrokers and guarantees issued on
behalf of stockbrokers and market makers including finance extended to
stockbrokers for margin trading.
v. Loans sanctioned to corporates against security of shares/ bonds/ debentures or
other securities or on clean basis for meeting promoter‟s contribution to the
equity of new companies in anticipation of raising resources.
vi. Bridge loans to companies against expected equity flows/issues.
No loan shall be granted to proprietorship/partnership concern against security of

shares and debentures. The Bank shall not finance any Badla transactions. No loans to
be granted against partly paid shares.
a) In terms of Section 19(2) of the Banking Regulation Act, 1949, the banks should not
hold shares in any company except as provided in sub-section (1) whether as a
Pledgee, mortgagee or absolute owner, of an amount exceeding 30 per cent of

the paid-up share capital of that company or 30 percent of its own paid-up share
capital and reserves, whichever is less.
b) Further, in terms of Section 19(3) of the Banking Regulation Act, 1949, the banks
should not hold shares whether as pledgee, mortgagee or absolute owner, in any
company in the management of which any managing director or manager of the
bank is in any manner concerned or interested.
c) Accordingly, while granting loans and advances against shares, statutory
provisions contained in Section 19(2) and (3) should be strictly observed.
7.7.15 Advances against deposits
The Bank will levy rate of interest as applicable for loan/advance granted against own
term deposits only in cases where deposits stand in the name of
1. The borrower either singly or jointly;
2. One of the partners of a partnership firm and advances is made to the said firm
3. The proprietor of a proprietary concern and the advance is made to such a
concern.
4. A ward whose guardian is competent to borrow on behalf of the ward and where
the advance is made to the guardian of the ward in such a capacity.
In all other cases, the rate of interest shall be levied as applicable for loans/advances
against third party deposits.
7.7.16 Financing PSU Disinvestments
Financing PSU Disinvestments shall be as per Bank‟s extant guidelines issued from time to
time.
7.7.17 Financing of acquisition of equity in overseas companies by Indian entities
Guidelines on financing of acquisition of equity in overseas companies by Indian entities

have been put in place by Bank. However, such financing shall be in terms of extant
policy guidelines issued by RBI on the subject from time to time.
7.7.18 Financing to Indian Joint Ventures / wholly owned subsidiaries (WOS) and
overseas Step-Down subsidiaries of Indian Corporates
Separate Policy guidelines have been put in place by the Bank for Exposure to Indian
Joint Ventures / Wholly Owned Subsidiaries (WOS) and overseas step- down subsidiaries
of Indian Corporates. Such Financing will be in terms of bank‟s extant guidelines.
For financing to Indian Joint Ventures / Wholly Owned Subsidiaries (WOS) and overseas
step-down subsidiaries of Indian Corporates, prior clearance shall be required from
BLNBC. Sanctioning authority for such proposals shall be ZLCC and above Authority
according to their normal sanctioning power.

7.7.19 Equipment Finance Scheme
To provide finance for non-project related capital expenditure to the existing corporate
clients/ reputed Companies, this scheme is structured as an umbrella arrangement
under which indigenous/imported equipments will be financed by the Bank. The facility
is specially designed as a fast disbursing window providing omnibus line of credit for
financing machinery &equipments to be purchased, not originally included in the
project but the requirement of which becomes urgent during implementation.
7.7.20 Scheme for Financing of ATMs / Cash Dispensers
Board of Directors in its meeting held on 05.06.2012 has approved the Scheme for
financing of ATMs / Cash Dispensers, which has already been circulated. The said
guidelines are being included separately in Chapter 20 of part B of Loan Policy
Document 2019.
7.7.21 Micro, Small & Medium Enterprises (MSME)
The definition of Micro, Small & Medium Enterprises as per RBI guidelines shall be as
follows:
(a) Manufacturing Enterprises
Enterprises engaged in the manufacture or production, processing or preservation of

goods as specified below:
i. A micro enterprise where investment in plant and machinery does not exceed Rs.
25 lakhs;
ii. A small enterprise is an enterprise where the investment in plant and machinery is
more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
iii. A medium enterprise is an enterprise where the investment in plant and machinery
is more than Rs. 5 crore and but does not exceed Rs. 10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost
excluding land and building and the items specified by the Ministry of Small Scale
Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 (Annex 1 of RBI
master circular no. RPCD.SME & NFS BC NO. 09/06.02.31/2011-12 dated July 01,2012).
(b) Service Enterprises
Enterprises engaged in providing or rendering of services and whose investment in

equipment (original cost excluding land and building and furniture, fittings and other
items not directly related to the service rendered or as may be notified under the
MSMED Act, 2006) are specified below:
i. A micro enterprise is an enterprise where the investment in equipment does not
exceed Rs. 10 lakh;
ii. A small enterprise is an enterprise where the investment in equipment is more
than Rs. 10 lakh but does not exceed Rs. 2 crore; and

iii. A medium enterprise is an enterprise is an enterprise where the investment is
equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
These will include small road and water transport operators, small business, retail trade,
professional and self employed persons and all other service enterprises.
The categorization of activities under manufacture or service sector under Micro, Small
and Medium Enterprises Development (MSMED) Act, 2006 shall be as per guidelines
issued by RBI/RDRPSC Department from time to time.
Bank loans to Micro, Small and Medium Enterprises, for both manufacturing and service
sectors are eligible to be classified under the priority sector as per the following norms:
a) Manufacturing Enterprises: The Micro, Small and Medium Enterprises engaged in
the manufacture or production of goods to any industry specified in the first
schedule to the Industries (Development and Regulation) Act, 1951 and as notified
by the Government from time to time. The Manufacturing Enterprises are defined
in terms of investment in plant and machinery.
b) Service Enterprises: Bank loans up to Rs.5 crore per unit to Micro and Small
Enterprises and Rs.10 crore to Medium Enterprises engaged in providing or
rendering of services and defined in terms of investment in equipment under
MSMED Act, 2006.
Advances to Micro, Small and Medium Enterprises are thrust area of the Bank.
7.7.22 Policy for issuing and participating in Inter Bank Participation Certificate
1. Background:
 With a view to provide an additional instrument for evening out short term
liquidity within the banking system, RBI vide circular no. DBOD.No.BP.BC.57/62-88
dated 31st December 1988 introduced the scheme of Inter Bank Participation
and issued necessary guidelines for the same. The participation under the
scheme was confined to Scheduled Commercial Banks.
 RBI, later, vide its circular no. DBOD.No.BC.177/13.07.07/93 dated 11th October
1993 withdrew the stipulation relating to the minimum rate of interest of 14% pa
on Inter-Bank Participation with risk sharing basis.
 Subsequently, RBI vide circular no. RPCD.CO. RRB. BC.No. 13/ 03.05.33 / 2009-10
dated 4th Aug‟ 2009 extended the participation under the scheme of Inter Bank
Participation to Regional Rural Banks (RRBs). Regional Rural Banks (RRBs) can also
issue IBPC of a tenor of 180 days on risk sharing basis to scheduled commercial
banks against their priority sector advances in excess of 60% of their outstanding
advances.
 Further, RBI guidelines Priority Sector inter-alia states that Inter Bank Participation
Certificates (IBPCs) bought by banks, on a risk sharing basis, shall be eligible for
classification under respective categories of priority sector, provided the

underlying assets are eligible to be categorized under the respective categories
of priority sector and the banks fulfill the Reserve Bank guidelines on IBPCs.
2. RBI Guidelines on Schemes of Inter Bank Participation:
RBI guidelines on scheme of Inter Bank Participation inter-alia include the following:
 There will be two types of Participation:

 Inter-Bank Participation with Risk Sharing; and
 Inter-Bank Participation without Risk Sharing.
 Inter-Bank Participation with Risk Sharing: The primary objective of the Participation
is to provide some degree of flexibility in the credit portfolio of banks.
Under Inter-Bank participation with risk sharing, the issuing bank will reduce the
amount of participation from the advances outstanding and participating bank will
show the participation as part of its advances.
 Inter-Bank Participation without Risk Sharing: The primary objective of this type of
Participation is to even out short term liquidity.
Under Inter-Bank participation without risk sharing, the issuing bank will show the
participation as borrowing from banks and participating bank will show it as
advances to bank.
Bank‟s Policy guidelines for Inter Bank Participation:
With a view to even out short term liquidity or deploy the short-term surplus funds of the
Bank in a secured and profitable manner with some degree of flexibility in the credit
portfolio of banks, we have formulated a policy to take advantage of scheme of Inter-
Bank participation as under:
Sl Inter-Bank participation Inter-Bank participation
Features
No. with risk sharing without risk sharing
1. Objective
On the basis of market condition and Bank‟s internal requirement, Bank
shall
 Invest in Inter-Bank Participation Certificate issued by other
eligible Banks
 Issue Inter-Bank Participation Certificate to other eligible Banks
Within the norms of RBI guidelines and Bank‟s internal Policy guidelines.
The primary objective of the The primary objective of this type

participation is to provide some of participation is to even out
degree of flexibility in the credit short term liquidity. The
portfolio of banks. Participation should be backed
by the fund based credit
facilities of the borrowers.

2. Applicability Within scheduled commercial banks. Within scheduled commercial
However, RRBs can also issue IBPC to banks (excluding RRBs) only
scheduled commercial banks
against their priority sector
advances.
3. Bank‟s Our Bank‟s exposure will be on the Our Bank‟s exposure will be on
Exposure respective borrower. the issuing bank.
4. Eligibility  Only those accounts which are  Only those accounts which
„Standard‟ assets with the are „Standard‟ assets with
issuing bank with no overdue in the issuing bank.
relation to principal/ interest/
 Further, issuing bank should
other charges.
have CRAR not less than 9%
 External rating should not be for nationalized banks and
below „BBB‟/P3 or equivalent as 12% for private commercial
per Basel II norm, banks / foreign banks
operating in India.
 The Bank shall not participate in
any externally unrated
account.
5. Appraisal  The Issuing Bank shall, on  Appraisal of the Borrower is

request from the Participating not required as the exposure
Bank, furnish copy of the will be on the Issuing Bank.
appraisal note, as submitted to
its sanctioning authority,
including all such information
as the Participating Bank
require concerning the
Borrower and/or the Borrower‟s
proposal and/or the Borrower‟s
account and/or the securities
furnished by the Borrower to
the Issuing Bank.
 Accordingly, Participating Bank
shall make own appraisal for
participating in IBPC.
6. Period/tenor The minimum period of participation The maximum period of

will be 91 days while the maximum participation will be 90 days.
period will be 180 days.

7. Amount The aggregate amount of such The Issuing Bank is entitled to allot
participation in any account should a part of outstanding balance in
not exceed 40 per cent of the the Borrower‟s account to the
outstanding in the account at the participating Bank, subject to
time of issue (within prudential maximum permissible limit within
exposure ceiling to individual Inter-Bank Liability Limit of the
borrower/ group). Issuing Bank.
During the currency of the The Bank‟s aggregate exposure
Participation the aggregate amount under this category shall not
of Participation should be covered exceed the prescribed credit
by the outstanding balance in the exposure limit (including loan to
account. commercial banks, LC backed
bill discounting, loan against
In case the outstanding balance falls
guarantee of other banks, LC/LG
short of the participation
backed by LoC/guarantee of
outstanding, the Issuing bank will
other banks, Inter-Bank
reduce the Participation to the
Participation on non-risk sharing
extent necessary and if need be,
basis) to banking sector within
issue Participation for smaller
overall inter-bank exposure limit.
amounts.
8. Rate of Free to decide by the issuing and Free to decide by the issuing and
interest participating banks based on Credit participating banks based on our
Risk of borrower and prevailing Bank‟s liquidity position and
market conditions. prevailing market conditions.
9. Asset Asset classification with the Since the exposure is on the

Classification Participating Bank shall be in tandem issuing Bank, the asset
with the asset classification of classification shall be as per
Borrower‟s account with the Issuing repayment/servicing record of
Bank. the Participation amount issued
by the Bank (not the underlying
Borrower‟s account) in terms of
IRAC norm.
10. Riskmaterializ On down-gradation of asset from On down-gradation of asset

ation Performing to Non-Performing in the from Performing to Non-
books of issuing Bank. Performing in the books of issuing
Bank.
On materialization of risk, the issuing
bank would give due notice to the On materialization of risk, the
participating bank intimating the Issuing Bank shall be liable to
default. repay the entire overdue along
with interest to participant Banks.
11. Servicing of Monthly payable Monthly payable

interest

12. Repayment The Issuing Bank will normally repay On the date of maturity, the
the amount of Participation to the Issuing Bank will pay the amount
participant bank on the date of of Participation to the
maturity, excepting when the risk has Participating Bank irrespective of
materialized. the default if any in the
underlying advance of the IBPC
In cases where risk has materialized
issue.
the Issuing Bank will take necessary
action, in consultation with the
Participating Bank and share the
recoveries proportionately.
In such cases the Participation will
continue for longer period than the
original Participation tenor till full
recovery/realization in the Borrower‟s
account by way of recovery
measures/restructuring etc.
In case of any sacrifice/shortfall in
realization, loss will be shared prorata
between the Issuing and
Participating Banks.
13. Security The Participating Bank shall have Unsecured

prorata share in the security
available to the Issuing Bank in
respect of the Borrower‟s account
14. Documentati  Governed by the Uniform Code Governed by the Uniform Code
on Governing Inter Bank Governing Inter Bank
Participation (Document No.IBA Participation (Document No.IBA
0001 of 1989). 0001 of 1989). Execution of Non-
Risk Sharing Participation
 Execution of Risk Sharing
Contract is to be done as per
Participation Contract is to be
format furnished in Appendix-III
done as per format furnished in
of the Uniform Code.
Appendix-I of the Uniform Code.
 The Issuing Bank shall confirm the
Participating Bank that the terms
and conditions of the sanction of
the loan to be participated and
the document executed by the
borrower in favour of the issuing
bank contain a clause, in format
as contained in Appendix –II of
the Uniform Code, to the effect
that the issuing bank shall have
the liberty to shift, at its
discretion, without notice to the

borrower, from time to time
during the subsistence of the
credit limit/loan a part or portion
of the outstanding in the said
credit limit/loan to another
bank(s) participating in the
scheme of inter-bank
participation.
15. Transferability Participation is not transferable Participation is not transferable
16. Accounting In case our Bank is Issuing Bank then In case our Bank is Issuing Bank
then
 Aggregate amount of
 Aggregate amount of
participation will be reduced
participation will be
from the aggregate advance
shown as borrowing.
outstanding by netting out in
General Ledger, without giving
any effect in individual
In case our Bank is Participating
borrowers‟ accounts.
Bank then
 Our Bank will maintain a register  Our bank will show the
to record full particulars of such aggregate amount of
Participation. such Participation as part
 Our Bank will incorporate in the of the advances to Bank.
loan agreement of the  Even if the underlying
borrowers an appropriate clause exposure with issuing
permitting bank to shift a part of bank falls under priority
the advance to any bank, sector, participation shall
without notice to the borrowers, not qualify for
by way of Participation. classification under Priority
Sector.
 The agreement may also
provide that in the event of issue
The Participation will be treated
of Participation our Bank will
as part of the net Demand and
continue to represent the
Time Liabilities and net bank
participating bank in protecting
balances for purposes of
the latter‟s interests.
statutory reserve requirements.

In case our Bank is Participating Bank
then
 Our bank will show the
aggregate amount of such
Participation as part of the
advances.
 If the original loan with the
issuing bank falls under priority
sector, the participation shall
also be classified under priority
sector, provided the tenor of
participation is 180 days.
17. Risk weight As

 applicable to the respective As applicable to counterparty
borrower as per Basel II norm. scheduled commercial bank.
18. Sanctioning 
Any proposal for participating & Any proposal for participating &
Authority issuing in Inter-Bank Participation issuing in Inter-Bank Participation
Certificate issued by other Bank shall Certificate issued by other Bank
be dealt at H.O. level only. shall be dealt at H.O. level only.
BLCAC/MCB within their respective BLCAC/MCB within their
delegated powers for loan and respective delegated powers for
advances can sanction and loan and advances can
approve such proposals. sanction and approve such
proposals.
7.7.23 Conflict Diamonds
Conflict diamonds are diamonds that originate from areas controlled by forces or
fractions opposed to legitimate and internationally recognized governments, and are
used to fund military action in opposition to those governments, or in contravention of
the decisions of the Security Council
Trading in conflict diamonds has been banned by U. N. Resolutions Nos. 1173 and 1176
as the conflict diamonds play a large role in funding the rebels in the civil war torn areas
of Sierra Leone. There is also a Prohibition on the direct / indirect import of all rough
diamonds from Sierra Leone and Liberia in terms of UN Resolution No. 1306(2000) and
1343(2001) respectively. India, among other countries, has adopted a UN mandated
new Kimberley Process Certification Scheme to ensure that no rough diamonds mined
and illegally traded enter the country.
Therefore, import of diamonds into India should be accompanied by Kimberley Process

Certificate (KPC).
Similarly, exports from India should also be accompanied by the KPC to the effect that
no conflict/ rough diamonds have been used in the process. The KPCs would be
verified/validated in the case of imports/ exports by the Gem and Jewellery Export
Promotion Council.

In order to ensure the implementation of Kimberley Process Certification Scheme, banks
should obtain an undertaking in the format given below from such of the clients who
have been extended credit for doing any business relating to diamonds.
Undertaking from Diamond Clients
Form of an undertaking to be obtained by banks from the clients who have been
extended credit for doing any business relating to diamonds
"I/we hereby undertake:
(i) not to knowingly do any business in the conflict diamonds as have been banned
vide UN Security Council Resolutions No. 1173, 1176 and 1343(2001) or the
conflict diamonds which come from any area in Africa including Liberia
controlled by forces rebelling against the legitimate and internationally
recognised Government of the relevant country.
(ii) not to do direct or indirect import of rough diamonds from Sierra Leone and/or
Liberia whether or not such diamonds originated in Liberia in terms of UN Security
Council Resolution No.1306 (2000) which prohibits the direct or indirect import of
all rough diamonds from Sierra Leone and UN Security Council Resolution
No.1343 (2001) which prevents such import of all rough diamonds from Sierra
Leone and UN Security Council Resolution No.1343(2001) which prevents such
import from Liberia.
(iii) To follow Kimberley Process Certification Scheme for dealing in diamonds. I am

also giving my consent to the withdrawal of all my credit entitlements, if at any
time, I am found guilty of knowingly having conducted business in such
diamonds".

CHAPTER -8
POLICY GUIDELINES FOR ACQUSITION OF POOL OF ASSETS
Background
Securitisation involves pooling of homogeneous assets and the subsequent sale of the
cash flows from these asset pools to investors. The securitisation market is primarily
intended to redistribute the credit risk away from the originators to a wide spectrum of
investors who can bear the risk, thus aiding financial stability and provide an additional
source of funding. The recent crisis in the credit markets has called into question the
desirability of certain aspects of securitisation activity as well as of many elements of the
„originate to distribute‟ business model, because of their possible influence on
originators‟ incentives and the potential misalignment of interests of the originators and
investors. While the securitisation framework in India has been reasonably prudent,
certain imprudent practices have reportedly developed; like origination of loans with
the sole intention of immediate securitisation and securitisation of tranches of project
loans even before the total disbursement is complete, thereby passing on the project
implementation risk on to investors.
With a view to developing an orderly and healthy securitisation market and to ensure
greater alignment of the interests of the originators and the investors as also to
encourage the development of the securitisation activity in a manner consistent with
the aforesaid objectives, several proposals for post-crisis reform are being considered
internationally. Central to this is the idea that originators should retain a portion of each
securitisation originated, as a mechanism to better align incentives and ensure more
effective screening of loans. In addition, a minimum period of retention of loans prior to
securitisation is also considered desirable, to give comfort to the investors regarding the
due diligence exercised by the originators. Keeping in view the above objectives and
the international work on these accounts, guidelines have been formulated regarding
the Minimum Holding Period (MHP) and Minimum Retention Requirement (MRR).
OUR BANKS POOL POLICY
Our Bank during its course of business found the opportunity to add quality loan assets
to its credit portfolio by purchase of pool of assets from other banks/financial institutions
including NBFCs. Termed as “Whole Loan Assets” in other markets and “Direct
Assignment” in India, these types of bilateral transactions are becoming increasingly

common and they do not entail the legal requirements stipulated in securitisations and
are less complex and therefore more attractive to both buyers and sellers.
Guidelines on Pool of Assets are broadly structured and the existing Pool Policy of our
Bank is modified to incorporate the changes suggested/brought about in the revised
guidelines under the following heads:
1. Purchase of pool of assets defined.

2. Criteria for selecting pool originators/assignors.
3. Pool selection criteria.
4. KYC &Standard for Due Diligence.
5. Credit Quality of the Underlying Assets.
6. Stress Testing.
7. Obligations of the Servicer.
8. Securities and charge thereon.
9. Documentation.
10. Re-purchase of Assets.
11. Monitoring of the pool.
12. Disclosures by the Originating Banks.
13. True Sale Criteria.
14. Representations and Warranties.
15. Applicability of Capital Adequacy and other Prudential Norms
16. Exposure Norms in Pool advances.
17. Power to allow deviations.
18. Treatment of exposures not meeting the requirements stipulated above.
19. Miscellaneous.
20. Review of the Policy.
Annexure
1. Terms frequently used in Pool transactions.

2. Format for Disclosure by the originator.

8.1 Purchase of Pool of Assets Defined:
Bank can purchase loans from other banks/FIs/NBFCs in India only if the seller has
explicitly disclosed to the bank that it will adhere to the MRR indicated in Table 1
(refer point 3.11). In addition, bank should also ensure that the originating institution
has strictly adhered to the MHP criteria prescribed in the guidelines in respect of
loans purchased by the Bank.
8.1.1 Assets Eligible for Transfer:
Under these guidelines, banks/FI/NBFC can transfer a single standard asset or a
part of such asset or a portfolio of such assets to financial entities through an
assignment deed with the exception of the following:
 Revolving credit facilities (e.g. Cash Credit accounts, Credit Card
receivables etc.)
 Assets purchased from other entities.
 Assets with bullet repayment of both principal and interest.
a. Purchase of pool of assets would mean acquiring a pool of assets from a
financial entity in operation by outright payment of the negotiated price of the
pool. The negotiated price of the pool may be decided based on the structure
(Par or Premium) of the pool. Such purchases shall be subject to:
 Selling entities right to sell the assets without the consent of its borrowers.
 Compliance of prudential exposure limit for individual borrowers/ group
borrowers, as the case may be.
 Compliance of Industry/Sector specific exposure norms as applicable in
terms of provisions of Loan Policy.
b. In the normal course, the Bank shall endeavor to acquire/purchase Assets
Backed Securities (ABS) pools and Mortgage Backed Securities (MBS) pools with
„par‟ structure.
c. The purchased pool would be transferred from the seller‟s balance sheet to
the balance sheet of the acquirer/purchaser (UCO Bank) as Credit Exposure. By
acquiring the pool, the acquirer (UCO Bank) would be taking a direct exposure on
the repayment ability of the underlying borrowers.
d. Bank, as a matter of principle, shall acquire the pools from the Originators
only and not from subsequent sellers/arranger.

e. However, these guidelines do not apply to:
 Transfer of loan accounts of borrowers by a bank to other
bank/FIs/NBFCs and vice versa, at the request/instance of borrower;
 Inter-bank participations;
 Trading in bonds;
 Sale of entire portfolio of assets consequent upon a decision to exit the
line of business completely. Such a decision should have the approval
of Board of Directors of the acquiring bank;
 Consortium and syndication arrangements and arrangement under
Corporate Debt Restructuring mechanism.
 Any other arrangement/transactions, specifically exempted by the
Reserve Bank of India.
8.2 Criteria for Selecting Pool Originators/Assignors:
i. The Pool Originators/assignors shall be: Banks/NBFC (AFC) /Financial
Intermediaries like NHB, Housing Finance Corporation etc., /NBFC (MFIs).
The external Credit Rating of Originators should be “A or higher” or its equivalent
and in case of MFIs, it should be “MF2 or higher” or its equivalent by RBI approved
agencies.
ii. Originators should be in the same line of business for minimum period 3 years
and having good track record.
8.3 Pool Selection Criteria:
A. Details pertaining to the individual borrowers like Loan A/c No., Name, Principal
amount borrowed, Description of the asset purchased, Original Value, Margin,
Repayment schedule, No. of Installment, No. of Installment paid, etc. should be
available with the Originator/Assignor and these should be handed over to the
acquirer (Bank).
A. All the individual loan accounts to the various segments of the Pool Should be in
conformity with the Bank‟s lending policy Guidelines for sanction of loans to such
category of individual borrowers with reference following(i) Quantum of Loan (ii)
Margin (iii) Age of Borrower/co-borrower (iv) Income Criteria (v) Repayment
Capacity and (vi) Tenure of the loan. However the respective sanctioning
authority may allow relaxation on case to case basis on merit in the following
parameters:
Tenure of the Loan in Loan against property Upto 15% relaxation
LTV Ratio in Loan against Property Upto 15% relaxation

B. The KYC Compliance of each of the borrowers in the Pool and detail of adverse
remark if any in CIBIL report to be obtained from the originator.
C. The Loan Agreement in each of the individual loans should have been duly
executed and the security in respect of the same duly created by the borrower
in favour of the assignor and all the documents should be legally valid and
enforceable in accordance with the terms thereof.
D. The individual loans should be free from any encumbrances/charges on the date
of selection/assignment.
E. The Bank/FI/NBFC should have with respect to each of the loans a valid and
enforceable title in the land/building/dwelling unit/ moveable asset securing
such loan and have full and absolute rights to transfer and assign the same to the
assignee without the consent of the borrowers.
F. As a general principle, no loan account in the pool should be overdue.
G. In case of Asset Based Loan the Weighted Average Residual Maturity (WARM) of
the pool should not be more than 60 months. In case of Loan against property the
Weighted Average Residual Maturity (WARM) should not be more than 96 month
and in case of Home Loan the Weighted Average Residual Maturity (WARM)
should not be more than 240 months. The maximum tenure of the pool is to be in
accordance with Bank‟s guidelines for such types of loans constituting the pool
subject to fulfillment of MHP (Minimum Holding Period) criteria as laid down by
RBI. Existing pools with greater maturity shall continue as per terms of respective
contracts.
H. The originator/assignor should have the unrestricted right to sell the assets-pool
without the consent of the underlying contract holders i.e., borrowers.
I. The re-scheduled/restructured accounts and impaired assets would not be
considered as a part of the pool.
J. Minimum Retention Requirement (MRR)
K. The MRR is primarily designed to ensure that the originating banks have a
continuing stake in the performance of assigned assets so as to ensure that they
carry out proper due diligence of loans to be assigned.
L. In the case of Direct Assignment transactions, the originating bank should adhere
to the MRR detailed in the table below while transferring the assets to other
financial entities.

M. Table 1:Minimum Retention Requirement (MRR)
Type of asset MRR
Assets with original maturity of 24 Retention of right to receive 5% of the cash flows from
months or less the assets transferred on pari-passu basis.
(i)Assets with original maturity of

above 24 months Retention of right to receive 10% of the cash flows
from the assets transferred on pari-passu basis.
(i)Loan referred to in Note 1 of para
3.12
N. However Bank can stipulate a higher percentage of MRR as a risk mitigation

exercise and increasing the stake of the originator in the transaction.
O. Minimum Holding Period Requirement:
Each loan should have a minimum number of installments paid up prior to the
assignment, rather than minimum number of months on book of the Originator. As
per table below:
Table 2: Minimum Holding Period (MHP) Requirement*
P. Repayment Frequency
Type Of Loan Weekly Fortnightly Monthly Quarterly More than quarterly
Original Maturity of less

12 6 3 2 2
than 2 years
Original Maturity of 2-5

18 9 6 3 2
years
Original Maturity of
- - 12 4 2
more than 5 years
*Note 1: MHP will not be applicable to loans with tenor up to 24 months extended to
individuals for agricultural activities (as defined by Rural Planning and Credit Department of
the Reserve Bank of India, in the Master Circular - Lending to Priority Sector) where both
interest and principal are due only on maturity and trade receivables with tenor up to 12
months discounted/purchased by banks from their borrowers will be eligible for assignment.
However, only those loans/receivables will be eligible for assignment where a borrower (in
case of agricultural loans) /a drawee of the bill (in case of trade receivables) has fully repaid
the entire amount of last two loans/receivables (one loan, in case of agricultural loans with
maturity extending beyond one year) within 90 days of the due date.
Q. Type of Pools:
i. Retail Products
1. Home Loan
2. Car Loan
3. Two Wheeler Loans

4. Loan against property
ii. Agriculture Loan
iii. Commercial Vehicle Loan
iv. MSME Loan
v. Corporate Loan
vi. Other Loans
vii. Note: Bank will not indulge in corporate pools for the time being. As
such these operational guidelines are being proposed only for
Retail and priority sector Pools for the present.
R. Disclosure norms to be fulfilled as per Annexure - 2 of the Pool Policy.
S. In case of Mortgage Based Loan, the mortgaged property which is taken as
security should be fully constructed.
T. Loan amount in all individual loans should be fully disbursed.
U. All the loans in the pool should be homogenous in nature.
V. A detailed geographical distribution of NPA in similar portfolio/asset pool during
last 5 years. The geographical area where the concentration of NPA is high shall
not be taken and the originator should be clearly advised to remove borrowers in
the pool from such centres.
W. Average Gross NPA of similar portfolio/asset pool of originators should not exceed
more than 4% during the last 5 year and for the last year the Gross NPA should be
less than 4%.
X. Average Net NPA of similar portfolio/asset pool of originators should not exceed
more than 1% during the last 5 year and for the last year the Net NPA should be
less than 1%.
8.4. KYC & Standards of due diligence

Skilled manpower with necessary expertise in the identified branches to carry out
due diligence process rigorously for proper selection of the originators, credit
appraisal, documentation, analyzing risk involved in the pool and monitoring of the
accounts. In this regard the following guidelines to be adhered to:
 Process of due diligence needs to be exercised by our own officers to satisfy
about the Know Your Customer requirements and credit quality of the
underlying assets, the information requirements etc.
 The due diligence of the purchased loans cannot be outsourced and
should be carried out by our own officers with the same rigour as would
have been applied while sanctioning new loans by the bank.

 Certain activities like collection of information and documents etc., can be
outsourced and then this should be subject to the extant Reserve Bank of
India (RBI) guidelines on outsourcing of non-core activities by banks, which
would inter alia imply that banks would continue to retain full responsibility in
regard to selection of loans for purchase and compliance with Know Your
Customer requirements.
8.5 Credit Quality of the underlying assets

Bank should evaluate the originator‟s policy, selection criteria and measures taken
by them while sanctioning the loans and the system and procedures adopted by
them for monitoring of the loans. Moreover,
 Pool should not contain any overdue, restructured account and impaired assets.
 The loan to value (LTV) for all Pool Purchases should be in conformity with the
Bank‟s extant guidelines for sanction of similar loan to our borrowers as per our
existing Products/Schemes. The age of the pre-owned commercial vehicles
should not be more than 5 years old.
 The borrowers‟ CIBIL reports are free from any adverse findings.
 Minimum 5% random check of individual files in detail for KYC, documentation,
physical verification of assets, credit quality and appraisal standards of the pool
should be done by the branch official(s) as a pre sanction check.
 Complete check of individual files in detail for KYC, documentation, credit quality
and appraisal standards of the pool should be undertaken by the Bank officials
post sanction and pre-disbursement of the loan.
 Credit Loss report for the proposed pool to be taken from a RBI approved credit
rating agency before disbursement. Credit Loss estimation should not be more
than 2% for Home Loan Pool, 3% for Loan against Property Pool and 4% for other
Pool buyout.
8.6 Stress Testing

Stress Testing shall be done by HO Risk Management on Half Yearly basis taking
into account factor relevant to the underlying assets.
List of such factor are:
I. Increase in Default rate.
II. Economic Downturn (in respect of GDP and Industry wise growth rate).
III. Rise in prepayment rates due to fall in ROI or rise in income levels of borrowers,
leading to early redemption of exposures, drying of liquidity of securities etc.,

IV. Change in prepayment pattern on account of interest rate scenario.
V. Any other relevant factor.
The result of stress tests should be taken into account in Pillar II exercise under Basel
II framework and additional capital is held to support any higher risk, if required.
8.7 Obligations Of The Servicer

 The Assignor would act as Servicer of the pool and would continue to hold
PDCs, Securities, documents etc. on behalf of the Assignee and would
receive and collect all the amounts falling due from the underlying
borrowers from time to time and enforce obligation of the borrowers and all
the securities created by them. The collections would be credited to an
ESCROW account from where the periodic repayments as per terms of
agreement would be remitted to the Bank on due date/s by the Servicer.
Bank‟s share of repayment out of the ESCROW Account shall be affected
on the day as per the term of agreement. For delay in payment the service
agent will be liable to pay interest/penalty as per terms of the agreement.
 The Servicer shall submit a monthly report of the realizations to the Assignee
or its representatives.
8.8 Securities and Charge Thereon:

Assignment of future receivables along with underlying securities excluding
mortgages to be assigned to the Bank. Hypothecation or Mortgage security
interest will be held in trust by the Originator company solely and exclusively for
and for the benefit of Bank. Inclusion of suitable clause in deed of assignment to
be incorporated for protecting the interest of the bank. The Bank (Acquirer) shall
be entitled to all such interest and have the right to receive any proceeds in the
proportion of their share in the Loans that arise on enforcement to all such interest
or sale of such security interest. Any costs and charges that may arise upon
transferring the Mortgage deeds, including stamp duties and other charges shall
be incurred by the originator company (transferor).
8.9 Documentation:
 The Deed of Assignment, Service Agency Agreement, Agreement to
Assignee and any other document required as per the specific pool or local
law will be the key document for the transaction.

 The Assignor shall also furnish an Auditor‟s certificate certifying the accuracy
of the Pool information furnished to the Assignee in addition to other
standard compliance requirements.
8.10 Re-purchase of Assets

The originator in the case of assignment transactions are prohibited from re-
purchasing any assets including through Clean – Up call on transferred assets.
8.11 Monitoring of the Pool

The bank branch will be required to monitor the pool asset very closely; for the
health and performance of the individual account is paramount for the bank, as
the entire credit risk in the exposure will devolve on the bank. As such the branch
should closely monitor the pool performance by perusing the monthly monitoring
reports and the delinquency reports to be submitted by the originator for
defaults if any as well as ensure that the monthly pay out are received as per the
schedule on the due date.
All the relevant documents and audit reports submitted by the bank‟s
concurrent/internal auditor should be readily available for verification by the
inspecting officials of RBI during the AFI.
8.12 Disclosures By The Originating Banks

Disclosures to be made in Servicer/Investor/Trustee Report
The NBFC/FI/service agent should disclose the weighted average holding period of
the assets assigned and the level of their MRR in the assignment. They should
ensure that all materially relevant data on the credit quality and performance of
the individual underlying exposures and cash flows supporting an assigned
exposure as well as such information that is necessary to conduct comprehensive
and well-informed stress tests on the cash flows is made available to the branch.
The disclosure by an originator of its fulfillment of the MHP and MRR should be
made available and should be appropriately documented, the disclosure should
be made at origination of the transaction, and should be confirmed thereafter at
a minimum half yearly (end-September and March), and at any point where the
requirement is breached. The above periodical disclosures should be made
separately for each assignment transaction, throughout its life/tenor, in the servicer
report, investor report, trustee report, or any similar document published. The

aforesaid disclosures can be made in the format given in Annexure -2on a half
yearly basis.
8.13 True Sale Criteria:

The „sale‟ (this term would hereinafter include direct sale, assignment and any
other form of transfer of asset, but does not include loan participation through
Inter-Bank Participation Certificates, bills rediscounted, outright transfer of loan
accounts to other financial entities at the instance of the borrower and sale of
bonds other than those in the nature of advance) should result in immediate legal
separation of the „selling bank‟ (this term hereinafter would include direct selling
bank, assigning bank and the bank transferring assets through any other mode),
from the assets which are sold. The assets should stand completely isolated from
the selling bank, after its transfer to the buyer, i.e., put beyond the selling bank‟s as
well as its creditors' reach, even in the event of bankruptcy of the
selling/assigning/transferring bank.
The selling bank should effectively transfer all risks/ rewards and rights/ obligations
pertaining to the asset and shall not hold any beneficial interest in the asset after its
sale except those specifically permitted under these guidelines. The buyer should
have the unfettered right to pledge, sell, transfer or exchange or otherwise dispose
of the assets free of any restraining condition. The selling bank shall not have any
economic interest in the assets after its sale and the buyer shall have no recourse
to the selling bank for any expenses or losses except those specifically permitted
under these guidelines.
There shall be no obligation on the selling bank to re-purchase or fund the re-
payment of the asset or any part of it or substitute assets held by the buyer or
provide additional assets to the buyer at any time except those arising out of
breach of warranties or representations made at the time of sale. The selling bank
should be able to demonstrate that a notice to this effect has been given to the
buyer and that the buyer has acknowledged the absence of such obligation.
 The selling bank should be able to demonstrate that it has taken all
reasonable precautions to ensure that it is not obliged, nor will feel
impelled, to support any losses suffered by the buyer.
 The sale shall be only on cash basis and the consideration shall be received
not later than at the time of transfer of assets. The sale consideration should

be market-based and arrived at in a transparent manner on an arm's
length basis.
 If the seller of loans acts as the servicing agent for the loans, it would not
detract from the 'true sale' nature of the transaction, provided such service
obligations do not entail any residual credit risk on the sold assets or any
additional liability for them beyond the contractual performance
obligations in respect of such services.
 An opinion from the selling bank's Legal Counsel should be kept on record
signifying that: (i) all rights, titles, interests and benefits in the assets have
been transferred to the buyer; (ii) selling bank is not liable to the buyer in
any way with regard to these assets other than the servicing obligations;
and (iii) creditors of the selling bank do not have any right in any way with
regard to these assets even in case of bankruptcy of the selling bank.
 Any re-schedulement, restructuring or re-negotiation of the terms of the
underlying agreement/s affected after the transfer of assets to the buyer,
shall be binding on the buyer and not on the selling bank except to the
extent of MRR.
 The transfer of assets from selling bank must not contravene the terms and
conditions of any underlying agreement governing the assets and all
necessary consents from obligors (including from third parties, where
necessary) should have been obtained.
 In case the selling bank also provides servicing of assets after the sale under
a separate servicing agreement for fee, and the payments/repayments
from the borrowers are routed through it, it shall be under no obligation to
remit funds to the buyer unless and until these are received from the
borrowers.
8.14 Representations and Warranties
a) An originator who sells assets to the Bank may make representations and
warranties concerning those assets as follows:
b) Any representation or warranty is provided only by way of a formal written
agreement.
c) The seller undertakes appropriate due diligence before providing or accepting
any representation or warranty.
d) The representation or warranty refers to an existing state of facts that is capable
of being verified by the seller at the time the assets are sold.

e) The representation or warranty is not open-ended and in particular, does not
relate to the future creditworthiness of the loans/underlying borrowers.
f) The exercise of a representation or warranty, requiring an originator to replace
asset (or any parts of them) sold, on grounds covered in the representation or
warranty, must be:
 undertaken within 120 days of the transfer of assets; and
 conducted on the same terms and conditions as the original sale.
g) A seller that is required to pay damages for breach of representation or warranty
can do so provided the agreement to pay damages meets the following
conditions:
 The onus of proof for breach of representation or warranty remains at all
times with the party so alleging;
 The party alleging the breach serves a written Notice of Claim on the
seller, specifying the basis for the claim; and
 Damages are limited to losses directly incurred as a result of the breach.
h) A seller should notify RBI (Department of Banking Supervision) of all instances

where it has agreed to replace assets sold to another financial entity or pay
damages arising out of any representation or warranty.
8.15 Applicability of Capital Adequacy and other Prudential Norms
The capital adequacy treatment for direct purchase of retail loans, will be as per
the rules applicable to retail portfolios directly originated by banks except in cases
where the individual accounts have been classified as NPA, in which case usual
capital adequacy norms as applicable to retail NPAs will apply. No benefit in terms
of reduced risk weights will be available to purchased retail loans portfolios based
on rating because this is not envisaged under the Basel II Standardized approach
for credit risk. However, banks may, if they so desire, have the pools of loans rated
before purchasing so as to have a third party view of the credit quality of the pool
in addition to their own due diligence.

8.16 Exposure Norms in Pool Advances:
Pool Exposure to individual Originators would be restricted depending upon their
long term rating as depicted below:
Company External Rating Pool exposure limit
(Rs. in crores)
Originator AAA 2000
Originator AA 1500
Originator A 500
MFIs MFI 2 or Higher 750
No fresh pools to be purchased from originators where exposure is higher than

above prescribed limits.
Pool Exposure including any investment exposure or credit exposure taken on the
originators would be restricted to Rs 3000 Cr.
8.17 Sanctioning Authority:
Purchase of Pool would be sanctioned only at Head Office at the level of HLCAC-
2/HLCAC-1/BLCAC/MCB as per their delegated lending powers. The Pool proposal
for the company having credit exposure will be placed before the same committee
who has approved the credit facility earlier.
Review of Pool Account would be done at the level of ZLCC/HLCAC-2/HLCAC-

1/BLCAC/MCB on run down balance of each pool as per their delegated lending
powers.
8.18 Power to allow deviations:

Any deviations in the policy and operational guidelines except Minimum rating of
originator may be allowed and sanctioned by HLCAC-1/HLCAC-2/BLCAC up to
their delegated lending powers.
MCB is empowered to allow and sanction proposals with any deviations in the
policy & operational guidelines.
8.19 Treatment of exposures not meeting the requirements stipulated above
As per the RBI guidelines banks will have to assign a risk weight of 1111% to the
assignment exposures where the requirements to be met by the purchasing bank
like, adhering to the (i) MRR & MHP, (ii) standards of due diligence, (iii) stress testing,
(iv) credit monitoring (v) true sale criteria, (vi) representations and warranties, (vii)

re-purchase of assets and (viii) applicability of the capital adequacy and other
prudential norms are not met as contained in Para 2.1 to 2.8 as per RBI policy
dated 7th May, 2012
8.20 Miscellaneous:
If the borrowers comprising the pool conform to the definition of “Priority Sector” –
then the Pool will be treated as a Priority Sector Pool and reporting will accordingly
be done.
Fees, Review charges and other charges payable, if any, relating to the
transaction would be decided mutually between the Assignor and the Assignee.
If any doubt arises as to the meaning or interpretation of any of the provisions of

this Policy or if any situation or problem arises which has not been covered under
these guidelines, then the matter shall be dealt in accordance with RBI Policy
Guidelines on Pool Assets dated 7th May, 2012.

Annexure - 1
Terms frequently used in Pool transactions
I. Assignee:
The buyer/acquirer of the loan receivables.
II. Assignor:
The Bank/FI/NBFC which sells the loan receivables.
III. Average Yield:

The current pool yield, calculated as the internal rate of return (IRR) of the pool
cash flows.
IV. Cherry – picking:

Is the process of selecting those loans out of a portfolio that possess certain
characteristics.
V. Minimum Holding Period (MHP): MHP has been defined as minimum number of
installments to be paid prior to assignment rather than minimum number of months
on book of the Originator.
VI. Over dues: It indicates with respect to the original contracts included in the pool,
the amount which is due but not yet paid.
VII. Minimum Retention Requirement (MRR)
The MRR is primarily designed to ensure that the originating banks/FI/NBFC have a
continuing stake in the performance of assigned assets so as to ensure that they
carry out a proper due diligence of loans to be assigned. In the case of long term
loans, the MRR may also include a vertical tranche of assignment, to ensure that
the originating banks have a stake in the performance of assigned assets for the
entire tenor of the assigned process.
VIII. Current Outstanding Rating/Credit Opinion:
In case of transactions under the Assignment of Receivables programme, it is the
opinion provided by the Rating Agency on their credit profile
IX. Excess interest spread (EIS):

Par structures also have an element of Excess Interest Spread (EIS) if the yield on
the pool is higher than the yield on the Pool payouts.

X. Future Payouts:
The total obligation towards the purchasers or the acquirers at the time of
assignment.
XI. Pool Principal:

The total principal outstanding in all the contracts within the pool at the time of
assignment.
XII. Structure:
Structure of a pool transaction can either be at par or at a premium depending on
whether the pool principal is sold at par or at a premium to the acquirers.
In the case of Par structure, the Originator sells the pool at a consideration which is
equal to the principal outstanding of future cash flows. The purchaser is entitled to
receive scheduled principal repayments from the pool of assets along with pre-
decided rate of interest.
Premium structure is one where the purchaser pays a consideration greater than
the principal outstanding of future cash flows, for the additional right to receive EIS
arising from the pool of assets.
XIII. Weighted Average Residual Maturity (WARM):

This indicates the weighted average balance maturity of the payouts in months.
Monthly payouts are taken as weights for the purpose of calculating the average.
XIV. Weighted Average Yield (WAY):

This is the pool yield at the time of assignment.
XV. 90+Delinquency:
This indicates the future principal of contracts that are delinquent for more than 90
days as on date as a proportion of the total future pool principal as on date.

Annexure -2
Format for Disclosure by the Originator (As per RBI Guideline)
Name/Identification No. of assigned transaction:
Information as on: _____________________
Amount/
Sl. Nature of
Details percentage
No. disclosures
years
1 Maturity (i) Weighted average maturity of the

characteristics of underlying assets (in years)
the underlying
assets on the date (ii) Maturity-wise distribution of underlying
of disclosure) assets:
a) Percentage of assets maturing

within one year.
b) Percentage of assets maturing
within one to three years
c) Percentage of assets maturing
within three to five eyras.
d) Percentage of assets maturing
after five years.
2 Minimum Holding (i) MHP required as per RBI guidelines
Period (MHP) of (years/months)
securitised assets
(ii) a) Weighted average holding
period of securitised assets at the
time of securitization
(years/months)
b) Minimum and maximum holding
period of the securitized assets.
3 Minimum Retention (i) MRR as per RBI guidelines as a
Requirement (MRR) percentage of book value of assets
on the date of securitised and outstanding on the
disclosure date of disclosure.
(ii) Actual retention as a percentage of

book value of assets securitised and
outstanding on the date of disclosure.
4 Credit quality of the (i) Distribution of overdue loans:

underlying loans
a) Percentage of loans overdue
upto 30 days.
b) Percentage of loans overdue
between 31-60 days.

c) Percentage of loans overdue
between 61-90 days.
d) Percentage of loans overdue for
more than 90 days.
Details of tangible security available for
the portfolio of underlying loans
(vehicles, mortgages, etc.)
(ii)
a) Security 1 (to be named) (%

loans covered)
b) Security 2 ………
c) Security „n‟ ………
(iii) Extent of security cover available for

the underlying loans
a) Percentage of loans fully

secured included in the pool (%)
b) Percentage of partly secured
loans included in the pool (%)
c) Percentage of unsecured loans
included in the pool (%)
(iv) Rating-wise distribution of underlying
loans (if these loans are rated)
a) Internal grade of the

bank/external grade (highest
quality internal grade may be
indicated as 1)
1/AAA or equivalent
4…
b) Weighted average rating of the

pool
(v) Default rates of similar portfolios
observed in the past.
a) Average default rate per annum

during last five years.
b) Average default rate per annum
during last year
(vi) Up-gradation/Recovery/Loss Rates of
similar portfolios

a) Percentage of NPAs upgraded
(average of the last five years)
b) Amount written-off as a
percentage of NPAs in the
beginning of the year (average
of last five years)
c) Amount recovered during the
year as a percentage of
incremental NPAs during the
year (average of last five years)
(vii) Frequency distribution of LTV ratios, in
case of housing loans and commercial
real estate loans)
a) Percentage of loans with LTV

ratio less than 60%
b) Percentage of loans with LTV
ratio between 60% - 75%
c) Percentage of loans with LTV
ratio greater than 75%
d) Weighted average LTV ratio of
the underlying loans (%)
5 Other (i) Industry-wise breakup of the loans in
characteristics of case of mixed pool (%)
the loan pool
Industry 1
Industry 2
Industry 3…
Industry n
(ii) Geographical distribution of loan pools

(state-wise) (%)
State 1
State 2
State 3
State 4

CHAPTER -9
POLICY DIRECTIVE ON CREDIT MONITORING
Credit Monitoring is a vital part of Credit Risk Management Practice in a bank which
comprises:
 Identification of risk
 Assessment of risk
 Quantification of risk
 Monitoring & control of risk &
 Mitigation of risk
Identification of risk is done at borrower selection and appraisal level. Assessment of risk
is done by Credit rating exercise. Quantification of risk is done as per Basel guidelines
issued by RBI from time to time. Mitigation of risk is done by stipulating appropriate terms
& conditions in a sanction advice and taking collateral.
Credit Monitoring is keeping watch & supervision on borrowal accounts from the post-
sanction stage to full recovery on a continuous basis in conformity with terms &
conditions stipulated in the sanction advice.
Maintaining asset quality is one of the key challenges for Banks. To ensure strict vigil on
the asset quality is of paramount importance. It calls for early pre-emptive measures
and sound monitoring systems. The classification of assets is subject to prudential
guidelines of RBI on income recognition and asset classification.
Credit Monitoring System is a tool that allows banks to manage, monitor and control
performance of assets in a pro active manner to prevent them from becoming NPA. The
main function of credit monitoring is to track the health of advance accounts on an on-
going real time basis. It will identify irregularities in the accounts such as delay in
servicing of interests, excess drawings, etc. It will also follow a system of preparing the list
of irregularities in these accounts and create a special watch list depending on the
extent of irregularities. These accounts need to be followed up on day to day basis to
ensure that the irregularities could be rectified. These actions are needed so that such
accounts do not degenerate and fall into NPA category.
Moreover, Credit Monitoring tool is used to ensure that loans are advanced in
consistence with the statutory and other restrictions imposed by RBI.
9.1 Monitoring Objectives/ Goals
Monitoring Objectives:
The objectives of Credit Monitoring are to:
a. Oversee delivery of credit initially after compliance with the terms and conditions of
sanction and also adherence to the laid down systems and procedures of the Bank.

b. Identify weak accounts and advise the same to Competent Authority for prompt
corrective action to protect the quality of the account.
c. Keep track of the health of the credit portfolio of the bank.
d. Developing adequate and appropriate systems & procedures to achieve the

above.
e. Insulate the system against entry of accounts with potential for credit default.
Measures for achievement of desired objectives:
a. Counseling field functionaries on various measures available for maintenance of the

quality of the assets.
b. Send communications to branches / offices on various guidelines on monitoring of
account, and updating them with available information.
c. Examining the periodic returns and identifying weakness, if any, developed at the
initial stage.
d. Ensuring that funds disbursed are properly utilized by the borrower for the purpose
for which the credit limit was sanctioned.
e. Obtaining regular market report on the account and remain vigilant on any
adverse development in the account.
f. Identifying critical areas in the functioning of the borrower unit and diagnose
symptoms of incipient sickness, if any.
g. Ascertaining existence of any fraudulent/ suspicious business transactions and
report to competent authority promptly.
h. In case of need, timely restructuring of the account and nurse back the account to
health.
i. Monitoring of Consortium / Multiple Banking Arrangement and timely reporting to
the authority.
j. Proper maintenance and monitoring of Trust and Retention account (TRA) /Escrow
mechanism should be meticulously followed in case of Project Finance.
9.2 Monitoring Process (Tools)
The process of monitoring will be done through various tools like - Returns submitted by
various levels of Sanctioning Authorities, Returns submitted by branches, Reports
received from Branch Inspectors, Concurrent Auditors, Statutory Auditors and Reserve
Bank Inspectors, Market Reports and Specific Reports obtained from Credit Evaluating
Agencies. Apart from above constant surveillance should be maintained by accessing
required information from the system.
9.2.1 Legal Audit
The Bank has introduced Legal Audit System by empanelled advocates. All advances
with aggregate Fund & Non-fund based limit of Rs. 3 crore and above are to be

covered under the system provided. However, based on his judgment, sanctioning
authority is empowered to stipulate legal audit in the sanction in accounts with
aggregate fund & non-fund based limits below Rs.3 crore also.
Objectives of Legal Audit:
a) Examination of documents taken for credit facility sanctioned to ascertain its

sufficiency to protect the interest of the bank
b) Examination of enforceability of the documents in an appropriate court of law.
c) Advising the bank about requirement of any additional document which might
be required depending upon the nature of credit facility granted to secure
bank‟s interest.
d) Re-verification of title documents / deeds and other documents with relevant
authorities to ascertain genuineness of the documents to prevent frauds relating
to title documents.
9.2.2 Credit Audit
Framework of Credit Audit has been adopted by bank to use better risk management
techniques in monitoring and managing risk. Credit Audit examines compliance with
extant sanction and post-sanction processes/ procedures laid down by the bank from
time to time. Credit Audit/ Loan Review Mechanism are effective tools for evaluation of
the loan book in order to bring about an improvement in the quality of the loan
portfolio.
Objectives of Credit Audit:
a) To bring improvement in the quality of credit portfolio

b) Review of sanction process and compliance status of large loans
c) To assess the adequacy of and adherence to, loan policies and procedures, and
to monitor compliance with relevant rules and regulations
d) Feedback on regulatory compliance
e) Independent review of Credit Risk Assessment
f) To pick-up early warning signals and suggest remedial measures
g) To recommend corrective action to improve credit quality, credit administration
and credit skills of staff
h) Provide Top Management with information on credit administration, including
credit sanction process, risk evaluation and post-sanction follow-up.
Detail guidelines on Credit Audit are given in chapter -12 of this Policy Document.

9.2.3 Inspection of Stocks & Book Debts
(A) For Advances other than UCO Trader:
a) Stock inspection by branch officials in respect of accounts with different ratings shall
be carried out at different intervals of time as given hereunder at least.
Rating of Account Periodicity of Stock Inspection

UCO1 / UCO2 Every half-year
UCO3 / UCO4 Every quarter
Below UCO4 Every month
b) Stock inspection in case of other accounts [not coming under present rating system
of the bank] shall be carried out either monthly or quarterly as decided by the
sanctioning authority depending on the health of the unit.
c) In all cases where bank has extended financial assistance for working capital
requirement against pledge/hypothecation of stocks and/or book debts, borrowers
are required to submit statement of stock (CMR-14) and statement of book
debts/receivables (CMR-14 A) on monthly basis as per specified format or as
stipulated in the sanction irrespective of periodicity of inspection as above.
In terms of RBI‟s Master Circular on “Prudential norms on Income Recognition, Asset

Classification and provisioning pertaining to Advances”, Banks should ensure that
drawings in the working capital accounts are covered by the adequacy of current
assets. Drawing power is required to be arrived at based on stock statement which is
current. Unpaid stocks, stocks held under DALC, acceptances till retirement of bills are
to be excluded for the purpose of computation of drawing power. The Branches are
accordingly required to compute the Drawing Power in the formats CMR-14 and CMR-
14A.
The outstanding in the account based on drawing power calculated from stock
statements older than three months, would be deemed as irregular. A working capital
borrowal account will become NPA if such irregular drawings are permitted in the
account for a continuous period of 90 days even though the unit may be working or the
borrower‟s financial position is satisfactory. Therefore, branches obtain stock and book
debts statements from borrowers availing working capital limits regularly, compute
drawing power and update the same in the system without fail.
In addition, the statement of book debts must be got verified by a Chartered

Accountant on a quarterly basis or as per the terms of sanction. Non submission of stock
/ book debt statement beyond the stipulated period is non-compliance of sanction
terms and drawls are to be regulated accordingly.
Stock Inspection Report [SIR]:
The formats for submission of Stock Inspection Report [CMR – 2 for advances sanctioned
below Rs 10 lacs and CMR – 3 for advances sanctioned Rs.10 lac and above] are as
under and reports should be prepared for every inspection:

CMR – 2 For CC limit below Rs.10 lac
CMR – 3 For CC limit of Rs.10 lac and above
CMR 3A For UCO Trader Advances
The SIR must be filed separately account-wise in branches and produced before
Statutory Auditors/Internal Inspecting Officers/RBI Auditors for comments /observations.
Only when the inspection is by an Inspecting Officer/Concurrent Auditor, such S I R
should be sent to Zonal Office.
Submission of stock/book debt statement (as stipulated in the sanction) is a pre-requisite

for allowing drawings in cash credit account and the authority is vested on the
delegatee to permit drawals only when DP is available. Non submission of stock/book
debt statement beyond the stipulated period is non-compliance of sanction terms and
drawals are to be regulated accordingly.
(B) For Advances under UCO Trader:
a) Statement of Stocks & Book Debts shall be submitted as per the provisions of
the scheme.
b) Periodicity of stock inspection is yearly (during February every year) or earlier as
stipulated in the sanction.
c) Stock Inspection Report is to be submitted as per format CMR-3A.
d) Statement of Book Debts/Receivables (CMR-14A) should be submitted by the
borrower along with stock statement (CMR-14).
Inspection of securities for Term Loans / DPG Accounts:
Types of Loans/DPG Periodicity To be submitted to

Project Loans Quarterly, based on To be kept at the branch. Large
project progress deviations if any, to be reported to
sanctioning authority & ZO.
A/Cs under Special Quarterly To be submitted to sanctioning
Watch authority & ZO
All other Term Loans As per terms of As in case of stock inspection reports
sanction
Inspection report relating to Term Loan /DPG accounts should be prepared as per
format CMR-4.
9.2.4 Stock Audit
Working Capital facilities are primarily secured by stock and/or book debts for which it is
imperative that proper surveillance is necessary on proper management of inventory
and receivables. Stock audit is necessary to identify deficiencies at an early stage. Any
erosion in the value of securities directly affects the quality of the portfolio and bank
loses its recourse in case of default. The scope of stock audit generally includes detailed

assessment of stock and receivables, which are termed as current assets, including
quality, marketability, value, age, insurance (and assignment thereof) etc. which are
likely to influence the assets charged to the bank.
Authority:
Stock Audit may be authorized by Zonal Managers and General Managers at HO,
General Manager/DGM [Credit Monitoring-I/C], Executive Director and Chairman &
Managing Director, wherever needed in addition to the following to be authorized by
ZMs.
Cut-off limit & Periodicity:
Rating/Asset Cut-off limit Periodicity

Classification of
Accounts
UCO3 and above Rs. 20.00crore & above Once in a year
UCO4 Rs.10.00crore & above Once in a year
UCO5& below Rs.5.00crore & above Once in 6 months
UCO3 and above Below Rs. 20.00crore Sanctioning authority may authorize
UCO4 Below Rs.10.00crore conduct of stock audit depending
UCO5& below Below Rs.5.00crore upon the requirement / development
in the account.
9.2.5 Unit Inspection
Unit inspection means ensuring that the unit to which the bank has lent its funds is being
run in a satisfactory manner. Its scope goes beyond stock statement scrutiny or even
stock inspection. Unit inspection goes beyond arithmetical or physical correctness of the
stocks. The scope of unit inspection covers ensuring whether there are orders on hand,
licenses are renewed and taxes & statutory dues have been paid in time etc.
9.2.6 Special Investigative Audit [SIA]
In cases where in financial / accounting irregularities like diversion of funds outside the
business etc. are noticed and/or suspected, Special Investigative Audit (S.I.A.) by
independent Chartered Accountant and/ or by consultants may be conducted.
Conduct of Special Investigative Audit may be authorized by Sanctioning Authorities. In

cases sanctioned by MCB, ED / CMD will be the Competent Authority to authorize
conduct of S.I.A. In such cases, the scope of the audit, depending upon the objective,
should be stated clearly and the report should, inter alia, cover all aspects of the scope
defined. In case of Consortium Accounts, SIA may be conducted by any of the
member Bank.
9.2.7 Annual review/renewal of borrowal accounts
The working capital limits are normally sanctioned for a period of one year. It is
necessary to validate the assessment for extending the validity of a sanction, which can

be done through renewal / review. During the process of renewal / review all aspects of
proposal is examined and accordingly terms and conditions are stipulated. In case of a
project loan or term loan, periodic performance is examined through review, so that the
basis for sanctioning of the loan is examined and the credit facilities are continued
beyond one year.
In case, if for any reason regular renewal based on the required statements, is not
possible on expiry of the validity period of the limit, a short review has to be done.
Such short review is warranted only in case where the required information is not
forthcoming from the available sources.
As per Bank‟s Loan Policy Document, short review in accounts rated below „UCO5‟
should be carried out every 6 month with emphasis on operations and primary securities.
In all other accounts annual review/ renewal exercise is mandatory and accordingly the
exercise should be completed diligently.
RBI in its guidelines on prudential norms for income recognition and asset classification,
inter alia, state that regular and ad hoc credit limits need to be reviewed/regularized
not later than three months from the due date/date of ad hoc sanction. In case of
constraints such as non-availability of financial statements and other data from the
borrowers, the branch should furnish evidence to show that renewal/ review of credit
limits is already on and would be completed soon. In any case, delay beyond six
months would adversely affect the status of the account. Hence, an account where the
regular/ad hoc credit limits have not been reviewed /renewed within 180 days from the
due date/date of ad hoc sanction will be treated as NPA.
“Due date” for regular credit limits as mentioned above shall mean 12 months from
date of sanction or any other date as provided in sanction.
Our looking back upon the happenings in a borrowal account over a period of time
under the garb of „annual review‟ would encompass:
a) Deciphering the business happenings and its net result by the end of the scheduled
time.
b) Juxtaposing the actual against the assumptions/projections made at the time of
sanctioning of the loan proposal
c) Analyzing the underlying reasons for deviations, if any, from the assumptions.
d) Deciding their acceptability or otherwise, and
e) Wherever needed, proposing mutually acceptable corrective measures for
restoring the unit back to the desired level of performance/achievement.
To facilitate smooth review of accounts, Bank has prescribed various formats as listed
hereunder:
1. Formats for review of credit facilities (excepting loans under Mid Market Scheme)
with fund based limit/outstanding up to Rs.2.00 Lac

2. Formats for review of credit facilities (excepting loans under Mid Market Scheme)
with aggregate fund based limit/outstanding over Rs.2.00 Lac and up to Rs.10.00
Lac
3. Format for review of loans sanctioned under Mid Market Scheme (Excluding finance
under UCO Trader)
4. Memorandum for review of limits with fund – based exposure above Rs.10 lac but
below Rs.100 lac
5. Memorandum for review of limits with fund based exposure of Rs.100 lac and above
6. Memorandum for review of Term Loan accounts (above Rs.2 Lac & other than Mid-
Market schemes) where no other fund based facility has been sanctioned
Needless to add, no account should slip to NPA for the reason of failure to
review/renewal an account by the branch.
9.3 Preventive Measures:
(a) Timely Renewal of Accounts:
As per extant guidelines, every advance account is to be renewed annually failing

which the credit limits of demand nature would cease to continue. Thus one of the
main objectives of Monitoring Process is to ensure timely renewal of accounts. For this
purpose, the Branches/Zones should prepare month wise renewal calendar and
monitoring action plan at all levels. In case of delays in obtaining audited Financial
Statements from the customers, branches/Regions may undertake „Short Review‟.
Incidentally, such timely review will also enable avoiding of “over 180 days” delinquency
position.
(b) Recoveries of critical amounts to avoid slippage:
The degree of out of order position can be different in each irregular account. It may
not be feasible to recover the entire dues in a single stroke in all accounts. However, it
may be necessary to recover all over dues up to a minimum of overdue position. Such
amounts to be recovered to avoid slippage are called critical amounts. Pending
comprehensive restructuring in an irregular account, it may be necessary at times to
recover at least critical amounts. This gives enough room to the borrower for bringing
improvement in the quality of asset in the following period
(c) Timely Restructuring of Accounts:
Occasions do arise when the borrowers are unable to meet the stipulated repayment
schedule due to various business reasons. Many a time, even the interest charged in
the accounts may not get recovered. In respect of new projects under implementation
(even in expansion projects), a delay in completion of the project can result in inability
of the borrowers in meeting their repayment schedules. Under all the above
circumstances, the accounts go out of order in the normal course and pro-active
measures are to be initiated to appropriately restructure the accounts. Therefore, there
is a need to ensure that restructuring proposals are submitted by branches to

appropriate authorities for sanction well in time so as to implement corrective measures
without any delay.
The scheme of Restructuring as advised by the Bank is based on various guidelines

issued by Government of India, RBI, from time to time.
(d) Identification of Non-Cooperative Borrower:
A non co-operative borrower is one who does not engage constructively with his lender
by defaulting in timely repayment of dues while having ability to pay, thwarting lenders‟
efforts for recovery of their dues by not providing necessary information sought ,denied
access to asset financed /collateral securities, obstructing sale of securities, etc. In
effect a non co-operative borrower is a defaulter who deliberately stone walls
legitimate efforts of the lenders to recover their dues.
Detailed guidelines for classifying a borrower as non co-operative borrower and

reporting the same information of such borrowers to Central Repository of Information
on Large Credits (CRILC) and provisioning requirement etc. has been included in
operational guideline for Credit Monitoring.
(e) Framework for Dealing with Loan Frauds:
Reserve Bank of India (RBI) issued framework for dealing with Loan Frauds, with objective
of directing focus of banks on prevention, early detection, prompt reporting to the RBI
and the investigative agencies, while ensuring that the normal conduct of business of
the banks and their risk-taking ability is not adversely impacted.
The objective of the frame work is to set up timeliness/stage wise actions in the loan life
cycle in order to reduce the time to identify a fraud case timely, initiation of staff
accountability proceedings, declaration of an account as Red Flagged Account (RFA)
on observance of one or more Early Warning Signals (EWS).
The threshold for EWS and RFA is an exposure of Rs. 50.00 crores or more at the level of a
bank irrespective of the lending arrangement (whether sole, multiple banking or
consortium). All accounts of Rs.50.00 crores& above classified as RFA or frauds must also
be reported on the CRILC data platform together with the dates on which the accounts
were classified as such.
In general, the penal provisions as applicable to willful defaulters would apply to the
fraudulent borrower including the promoter director(s) and other whole time directors of
the company in so far as raising of funds from the banking system or from the capital
markets by companies with which they are associated is concerned, etc. In particular
borrowers who have defaulted and have also committed a fraud in the account would
be debarred from availing bank finance from scheduled commercial banks,
development financial institutions, Government owned NBFCs, investment institutions
etc.
No restructuring or grant of additional facilities may be made in the case of RFA or fraud
accounts. However, in case of fraud/ malfeasance where the existing promoters are
replaced by new promoters and the borrower company is totally delinked from such

erstwhile promoters/management, banks and JLF may take a view on restructuring of
such accounts based on their viability, without prejudice to the continuance of criminal
action against the erstwhile promoters/ management.
RBI has developed a central fraud registry, a centralized searchable data base, which
can be accessed by banks to get the important details of previous frauds reported by
banks.
A detailed guideline for identification and monitoring of Red Flagged Account and
action to be taken has been included in Operational Guidelines of Credit Monitoring.
9.4 Monitoring Set-up:
Credit Monitoring Department at Head Office shall be headed by General Manager or

Deputy General Manager independent of credit sanction/delivery functions, assisted by
adequate number of supervisory officers in the cadre of DGM, AGMs/COs and other
supporting officers in scales MMG III/II.
In addition to Credit Monitoring set-up at Head Office, which would be monitoring

mainly high value accounts, corresponding monitoring set up will have to be in place at
Zonal level to handle advance accounts as per details given under Graded System of
Monitoring. These Zonal Credit Monitoring Cells should be manned by senior officers
having adequate Credit exposure who should be independent of Credit appraisals /
sanctions / credit delivery functions. Zonal Offices should suitably strengthen / equip
their Credit Monitoring Dept./Cell in terms of both number and quality of staff
complement to ensure effective monitoring.
As a third tier of monitoring process, it is desired that Monitoring Cells should also be
constituted in FCC/MC branches handling Large Borrowal Accounts and in other
Branches where number of accounts in Special Watch category is significantly large.
Monitoring Cells in branches may be manned by a senior officer with credit exposure
supported by another officer/clerk. The Zonal Manager may decide such branches
where Monitoring Cells are required to be constituted. In other branches, the Branch
Manager should monitor all accounts on a regular basis.
Monitoring System adopted by our bank is detailed as under:

1.Cut –Off limits for Monitoring of Standard accounts through MCMR
(CMR5(B)/CMR5(A)/CMR5(R)*
 <Rs25 lacs- Branch.
 >=Rs25 lacs –<Rs500lacs – Zonal Office/MC/FC branches.
 >=Rs500 lacs& and above – H.O., Credit Monitoring
*For any happening (or non-happening) in an account, irrespective of the limit/exposure
involved, the branch is prima facie responsible as is prevalent now. However, the Graded
System of Monitoring, as explained above, the respective authorities are to monitor the
accounts as per limit/exposure, but the lower, authority at all level, i.e., Branch/ZO/CO
level is not absolved of the accountability and are required to monitor the account with

full responsibility.
2.Returns
 Rs 25 lacs - Rs500 lacs (both inclusive) –CMR 5 (A) & Summary report
 >Rs 500lacs- CMR-5(R) & Summary report
3.Exception Report(Applicable to all accounts)Reports to be generated in 6 different
categories:
I. Accounts due for review –renewal
II. Accounts due for review –renewal in next three months
III. Accounts where regular inspection of securities due
IV. Accounts in which fresh credit rating to be carried out
V. Accounts in which there are over dues
VI. Accounts in which deficiencies/irregularities noticed
Besides these there will be Zone-wise executive summary in 5 categories:

4. Summary position of Monthly Monitoring Report of large borrowal accounts with FB &
NFB aggregate limits are over 10 crores under CDR (CMR-27)
5. Summary position of Monthly Monitoring Report of large borrowal accounts where
terms & conditions are not complied(CMR-29)
6. Summary position of Monthly Monitoring report of large borrowal accounts where
review is due for more than 3 months (CMR-29)
7. Summary position of Monthly Monitoring Report of large borrowal accounts where
overdue of more than 1 month (CMR-30)
8. Zone-wise summary position of utilization of the funds/pending review& renewal / non
compliance of terms & conditions/ overdue in the account/gradation in credit rating
(CMR-31)
Stressed Asset Management Vertical: For enhanced follow up and resolution of stress
separate vertical has been created at Head Office level for monitoring SMA-1 and SMA-
2 accounts with exposure above Rs.20 crore. Vertical shall identify the account under
SMA category, follow up those accounts, explore and implement resolution for such
SMA-1 and SMA-2 accounts. Identified accounts under SMA-1 and SMA-2 with exposure
above Rs.20 crores are to be exclusively handled by the Vertical till the accounts get out
of SMA fold and remains outside SMA fold for one quarter.
Monitoring of Special Mention Accounts (SMA):
Incipience of stress in loan accounts shall be identified immediately on default
as follows:
i) Non-payment of debt when whole or any part or installment of the amount of
debt has become due and payable and is not repaid by the debtor or the
corporate debtor, as the case may be
ii) For revolving facilities like cash credit, default would also mean, without
prejudice to the above, the outstanding balance remaining continuously in
excess of the sanctioned limit or drawing power, whichever is lower, for more
than 30 days.

Stressed Assets as Special Mention Accounts (SMA) shall be categorized as
follows:
SMA Basis for classification
subcategory
Principal or interest payment or any other amount wholly or
partly overdue between
SMA0 1-30 days
SMA1 31-60 days
SMA 2 61-90 days
SMA0, SMA1 and SMA2 reports are now available on UCOONLINE [Path MISCredit
Monitoring Weekly Overdue Report (Report Nos. 20, 21 and 22]
SMA Accounts are to be properly followed up to get it out of SMA fold as under:
i) Branch Level: Identification and follow up of all SMA-0, SMA-1 and SMA-2 accounts
for all exposures.
ii) Zonal Office Level: Identification and follow up of all SMA-0, SMA-1 and SMA-2
accounts for all exposures of Rs.25 lacs and above up to less than Rs.5.00 crore.
iii) Head Office level: Identification and follow up of all SMA-0, SMA-1 and SMA-2
accounts for all exposures Rs.5.00 crore and above by Stressed Asset Management
Vertical.
In backdrop of high level of delinquencies in advance portfolio of Bank has undertaken
special actions as below:
High Power Committee: For effective supervision of SMA2 accounts with exposure of
Rs.5.00 crore and above, there is a committee at Head Office Level under
chairmanship of Executive Director, Corporate General Manager for Credit, Corporate
Credit, Risk Management, Credit Monitoring and Stressed Asset Management Vertical
as members. The committee reviews the accounts under SMA-2 at regular interval and
give direction for possible resolution of stress. All the branches and Zonal Offices are
required to submit particulars of such accounts to Head Office in format specially
devised, as and when the accounts have become SMA-2 for purpose of review by the
committee.
9.5. Holding on Operations for Irregular Accounts
a. Holding on Operations in the irregular accounts without increase in exposure will be

allowed by the respective sanctioning authorities within their delegated lending powers
for the accounts sanctioned by Branch Head, ZLCC. The authority to allow Holding On
Operations without increase in exposure in the irregular accounts sanctioned by Head
Office level committee i.e HLCAC-I, HLCAC-II, BLCAC and MCB.

b. If holding on operations involve increase in exposure, the same will be allowed by the
next higher authorities within their delegated lending powers in respect of the accounts
sanctioned by Branch head and ZLCC.
However in respect of accounts sanctioned by HLCAC-I, HLCAC-II , BLCAC and MCB, if

Holding On Operations involve increase in exposure, the respective sanctioning
authorities will exercise their powers to allow operations in such irregular accounts within
their delegated lending powers.
9.6. Recall of Advances & Invocation of Personal Guarantee.
Branches shall recall the advances and invoking personal guarantee when the
accounts are under irregular/default (SMA-1 & SMA-2) category (without waiting for the
account slipping to NPA Category) and where the prospects of recovery / up gradation
is bleak as under:
i) Total credit outstanding exposure with more than Rs.25.00 crore - The
advance is to be recalled and personal guarantee of the promoters of borrower
company is to be invoked.
ii) Total credit aggregate exposure with more than Rs.5.00 crore - personal
guarantee of the promoters of borrower company is to be invoked.
iii) The respective sanctioning authority of such borrowal accounts will be the
authority for initiation of above actions.
iv) The documents executed in the existing borrowal accounts should cover the
requirement for recalling and invocation of personal guarantee in accounts
under SMA-1 and SMA-2.
v) All the existing as well as the new borrowers is to be communicated in writing
about the banks guidelines for recalling and invocation of personal guarantee in
accounts under SMA-1 and SMA-2.
9.7. Engagement of Agencies for Specialized Monitoring (ASM)
Apart from above, Bank is required to engage Agencies for Specialized Monitoring
(ASM) for clean and effective post sanction follow up of large credit exposure above
Rs.250.00 Crore, on common engagement basis in consortium arrangement and
exposure of specialized nature. Engagement of external agency will be duly
incorporated in terms of sanction of credit proposal and is to duly accepted by
borrower company and guarantor(s). This will form part of the Bank‟s loan policy.
In addition to above, Operating Guidelines for Credit Monitoring are being issued
separately and the same should be followed.

CHAPTER- 10
POLICY GUIDELINES FOR FINANCING TO MICRO FINANCE INSTITUTIONS
10.1 Guidelines for financing to Non-NBFC Micro Finance Institutions - (Non-NBFC MFIs)
10.1.1 Scope:
These guidelines envisage credit linkage between the Bank and MFIs which are in the
form of NGOs/ Trusts/Non-profit organizations for on-lending to Self Help Groups
(SHGs)/Joint Liability Groups (JLGs).
10.1.2 Eligibility:
The eligibility criteria for financing Non-NBFC MFIs are mentioned hereunder:
(a) Non-Government Organizations (NGOs) registered under Societies Registration Act,

1860 or similar State Acts.
(b) Public Trust registered under India Trust Act, 1882.
(c) Non-profit companies registered under section 25 of the Companies Act, 1956.
All such MFIs should have express provision of undertaking the activity of microfinance in
their bye-laws/ memorandum of association etc. i.e. financing for the activities related
to agriculture, allied agriculture and others within the ambit of priority sector and should
satisfy RBI norms for categorization of the loans as priority sector.
Only such MFIs would be considered for financing by the Bank, which confirm to the
following criteria:
(a) Should have done business for at least full one financial year supported with
audited financial statements.
(b) Should have an elected board/ management body with broad Based
membership.
(c) Laws/Bye-laws/Constitution/Deeds/Article of Association etc. of MFI should
describe the specific borrowing powers of the MFI.
(d) MFI should not be a defaulter of any other financial institutions and their conduct
and accounts with other Fls/banks should be satisfactory and standard and
should not have been blacklisted by any Bank/Financial institution/ Agency.
(e) Should operate from its own (owned or rented) premises i.e. should not operate
from other's office/s in the field.
(f) Should have sound recovery management system in place (minimum 90%
recovery rate should be maintained by the MFI).
(g) Total liabilities/ Tangible Net Worth of the MFI shall not be more than 5:1.

10.1.3 Internal Rating:
The credit rating of the borrower entity should be UCO 5 and above.
10.1.4 External Rating:
i. The external rating shall be obtained for credit limit above Rs.5.00 crore and
minimum acceptable rating would be 'BBB' or equivalent.
10.1.5 NBC Clearance:
i. All the proposals falling upto the delegated power of ZLCC, prior clearance has to
be obtained from HLNBC. In case the proposals are falling beyond the delegated
power of ZLCC, prior clearance has to be obtained from BLNBC.
ii. The Sanctioning Authority for such proposals shall be ZLCC and above, according
10.1.6 Discretionary Authority to sanction:
The proposals for financing Non NBFC-MFIs would be sanctioned by ZLCC and above
authorities according to their normal sanctioning powers.
10.1.7 Disbursement of Loan to MFIs:
i. The loan would be disbursed in phases depending upon the requirement of MFI
within a period of maximum 6 months from the date of first drawal.
ii. Drawal under working capital limit would be allowed against drawing power
based on monthly book debts statement submitted by the company. Book debts
upto 100 days shall be considered for calculation of drawing power.
10.1.8 End-use verification:
An end-use certificate would be obtained from the Statutory Auditor of the company.
The Statutory Auditor's certificate certifying age-wise book-debts would be obtained
quarterly.
10.1.9 Categorization of the loans as Priority Sector Advances:
The proposed MFI should satisfy RBI norms for categorization of the loans as priority
sector. At the end of each quarter, the MFI should submit Statutory Auditor's Certificate
stating inter-alia, that -
i. 85% of total assets of the MFI are in the nature of "qualifying assets".
ii. The aggregate amount of loan extended for income generating activity is not less
than 50% of the total loans given by MFI.
iii. The pricing guidelines as issued by RBI are to be followed.

10.1.10 Review/Renewal of credit facility:
The credit facility extended to the microfinance institution would be reviewed/ renewed
on yearly basis.
10.2. Guidelines for financing to NBFC Micro Finance Institutions (NBFC-MFIs):
10.2.1 Scope:
The policy guidelines are applicable for financing to those NBFC-MFIs, whose activities
are subject to RBI regulations.
Definition of NBFC-MFI:
In terms of RBI Guideline NBFC-MFI is defined as under -
An NBFC-MFI is defined as a non-deposit taking NBFC (other than a company licensed

under Section 25 of the Indian Companies Act, 11056) that fulfils the following conditions:
i. Capital requirement- Entry Point Norms
a) Existing NBFCs:
All registered NBFCs intending to convert to NBFC-MFI must seek registration with RBI
& should comply with all the guidelines formulated by the Reserve Bank failing which
the MFIs must ensure that lending to the Microfinance sector i.e. individuals, SHGs or
JLGs which qualify for loans from MFIs, will be restricted to 10% of the total assets.
b) New Companies:
All New Companies desiring NBFC-MFI registration will need a minimum Net Owned
Funds (NOFs) of Rs.5 Crore except those in North Eastern Region of the country
which will require NOF of Rs 2 Crore till further notice.
ii. Not less than 85% of its net assets are in the nature of "qualifying assets”.
For the purpose of (ii) above, "Net assets" are defined as total assets other than cash
and bank balances and money market instruments.
"Qualifying asset" shall mean a loan which satisfies the following criteria:
a) Loan disbursed by an NBFC-MFI to a borrower with a rural household annual

income not exceeding Rs. 1,00,000/- or urban and semi-urban household
income not exceeding Rs. 1,60,000/-.
b) Loan does not exceed Rs. 60,000/- in the first cycle and Rs.1,00,000/- in the
subsequent cycles.
c) Total indebtedness of the borrower does not exceed Rs.1,00,000/-
d) Tenor of the loan is not less than 24 months when loan amount exceeds Rs.
30,000/- with right to borrower of prepayment without penalty.
e) Loan to be extended without collateral.

f) Aggregate amount of loans, given for income generation, is not less than 50
percent of the total loans given by the MFI.
g) Loan is repayable by weekly, fortnightly or monthly installments at the choice
of the borrower.
iii. Further the income an NBFC-MFI derives from the remaining 15% of assets shall be in
accordance with the regulations specified in that behalf.
iv. An NBFC which does not qualify as an NBFC-MFI shall not extend loans to
microfinance sector, which in aggregate exceed 10% of its total assets.
10.2.2 Eligibility:
(i) The proposed borrower should be a NBFC-MFI as defined above and having
registration with RBI would be eligible for Bank Finance.
Application for Registration as NBFC-MFIs
a) All existing NBFCs intending to be registered as NBFC-MFIs must seek
registration with immediate effect to the Regional office of which their
registered office is located along with the original Certificates of
Registration(CoR) issued by the Bank for change in their classification as
NBFC-MFIs.
b) The change in classification would be incorporated in the CoR as NBFCs-MFI.
c) New companies will need to provide additional information with regard to
their projected business plan for 3 years in hard copy, while applying on-line
for registration as NBFC-MFI.
(ii) NBFC-MFI should comply with prudential norms prescribed by RBI on capital
requirement, Asset classification and provisioning etc. The company should submit
Auditor's Certificate in this regard at the time of sanction of limit and also continue
to submit annually once the audit is completed.
(iii) As per RBI guidelines, all new NBFC-MFIs shall maintain a capital adequacy ratio
consisting of Tier I and Tier II Capital which shall not be less than 15 percent of its
aggregate risk weighted assets. The total of Tier II Capital at any point of time shall
not exceed 100 percent of Tier I Capital.
(iv) Among the existing NBFCs to be classified as NBFC-MFIs, those with asset size less
than Rs. 100 crore were required to comply with this norm w.e.f April 01, 2012. Those
with asset size of Rs. 100 crore and above were already required to maintain
minimum CRAR of 15%.
(v) NBFC-MFI should give a declaration that they have complied with other
regulations of RBI viz., pricing of credit, fair practice in lending, corporate
governance etc.
(vi) The company should have done business for at least full one financial year.

(vii) The company and its directors should not be defaulter with other banks / financial
institutions and their conduct and accounts with other Fls /banks should be
satisfactory.
(viii) The Company should have sound recovery management system in place
(minimum 90% recovery rate should be maintained by the MFI).
10.2.3 Internal Rating:
i. Enhanced Credit Rating Models - One rating model is to be followed for all types
of Non-NBFCs with FB & NFB limit of Rs.25 lakh & above.
ii. The credit rating of the borrower entity should be UCO 4 and above with
management rating may be relaxed with minimum 50%.
10.2.4 External Rating:
External rating shall be obtained for credit limit above Rs. 5.00 crore and minimum
acceptable rating would be 'BBB' or equivalent.
10.2.5 Prudential Exposure norms for NBFC-MFIs:
The Board approved prudential exposure norms as applicable to NBFC (others) would
be applicable for financing to NBFC-MFIs.
10.2.6 NBC Clearance:
i. All the proposals falling upto the delegated power of ZLCC, prior clearance has to
be obtained from HLNBC. In case the proposals are falling beyond the delegated
power of ZLCC, prior clearance has to be obtained from BLNBC.
ii. The Sanctioning Authority for such proposals shall be ZLCC and above, according
10.2.7 Discretionary Authority to sanction:
The proposals for financing NBFC-MFIs would be sanctioned by ZLCC and above
authorities according to their normal sanctioning powers.
10.2.8 Disbursement of loans to MFIs:
i. Term loan would be disbursed in phases depending upon the requirement of the
company within a period of maximum 6 months from the date of first drawal.
ii. Drawal under working capital limit would be allowed against drawing power
based on monthly book debts statement submitted by the company. Book debts
upto 100 days shall be considered for calculation of drawing power.

10.2.9 End-Use Verification:
An end-use certificate would be obtained from the Statutory Auditor of the company.
The Statutory Auditor's certificate certifying age-wise book-debts would be obtained
quarterly.
10.2.10 Categorization of loans as Priority Sector Advances:
At the end of each quarter, MFI should submit Statutory Auditor's Certificate stating inter-
alia, that:
i. 85% of total assets of the MFI are in the nature of "qualifying assets".
ii. The aggregate amount of loan extended for income generating activity is not less
than 50% of the total loans given by MFI.
iii. The pricing guidelines issued by RBI are to be followed.
10.2.11 Review/Renewal:
The credit facility extended to the NBFC- MFI would be reviewed/ renewed on yearly
basis.
****************

CHAPTER – 11
GENERAL
Bank will be guided by the latest circular issued on any particular subject by the
Bank/RBI. Any deviation/exemption from the norms/benchmark level mentioned in this
document will be permitted sparingly by the competent authority only, on account of
emergent business compulsions in areas where banks have been given freedom to
exercise such deviation/s. Where RBI/SEBI/our Board directives are mandatory such
deviation would not be permitted.
11.1 Discretionary Authority for allowing deviations which are not specifically mentioned
in the Loan Policy Document or any other Policy Document
Discretionary authority for allowing relaxations / deviations like Borrower Standards,

concession in ROI, Margin, Exchange, Commission and other Service charges etc. has
already been mentioned in Loan Policy Documents. In case of schematic lending also
discretionary authority has been specified for allowing certain deviations. However,
there may be request for allowing deviations other than those specified in the Policy
documents. Accordingly, it is provided that discretionary authority for allowing any other
deviations, case to case basis on merit, which are not specifically mentioned in the
Loan Policy Document or any other Policy Document of the Bank, shall rest with BLCAC
& above Authority.
In case of Retail Loan Schemes ZLCC may allow relaxations other than pricing, Margin &
Maximum Loan amount of the Scheme on case to case basis keeping in view the merits
of proposal and standing of the borrower.
11.2 Registration with Central Registry of Mortgages Created on Immovable Properties

(CERSAI)
The Central Registry has been made Operational w.e.f. 31.03.2011.
Registration of security interest for the following type of properties is required to be filled,
modified or satisfied on the CERSAI portal:
 All types of immovable properties where in mortgage created by deposit of title
deeds or otherwise to be registered with Central Registry within a period of 30
days from the date of creation of mortgage.
 Security interest on the flat financed is to be created with CERSAI at the time of
first phase of disbursement of loan on the basis of Tripartite Agreement.
 All assets under hypothecation of plant and machinery, stocks, debt including
book debt or receivables etc
 On intangible assets like know-how, patent, copyright, trade mark, license etc.
 On any other residential or commercial building or a part thereof by an
agreement other than mortgage

The Registration to be done with Central Registry shall be in addition to the registration
required under Laws, such as, Companies Act etc.
The secured creditors will be entitled to exercise the right to enforce securities only if it is
registered with Central Registry.
The priority of debts due to Secured creditors over all other debts, revenue, taxes etc.
payable to Central Govt, State Govt or any other authority.
The guidelines on CERSAI issued by Credit Monitoring Department , HO, from time to
time, shall be followed.
11.3 Coverage of collateral free loans under Credit Guarantee Fund Trust Scheme for
Micro & Small Enterprises (CGTMSE/CGFMU/CGSSI):
All the collateral free loans sanctioned to Micro & Small Enterprises in manufacturing
services Sector /Trading activities should be covered under CGTMSE/CGFMU/CGSSI as
per the guidelines issued by our Retail & MSME Department, HO from time to time.. In
order to promote lending under the scheme as also to ensure that no genuine borrower
is denied the loan for want of collateral security, CGTMSE/CGFMU/CGSSI cover should
mandatorily be obtained in all eligible cases.
11.4. Coverage of Export Credit (Pre-Shipment & Post Shipment) under Export Credit
Guarantee Scheme (ECGC):
The Bank‟s Pre-Shipment& Post-Shipment Export Credit is covered under Export Credit
Insurance for Bank (WT-PC & WT-PS). These Insurance Policies have to be renewed
annually for which Corporate Guarantee has to be issued to ECGC in lieu of one month
Advance Premium Payment. The competent authority to approve the issue of
Corporate Guarantee will be MD & CEO and in his absence the Executive Director.
11.5 Fresh Exposure on Compromise Accounts
Bank may in appropriate cases, after being satisfied with the reasons of request for
credit facilities by borrowers in whose accounts / Group Accounts, our bank / other
bank, had earlier entertained compromise arrangement with or without sacrifice,
consider need-based fresh financial assistance to such borrowers. However, the
following conditions must inter alia be followed:
1) Willful defaulters would not at all be entertained.

2) Guidelines of RBI, if any, from time to time in this regard should be followed
scrupulously.
11.6 Appropriation of amount received in term loan accounts towards principle/ interest:
The amount received in performing advances should be appropriated towards

charges, interest and principal on the basis of seniority of dues. However, in NPA
accounts appropriation of the recovery will be as per provisions of NPA Management
Policy.

11.7 Discretionary authority for allowing changes/ modifications in terms of sanction:
In case of proposals sanctioned by higher authority/committee, following flexibilities in

the terms of sanction can be allowed by ZLCC/HLCAC-2, provided flexibilities allowed
do not result in the change of overall security position in the account and/or do not
have any adverse impact from credit risk angle(All such decisions shall be considered
by ZLCC in respect of loans within the delegated powers of HLCAC-2 and by HLCAC-2
in respect of loans within the delegated powers of MCB/ BLCAC/HLCAC-I.
a) Realignment of Credit Limits sanctioned

(i) Interchangeability between limits sanctioned:
- Cash Credit & BP/DP (Sight Bills)
- Export PC and FBP/DP
(ii) Earmarking of unavailed CC limit for issuance of Letter of Credit (inland).
(iii) Issuance of letter of Comfort for availing buyer‟s credit within sanctioned LC
limit (in compliance with RBI Guidelines on the matter)
b) Issuance of No Objection Certificate (NOC):

In case of loans and advances sanctioned to a borrower under consortium/ under
loan syndication/ multiple banking, NOC can be issued for the following purposes
subject to other consortium/ syndicate members/ members of multiple banking
arrangements also agreeing to the same:
I. Ceding pari-passu charge (both first and second charge, as the case may
be) on the assets available as security for the loans/advances in favour of
member banks who are participating in the finance subject to their agreeing
to issue reciprocal NOCs. While issuing such NOCs, it is to be ensured that
there is no dilution of securities and/or asset coverage as stipulated in the
sanction.
II. Issuance of NOCs for induction of a new member bank/term lending
institution for participating in the working capital finance and/or term finance
accompanied with ceding pari-passu charge (first and/or second charge, as
the case may be) on the assets in favour of such bank/FI provided there is no
dilution in the asset coverage ratio.
III. Issuance of NOC for raising of finance either for replacement of high cost
finance or for acquisition of new/additional assets provided this does not
affect the overall security position and /or asset coverage as stipulated in the
sanction and in case of term finance, will not affect the DSCR to come down
below the level stipulated in the sanction.
IV. Issuance of solvency certificate (irrespective of any threshold limit) required by
existing clients for participation on tenders invited by Govt./Quasi Govt.
departments and/or international tenders) subject to compliance of extant
guidelines.

c) Amendments/ modification in terms of Sanction subject to unanimous decision by
Consortium/ Syndicate.
I. Waiver of appointment of lenders/ independent engineers/ legal counsel/

CA/ project management team.
II. Waiver of appointment of director by the Bank in Company‟s Board.
III. Change in periodicity and manner of stock/ fixed assets/site inspection and
audit.
Any amendments/ actions in the above areas shall have to be reported to the
sanctioning authority with the confirmation that the same does not in any way affect
the overall security position in the account and/or does not have any adverse impact
from credit risk angle and also not affecting Bank‟s earning from the account.
11.8 Conclusion:
The bank has framed the policy within the guidelines issued by RBI / GOI and the bank
will follow guidelines issued / to be issued by RBI / GOI from time to time. Policy
document will be modified to give effect to any mandatory directives of the RBI (as
may be announced through the half-yearly Credit Policy and operative circulars) or any
policy changes advised by the Government of India or environmental demand and
market conditions. The Board shall be kept apprised of such changes.
Any regulatory guidelines issued by RBI / Govt etc. from time to time will automatically
be the part of this policy.
Reference/ clarification, if any, on the interpretation of any provision(s) of the Loan

Policy may be made to Risk Management Dept and the department may seek
approval from CRMC / RMCB/Board, where ever required.

CHAPTER – 12
CREDIT AUDIT
Framework of Credit Audit has been adopted by bank to use better risk management
techniques in monitoring and managing risk. Credit Audit examines compliance with
extant sanction and post-sanction processes/ procedures laid down by the bank from
time to time. Credit Audit/ Loan Review Mechanism are effective tools for evaluation of
the loan book in order to bring about an improvement in the quality of the loan
portfolio.
12.1 Objectives of Credit Audit:
a) To bring improvement in the quality of credit portfolio
b) Review of sanction process and compliance status of large loans
c) To assess the adequacy of and adherence to, loan policies and procedures, and to
monitor compliance with relevant rules and regulations
d) Feedback on regulatory compliance
e) Independent review of Credit Risk Assessment.
f) To pick-up early warning signals and suggest remedial measures
g) To recommend corrective action to improve credit quality, credit administration and

credit skills of staff
h)To provide Top Management with information on credit administration, including

credit sanction process, risk evaluation and post-sanction follow-up
12.2 Scope of Credit Audit:
The focus of Credit Audit which aims at examining compliance needs to be broadened
from the account level to the overall portfolio level. The Credit Audit process will cover
the following areas:
Portfolio Monitoring & Review:
The Portfolio Monitoring and Review covers examination of the quality of Credit Portfolio
of the Bank on the following parameters.
1. Portfolio growth
2. Portfolio slippage
3. NPA level
4. Accounts under Special Watch
5. Level of unsecured exposure
6. Devolvement under LC
7. Invoked Bank Guarantee
Loan Review: In Loan Review, compliance with extant sanction and post-sanction
processes / procedures laid down by the Bank from time to time shall be examined for

large value exposures at the account level for evaluation of the loan book in order to
bring about an improvement in the quality of loan portfolio.
Only Standard Accounts other than loan against deposits and LCBD shall be subjected
to Credit Audit. Sample shall be drawn from the accounts with aggregate FB & NFB limit
of Rs.1.00 crore and above.
In terms of the directives of Audit Committee of the Board, no enhancement/renewal of

limit is to be done without compliance with the Credit Audit..
12.3 Criteria for identification of Accounts for Credit Audit:
SL CRITERIA EXTENT
N
O
Fresh proposals with credit limit (FB+NFB) of Rs. 5 crore and above (To be done ALL
1
within 6 months from date of disbursal)
2 Restructured accounts of Rs.1 crore and above ALL
3 UCO4 and below rated accounts with credit limit of Rs.10 crore and above ALL
4 Out of remaining, accounts with credit limit above Rs.100 crore ALL
5 Takeover Accounts of Rs.One Crore and above (Before Disbursement)* ALL
6 Select accounts with credit limit above Rs.50 crore to Rs.100 crore 50%
7 Select accounts with credit limit above Rs.20 crore to Rs.50 crore 25%
8 Select accounts with credit limit of Rs.1 crore to Rs.20 crore 10%
Select accounts of Overseas branches under Off-site Credit Audit in 20%
9 consultation with T& IW Department, Head Office (Audit will be conducted at
Head Office, T & IW)
* In the case of takeover accounts- Branch/ZO has to make requisition for conduct of
credit audit to HO Risk Management Dept (Credit Audit Cell).
Note:
I. In case of accounts with credit limit of Rs.1 crore to Rs.20 crore, the coverage has
been proposed at 10%, which would gradually increase after the implementation
of online module of credit audit.
II. Effort will be made to select accounts with wide disparity of activities.
III. The accounts of sister concerns/group/associates concerns (irrespective of credit

limits) of the identified account should be subjected to loan review only in cases
where the operations in the main account/s so warrants. The authority for
selection of such accounts shall be HO-Credit Monitoring Dept and assignment
and closure of such accounts shall be Risk Management Department, Head
Office in accordance with gross exposure of the group as a whole as per the
Policy.

12.4 Frequency of Credit Audit-:
All Restructured and Special Watch accounts - Rs.1 crore and Annually
a)
above -
All accounts with credit rating UCO4 and below – Rs.10 crore Annually
b)
and above -
c) All accounts with credit limit above Rs.100 crore- Annually
d) Remaining accounts above Rs.50 crore to Rs.100 crore – 50 % Annually
e) Remaining accounts above Rs.20 crore to Rs.50 crore - 25 % Annually
f) Remaining accounts of Rs.1 crore to Rs.20 crore - 10 % Annually
12.5 Assignment of Credit Audit:
The authority for assignment of Credit Audit of accounts shall be the Department In
charge of Credit Audit and Deputy General Manager, Risk Management Department,
Head Office.
12.6 Identification of Credit Auditors and formation of Task Force:
The Identification of Credit auditors shall be done by the Zonal Offices in coordination
with Credit audit Cell, Risk Management Department Head Office. The Credit audit
department Head Office shall maintain the list of eligible Credit auditors, which shall be
reviewed every year. Adequate numbers identified Credit Auditors should be available,
zone-wise.
12.7 Authority for Recommendations for closure of Credit Audit Report :
a) Accounts sanctioned at Branch Level (Other than FC branch)

Respective Branch Heads shall submit compliance and recommendation for
closure to concerned Zonal office for closure of Credit Audit Reports with a copy
marked to HO-Risk Management Dept (Credit Audit).
b) Accounts Sanctioned by ZLCC and above levels(Other than FC branch)
On receipt of „satisfactory compliance report‟ with recommendations for

closure from the branches , the same should be scrutinised at respective Zonal
Office and after satisfactory compliance Zonal Head or in his/her absence, the
Deputy Zonal Head shall recommend to Head Office, Risk Management
Department for closure of the Reports.
c) Accounts pertaining to FC Branch
Respective FC Branch Heads shall submit compliance and recommendation

for closure to Credit Monitoring Department, Head Office with a copy
marked to HO-Risk Management Dept(Credit Audit).
12.8 Authority for Closure of Credit Audit:
a) Accounts sanctioned at Branch Level (Other than FC branch)
On receipt of „satisfactory compliance report‟ with recommendations from the

branches for closure, Zonal Head or in his/her absence Dy. Zonal Head shall be the
competent authority.

b) Accounts sanctioned by ZLCC and Above levels(Other than FC branch)
On receipt of „satisfactory compliance report‟ with recommendations from Branch and

Zonal office for closure, the authority for closure of Credit Audit Reports shall be the
Deputy General Manager, Risk Management Department, Head Office or in his/her
absence, the Executive not below the rank of Assistant General Manager authorized by
GM, Risk Management Department, Head Office.
c) Accounts pertaining to FC Branch
On receipt of „satisfactory compliance report‟ with recommendations from FC Branch

and Credit Monitoring Department, Head office for closure, the authority for closure of
Credit Audit Reports shall be the Deputy General Manager, Risk Management
Department, Head Office or in his/her absence, the Executive not below the rank of
Assistant General Manager authorized by GM, Risk Management Department, Head.
12.9 Format of Credit Audit Report:

In view of the rolling over of Credit Audit to ONLINE MODULE the format of Credit Audit
has been incorporated in online Credit Audit module. Screen Shot of the Credit audit
format is attached.
***********************

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UCO BANK

LOAN POLICY DOCUMENT

(Revised and updated upto 31.05.2019)

LOAN POLICY DOCUMENT 2019 PART - A

Chapter Contents Page

1 SCOPE AND OBJECTIVE OF THE POLICY 1

1.1 Scope of the Policy 1

1.2 Objectives of the Policy 1

2 POLICY DIRECTIVES ON STRATEGIES TO ACHIEVE THE TARGET 2

2.1 Alignment of products and pricing with market demand 2

2.2 Product Development 2

2.3 Standardization in credit dispensation 2

2.4 Thrust Areas 3

3 POLICY DIRECTIVE ON PORTFOLIO EXPOSURE 4

3.1 Prudential Exposure Ceilings 4

3.1.1 Prudential Exposure norms for NBFC 5

3.1.3 Exposure ceilings for advances based on constitution of borrowers 6

3.1.4 Guidelines on enhancing Credit supply for Large Borrowers through 6

3.2 Indicative list of various forms of Exposures 7

3.2.1 Measurement of Credit Exposure under Current Exposure Method 8

3.3 Infrastructure Lending 9

3.4 Substantial Exposure 11

3.5.1 Unsecured Exposure 11

3.5.2 Undrawn/ partially drawn exposures other than CC facility 12

3.5.3 Moratorium limits for different types of products/ facility type 12

3.5.4 Tenor-wise exposure limits for different types of funded facilities 13

3.6 Capital Market Exposure 14

3.8 Counter Party Exposure 15

3.9 Industry/Sectorial Exposure 15

3.10 Prior clearance for sanctioning credit proposals under restricted 15

3.11 Proposals prohibited 17

3.12 Statutory and Regulatory Restrictions 18

4 POLICY DIRECTIVES ON CREDIT RATING 24

4.1 Rating of Accounts 25

4.1.1 Aggregate FB and NFB limit up to Rs 25 lac 25

4.1.2 Enhanced Credit Rating Models 25

4.1.3 Rating of NBFCs 28

4.1.4 Provision of awarding Bonus marks 28

4.1.5 Quarterly monitoring of rating of accounts in the Private Sector 28

4.1.6 Rating Nomenclature and its meaning 28

4.1.7 Other guidelines 29

4.1.8 Validity of Internal Credit rating 29

4.1.9 External Credit Rating 29

4.2 Rating and Rating Review 30

4.3 Rating Based Action Points 31

4.3.1 Review and Renewal of Accounts 31

4.3.3 Concessionary Rate of Interest 31

4.4 Portfolio Rating 31

4.5 Score card Models 32

5 POLICY DIRECTIVES ON CREDIT DISPENSATION 34

5.1 Credit sanction processes 34

5.1.1 Existing Accounts 34

5.1.2 New Accounts - Standardized Products 34

5.1.4 Sanctioning Authority/Committee at Different levels 34

5.1.4.1 Validity of Sanction 35

5.2 Mandatory Components of Sanction Processes 37

5.3 Discretionary Power 37

5.3.1 Mandatory requirement for exercising Emergency lending Powers 43

5.3.2 Exercise of Emergency Lending Power in Current Account 45

5.3.4 Discretionary power for advances granted to two or more group 45

5.3.5 Command Area Defined 46

5.3.6 Transfer of Accounts 46

5.3.7 Accounts with multiple of Branches 47