General Guidelines On Loans & Advance: Sachin Katiyar-Chief Manager

General Guidelines on
Loans & Advance
Sachin Katiyar- Chief Manager
Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 1

ABCD of Credit - Know Your Borrower
5 Cs 6 Ms 7 Ps
Character Man People

Capital Money Project
Capacity Material Product
Collateral Market Purpose
Conditions Machine Place
Men Person
Policies
CREDIT APPRAISAL PROCESS

Receipt of application from applicant
|
Receipt of documents
(Balance sheet, KYC papers, Different govt. registration no., MOA, AOA, and Properties documents)
|
Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC caution list, CERSAI report / FRMIS
etc./Opinion from other Bank
|
Pre-sanction visit by bank officers
|
Title clearance reports of the properties to be obtained from empanelled advocates
|
Valuation reports of the properties to be obtained from empanelled valuer /engineers
|
Preparation of financial data / CR
|
Risk Rating
I
Proposal preparation
|
Assessment of proposal
|
Sanction/approval of proposal by appropriate sanctioning authority
|
Documentations, agreements, mortgages , registration of charge & vetting of doc
|
Disbursement of loan
|
Post sanction activities such as end use verification ,receiving stock statements, review of accounts,
renew of accounts, etc(on regular basis)

KYC Verification
GST verification
The facility to view the GSTIN status is available on https :// services.gst. gov.in /
services/searchtp.
Company & LLP master data& DIN -
The facility to view Company and Limited Liability Partnership (LLP) master data link
is available on http://www.mca.gov.in/mcafoportal/viewCompanyMasterData.do
Verification of Voter ID :
Can be search by using site - http://electoralsearch.in
PAN Validation Process: --
PAN related print-out may be obtained using on-line PAN verification option under Non-CBS page on
main screen.
EKYC PROCESS FOR AADHAAR VERIFICATION:
Verification of genuineness of the signatures of CAs/Firms
A list of members containing names, address, membership no. and status of the membership is available
on the Institute‟s Website (http://www.icai.org) under the heading “Member Directory Search – As On
Date”
General Guidelines on Loans & Advance
CIR
Loan Amount CIRs

Less than Rs.5,00,000/ One CIR with/without score from Any one of Four
Companies.
Rs.5,00,000/- and above Two Consumer CIRs form any approved CIC.
OR (Consumer CIR)
Customers having credit risk rating ‘B2 & below
If Loan amount is More than Rs 50 lacs to business Two Commercial CIRs from approved CIC.
entity, then
Exemptions from drawing CIRs
a) Advance against Bank’s own Deposits, Govt. Securities/Bonds, PSU Bonds, Postal Securities, LIC
Policies, Shares, Debentures& Mutual Funds.
b) Advances against 100% Cash Margin.
c) All Staff Loans.
d) Advance against gold jewellery/ornaments
CIR Charges Consumer Category: Rs 54.50 /- + GST@18% ieRs 64.31 per report (As per MISD Cir-07/17)
Commercial Category: (Report to be drawn from CIBIL only)

Loan Amount Charges
Up to Rs 2 lac Rs872+ GST@18% ieRs 1028.96
above Rs 2 lac up to Rs 10 Lac Rs 1090 + GST@18% ieRs 1286.20
Above Rs 10 lacs Rs 1417 + GST@18% ieRs 1672.06
 In case of any dispute/doubt or any query/discrepancy related to any CICs on CIR by

Branch/Borrower during processing of loan proposal should immediately be taken up with MISD,
HO along with authority letter and KYC documents (Annexure – 1) at pnbcibil@pnb.co.in as per
MISD Cir No-2/19
 For correction of CIR correction detail in OLM file and mail to pnbcibil@pnb.co.in
CREDIT RISK RATING

S Credit Risk Rating Model Applicability
N Total Exposure Turnover
o
1 Large corporate Above Rs 15 Cr Above Rs 100 Cr
2 Mid corporate >5 Cr and <= 15 Cr >25 Cr and <= 100 Cr
3 Small loans Up to 5 cr Up to Rs 25 Cr
4 NBFC All non-banking financial companies
5 New Project model Above Rs 5 Crore CoP above 15 Cr
6 Entrepreneur new business Model Borrower setting up new CoP up to Rs 15 Cr
business and requiring
finance above Rs 20 lacs up
to Rs 5 Cr
New business but only working capital required
New trading concern
7 Dynamic Review Rating Model  All listed companies rated on large/mid corporate
(Except C1 & below rated account & All rating model
facilities to the borrower entity are  Other borrowal accounts having exposure of more
guaranteed by Centre/State Govt, FLR, than Rs 50 Cr
Counter party rating) mandatorily be reviewed on expiry of 5 months from
8 Future lease rental model date of last rating
9 NPA Model
PNB Score-
All retail scheme (Except PNB Bagban& loan against gold jewellery),Traders, medical practioners up to Rs
50 lacs. HL, VL & EL irrespective of loan amount
PNB SME Score

All loan above Rs 2 lakh to Rs 50 lakh to MSME sector .(Except Trader,medicalprac, SRTO, Greenride)
PNB Farm Sector-
All loan above Rs 1 lacs and up to Rs 50 lacs& in case of KCC above Rs 3 Lac.
Rating/vetting at BOs in accounts with limits of Rs. 50 lacs and below:
In accounts having aggregate sanctioned limits of Rs. 50 lacs and below in branches there is no second
officer available, the rating and vetting can be done by the same authority. However in such cases, the
same has to be submitted by the BO to the higher authority along with the limit-sanctioned statements
regularly.
Validity of Credit Risk Rating:
The credit risk rating become due after the expiry of 12 months from the month of confirmation of
rating
or
18 months from the date of balance sheet on the basis of which credit risk rating was assigned,
whichever is earlier.
The rating shall be treated as “overdue”after the expiry of 15 months from the month of confirmation
of rating
or
21 months from the date of Balance Sheet on the basis of which the credit risk rating was assigned,
whichever is earlier.
Timelines to complete the dynamic review of ratings:
A. Mandatory Review of rating: Midterm review of rating falls due on expiry of 5 months from date of
last rating and should necessarily be completed within next 1 month
B. Review when regular rating falls due for renewal: Review of rating in dynamic review rating model to
be completed before expiry of 14 months from the month of confirmation of rating or 20 months from
date of balance sheet, whichever is earlier.
Vetting authority for rating done in Dynamic Review Rating Model: The vetting authority for review
ratings carried out in dynamic review rating shall be as per extant bank guidelines except-
 For loans sanctioned by HO level committees: Vetting shall be done by vetting authority at
concerned Zonal Office.
 For Overseas Branch/Office (all ratings irrespective of sanctioning authority): vetting shall be
done by vetting authority at concerned Branch/Office.
Extension of validity of existing rating

The validity of the existing rating may be extended while carrying out review of rating in dynamic review
rating model for a period as detailed below:
In case loan sanctioning authority is Branch Office: Validity period may be extended for a maximum
period of 6 months in a single review.
In all other cases: Validity period may be extended for a maximum period of 3 months in a single review.
The validity period of the last rating may be extended for a maximum period of 6 months.
However, during the extended validity period of the rating penal interest@0.50% (within overall cap of
3% for penal interest) shall be charged over & above the existing rate of interest, till the rating is not
renewed in regular rating model.
Competent Authority to waive penal interest for extension of validity period:

The competent authority to waive penal interest is as detailed below:
 For facilities sanctioned by HO/ZO level committee: ZOCAC is empowered to waive the penal
interest for facilities sanctioned by ZOCAC/HO Level Credit Committees.
 For facilities sanctioned by BO /CO level committee: COCAC is empowered to waive the penal
interest for facilities sanctioned by COCAC and branches. However for directly reporting
branches to ZO/HO, power to waive penal interest is vested with ZOCAC.
 For Overseas Branch/Office: Sanctioning authority is empowered to waive penal interest for
extended validity period.

Loaning power linked with risk rating( L&A Cir No-39/2017)
Credit Risk Rating (CRR) Loaning Powers

A1 & A2 CMs, AGMs, DGMs, COCAC & above shall exercise 125% of their normal
loaning power.
A3 & A4 CMs, AGMs, DGMs, COCAC & above shall exercise 110% of their normal
loaning power
B1 Normal Loaning Powers by officials at all levels to the extent of their
vested loaning powers.
B2 a) Adhoc facility is to be sanctioned by the next higher authority not
below the level of ZOCAC. However, HOCAC-II & above shall exercise
their normal loaning powers for considering adhoc facility.
b) Additional/ enhancement facility is to be sanctioned by the next
higher authority not below the level of ZOCAC. However, HOCAC-I &
above shall exercise their normal loaning powers for considering
enhancement/ additional exposure.
c) No fresh exposure is to be taken in ‘B2’ rated accounts. However,
HOCAC-I & above is empowered to consider fresh exposure in case of
B2 rated borrowers within their vested powers.
‘B3’, ‘C1’, ‘C2’ & ‘C3’ No fresh exposure is to be taken in ‘B3’ & below rated accounts.
However, MC/HOCAC-III is empowered to consider fresh exposure in
case of ‘B3’ & below rated borrowers. Renewals shall be considered by
competent authority if exit is not feasible. Adhoc/ additional/
enhancement facility is to be sanctioned by the next higher authority
not below the level of ZOCAC. However, HOCAC-II & III shall exercise
their normal loaning powers for considering enhancement
/additional /adhoc exposure.
No fresh exposure should be taken up to field level for borrowers under unfavourable industries
irrespective of their credit risk rating.
External Risk Rating-
Cut off limit for external risk rating is Rs 5 Crore exposureor turnover more than Rs 50 Cr &Rs 10 Cr
exposure if loan is secured by Cash, gold or mortgage of residential or commercial property.in case of
MSME Rs 25 Crore with loan is having 75 % cover by way of Cash, gold or mortgageof residential or
commercial property.
Prudential exposure norm-
Category Ceiling for other than Infra Ceiling including infra

For Individual borrowers 15% of the capital funds 20 % provided the additional 5 % is on
account of credit to infrastructure projects
For Group borrowers 25 % of the capital funds
Valuation-
Aggregate credit limit Value of IP Valuation by
Rs 10 lakh & above Rs 20 lakh & above Valuer on bank approved panel
Rs 5 crore& above Min 2 valuer on bank approved panel form Cat A or B

 Revaluation should be done 3 years,Subsequent valuation should be assigned to the empanelled
valuer other than the valuer who has conducted the previous valuation.
If the difference in valuation of two valuers is

less than 15% The average value may be taken.
If the difference in valuation of two valuers is 3rd valuation may be got done from a senior
more than 15% valuer in category A
Difference in valuation of BH and valuer more Fresh valuation in consultation with CH by another
than 25% approved valuer and will be final.
If Difference in valuation of BH and valuer
below 25% Lower of the two be reckoned.
In case the IPs are recently purchased (12
months from the date of sale deed) Valuation is as per Purchase Price
In case the IPs are recently purchased (<12
month old) and guideline value is revised after
date of sale and is higher than the purchase
value Valuation as per guideline value
VALUATION OF PLANT & MACHINERY:
 If the value of Plant & Machinery is Rs.50 crore& above, valuation from minimum two valuers on
the Bank’s approved panel.
Categories of valuers-
Category of valuer Work experience Value of property

A More than 10 years No limit
B More than 5 year but less than 10 years Up to Rs 50 crore
C Up to 5 year Up to Rs 5 Crore
Confidential Report:
Exceptions where CR need not ordinarily be compiled:

i. Persons borrowing against security of Bank deposits,
ii. Persons borrowing against government securities and other trustee securities upto
Rs.25000/-.
iii. Makers of bills of small amount which are re-discounted by third parties.
iv. Loans to staff members, including loans upto Rs.15000/- against share/debentures of
approved company.
v. Advances up to Rs.10000/-, against gold/silver jewellery/ ornaments.
vi. Borrowers to whom temporary overdrafts are sanctioned occasionally by the Branch Heads
within their vested loaning powers.
vii. Persons borrowing against the pledge of their life policies.
Forms prescribed for preparing CRs are as under:

i. PNB 905 - To be used for preparing brief CR.
ii. PNB 282A - To be used for Joint Stock Companies and Co-operative Societies.
iii. PNB 282B- To be used for Borrowers/ Guarantors – Individuals {other than those covered
under (iv) below}, sole proprietorship firms, partnership firms, H.U.F. firms.
iv. PNB 282C (Revised) (Annexure IV) of BOI – To be used for Individual Borrowers/ Guarantors,
in case of loans under Retail Lending Schemes (personal segment) i.e. car, consumer,
housing, etc.

v. PNB539- To be for agricultural loan more than Rs 50000 up to Rs 10 Lacs
UNIQUE DOCUMENT IDENTIFICATION NUMBER (UDIN)
It has been advised to insist for UDIN in all certificates / documents / reports etc. certified by
CAs,Branches are advised to make use of the UDIN facility which will enable them to verify the said
documents on the UDIN Portal at https://udin.icai.org.
USE OF E-WAY BILL
System of E-way bill has been made mandatory for inter-state movement of goods of more than
₹50,000 in value throughout India. https://ewaybill.nic.in/
Type of Mortgages in India
Definitions -
Sec. 58 of the Transfer of Property Act, 1882 defines mortgage as -
The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of
which payment is secured for the time being are called the mortgage-money, and the instrument (if any)
by which the transfer is effected is called a mortgage-deed.
Types of Mortgages -
1. Simple Mortgage(Transfer of Property Act 182 Sec 58(b))

2. Mortgage by Conditional Sale(Transfer of Property Act 182 Sec 58(c))
3. Usufructuary Mortgage(Transfer of Property Act 182 Sec 58(d))
4. English Mortgage(Transfer of Property Act 182 Sec 58(e))
5. Equitable Mortgage (Transfer of Property Act 182 Sec 58(f))
6. Anomalous mortgage(Transfer of Property Act 182 Sec 58(g))
1. Simple Mortgage -
In a Simple mortgage, the possession of the mortgaged property is not transferred from mortgagor to
the mortgagee.
If the mortgagor fails to repay the loan, the mortgagee has the right to sell the property and recover the
loan from the sale amount.
2. Mortgage by Conditional Sale – (Cannot sue in court)
Under such Mortgage, the mortgagor apparently sells the property to the mortgagee on certain
conditions -
1.On failure to repay the mortgage money before a certain date the sale shall become absolute

2.On condition that on such repayment of mortgage money the sale shall become invalid,
3.On condition that on such repayment the mortgagee shall retransfer the property.
In such case, the mortgagee is a "mortgagee by conditional sale".
3. Usufructuary Mortgage - (Cannot sue in court)

In a usufructuary Mortgage, the possession of the mortgaged property is transferred to the mortgagee.
The mortgagee receives the income from the property (rent, profit, interest, etc) until the repayment of
the loan. The title deeds remain with the owner.
4. English Mortgage -
In an English Mortgage -
1.The mortgagor binds himself to repay the borrowed money on a certain date.
2.The mortgagor transfers the property absolutely to the mortgagee.
3.But such transfer is subject to the condition that the mortgagee will retransfer the property on
repayment before the agreed date.
5. Equitable Mortgage (Mortgage by deposit of title of deeds )-

In such mortgage, the mortgagor delivers the title document of the property to the mortgagee with an
intention to create a security thereon. Such mortgage is valid in towns of Kolkatta, Mumbai and any
other town as the State Government may notify by publication in Official Gazatte
6. Anomalous mortgage -
Anomalous mortgage is a combination of different types of mortgages.
7. Reverse Mortgage
A reverse mortgage loan is a loan where the lender pays the monthly installments to you instead of you
making any payments to the lender. Hence the name reverse mortgage, as the payment stream is
reversed. A Reverse mortgage enables senior citizens to convert their home equity into tax-free income.
Reverse mortgages enable eligible homeowners to access the money they have built up as equity in
their homes. They are primarily designed to strengthen seniors’ personal and financial independence by
providing funds without a monthly payment burden during their lifetime in their home.
REGISTRATION
According to Section 59 of the Transfer of Property Act, 1882, where the principal money secured is
Rs.100 or more, a mortgage, other than a mortgage by deposit of title deeds, can be effected only by a
registered instrument signed by the mortgagor and attested by at least two witnesses. In case the
instrument is not duly attested and registered, the mortgage will be void. In terms of Section 23 of the
Indian Registration Act, 1908, the document is to be presented for registration at the offices of the Sub-
Registrar of Assurances within 4 months from the date of its execution.
Equitable mortgage of IP without making the owner as borrower/ guarantor:

It is legally possible for third party to offer his property as security without being liable personally

ALL equitable mortgages (irrespective of the mortgage creation date) must be registered with CERSAI.
As per notification, particulars of Immovable Properties (IPs) Equitably Mortgaged to Bank have to be
recorded on CERSAI site within 30 days of creation of charge on an asset (IP), failing which there is
provision in the SARFAESI Act 2002 of penalties.
Periodicity of visits to the site of mortgaged property
Particulars Primary Collateral

Value of property At least on yearly basis or as per At least once in three years or as
mortgaged/charged is upto Rs.20 terms of sanction, whichever is per terms of sanction, whichever
lac or credit facilities are upto earlier. is earlier.
Rs.1 crore.
Value of property At least on half yearly basis or as At least on yearly basis or as per
mortgaged/charged is above per terms of sanction, whichever terms of sanction, whichever is
Rs.20 lac or the credit facilities is earlier earlier.
are of above Rs.1 crore
Investigation of Title and Search Report, NEC:

Search period required 13 year or up to last transaction whatever later.
'”Where the value of immovable property to be mortgaged/ charged is Rs. 1 crore& above, branches
shall take NEC from 2 different advocates on panel, one before sanction and the 2nd after sanction, but
before disbursement to safeguard the interest of the bank.”
Other types (Other than mortgage) of charges-
Lien (Section -170 of ICA 1872 -Particular Lien,Section -171 of ICA 1872-General Lien)
A banker’s lien is a general lien which is tantamount to an implied pledge. It confers upon the banker the
right to sell the securities after serving reasonable notice to the borrower.
Pledge( ICA (Indian contract Act 1872 Sec 172)
1. A pledge occurs when goods are delivered for getting advance.

2. The goods pledged will be returned to the owner on repayment of the debt.
3. The goods serve as a security for the debt.
4. The ownership of goods remains with the pledger. The possession of the goods vests with
pledgee till the loan is repaid.
Right in case of failure to repay: If the pledger fails to repay within the stipulated time, pledgee may,
 Sell the goods pledged after giving reasonable notice,

 File a civil suit against the pledger for the amount due,
 File a suit for the sale of the goods pledged and the realization of money due to him.
When the pledgee decides to exercise the right of sale, he must issue a clear, specific, and
reasonable notice.
Difference between Lien and pledge

In case of lien, the lender has the right to retain but not to sell the asset. For banks, a lien is an implied
pledge, i.e. the bank has the right to sell the asset if the borrower defaults.But in case of pledge, the
lender has the right to retain as well as sell the pledged asset if the borrower defaults.
Hypothecation (SARFAESI Act 2002 Section 2 (n) )
Hypothecation as “a charge against property for an amount where neither ownership nor possession is
passed to the creditor”. Floating type of charge defined in SERFASEI Act
Assignment(Transfer of property Act 1882 Section 130)
Assignment means transfer of any existing or future right, property, or debt by one person to another
person. The person who assigns the property is called ‘assignor’ and the person to whom it is
transferred is called ‘assignee’.
Usually assignments are made of actionable claims such as book debts, insurance claims etc. In banking
business, a borrower may assign to the banker;
(i) The book debts,
(ii) Money due from government department,
(iii) Insurance policies.
Registration of charges with RoC (L&A Cir No-80/14)
Type of Charges to be registered:

Companies Act, 1956 : Section 125 specifies only 9 types of charges to be registered.
Companies Act, 2013 : Section 77 states that Companies are required to register ALL TYPES OF
CHARGES, with ROC within 30 days of its creation.CHG-1
 within or outside India,

 on its property or assets or any of its undertakings,
 whether tangible or otherwise, and
 situated in or outside India
Additional period to register the Charge:
STAGE PARTICULAR TIME PERIOD Days FEES
i. Registration of Within 30 days of Creation 0+30 Normal Fees

Charge with ROC
ii. If Fails to file with within a period of 60 days of such 0+30+3 Normal Fees +
in 30, days creation 0 3 time Additional
= 60 Fees
iii. If Fails to file with Registrar may, on an application, 0+30+3 Normal Fees +
in 60, days allow such registration to be 0+60 3 time Additional
made within a further period of = 120 Fees +
60 days. i.e. 120 days of such Advalorem Fees
creation
Application to be supported by a declaration in Form CHG-10 from the CS or Director that such belated
filing will not adversely affect the rights of any creditors of the company.
DUTY OF REGISTRATION OF CHARGE:
 As per Section 77 it is duty of Company to Create charge.

 As per Section 78 if Company fails to file form for registration of charge then, the person in
whose favour charge is created will file form for creation of charge. The person is entitled to
recover from the company the amount of fees.
But before filling of form person will give 14 days’ notice to Company. If company doesn’t register the
charge or show sufficient cause then person himself will file the form with ROC.
This is not responsibility of Person (in whose favour charge is created) to file form. Therefore if company
fail to file form for registration of charge and person also not filed form then person will not liable to pay
any penalty.
SATISFACTION OF CHARGE:
As per Section 82 – Form for Satisfaction of charge will be file in form CHG-4 within 30 days of
satisfaction of charge. If company fail to file form CHG-4 within 30 days of creation of charge then
company have to go for condonation of delay for satisfaction of charge.
CHARGES FILING OF WHICH WITH ROC IS NOT NECESSARY:
 Guarantee doesn’t require Registration.

 Charge created by operation of law need not be filed
 Negotiable Instrument (Hundi) is not a ‘Charge’ and registration not required.
Registration of charges with CERSAI. (L & A Cir No-Cir. No.19/2016)
Recovery of CERSAI charges (MISD Circular No. 12/2017)
Branches will recover the amount, 109% of present rate of charges plus GST@ 18% on 109% charges as
conveyed vide MISD circular no 6/2017 dated 29/06/2017, from the borrowers and will use CBS menu
option MCHRG for recovery of all type of CERSAI fee and credit in branch income head 2081002(CERSAI
FEE RECOVER). CERSAI fee is to booked at branch level in Branch income head. Branches to provide
invoice to customer through menu CGSTRPT.
Appendix-III FEE PRESCRIBED BY CERSAI (MISD Cir No-6/2017)

1 Nature of Transaction to be registered Amount of Fee payable to
Central Registry with GST
2 Particulars of creation or modification of Security Interest
in favour of Secured Creditors For creation and for any
subsequent modification of security interest in favour of a
secured creditor for a loan
1) Up to Rs.5 lac Rs 64.31 /-
2) Above Rs.5 lac Rs 128.62/-
3 Satisfaction of any existing Security Interest Nil
4 Particulars of securitization or reconstruction of financial Rs 643.10/-
assets.
5 Particulars of satisfaction of securitization or Rs 64.31/-
reconstruction transactions
6 Any application for information recorded/maintained in Rs.12.87 /-
the Register by any person

7 Any application for condonation of delay up to 30 days Not exceeding 10 times of the
basic fee, as applicable
Time Frame for Processing/Sanction of Credit Proposals

i) Proposals under Consortium Arrangement

Time schedule prescribed by RBI for processing/sanction of credit/loan proposals under Consortium
arrangement are indicated hereunder:

Export Proposals Other
Gold Card Holders Other Exporters Proposals
Proposals for sanction 25 Days 45 Days 60 Days

of Fresh/enhanced credit limits
Proposals for renewal of existing credit 15 Days 30 Days 45 Days
limits
Proposals for sanction 07 Days 15 Days 30 Days
of Adhoc facilities
Incumbents to ensure quick disposal of credit/loan applications/proposals within the maximum time
frames prescribed, so that there is no scope for complaints by customers for delay in disposal of credit
proposals.
ii) Proposals other than Consortium Arrangement

Maximum time schedule for disposal of loan applications/credit proposals as per the amount of the
proposals under priority/non priority sector advances, MSME etc. (other than proposals falling under
retail lending schemes) is as under:-
Credit Limits Time Schedule (Max.)
UptoRs. 2 lakhs 2 Weeks
Above Rs. 2 lakhs &UptoRs. 50 lakhs 4 weeks
Above Rs.50 lac & upto Rs.100 lac 5-6 weeks
Above Rs.100 lac & upto Rs.100 crore 6-7 weeks
Above Rs.100 crore 8-9 weeks

Time Norms under Retail: (RAD 50/2015 dt 15.07.2015)
SCHEME Time Norms for RAB Time Norms for Branches other
than RABs
Non mortgaged based viz. 3 days 3 days
Vehicle, Gold, Personal,
Pensioner Loans.
Mortgage based loans (Housing 7 days 10 days
Loan, Adv. Against IP, Reverse
Mortgage)
Education Loan 1 week - for loans falling under 1 week - for loans falling under
Branch power; Branch power;

2 weeks – for loans falling under 2 weeks – for loans falling under
powers of CH & above powers of CH & above.
Loaning Powers: As L&A Cir No-122/17
Service Charges-As per L & A Cir No-89/16
Pre & Post sanction- As L&A Cir No-58/18
Validity of Sanction:
Sanction valid for 6 month from date of sanction of 6 month from date of documentation if executed
within 6 months from date of sanction, whichever later can be revalidation can be done within next 6
month.
DOCUMENTATION
In the matter of documentation, there are five essential points to be noted:-
1. The person(s) executing the documents should have the legal capacity to do so.
2. The document should be in the prescribed forms of the bank.
3. The document should be properly stamped.
4. The documents are properly witnessed wherever required.
5. The documents are registered wherever required.
WHO IS COMPETENT TO CONTRACT
According to section 11 of the contract Act, 1872: Every person is competent to contract who is of the
age of majority according to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.
The following documents, if unstamped or insufficiently stamped, are invalid ab-initio :

a) Promissory note
b) Bill of exchange
c) Acknowledgement of a debt.
DOCUMENTS REQUIRED TO BE WITNESSED

1. Assignment on the instrument itself, e.g. a life Insurance policy.
2. Assignment by a separate instrument.
3. Mortgage Deed.
4. Guarantee Deed
5. Power of Attorney
6. Conveyance Deed
7. Gift Deed
8. Will.
DOCUMENTS NOT TO BE WITNESSED:

a. Demand Pronote
b. UsancePronote or Bill of Exchange
c. Letter of lien.
d. Letter of continuity
e. Letter of set off.
f. Cash Credit/Over Draft Agreement.
g. Letter/Agreement of Hypothecation:
h. Agreement of Pledge.
i. Letter of Assignment.
j. Letter of Guarantee.

VETTING OF LOAN DOCUMENTS
All the loan documents in respect of sanctioned limits of Rs. 2 crore& above (both FB and NFB) vetted
from the local approved advocate/solicitor, first before their execution and again after execution but
before disbursement of the loans.
LEGAL COMPLIANCE CERTIFICATE
all Branches, including LCBs, are to submit Legal Compliance Certificate for credit limits of Rs. 10 lakhs
and above (Fund Based & Non Fund Based) in respect of fresh sanction/enhancement/renewal to
respective controlling office within 7 days from the end of the month in which the facilities are
disbursed certifying the compliance of all the formalities contained therein.
Limitation-
The Limitation Act prescribes the period within which existing rights can be enforced in a court of law.
In fact, the Act was passed with the intention of avoiding any uncertainty or anomaly with respect to
limitation.
The statute does not create an obligation or a right to sue where none existed. It simply imposes a time
limit to litigation. Section 3 of the act states “that every suit instituted, appeal preferred and application
made after the prescribed period shall be dismissed, although limitation has not been set up as a
defence”.
However, under Section 5 of the Act, “an appeal or an application under any of the provisions of Order
21 of the CPC 1908 may be admitted after the prescribed period, if the applicant or the appellant
satisfies the court that he had sufficient cause for not preferring the appeal or making the application
within such period.” The parties cannot, by agreement, extend or alter the period of limitation as laid
down by law. Similarly, they also cannot waive limitation by agreement.
 Effect of Period of Limitation on Documents Obtained by Banks
There is a legal relation between a document obtained by a banker and the Limitation Act. Once the
period of limitation for a document has expired, the banker will have no legal recourse against the
defaulting borrowers to recover his dues. In short, the period of limitation bars the legal remedy by way
of a suit. It is, therefore, of paramount importance for bankers to keep the documents alive.
 The Period of Limitation
It begins to run from the date of the document. Once the period of limitation has begun to run, no
subsequent disability or inability to institute a suit or make an application stops it (Section 9).
The period of limitation with regard to some of the Bank’s activities, as prescribed under the Act is as
follows:
Period of Time from which the limitation
Article No. Description of suit
limitation period begins
For the balance due on a mutual, The close of the year in which the
open, and current account, where last item admitted or proved is
1 3 years
there have been reciprocal entered in the account; such year
demands between the parties to be computed as in the account
19* For money payable for money 3 years When the loan is made

lent
For money lent under an
21 agreement that it shall be 3 years When the loan is made
payable on demand
For money deposited under an
agreement that it shall be
22 payable on demand, including 3 years When the demand is made
money of a customer in the
hands of his banker so payable
On a bill of exchange payable at
32 sight, or after sight, but not at a 3 years When the bill is presented
fixed time
On a bill of exchange payable at a When the bill is presented at that
33 3 years
particular place place
On a bill of exchange or
promissory note payable at a
34 3 years When the fixed time expires
fixed time after sight or after
demand
On a bill of exchange or
promissory note payable on
35 demand and not accompanied by 3 years The date of the bill or note
any writing restraining or
postponing the right to sue
The expiry of the first term of
On a promissory note or bond payment as the part then payable;
36 3 years
payable by installments and for the other parts, the expiry
of the respective terms of payment
On a promissory note or bond When there is a default, unless
payable by installments, which where the payee or oblige waives
provides that if there is a default the benefit of the provision; and
37 3 years
in payment of one or more then when there is a fresh default
installments, the whole shall be in respect of which there is no such
due waiver
To enforce payment of money
secured by a mortgage or When the money sued for
62 12 years
otherwise charged upon becomes due
immovable property
By a mortgagee When the money secured by
30 years
a) For foreclosure mortgage becomes due
63
b) For possession of When the mortgagee becomes
12 years
immovable property mortgaged entitled to possession
Any suit (except a suit before the
Supreme Court in the exercise of
its original jurisdiction) by or on When the period of limitation
behalf of the Central would begin to run under this Act
112 3 years
Government, or any state against a similar suit by a private
government including the person
Government of the State of
Jammu and Kashmir
120 Under the Code of Civil 90 days The date of the death of the

Procedure, 1908, to have the
legal representative of a
deceased plaintiff or appellant, or plaintiff, appellant, defendant or
of a deceased defendant or respondent, as the case may be
respondent made a party
To restore a suit or appeal

or application for review or
revision dismissed for default of
122 appearance, or for want of 30 days The date of dismissal
prosecution, or for failure to pay
costs of service of process, or to
furnish security for costs
The date of the decree or where
To set aside a decree passed ex
the summons or notice was not
123 parte or to rehear an appeal 30 days
duly served, when the applicant
decreed or heard ex parte
had knowledge of the decree
For a review of judgement by a
124 court other than the 30 days The date of the decree or order
Supreme Court
For the payment of the
126 amount of a decree by 30 days The date of the decree
instalments
When the decree or order
becomes enforceable, or where the
decree or any subsequent order
directs any payment of money or
the delivery of any property
to be made at a certain
date, or at recurring
For the execution of any
periods when there is a
decree (other than a decree
default in making the
136 granting a mandatory 12 years
payment of delivery in
injunction) or order of any
respect of which execution
civil court
is sought; provided that an
application for the
enforcement or execution
of a decree granting a
perpetual injunction shall
not be subject to any
period of limitation
*Article 19 is applicable to loans payable on demand; it is applied to cases where no time is fixed for
repayment of loan. If there is an agreement in writing, fixing a certain date for repayment, Article 28 or 55
are applied. If the agreement is verbal, the case falls under Article 55.
Extending Limitation
Limitation period of a document can be extended in the following ways.
 Fresh Documents
 Acknowledgment
 Part payment

Cash Credit-
Cash Credit Accounts being mutual, open, running and continuous accounts, the period of limitation will
be further extended up to three years from the date of last credit/debit entries (Article 1, Limitation Act
1963). However, a debit entry of interest due on loans would not be considered for such purposes.
Balance Sheet Entries
A debit entry shown on the Liability side of a borrower’s balance sheet i.e., of a Limited Company, signed
by its agents is considered an acknowledgement of debt (BabulalRukmandand vs. Official Liquidator
1968, I, com.lj). If such acknowledgement is recorded within the prescribed limitation period, it extends
the limitation for a further prescribed period.
Documents signed by joint borrowers on different dates- From earliest date
Exclusion of time-
1. Borrower abroad
2. Case under consideration with BIFR
3. When the Court is on Vacation
 Acknowledgement of an authorised agent –POA holder can sign if POA empowers
 Acknowledgement from a guarantor- From the date of invocation of guarantee
 Death of borrower-Can be signed by legal heirs if inherited assets are available
BC letter to be obtained from the borrower-
Every Year Regular Account

Once in half yearly basis on 31 march & 30 Sept In Other than regular account
Handout on DP Calculation-
Margin
Stock 100 25%
Book Debt 100 40%
Sundry Creditor 20
Accepted level of creditor at the time of CMA validation
Case I 10
Case II 30
DP as per old method (L&A-153/09 dt 16.12.09) & for MSME Margin DP

1 Net Stock 100 25% 75
2 Debtor 100
3 Creditor 20
4 Net Debtor (2-3) 80 40% 48
Total 123
DP as per revised method for MBPF (L&A-10/15 dt 31.01.15)

Case I Margin DP
1 Stock 100
2 Creditor 20
3 Accepted level of creditor at the time of assessment 10
4 Excess level of creditor (2-3) 10
5 Net Stock (1-4) 90 25% 67.5
6 Debtor 100 40% 60
Total 127.5
DP as per revised method for MBPF (L&A-10/15 dt 31.01.15)

Case II Margin DP
1 Stock 100
2 Creditor 20
3 Accepted level of creditor at the time of assessment 30
4 Excess level of creditor (2-3) 0
5 Net Stock (1-4) 100 25% 75
6 Debtor 100 40% 60
Total 135
Note-Stock under LC & Bill discounted are not taken to reduce complexity. However value of stock under
LC, will be deducted from stock and value of bill discounted from the book debt value for arriving at the
net value.
Stock verification-
 A report of physical inspection/verification of stocks is to be submitted as per Inspection Report

Form PNB 941 (Appendix-V) in case of all C/C(H) and P/C accounts with limit of Rs.5 lacs and
above.
 For accounts below Rs.5 lacs, there is no need to submit this report and the existing practice of
recording the necessary information about inspection in the Stock Statement should be
recorded on Form PNB 938 (Appendix I) itself.
ANNUAL STOCK AUDIT
 All borrowals accounts enjoying Fund Based & Non Fund Based (NFB) working capital limits of
Rs.5 crores and above from our Bank. All NFB limits, which are being used for Working Capital
Funding like LC, SBLC, BG for purchase of goods for sale and BGs for mobilization Advances are
to be included within threshold limit of Rs.5 crore for stock credit, but Capex LCs, Bid Bond
Guarantees etc. need not be included in NFB limits for the purpose of conducting stock audit.
 Annual Stock Audit should be compulsorily conducted in all ‘B2 to C3’ risk rated accounts and
NPA accounts enjoying fund based and non fund based working capital limits of Rs. 3 crore and
above.
Quarterly Review Sheets (QRS) (L&A-107/12)
QRS in respect of accounts with limit of Rs. 20 lacs and above and uptoRs. 1 Crore, which is in line with
PMS report , so as to determine the health of the account. Branches shall assign score for 14 important
parameters. Total score of 14 parameters will decide the rank of the account ranging from 1 to 4, based
on the seriousness of the irregularities:

Rank Category
1 Healthy
2 Early Warning
3 Warning

4 Critical

QUARTERLY MONITORING SYSTEM
Cut of limit is Rs 1 Crore& above
 QMS-I to be submitted on quarterly basis within 6 week after close of quarter.

 QMS-II to be submitted on half yearly basis within 8 week after close of quarter
The borrowers in Tea Industry are exempted from the purview of QMS
PERT
Cut of limit is Rs 25 Crore& above TL or Rs 25 Crore BG (performance)
Quarterly Information System (QIS)
Cut off limit is Rs 5 crore& above working capital limits, to be submitted within 7 days preceding to the
quarter
PREVENTIVE MONITORING SYSTEM or PNB SAJAG
Cut off limit is Rs 1 Crore , to be submitted on monthly basis.
S No Score Rank Indicator

1 0 to 25 I Healthy
2 >25-50 II Satisfactory
3 >50- 65 III Early Warning
4 >65 to 80 IV Warning
5 >80 V Likely NPA
WILFUL DEFAULTERS
Cut off limit for willful defaulter is Rs 25 Lakh& above
Guidelines on Publication Of Photographs

 Branches/Offices may consider publishing of photographs of Willful Defaulters with
balance outstanding of Rs. 25 lacs& above, in the Newspapers, in the States/Union
Territories (UTs) where the branch (having the concerned loan account) is located,
subject to the exemption given below.
 For publication of photographs in the newspapers, the administrative sanction will be
given by the respective Circle Heads and in case of LCBs by the concerned FGM.
Exceptions to the above guidelines
The photographs of wilful defaulters are not to be published in the newspapers in the following cases:
(a) Education Loans
(b) In case the concerned branch is located in the States/UTs listed herein below:
 Andhra Pradesh
 Arunachal Pradesh
 Assam
 Karnataka
 Lakshdeep
 Mizoram
 Nagaland
 Telengana
 Kerala
Non cooperative borrower
Cut off limit for non-cooperative borrower is Rs 5 Crore& above
Definition of Non Cooperative Borrower (NCB):

 A non-cooperative 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,
 Denying access to assets financed / collateral securities,
 Obstructing sale of securities, etc.
CARD Audit-
 Rs 10 Crore and above individual or group exposure (on yearly basis)
 Rs 1 Crore in case of takeover account (once within 3 month of sanction and then after 1 year)
 Top 5 rated standard accounts of Circle with a minimum balance of Rs. 5 crores and above
where auditable accounts are less than 10 in a Financial Year(on yearly basis)
 However in following cases half yearly audit may be conducted in respect of accounts with
exposure of Rs.5 crores and above:
o Where there is decline in Credit Risk Rating by two notches, and/or
o Decline in PMS by 2 notches for 2 quarters continuously and /or
o Account is persistently in SMA-II category for 2 quarters continuously.
Credit Audit Exercise:

Credit audit for eligible accounts will be conducted as under:
All eligible rated standard accounts with exposure of Rs.5 cr.Or Rs.10 cr. & above, as the case may be.
By Concurrent Auditor By CARD/ Outsourced Auditor
Upto Rs.20 crores Above Rs.20 cr.
Closure-By Divisional Head Head AGM/DGM Closure-By GM
All credit audit reports should be closed within a period of 3 months.
Legal Audit
Cut off limit is Rs 5 Crore& Above
Forensic Audit
NPA fraud account or Red flagged account with o/s Rs 50 Crore& above
Expected loss as on 31.03.2018 as L&A Cir No-104/2018
Rating Grades Expected Loss (in %)

A1 0.02
A2 0.02
A3 0.32
A4 0.70
B1 1.15

B2 1.93
B3 3.31
C1 6.90
C2 10.44
C3 15.46
Large borrower as per L&A Cir No-03/17-
The norms, which will come into effect from financial year 2017-18, define a large borrower as a
specified borrower, that is, one with an „aggregate sanctioned credit limit‟ (fund-based credit limits
sanctioned or outstanding, whichever is higher by the banking system) of Rs 25,000 crore at any time in
the first year, Rs 15,000 crore at any time during 2018-19, and Rs 10,000 crore from April 1, 2019.
Starting FY 2017-18, if the banking system crosses the lending limit prescribed for a large borrower, the
provisioning requirement on the excess amount would be 3 percentage points higher than normal.
Additionally, the banking system would have to assign a risk weight of 75 percentage points over and
above the applicable weight for the exposure to the large borrower.
Takeover of accounts from Other Banks
Conditions for Takeover:

1. Account with previous bank adjusted within previous three months.
2. Only those accounts be taken over wherein there was no default in payment of
interest/instalment during the last previous one year with the previous banker.
3. The accounts should be in the `Standard Asset' category of the existing bank and the
borrower should have earned net profit after tax in the immediately preceding 3 years
and have sound financial position.
4. Account should have a rating of ‘B1 & above’ as per rating scale and should be duly
vetted by Competent Authority
5. The small loan accounts (aggregate exposure upto and including Rs.5 crore) with credit
risk rating ‘B2 & below’ are not to be considered for takeover.
6. In respect of accounts, which are in existence for a period of less than three years, the
unit should have earned cash profit during 1 st year of commercial production and from
the 2 nd year onwards, unit should have earned net profit after tax. However, in such
cases one audited Balance Sheet should be available before hand.
7. The Unit should be in a position to generate sufficient surplus so as to service the bank's
dues.
8. The current ratio and debt equity ratio (wherever applicable) should be in the
prescribed range.
9. NOC and credit report from the present banker/FIs should be obtained prior to sanction.
10. In case of working capital limits if enhancement of 25% and above is considered at the
time of takeover, instead of seeking prior approval from the next higher authority, the
proposals shall be sanctioned by the next higher authority on merits of the case subject
to the compliance of the other guidelines.
11. NOC and credit report from the present banker/FIs should be obtained prior to sanction.
Permission not required
1. Where the accounts of other banks have been adjusted for over 3 months.
2. In case of crop loans/KCC, the prior approval from next higher authority is not necessary even if
the accounts from other banks/FIs have been adjusted within three months subject to the

compliance of other takeover parameters and subject to the condition that only those accounts
be taken over wherein there was no default in payment of interest/instalment during the last
previous one year with the previous banker.
3. Branch heads of specialised MSME branches are authorized to consider takeover of SME
accounts to the extent of 50% of their regular loaning powers without obtaining prior approval
from the next higher authority. The cases of enhancement of 25% and above in working capital
facilities shall be considered by the next higher authority within his vested loaning powers as
mentioned above.
4. Circle Heads may permit Branch heads of Trade Finance branches and other Selective branches
(selected on the basis of infrastructure/potential available in the branch/area) to permit
takeover of Traders/SME accounts to the extent of 50% of their normal loaning powers. The
cases of enhancement of 25% and above in working capital facilities shall be considered by the
next higher authority within his vested loaning powers as mentioned above.
Eligibility Criteria for Take over of Retail Loans
1. Borrowal account should be taken over from other banks on selective basis.
2. The permission from the next higher authority shall not be applicable for taking over of
Retail Loan Accounts from other banks/FIs.
3. However, Loan Accounts with other banks/FIs are running regular with no defaults in
payment of interest/installment.
4. The account should be in the ‘Standard Asset’ category of the existing Bank/FI.
5. Borrowers should have a rating of “B2 & above” as per credit risk rating models (PNB
Trac) as applicable in loans to business concerns. However, for takeover of Retail loans
covered under the PNB Score Models, cut-off levels for sanction of all Retail Loans
circulated by Retail Assets Division, HO shall apply mutatis mutandis.
6. Statement of account of minimum 6 months, a certificate with the content that account
is running regular with no default and asset classification is standard may be called from
existing banks.
7. Takeover of borrowal accounts from the banks where our present EDs and MD&CEO
have worked earlier need not to be considered.
TRANSFER OF LOAN FACILITIES:
1. Circle Heads shall have discretion to permit transfer of any loan facility within their
respective areas.
2. Circle Heads are empowered to permit transfer of limits to other Circles at the request
of the borrower and with the consent of the transferee Circles provided the account is
in standard category.
3. ZM shall have discretion to permit transfer of any loan facility within their respective
areas.
4. General Manager at HO shall have full discretion.
5. No permission shall be required for transfer of staff loans and they can be transferred by
the Incumbent Incharge
RESCHEDULEMENT OF TERM LOAN:

1. Sanctioning authority may reschedule Term Loan upto 1 year subject to total repayment period
not exceeding 7 years.
2. Authority one step higher may reschedule Term Loan upto total period of 7 years.
3. Incumbents of LCBs, COCAC and above have full powers to reschedule repayment of Term Loans
in their own sanctions as well as sanctions by lower authorities.

4. In case of sanctions by higher authorities, matter is to be referred to sanctioning authority for
consideration.
REIMBURSEMENT/DISBURSEMENT IN TERM LOAN ACCOUNT:
Reimbursement in Term Loan Account: In emergent circumstances, COCAC & above may permit
reimbursement, on merits, within six months of acquisition of fixed assets to the extent of loan
sanctioned to MSME borrowers within their vested loaning powers and after ensuring end use of funds.
In other than MSME borrowers also, reimbursement in term loan account for capital expenditure
incurred within last six months may be given in highly deserving cases, on merit of the case.
Disbursement in Term Loan Account:
Part disbursement of term loan may be allowed through current/cash credit account by the sanctioning
authority not below the level of CM subject to maximum of 25% of the sanctioned limit
No Fresh Priority Sector Advance

If Recovery % is below 30%, as per PNB 746, as at March/ Sept. on annualized basis
Exceptions
 Advance under SGSY, SJSRY, 20 point programme etc.,
 Loans upto Rs.10,000/- under priority sector schemes to all categories of weaker sections
 All Government’s sponsored programmes.
CONSORTIUM FINANCING
 RBI had withdrawn its earlier guidelines regarding mandatory formation of consortium where
working capital limits are Rs. 50 crores and above from the banking system.
 Share of a Bank as a member of consortium should be minimum of 5 percent of the fund based
credit limits or Rs. 1 crore, whichever is higher.
 Where 5% of the fund based working capital limit sanctioned/to be sanctioned to a borrower is
more than prudential norm for exposure of a bank, lower percentage can also be considered on
merits of each case by the consortium.
 Total term loan exposure should not exceed 75% of the prudential exposure norms for
individual/group of borrowers. The balance of 25% should be kept for meeting the working
capital needs of the borrower.
 Diligence Report shall be obtained for the borrowers with aggregate (fund and non fund
based) limits of Rs.20 crores and above with our bank. However, Public Sector Undertakings/
establishments (Govt. Undertakings) will be exempted from such Diligence Report, as they are
under audit by Comptroller & Auditor General of India. In respect of Consortium Accounts
where our bank is not the leader, the matter be taken up with the lead bank for obtaining the
same
JOINT LENDING ARRANGEMENT
 The policy shall be applicable to all lending arrangements involving more than one public sector
bank with a single borrower with aggregate credit limits (both fund based and non fund based)
of Rs.150 crore and above. All non-investment grade borrowers (External Commercial Rating

below BBB or equivalent) under multiple banking arrangements shall also come under this policy
irrespective of the amount of exposure
 In case of aggregate working capital exposure (both fund based and non fund based) uptoRs.
1000 crore, our share as a member of the JLA should be at least 10% of the aggregate limit to
ensure meaningful participation in JLA. For working capital exposures of Rs. 1000 crore and
above, the minimum participation required shall be Rs. 100 crore.
 Sub-committee: It is suggested that a sub-committee, comprising at least two member banks
having a combined exposure of not less than 50% of the total exposure should be formed, for
deciding all matters relating to appraisal, sharing of income and monitoring of the accounts, at
the time of initial creation/ formation of the JLA.
Command Area for Small, Medium & Large borrowal accounts (L&A Circular No. 133 dated 30.08.2008)

At the place where the Registered/ Head/Administrative Office of the borrowing company/firm is
located.
OR
At the place where factory/ manufacturing unit of the borrowing company/firm/project site office (for
infrastructure advances) is located.
MODIFICATION OF LIMITATION CLAUSE IN BANK GUARANTEE (L&A Cir No-65/18)
IBA, in light of the Supreme Court of India judgement dated 15.09.2016, has now advised that as per the
2013 amendment in Section 28 of the Indian Contract Act, atleast one year claim period needs to be
incorporated in the limitation clause.
Loaning Power:
As per extant guidelines, CMs/AGMs may permit issuance of letter of Guarantee upto a maximum of 5
years and Branch Heads in scale-I, II & III may permit issuance of LG upto the maximum of 1 year,
excluding claim period not exceeding 1 yr. DGMs may permit issuance of Letter of Guarantee up to a
maximum of 10 years, excluding claim period not exceeding 1 Yr. COCAC (headed by DGM) may permit
issuance of Letter of Guarantee upto a maximum of 10 years, excluding claim period not exceeding 1 Yr.
CENTRAL ECONOMIC INTELLIGENCE BUREAU LARGEVALUE BANK FRAUDS (L&A Cir No-89/17)
Ministry of Finance (MoF) had advised to seek a report from CEIB (Central Economic Intelligence
Bureau) on any prospective borrower in 2015. CEIB is the nodal agency for economic intelligence
mandated to ensure effective interaction and coordination among all the concerned agencies in the area
of economic offences. MoF has informed that Report would be furnished within 1 week after receiving a
request from the bank. Accordingly, Credit Division is advised to seek report from CEIB on any
prospective borrower at the time of pre-sanction stage for proposals coming under the power of
HOCAC-I & above (at present exceeding Rs.50 cr). If the report is not received within 10 days from CEIB,
the proposal may be processed after taking all precautions/due diligence in terms of guidelines, as
required in the case.
L & A CIRCULAR NO. 97/17-Introduction of Legal Entity Identifier for Large Corporate Borrowers
The Legal Entity Identifier (LEI) initiative is designed to create a global reference data system that
uniquely identifies every legal entity, in any jurisdiction, that is party to a financial transaction. The LEI
code is conceived as a key measure to improve the quality and accuracy of financial data systems for

better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties
to financial transactions worldwide.
It has been decided by RBI to make it mandatory for corporate borrowers having aggregate fund-based
and non-fund based exposure of ₹5 crore and above (introduced in a phased manner) from any bank to
obtain Legal Entity Identifier (LEI) registration and capture the same in the Central Repository of
Information on Large Credits (CRILC).
Total Exposure to SCBs To be completed by

₹ 1000 crore and above Mar 31, 2018
Between ₹ 500 crore and ₹ 1000 crore Jun 30, 2018
Between ₹ 100 crore and ₹ 500 crore Mar 31, 2019
Between ₹ 50 crore and ₹ 100 crore Dec 31, 2019
between ₹5 crore and upto ₹50 crore separate roadmap
Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity
Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. In India,
LEI code may be obtained from Legal Entity Identifier India Ltd (LEIIL), a subsidiary of the Clearing
Corporation of India Limited (CCIL), which has been recognised by the Reserve Bank as issuer of LEI
under the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF as the Local
Operating Unit (LOU) in India for issuance and management of LEI.
DISCRETIONARY POWER FOR REFUND OF EXCESS INTEREST/SERVICE CHARGE CHARGED ON ACCOUNT

OF MISTAKE ( L&A- Cir. No.65 / 2017)
Amount of Interest and/or Service Charge to be Competent Authority

refunded
Up to Rs.2 lac Branch Head (Small/Medium/Large)
Up to Rs. 5 lac Branch Head (VLB/ELB)
Up to Rs.10 lac/Rs.15 lac COCAC (AGM/DGM Headed)
Up to Rs.10 lac Branch Head (LCB)
Full Powers ZOCAC
 Reported by the competent authority in their LSS confirmation format.
 Correctness of the refund amount may be got vetted by auditor
CONTROL MEASURES - PASSPORT DETAILS OF BORROWERS (As per L&A Cir No-92/18)
Certified copy of the passport of all promoters/directors/partners/proprietors etc. and other authorised
signatories of companies/firms etc. be obtained in all existing as well as prospective borrowal accounts
having exposure of ₹50 Crore and above from banking system. If personal does not have passport then
his /her declaration with undertaking as per L&A Cir No-92/18 is to be obtained. Also we need to do
this for all loan account above Rs 50 lacs and below Rs 50 lacs sanctioning authority may decide the
same on merits of the case.
LOAN SYSTEM FOR DELIVERY OF BANK CREDIT
Loan system for delivery of bank credit for borrowers having aggregate fund based working capital limit
of ₹150 crore and above from the banking system as 60 % of working capital requirement as WCDL & 40
% as cash credit running limit.
Exemption-

a. Credit facilities extended to State Government/ Union Territory agencies and Food Corporation of
India for procurement /price support activities;
b. Credit facilities extended to Central Counterparties;
c. Credit facilities extended by overseas branches of Indian banks.
AGENCIES FOR SPECIALISED MONITORING (ASMs)
Guidelines for Appointment of ASMs for specialized monitoring of the account, wherein the credit
exposure is more than Rs.250 crore.
MORTGAGE OF IMMOVABLE PROPERTY – HANDOVER OF SECURITY DOCUMENTS/ TITLE DEEDS
Primary & Collateral security documents including title deeds are released immediately but not later
than 10 days of closure of loan. (L&A Cir No- 99/19).
EXTRACTION OF REGISTRATION CERTIFICATE (RC) FROM “VAHAN PORTAL”
Joint Registration Certificate (JRC) be extracted from VAHAN Portal online: https://vahan.nic.in for all
the vehicles henceforth financed under all MSME schemes and a copy of the same should be held on
record for compliance of guidelines. (MSME Cir No-56/19)
National e-Governance Services Ltd. (NeSL) - Information Utility under the Insolvency and Bankruptcy
Code 2016 (charges & undertaking from borrower as per L&A Cir No-50/19)
Service Type Companies Other Commercial Entity individual

Data Submission Per 1 st Loan Record — 1 st Loan Record — Rs.150/- Rs.50/- for each
Loan record of a Rs.300/- 2 nd onwards — Rs.50/- each loan
borrower for each year 2 nd -10th Loan record
— Rs.100/-each
11th onwards — Rs.50/-
each
Document Submission Rs.12/- per MB Rs.12/- per MB Rs.12/- per MB
for each year
AMENDMENT IN IMPORT POLICY OF IRON AND STEEL AND INCORPORATION OF POLICY CONDITION IN
CHAPTER 72, 73 AND 86 OF ITC (HS), 2017, SCHEDULE-I (IMPORT POLICY)
Import policy from “Free” to “Free subject to compulsory registration under Steel Import Monitoring
System (SIMS) . SIMS the importers are required to submit advance information in an online system for
imports of items as per the Annex attached and obtain an automatic Registration Number by paying
registration fee of Rupee 1 per thousand subject to minimum of Rs.500/ and maximum of Rupees 1
lakh on CIF value. Importer may apply for registration not earlier than 60th day and not later than 15th
day before the expected date of arrival of import consignment. The automatic registration number will
be valid for a period of 75 days (FOREIGN EXCHANGE CONTROL CIRCULAR NO.62/2019)

CREDIT MANAGEMENT & RISK POLICY 2019-20
STRENGTHENING THE STRUCTURE & PROCESSES OF CREDIT RISK MANAGEMENT
Definition of “Credit Risk”
“Credit risk” is the possibility of loss associated with changes in the credit quality of the borrowers or
counter parties. The counter parties may include an individual, small & medium enterprise,
corporate, bank, financial institution, or a sovereign.
Credit Risk Management –Framework

The overall framework of credit risk management in the bank would comprise of following building
blocks:
o Credit Risk Management Structure
o Credit Risk Policy & Strategy
o Processes and Systems
CREDIT RISK MANAGEMENT STRUCTURE
Under overall credit risk management framework, the bank has put in place the following structure:
A.
i) Integrated Risk Management Division (IRMD):
The Division is headed by Chief Risk Officer with distinct functions related to credit risk, namely:
 Framing of policies, inter alia, related to credit risk, development of systems & models for
identifying, measuring and managing credit risks and their implementation;
 Monitoring and managing the industry risk;

 Integrated risk management functions;
ii) Circle Risk Management Departments (CRMDs):
Risk Management Departments functioning at Circles are called as Circle Risk Management
Departments (CRMDs). CRMDs will function under the administrative supervision of second senior
most official of the Circle. The operational work will be looked after by DGM/AGM/CM of the Circle
Office who is not directly involved in the process of the sanction of credit proposal.
B) Risk Management Committee (RMC)
RMC is a Sub-Committee of Board with overall responsibility of formulating policies/procedures and

managing all the risks. It adopts integrated approach in managing all the risks
C) Credit Risk Management Committee (CRMC)
is a top level functionalCommittee headed by Managing Director & CEO and comprises of EDs, Chief
Risk Officer, GMs of Credit, Treasury, etc., as per the directives from RBI. Its specific responsibilities are
as under:

Credit Approval Committees (CACs)
CAC at CO/ HOlevel Headed by Credit proposals

Beyond loaning powers of Branch Head of
CircleHead(AGM) the branch, but not exceeding Rs.15 cr.
Beyond loaning powers of Branch Head of
COCAC Circle Head(DGM) the branch, but not exceeding Rs.30 cr.
Beyond loaning powers of Circle Head/
ZOCAC ZM Branch Head of LCB, but not exceeding Rs.50crore
Senior most GM
HOCAC Level-I (Credit) Above Rs.50 crore&upto Rs.75 crore
HOCAC Level-II Senior most ED Above Rs.75 crore&upto Rs.150 crore
HOCAC Level-III MD & CEO Above Rs.150 crore&upto Rs.400 crore
THRUST AREAS
In the year 2017-18, the thrust areas for the bank shall be as under:
 Retail Segment
 Priority sector Credit
 Advances To Micro, Small & Medium Enterprises (MSME):
CD Ratio:
Benchmark of 60 per cent under CD ratio of rural and semi-urban areas.
With the above policy, Bank aims to achieve the following National Goals under
Priority Sector and Sub- sectors:
National Goal (Computed against ANBC or credit

equivalent of Off Balance SheetExposure, whichever is
Sector higher)
Priority Sector 40%
Total Agriculture 18%
Within Agriculture, Loans to 11.70% for FY 2019-18 & ultimately
non-corporate farmers to reach 13.5%
Within Agriculture, Loans to 8%
Small & Marginal farmers
Micro Enterprises 7.5%
Weaker Sections 10%
Women beneficiaries 5%
Minority Communities 15% of PS
Bought over of loans from other banks
In other words, bank has to pay the outstanding amount plus premium payment (difference between
NPV of interest chargeable as per sanction of the selling institution and interest rate at which loan has
been purchased by our bank) and the total amount has, therefore, to be debited to the term loan. In
Sachin Katiyar Page 29

our books it will be a Term Loan like any other Term Loan with the only difference that a part of
amount is towards premium payments.
Large Corporate and Mid Corporate Branches (LCBs & MCBs)
 MCBs will handle proposals between Rs.5 crore and Rs.25 crore at places where LCBs are
also located and loan proposals of Rs.5 crore and above at places where LCBs are not
located.
 LCBs will handle loan proposals above Rs. 25 crore.
Other Loaning Powers:
i) Sanction of limits in anticipation of approval by MC
Sanction of limits/facilities in anticipation of approval by MC shall be considered in case of Existing

as well as Fresh Borrowers by HOCAC Level III for meeting emergent needs and ratification of such
approval should be moved immediately to MC.
ii) In Principle Consent
In case of genuine and urgent cases falling under MC/Board sanction, “In Principle” consent may be
given by HOCAC-III in case of both fresh as well asexisting borrowers.
iii) Sanction of limits to NBFCs:
All fresh proposals/enhancement/additional/adhoc/temporary facilities to NBFCs shall be

considered at ZOCAC & above only. However, the cases for renewal/review of the existing facilities
may continue to be considered by Branch Heads of LCBs/COCAC (DGM headed) and above.
Branch Heads of LCBs / COCAC (headed ZOCAC/HOCAC-I/II/III

by DGM)* (review & Renewal)
25% of loaning powers for fund based 50% of loaning powers for fund based
secured advances secured advances
iv) For considering real estate proposalsexcluding home loan sector, scheme of finance against
mortgage of Immovable Property and Traders under MSME sector for purchase of shop/show room ,
but including proposals for Hotel Industry (excluding hotels falling under MSME segment), finance
against future lease rentals, the prior administrative clearance by the competent authority shall be
obtained as under:
Sanctioning Authority Administrative clearance

Branch COCAC (within ZO quota)
COCAC (DGM), LCB ZOCAC (within ZO quota)
ZOCAC HOCAC I
HOCAC I & Above Waived

 Loaning powers for sanction of proposals for Hotels including guest houses shall be exercised by
Chief Managers and above within their vested loaning powers.
 Fresh exposure should not be taken in Rubber and Tea industries.
 In the following segments loaning powers are to be exercised by ZOCAC & above in respect of
restrictive segments viz. standalone Sponge Iron Units, cement, civil aviation, NBFCs, Bridge loan
etc. within their vested loaning powers. However, for considering such proposals, ZMs to take prior
administrative approval/clearance of ED.
 Proposals for financing Windmill Power projects shall be considered at the level of COCAC (DGM
headed)& above within their vested loaning powers.
 No Fresh exposure to Gem & Jewelry Industry.
 No Fresh exposure at field level for financing Educational Institute.Only COCAC & above can
consider provided min collateral requirement .Min collateral requirement for
COCAC,ZOCAC&HOCAC I is 100%,75 % & 50 % respectively.
Adhoc limits:
Adhoc (AGM & above only) can sanction. (COCAC & ZOCAC- Max 2 times)
Temporary Overdrawings (TOD)
In fund-based secured advances, overdrawings may for very short period say 2-3 days, but not
exceeding 7 days (including roll over, if any) to meet temporary mismatch of funds in unforeseen
circumstances by officials at branch level within their vested loaning powers for sanction of adhoc
facility.
Adhoc Facilities –
Adhoc limit/facility should be granted as regular sanction for fixed period to the borrower after
analyzing the financials & requirements of the borrowers only for unexpected business and subject to
the other laid down stipulations for sanction of adhoc limits.
Confirmation of Action:
Proposal to be sent within 3 days of such action, & from CO within 7 days to HO if falling under power
of HO. deemed confirmation if decision not taken by competent authority within 15 days.(L&A Cir
No-8/2010)
In case limit/DP is not reduced to the level of original sanction after due date of TOD/Adhoc limit, the
confirmation of action (for period wise) shall be obtained from competent authority as under:
Proposals for Adhoc falling upto vested powers of Confirming Authority

COCAC (headed by DGM) ZOCAC*
ZOCAC/HOCAC I HOCAC-II/III*
HOCAC-II/III MC upto 180 days
*within vested loaning powers for adhoc facility (quantum & %age wise) upto 180 days.

Discretionary Powers Vested at various levels to permit Relaxation in Interest Rates
Up to COCAC No power
ZOCAC/HOCAC I Max 1% provided-
 Concession not allowed for retail loan
 Min rating B1
 Applicable interest rates not fall below MCLR+1 %.
 Where already special concessions allowed as per scheme
HOCAC II Up to MCLR +1 % Provided
 Min rating B3
 PSU
 Advance against liquid security
 Export advance –up to MCLR
 STL- up to MCLR+0.50 %
HOCAC III Up to MCLR ( in case of own & MC power)
Short term loans
Short Term Loans secured nature be allowed to corporate borrowers as under:
 For loans above Rs. 500 crore with minimum risk rating of A4 as per credit risk rating.
 For loans upto Rs.500 crore with minimum credit risk rating of B3 .
 Public Sector Undertakings of repute, showing profits in the latest period as per audited Balance
Sheet or duly certified by Chartered Accountant and/or having a positive fund flow/Escrow
arrangement, without reference to their rating.
 The details of STLs raised by the PSUs during last two years from our bank/other lending
institutions should be obtained to ascertain whether the same have been repaid on time or not.
 Need based Max up to average gross revenue for the last three years.
 Min amount Rs 25 Crore.
 Considered only by HOCAC-II and above .
 In case of sensitive area min risk rating is A4.
 Within assessed PBF & DP.
 The ceiling for aggregate Short Term Loans is fixed at 18% of the total advances of the bank as
at close of the previous quarter.
Exposure in Weak Accounts

All irregular/weak accounts shall henceforth be classified as Special Mention Assets (SMA) with sub-
categories as under:
Sub- Basis for classification
Categories
SMA - 0 Principal or interest payment not overdue for more than 30 days,
but account showing signs of incipient stress
SMA - 1 Principal or interest payment overdue between 31 to 60 days
SMA - 2 Principal or interest payment overdue between 61 to 90 days
 Cut off limit to report SMA 2 account to CRILC is Rs 5 Cr & Above
 Exit policy- Cut off is Rs 10 crore& above (L&A Cir No-47/2016)

ADHERENCE TO PRUDENTIAL EXPOSURE NORMS:
a. Prudential exposure limit for single/group borrowers:
Category Ceiling for other than Infra

For Individual borrowers 20% of the capital funds
For Group borrowers 25% of the capital funds
In respect of Partnership and Proprietor concern, exposure to a borrower by way of Fund Based/Non
Fund Based facilities shall be restricted to the limits mentioned below:
Proprietorship Concern Rs. 50.00 Crore.

Partnership Concern/LLP Rs. 100.00 Crore.
Single entity with constitution as Society, Trust & HUF Rs. 200.00 Crore.
b. Prudential limit for substantial exposure:
Substantial Exposure is defined as sum total of exposures assumed in respect of those single
borrowers enjoying credit facilities in excess of a threshold limit of 10% of capital funds of the Bank
as per published accounts as on 31st March of previous year. In order to reduce concentration risk
in a few accounts, substantial exposure limit has been fixed as under:-
Private Sector Borrowers 100% of capital funds of the Bank @
Public Sector Borrowers 300% of capital funds of the Bank @

@as per published accounts as on 31st March of previous year
c. Maximum Industry Exposure Limit
Industry-wise Credit Exposure Limits as per L & A -78/18

Ceilings in % for next 12 Months or till
S No INDUSTRY review of limits
1 All Engineering 3
2 Chemical, Dyes & Paints 3
3 Construction 2
4 Cotton Textiles 2
5 Other Textiles 3
6 Food Processing 3
7 Sugar 2
8 Infra - Power 10
9 Infra - Transport 6
10 Infra - Telecom 3.5**
11 Infra - Others 3
12 Iron & Steel 8.5
13 NBFCs* 11.00

14 Petroleum 4.00
* Comprises Maximum sub limit of 1% to Micro Finance Segment within NBFCs (Aggregate) limit.
** Additional ceiling of 0.50% in excess of 3.00 is for A3 & above internally & AA externally rated a/c.
 Exposure ceilings in percentage terms of actual portfolio of the last Audited quarters.
Industry/sector with outstanding exposure of 1% & more of Bank‟s gross advances have only
been considered for fixing industry / sector exposure ceiling.
 In industries where no exposure ceilings have been fixed, the exposure ceiling may be taken
as 1% of the bank‟s gross advances.
 Trigger level is 85% of exposure limit
d) Unsecured Exposure Ceiling :
Unsecured Exposure should not exceed 20 % ofthe total outstanding advances as on close of
previous quarter. Within this sub ceiling of 12 % for Govt& PSU.
e)Exposure Limit for Advances to Traders
Normal Up to Rs 100 Crore

HOCAC III Up to Rs 200 Crore
MC Up to Rs 500 Crore
Retail Chains (like Reliance, Easy Day, More etc.) are kept out of purview of aforesaid ceilings.
f) Lending to State Govt. Undertakings/PSUs– Exposure Limits
A maximum State-wise exposure limit to State Govt. Undertakings/PSUs (excluding advance against
bank deposits) is fixed at 20% of Bank’s capital funds as at previous year end with sub-ceiling to
State Govt.
g) Advance to Gems &Jewellery Industry:
No fresh Advance
h) NBFCs:
Internal rating ‘A1’/‘A2’ and External rating ‘AAA/AA’ and PSUs 15

Internal Rating ‘A3’ and External Rating ‘A 12
Internal Rating ‘A4/B1 and External Rating BBB* 9
Internal Rating B2 & Below/* and External Rating BB & Below*/Unrated 5
 Ceiling for bank‟s aggregate exposure to all NBFCs has been put at 11 % of bank‟sgross
advances at the close of the previous quarter.
 Within the above ceiling of 11 %, an internal sub-limit for aggregate exposure to all NBFCs,
having gold loans to the extent of 50% or more of their total financial assets is fixed at 1.5% of
bank‟s gross advances at the close of the previous quarter .
 Sub ceiling for micro finance segment is 1 %.

 Bank finance to Residuary Non-Bank Companies (RNBCs) registered with RBI will be restricted
to the extent of their NOF.
i) Film Industry sector: Exposure per borrower in the sector shall not be more than Rs.25 crore.
Fresh exposure i.e. aggregate of FB +NFB facilities sanctioned in a financial year should not exceed
Rs.200 crore.
j) Real Estate: It being a sensitive sector, the overall exposure ceiling for realestate sector has been
fixed at 15 % of the total advances of the bank as at close of last quarter.
Segment-wise sub-ceilings have been revised as under:
Ceiling (% of the total advances of

.No. Segment the
bank as at close of last quarter)
(i) Exposure on NHB & HFCs 7.00%
(ii) Commercial Real Estate-including FLR & CRE-RH-Total 10.00%
of which:
a) Land & Building Developers-other than Residential
Housing 2.00%
b) Other Commercial Real Estatei.eIPs ( commercial) ,
Hotels etc.but excludingFutureLeaseRentals(FLRs) 1.00%
(iii) Residential mortgages No sub-ceiling
(iv) Total 15 %
k) Capital Market sector:
As per RBI,The ceiling for capital market exposure is fixed at 40% of its net worth on a solo and on
consolidated basis. The following advances shall form part of Capital Market exposure:
Bank has stipulated following ceilings in respect of advances forming part of exposure to capital market:
 An overall ceiling of 20% of net worth of the bank as on 31st March of the previous year
 A sub-ceiling of 10% of net worth of the bank as on 31st March of the previous year
(within the aforesaid ceiling of 20% of net worth of the bank), for aggregate advances to
all stock brokers .
 The loaning powers for advances to Shares and Stock brokers have been vested with
COCAC, ZOCAC and HOCAC-I and quota has been allocated to relative COs/all ZOs with a
stipulation that ZMs to obtain prior administrative approval/clearance of ED while
considering such proposals. It is advised that Circle Heads/ZMs need not obtain prior
administrative clearance from ED for considering proposals to Shares and Stock Brokers
within the quota allocated to their office for such advances.
 A sub-ceiling of Rs. 100 crore (within the aforesaid ceiling of 10% of net worth of the
bank), for advance to any single stock broking entity (fund based & non-fund based)
including its associate/inter connected companies.
 A ceiling of Rs. 10 lakh and Rs. 20 lakh for financing individuals for acquiring shares under
IPO/FPO and ESOP respectively.

 The maximum ceilings for advances to individuals against security of shares and
debentures areRs.20 lakh against dematerialised shares from entire banking system.Now
facility against physical forms is withdrawn.
STATUTORY PROVISIONS
Banking regulation Act 1949- Section 19(2) & (3)
A Bank cannot hold shares in any company, whether as pledgee, mortgagee or absolute owner of an
amount exceeding 30% of the paid-up share capital of the company or 30% of the own paid up
share capital and reserves, whichever is less. Further a bank cannot 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.
Section 20(1) (a)
A Bank cannot grant any loans or advances on the security of its own shares.
m) Renewable Energy- Exposure limit
Exposure limit of 1% of Gross Advances for lending to Renewable Energy within the overall limit of
10 % fixed for Energy sector as on close of previous quarter
n) Exposures to entities with Un-hedged Foreign Currency Exposure
Bank should monitor the currency wise un-hedged foreign currency exposure in the books of borrowers
at quarter ends along with the Annualized Earnings Before Interest & Depreciation (EBID). The
incremental provision (ranging from 0 to 80 bps on total credit exposure, over and above the standard
asset provisioning) and capital requirement will depend on likely loss (due to foreign currency
fluctuation).
Term Loan
Cut off limit for review of term loan- Rs.1 crore& above
a) All proposals for infrastructure projects shall continue to be sanctioned by ZOCAC& above
only except in case of following:
b) Proposals for setting up of cold storages shall be considered by COCAC/DGMs and above
within their vested powers. However, proposals relating to construction for preservation
and storage of processed agro products, perishable goods such as fruits, vegetables and
flowers including testing facilities for quality shall be sanctioned by Chief Manager & above
within their vested loaning powers.
c) No Fresh exposure in Field level for proposals for construction of educational institutions.
d) Proposals relating to Water Supply Project, Irrigation Project, Water Treatment System,
Sanitation & Sewerage System or Solid Waste Management System, shall be considered at
the level of COCAC& above within their vested loaning powers.
e) Proposals for financing Windmill Power projects may only be considered at the level of
COCAC/ DGM & above within their vested loaning powers.

f) Proposals relating to mini hydropower projects shall also be considered at the level of
COCAC & above within their vested loaning powers.
Loan Review Mechanism Policy for Overseas Credit Accounts
Credit Audit shall be conducted on standalone basis in all standard risk rated accounts except:
a) Those secured by 100% cash security and buyers credit secured by LOC of approved banks.
b) Buyers credit secured by LOU of approved banks.
c) Bills discounted under LC issued by approved banks after receiving acceptance from the LC
issuing bank.
d) Term loan secured by SBLC of approved banks.
Credit audit will be conducted by Credit Auditor as under:
All A1 to B3 rated standard accounts with exposure of USD 10 mio& above

USD 10 mio– 20 mio Above USD 20 mio
By Scale IV/V /VI officers from Credit
By Scale IV/V officers from Credit Audit & Audit & Review Department
Review Department Report to be finalized by Scale VII
Report to be finalized by Scale VI officer officer from Credit Audit & Review
from Credit Audit & Review Department Department
C1 to C3 rated and PMS rank 3 and above standard accounts with exposureof USD 3 mio& above
USD 3 mio– USD 8 mio Above USD 8 mio
By Scale IV/V officers from Credit Audit & By Scale IV/V /VI officers from Credit
Review Department Audit & Review Department
Report to be finalized by Report to be finalized by
Scale VI officer from Credit Audit & Review Scale VII officer from Credit Audit & Review
Department Department
5 % random with exposure between USD 3.00 Mio to USD 8.00 Mio
By Scale IV/V officers from Credit Audit & Review Division
The frequency of credit audit for loan accounts with overseas branches is as under:-
Credit Rating of accounts Frequency
A1,A2,A3, A4 rated accounts Yearly
B1, B2, & B3 rated accounts Yearly
C1 C2 and C3 rated accounts Half yearly
PMS rank 3 and above Half yearly
Central PSU account Yearly, irrespective of risk rating

Monitoring of Special Mention Assets (SMA)
Level Constitution Scope

HO GM (CRMD), DGM/AGM/Chief All SMA under standard category with
(CRMD),GM/DGM & AGM/Chief (RD), Aggregate Exposure (AE) of Rs.5
GM/DGM (Credit Div.) crores and above.
ZO ZM, 2nd Man of ZO (AGM/DGM), All SMA under standard category with
AGM/CM (credit/Recovery), Desk Officer AE of Rs.1 Crore and above.
(Credit/ Recovery)
CO Circle Head, AGM/CM and/or FM All SMA under standard category with
(Credit), Desk Officer (Credit), FM (RD). AE of Rs. 5.00 lac and above.
Grading of Borrowers under the Rating system

RATING RISK Score
GRADE SIGNIFICANCE DESCRIPTION
Excellent business credit, superior asset quality and Above 80
excellent track record of debt repayment capacity and
PNB-A1 Minimum Risk coverage
Very good business credit, asset quality and liquidity, Above 70.00 up to
PNB-A2 Marginal Risk debt repayment capacity and coverage. 80.00
Good business credit, asset quality, debt paying Above 64.00 up to
PNB-A3 Modest Risk capacity and coverage. 70.00
Above 58.00 up to
Satisfactory business credit, asset quality, liquidity, 64.00
PNB-A4 Lower Risk good debt repayment capacity and coverage.
Acceptable business credit with average risk, Above 52.00 up to
acceptable asset quality, modest debt capacity. 58.00
However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial
PNB-B1 Average Risk commitments.
An obligor is less vulnerable in the near term. Above 46.00 up to
However, it faces major ongoing uncertainties and 52.00
exposure to adverse business, financial, or economic
conditions which could lead to the obligor's
Marginally inadequate capacity to meet its financial
PNB-B2 Acceptable Risk commitments.
An obligor is more vulnerable than the obligors rated Above 40.00 up to
'B2', and currently the obligor has the capacity to 46.00
meet its financial commitments. Adverse business,
financial, or economic conditions will likely impair the
Cautiously obligor's capacity or willingness to meet its financial
PNB-B3 Acceptable Risk commitments.
Not creditworthy, generally acceptable on case to case Above 35.00 up to
basis, Currently vulnerable and dependent on 40.00
favorable business, financial and economic conditions
PNB-C1 High Risk to meet financial commitments.

Not creditworthy. An obligor has minimal margin of Above 25.00 up to
principal and interest payment protections, currently 35.00
highly vulnerable, and is totally dependent upon
favorable business, financial and economic conditions
PNB-C2 Very high Risk to meet its financial commitments.
Unacceptable business credit, Currently highly 25.00 and below
vulnerable obligations, normal repayment in jeopardy,
Exceptionally inadequate projected net worth and paying capacity.
PNB-C3 high Risk Default of some kind appears imminent.
Reporting and Analysis of Credit Risk
Sanctioning
Authority Credit Risk Rating Authority Vetting/Confirming Authority*
ZMRMD at ZO in consultation with
Branches / VLBs / ELBs / Large
Corporate Branches in respect of
proposals falling under HO powers
(Credit Risk Ratings will be routed by
Branches / VLBs / ELBs / LCBs through
HO ZO to HO) CGM / Chief Risk Officer (IRMD), HO
i)Branches/ VLBs / ELBs to route
Credit Risk Ratings through Circle
Offices.
ii) LCBs in respect of proposals falling
under ZM powers to submit Credit Risk
ZO Ratings directly to ZO DGM / AGM / CM (ZMRMD) ZO
DGM / AGM / CM (CRMD), COAn official
designated by the BranchHeadnot
Connected with processing/recommending
CO Branches / VLBs / ELBs of
Branch Officer/Manager, Credit Section The concerned loan proposal.
* Vetting authority shall be one step higher, wherever internal ratings are having variance of
more than one notch with the ratings assigned by approved external rating agency.
Group Approach
For identification of a group, the guiding principle is “Commonality of Management and Effective
Control”.
New Business Group (NBG)
PIM to be place to HO for proposal envisaging exposure above Rs 50 Cr, approval of PIM is valid for 6
Month. ( meeting at HO every Wednesday -4 PM)

ENVIRONMENTAL ISSUES
Credit Restrictions on Financial Assistance to Industries Producing/ Consuming Ozone Depleting

Substances (ODS):
The sectors covered in the phase out programme are given below:
Sector Type of Substance
1. Foam Products Chlorofluorocarbon–11(CFC-1)
2. Refrigerators and air conditioners CFC-12
3. Aerosol Products Mixtures of CFC 11 and CFC 12
CFC-113, Carbon Tetrachloride, Methyl
4. Solvents in cleaning applications Chloroform
5. Fire Extinguishers Halons– 1211, 1301, 2402

CLASSIFICATION OF ASSETS/LIABILITIES APPEARING IN
BALANCE SHEET FOR ANALYSIS PURPOSE
NET WORTH / OWN FUNDS (A) FIXED ASSETS (B)

1) Land & Building
1) Paid up Equity Shares OR 2) Plant & Machinery
Invested Capital 3) Work in Progress
2) Free Reserves 4) Cars & Vehicles
3) Undistributed Profits 5) Furniture & Fixtures
4) Share Premium Account
5) Share Forfeiture Account
6) Preference Shares NON CURRENT ASSETS( D )
1) Investments, Encumbered
Bank Deposits
LONG TERM LIABILITIES (C) 2) Loans & Advances to Staff /
Suppliers
1) Term Loan from Bank / FIs 3) Debtors (age 180 days or
2) Unsecured Loans from more)
Insiders/Debentures 4) Security Deposits
3) Deferred Tax/other Liabilities
CURRENT ASSETS (F)
1) Stock of Raw Material

CURRENT LIABILITIES (E) 2) Work/Goods in Process
3) Stock of Finished Goods
1) Sundry Trade/Other Creditors 4) Sundry Trade Debtors
2) Bills Payable 5) Bills Receivable
3) Installment of TL/USL due within 12 6) Cash Balance & Bank
months from B/S date Balance
4) Expenses accrued but not paid 7) Consumable Stores & Spares
5) Debentures duewithin 12 months 8) Prepaid expenses
from B/S date
6) Advance from Purchasers
INTANGIBLE ASSETS (G)

1) Goodwill, Trademarks,
2) Copyright, Patents, Licenses
3) Preliminary / Pre-operative
4) Commissioning Expenses
1. TANGIBLE NET WORTH = (A – G) +DTL-DTA

2. WORKING CAPITAL = F
3. NET WORKING CAPITAL = (F – E)
4. CAPITAL EMPLOYED = (A + C) – G
5. CURRENT RATIO = F / E
6. DEBT EQUITY RATIO = (C + E) / (A – G)

Audit of Annual Accounts of Borrowers by Chartered Accountants:
Credit limits of Rs. 20 lakhs and above (except the exempted category) and cases where accounts are
required to be audited under any other law i.e. Income Tax Act, Company’s Act, etc. should be duly
audited by Chartered Accounts (L & A Cir. No. 89 dated 26.06.04 superseded vide LA 133/2008 dt
30.08.2008 and LA110/30.07.2008). (However in board format annexure and in application form
annexure it is given that Audited Balance sheet is required for Credit limit more than Rs 25 lacs )
In case of Non Corporate Micro Enterprises having annual sales less than Rs. 40 lakhs, annual accounts
duly audited by Chartered Accountants shall not be insisted upon irrespective of the credit limit.
However, the key figures (i.e. sales, net profit, capital etc) be verified from documents like IT returns,
sales tax returns etc. (LA110/2008).
CMA Data Base Forms for Assessment of Working Capital Requirements Where assessment of working
capital limits is done as per Simplified Turnover method (Nayak Committee) (Details LA 100/2000),
information on Credit Monitoring Arrangement (CMA) data base forms shall not be obtained.
Sanctioning Authority, however, may satisfy himself on the projected turnover. (LA 110/2008)
Turnover Limit for Audit by a Chartered Accountant As per IT Act
Category of Taxpayer FY 2016-17 Onwards
Business (Not opting Presumptive Income Scheme) 1 crores
Professionals(Not opting Presumptive Income Scheme) 50 Lakhs
Business opting Presumptive Income scheme u/s 44AD 2 crores
Professionals opting Presumptive Income scheme u/s 44ADA 50 lakhs
Treatment of unsecured loans for Balance Sheet analysis (L&A 157/07)
In case of Partnership, Proprietorship and Private Ltd. Companies, the unsecured loans raised from
friends, relatives and Directors etc. which remain in the business on continuous basis may be treated as
quasi capital to the extent not exceeding 100% of tangible net worth of the party subject to the
condition that these loans shall not be withdrawn during the currency of the loan and shall be
subordinate to bank borrowings.
Treatment of Term Loan Instalments for assessment of MPBF,
Current Ratio and NWC In terms of L&A Cir. No.140 dated 29.11.2014 - Term Loan instalments due
within one year are to be treated as ‘other current liabilities’, while computing MPBF, NWC and current
ratio to keep with the prevalent industry practice and to match with the accounting standards.

4. Treatment of Export Receivables (LA 100/2000 dt 28.09.2000)
a) For calculating MPBF the amount of export receivables may be excluded from the current assets as
need based limits for export receivables could be sanctioned and in respect of such receivables
borrowers are not required to bring in 25% by way of Net Working Capital (NWC).
b) Where an exporters desires, export receivables may be included in the total current assets for
arriving at MPBF, but the minimum stipulated NWC (i.e. 25% of total current assets under second
method of lending) may be reckoned after excluding the quantum of export receivables from the total
current assets for fixing up the post shipment credit limit.
In the above situation, the sanctioning authority may permit to accept lower current ratio keeping in
view the margin requirement in respect of limits set up for domestic sales as against normal current
ratio 1.33:1 where export receivables are being financed without any margin.
5. Treatment of Margin Money on Account of Letters of Credit/ Bank Guarantees
Margin Money on LCs/ BGs are taken by Bank to cover risk and is to be treated as Non Current Assets. As
such, Margin Money is to be excluded from projected build up of Current Assets while assessing working
capital credit needs of the borrower. (LA 100/2000 dt 28.09.2000)
6-Treatment of Investment made in Associate/Allied companies/ Subsidiaries Etc.
Investments made in shares, debentures, etc. of a current nature, units of Unit Trust of India and other
Mutual Funds and in associate companies/ subsidiaries as well as investments made and/ or loan
extended as inter corporate deposits are to be excluded from the build-up of current assets at the time
of assessment of Maximum Permissible Bank Finance. It is also advised that as far as possible, on
account of investments made in associate/allied/subsidiary concerns and inter corporate deposits, the
current ratio should not slip below the stipulated level. Investment made in Associate/Allied
concerns/Subsidiaries etc. is also to be excluded for arriving at Adjusted Net Worth.
7. Treatment of Redeemable Preference Shares

Preference shares redeemable within one year should be treated as current liabilities. However,
preference shares redeemable after one year may be treated as term liabilities
8. Treatment of Deferred Tax Liability/ Deferred Tax Asset (DTL / DTA)

DTA is arrived at through increasing the profits/ reducing the loss. The eligible tax rebate reflected as
DTA can be recognised only if it is reasonably certain that the company will earn adequate profits in the
subsequent accounting period(s). Till such time, it is in the nature of an intangible asset. Therefore, it
should be reduced from the Net Worth to arrive at the TNW. DTL represents tax benefits claimed in
advance and there is no payment obligation attached to it. Further, its reversal in the subsequent
accounting period(s) will be only by way of transfer to the surplus. Therefore, notwithstanding the DTL
being shown separately, it should be treated as a part of the Net Worth.
Since DTL & DTA are accounting treatments only, DTL is to be added to, and DTA is to be subtracted
from, the net profit for arriving at PAT (DTA / DTL for this purpose would only mean the amount
recognized as such during the accounting year under reference).

VI) Financial Ratios
Ratios
Ratio Analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratios to
interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical
performance and current financial position can be determined. It should be noted that computing ratios
does not add any information not already inherent in the financial statements. The ratios however
reveal the relationship in a more meaningful way so as to enable one to draw cogent conclusions from
them. It also facilitates intra and inter- firm comparisons. Therefore, the rationale of ratio analysis lies in
the fact that it makes related information comparable. A single figure by itself has no meaning, but
when expressed in terms of a related figure, it yields significant inferences.
Some of the important ratios useful to bankers are presented below.
1-Gearing Ratio (D/E, ToL/TNW,DSCR)

2-Liquidity Ratio (CR, Quick Ratio)
3-Profitability Ratio (Operating Profit/Sales)
4-Activity Ratio (Stock Turnover,Debtor Turnover, Creditor Turnover)
Gearing Ratio or leverage ratio-
i) Debt-Equity Ratio =
Debt Equity Ratio = Total Term Liabilities ÷ Net Worth.
The level of DER varies from case to case depending upon the nature ofproject, promoters’ strength,
availability of collateral securities etc. apart from thetype of industry. In capital intensive industries
involving large capital investment,DER is normally higher as compared to the other industries.
Generally banks prefer a ratio below 3:1. In the case of SME the ratio can be relaxed to 4:1. The main
purpose of this ratio is to ascertain the relative financial stakes or skin in the business of the owner’s vis-
à-vis the creditors and banks.
Keeping in view the spirit of RBI guidelines, Board has approved thedesired level of DER for project
financing under different industries and powersvested with various authorities to relax the same as
under:
Level of DER** Competent Authority to relax DER
*Large Projects
Power - independent power 2.33:1 - HOCAC I may relax upto 3.00:1
producing plants (Thermal, - HOCAC II/ HOCAC III may relax
Hydro, Gas based) upto 4.00:1
- MC to have full powers
Iron & Steel 2.25:1 - HOCAC I may relax upto 2.75:1

- HOCAC II/ HOCAC III may relax

upto 3.50:1
Infrastructure (excl. power) 2.00:1 - HOCAC I may relax upto 2.50:1

and capital intensive projects - HOCAC II/ HOCAC III may relax
not specified otherwise upto 3.50:1
Real Estate 1.75:1 - HOCAC I may relax upto 2.50:1

- HOCAC II/ HOCAC III may relax
upto 3.50:1
Mid/small projects
No distinction for various 2:1 - COCAC may relax upto 2.50:1
industries/ segments for this - HOCAC I may relax upto 3.00:1
category as projects financing - HOCAC II/ HOCAC III may relax
normally falls under the Large upto 4.00:1
Projects category - MC to have full powers
* Projects with capital cost of _100 crore& above

** Relaxation in desired level of DER upto 0.50 may be permitted in casesinvolving latest technology
ii) TOL/TNW Ratio

Funded Debt Equity Ratio shows the relation between term liabilities and equity. It is computed as:-
TOL/TNW Ratio = Total outside liabilities ÷ Tangible Net worth.
iii) Debt Service coverage Ratio (DSCR)
DSCR is a measure of the unit’s capacity/ability to service its debt obligations. Higher the coverage safer
is the unit from the bankers’ perspective. It is worked out as:-
DSCR = Net profit + Depreciation + Interest on Term Loan (÷) Interest on Term Loan + Instalment
The ratio of 1.5 to 2 is considered reasonable. A very high ratio may indicate the need for lower
moratorium period/repayment of loan in a shorter schedule.
iv) Interest Coverage Ratio (ICR)
The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest payments.
Interest coverage ratio is equal to earnings before interest and taxes (EBIT) for a time period, often one
year, divided by interest expenses for the same time period. ICR also known as Times Interest Earned
Ratio (TIE), states the number of times a company is capable of bearing its interest expense obligation
out of the operating profits earned during a period. The ratio is calculated as:-
ICR = EBIT ÷ Interest obligation

The effect of taxation is normally ignored in the calculation. Lower the ICR, the higher the company's
debt burden and the greater the possibility of bankruptcy or default. A higher ratio indicates a better
financial health as it means that the company is more capable to meeting its interest obligations from
operating earnings.
v) Debt to Fixed AssetRatio
This ratio should be less than one in most industries because a portion of fixed assets must be financed
with equity. A ratio of less than one offers greater cushion for the bank. A complement to Debt to Fixed
Asset Ratio is to compare equity to fixed assets.
Liquidity Ratio-
a) Net Working Capital (NWC):
NWC represents the excess of Current Assets over Current Liabilities.

The net working capital concept, however, is also important for following reasons:
i) It is qualitative concept, which indicates the firm’s ability to meet to its operating expenses
and short-term liabilities.
ii) It indicates the margin of protection available to the short term creditors.
b) Current Ratio (CR)
CR is defined as a ratio of current assets to current liabilities.The CR can be worked out as:-
Current Assets
Current Ratio:
Current Liabilities
MinCR-1.25 for MSME & 1.33for Other respectively.
c) Acid Test/Quick Ratio:
The Acid Test Ratio is a more stringent measure of liquidity than the CR. It is expressed as a ratio of all
the current assets excluding inventory to the current liabilities. It is also referred as Quick Ratio. The
ratio is computed as:
Quick Assets
Acid Test Ratio =
Current Liabilties
Quick Assets include:

 Cash and bank balances
 Short term marketable securities
 Debtors/receivables
Generally, an Acid Test Ratio of 1:1 is considered satisfactory as a firm can meet its current claims.
d) Cash Ratio
The severest measure of liquidity of a firm is the ratio of cash and marketable securities to that of
current liabilities. The ratio is being computed as:-

Cash Ratio = Cash + Marketable Securities ÷ Current liabilities
Cash Ratio is the most stringent measure of the firm’s liquidity. It denotes the extent to which cash and
marketable securities are sufficient to meet current liabilities.
Activity Ratio-
Turnover Ratio:
Some of the turnover ratios are:

 Working Capital Turnover Ratio
 Inventory Turnover Ratio
 Debtors Turnover Ratio
 Creditors Turnover Ratio
i)Working Capital Turnover Ratio
The working capital turnover ratio is also referred to as net sales to working capital. It indicates a
company's effectiveness in using its working capital. It can be calculated as:-
 Working capital Turnover = Net Sales ÷ Working Capital
This ratio indicates the number of times the working capital is turned over in a year. A higher ratio
indicates efficient utilisation and a low ratio indicates otherwise.
ii)Inventory Turnover Ratio

The inventory turnover ratio expresses the relationship between cost of goods sold and inventory. It
measures the unit’s efficiency in turning its inventory into sales. The ratio is calculated using the
following formula:
 Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory
Inventory turnover ratio is used to measure the inventory management efficiency of a business. In
general, a higher value of inventory turnover indicates better performance and lower value means
inefficiency in controlling inventory levels.
iii) Debtors Turnover Ratio

Debtors’ Turnover Ratio indicates the relationship between sales and debtors. If reflects the efficiency
with which the debtors are turned over into cash. Improvement in the ratio speaks better receivables
management. The debtors turnover ratio can be calculated by using the formula:-
 Debtors Turnover Ratio = Net Credit Sales ÷ Average Trade Debtors
The Debtors’ Velocity Ratio indicates the period of credit given by the unit to its customers in terms of
days/weeks/months. It is being worked out as:-
 Debtors Velocity = (Average Balance of Debtors ÷ Credit Sales during the year) * 365 (* 52 if
result require in number of weeks/*12 if required in months)
The ratio indicates the period of credit given by the company/firm to its customers in terms of
days/weeks/months. A high ratio indicates efficient collections and low difficulty in debt realization. It
will also enable to draw suitable policy for deciding the cash discount, profit planning, etc.
iv)Creditors Turnover Ratio

Creditors’ turnover ratio depicts the number of times average dues to the suppliers is settled. Higher
the turnover, lower the payment period offered by the suppliers. The creditors’ turnover ratio can be
calculated as:
 Creditors Turnover Ratio = Net Credit Purchases ÷ Average Creditors
The Creditors’ Velocity Ratio indicates the period of credit received by the unit on its purchases from
customers in terms of days/weeks/months. It is being worked out as:-
 Creditors Velocity Ratio = (Average Creditors ÷ Credit Purchases) × 365 (or 52 if required in
weeks or 12 if in months)
A low credit turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio shoes that
accounts are to be settled rapidly.
Profitability Ratio-
i) Operating Profit Ratio:

The ratio is used to find out the overall profitability of the firm. The ratio can be calculated as:-
 Operating Profit Ratio = (Operating Profit ÷ Net Sales) × 100
The basic components for the calculation of Operating profit ratio are Operating profit and net sales.
Net sales mean that sale minus sales returns. Operating profit ratio may be indicated to what extent
the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects
efficiency with which a firm produces its products.
ii) Net Profit Margin:
The ratio shows the relation between the final profits of the company to sales. For the purpose of this
ratio, net profit is equal to gross profit minus operating expenses and income tax. This ratio is being
computed as:-
 Net Profit Ratio = (Net Profit ÷ Net Sales) × 100
Net profit (NP) ratio is a useful tool to measure the overall profitability of the business. A high ratio
indicates the efficient management of the affairs of business.
iii) Retained profit/net profit

This ratio is known as retention ratio or sometimes referred to as the plowback ratio or retained surplus
ratio. This is the amount of retained earnings relative to total earnings. This indicates the percentage of
net earnings not paid out as dividends, but retained by the unit to be reinvested in its core business or
to pay debt. Such retention will go to improve the net worth. The ratio is calculated as:-
 Retained Profit/Net Profit Ratio = (Net Income – Dividend) ÷ Net Income
iv) Return on Investment

Return on investment (ROI) is performance measure used to evaluate the efficiency of investment. It
compares the gains from investment directly to investment costs. The ratio is calculated as:-
 Return on Investment = Net profit after interest and tax ÷ Net Tangible Assets
The higher the measure, the better. ROI is an important ratio because of the underlying implication it
holds for the growth prospects of the firm and its ability to attract capital.
Other formulae
a) Book Value per Share (BPS)

Ordinary Shareholders ’ Equity
BPS =
Number of equity Shares outstanding
b) Earnings per share (EPS)
EPS is generally considered to be the single most important variable in determining a share's price. It is
also a major component used to calculate the price-to-earnings valuation ratio.
Net Profit after tax – preference share dividend paid ,if any
EPS =
Number of ordinary shares outstanding
EPS has some limitations in as much as an increasing EPS may be due to profits being retained in the
business with the number of ordinary (equity) shares outstanding remaining the same. It also does not
reveal the amount of dividends paid to the owners. Nevertheless, the EPS is a widely used ratio and
lends itself to be compared with the EPS of other similarly placed firms and comparison with the
industry average.
c) Price to Earnings Ratio (P/E Ratio)
The P/E ratio examines the relationship between the stock price and the company’s earnings.
Market Price per Share(MPS)

P/E ratio =
Earnings per Share¿ ¿
For example, a company with a share price of Rs. 140 and an EPS of 7 would have a P/E of 20 (140 / 7 =
20).
The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the
P/E, the more the market is willing to pay for the company’s earnings. Generally, a high ratio with an
increasing EPS indicates good future prospects.
d) Market Price Per Share (MPS)
MPS
P/E ratio =
EPS
Therefore, MPS = P/ E ratio∗EPS
e) Dividend per share (DPS)
The sum of declared dividends for every ordinary share issued. It is given by the formula:
Dividend paid ¿ ordinary shareholders ¿

DPS = Number of ordinary shares outstanding

Dividends are a form of profit distribution to the shareholders. Having a growing dividend per share can
be a sign that the company's management believes that the growth can be sustained.
f) Earnings Yield
The earnings per share for the most recent 12-month period divided by the current market price per
share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each Re.
invested in the stock that was earned by the company.
EPS
Earnings Yield = * 100
MPS
An increase in the numerator will bring about a corresponding increase in the denominator. Generally, a
low yield along with an increasing EPS trend indicates that the investors consider the future prospects of
the firm in terms of sales growth and profits as good.
g) Dividend Payment Ratio
The percentage of earnings paid to shareholders as dividend.
Dividend per share

Calculated as:
EPS
A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates
as investors seek other dividend-paying stocks.
A stable dividend payout ratio indicates a solid dividend policy by the company's Board of Directors.
h) Market Capitalization
The total market value of all of a company's outstanding shares. Market capitalization is calculated by
multiplying a company's shares outstanding by the current market price of one share. The investment
community uses this figure to determine a company's size, as opposed to sales or total asset figures. It is
frequently referred to as "market cap."
If a company has 35 million shares outstanding, each with a market value of Rs.100, the company's
market capitalization is Rs. 3.5 billion (35,000,000 x Rs. 100 per share).
i) Swap Ratio
The ratio in which an acquiring company will offer its own shares in exchange for the target company's
shares during a merger or acquisition. To calculate the swap ratio, companies analyze financial ratios
such as book value, earnings per share, profits after tax and dividends paid, as well as other factors, such
as the reasons for the merger or acquisition.
For example, if a company offers a swap ratio of 1:1.5, it will provide one share of its own company for
every 1.5 shares of the company being acquired.

Other useful ratio and defination
i) Internal Rate of Return (IRR)
IRR is that rate of discount which makes the discounted value of the netcash flow from a project just
equal to the amount which has to be invested toobtain that net cash flow. In other words, IRR is that
rate of discount which givesthe project an NPV equal to zero and cost benefit ratio equal to one.
ii) Special Purpose Vehicle (SPV)
SPV is an entity formed for a single, well defined and narrow purpose.Technically SPV is a company and
has to follow rules of the formation ofcompany as laid down in the Companies Act. It is an artificial
person and has allthe attributes of a legal person. Unlike Companies, the scope of operation inSPV is
limited and focused. The memorandum of association in case of SPV isquite narrow and is primarily to
provide comfort to the lenders who are concernedabout their investment.
iii) Induction of promoters’ contribution
In order to mitigate the equity funding risk, a need is felt to prescribeguidelines with regard to the
timing of induction of promoters’ contribution asunder:
a. Officialsupto scale-III level may consider sanction of TL/Project loanwithin their vested
powers with the pre-condition that at least 40% promoters’ contribution should be
brought upfront and balance to be brought pro-ratawith the disbursement of the term
loan.
b. Officials in the grade of CM and AGM may however, consider sanction ofTL/Project
Loan falling within their vested powers with stipulation thatminimum 30% promoters'
contribution to be brought upfront and balance tobe brought pro-rata with the
disbursement of the term loan.
c. DGMs LCB, COCAC & HOCAC I may consider sanction of TL/ProjectLoan with minimum
25% promoters’ contribution to be brought upfront andbalance to be brought pro-rata
with the disbursement of the term loan.
d. However, HOCAC II & above will have full powers to give relaxation in thisregard on
merits.
iv) Sensitivity Analysis
The sensitivity analysis is carried out by the bank in order to evaluatecapacity of the project to absorb
shocks due to adverse movement in prices/some other adverse developments and sustain financial
viability. The analysis iscarried out to capture the decline in revenue of the project assuming
adversechange in values of various parameters/ factors.
In the absence of any defined factors and its values for carrying out thesensitivity analysis, it has been
decided that a common 5% sensitivity factor onsale price/cost price of major raw materials should be
applied in appraisals of allthe projects irrespective of the industry. However, 10% sensitivity factor may
beapplied in highly volatile industries by assessing the expected volatility in saleprice/ cost price of
major raw materials on case to case basis.

v) Escrow/Trust & Retention arrangement
The cash flows of the SPV are captured by way of TRA arrangement.Such an arrangement provides for
appropriation of all cash flows of the companyby the independent agent (acting on behalf of security
trustee). This is thenallocated in a pre determined manner to various requirements including
debtservicing and it is only after all requirements are met that the residual cash flow isavailable to the
project company. Thus, the lender would have the security ofcash flows in addition to the assets of the
company.
vi) Debt Service Reserve Account (DSRA)
In order to ensure regular payment of interest plus instalment, DSRAequivalent to the instalment plus
interest of some specified period is maintainedas a cushion.
vii) BREAK EVEN POINT:
BEP is the level of operations (in terms of sales or production or capacity utilization) at which total
revenues are equal to total operating costs (fixed and variable) or, in other words, the operating profit is
equal to zero. A business entity starts earning operating profits only after the break-even is reached. At
BEP, “contribution” exactly equals the “fixed costs”.
Types of Financing by Banks
(i) In order to meet financial requirements of infrastructure projects, banksmay extend credit facility by
way of working capital finance, term loan, projectloan, subscription to bonds and debentures/
preference shares/ equity sharesacquired as a part of the project finance package which is treated as
"deemedadvance” and any other form of funded or non-funded facility.
(ii) Take-out Financing
Takeout finance is the product emerging in the context of the funding oflong-term infrastructure
projects. Under this arrangement, the institution/the bankfinancing infrastructure projects will have an
arrangement with any financialinstitution for transferring to the latter the outstanding in respect of such
financingin their books on a predetermined basis.Thenorms of asset classification will have to be
followed by the concernedbank/financial institution in whose books the account stands as balance
sheetitem as on the relevant date. However, the takingover institution, on taking over NPA assets,
should make provisions treating theaccount as NPA from the actual date of it becoming NPA even
though theaccount was not in its books as on that date.
(iii) VIABILITY GAP FUNDING (VGF)
Infrastructure is an input to a wide range of industries and as such, an importantdriver of long-term

growth. However, due to long gestation periods and theinability to increase user charges to commercial
levels, these projects usually fallshort of financial viability.Government of India, as such has notified a
scheme for Viability Gap Funding(VGF) to infrastructure projects, under which grant support one-time or
deferredis made available for certain PPP Projects by Govt. of India, with the objective ofmaking the
project commercially viable.

It has advised that the banks should attach utmost importance to adhering to thenecessary conditions
laid down by the Government for drawal of VGF.
(iv) Inter-institutional Guarantees
Banks are permitted to issue guarantees favouring other lending institutions inrespect of infrastructure
projects, provided the bank issuing the guarantee takesa funded share in the project at least to the
extent of 5 per cent of the project costand undertakes normal credit appraisal, monitoring and follow-up
of the project.

General Guidelines On Loans & Advance: Sachin Katiyar-Chief Manager

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General Guidelines on

Loans & Advance

Sachin Katiyar- Chief Manager

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 1

Character Man People

CREDIT APPRAISAL PROCESS

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 2

Company & LLP master data& DIN -

Can be search by using site - http://electoralsearch.in

PAN Validation Process: --

EKYC PROCESS FOR AADHAAR VERIFICATION:

Verification of genuineness of the signatures of CAs/Firms

General Guidelines on Loans & Advance

Loan Amount CIRs

Exemptions from drawing CIRs

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 3

 In case of any dispute/doubt or any query/discrepancy related to any CICs on CIR by

CREDIT RISK RATING

PNB SME Score

PNB Farm Sector-

Rating/vetting at BOs in accounts with limits of Rs. 50 lacs and below:

Timelines to complete the dynamic review of ratings:

Extension of validity of existing rating

Competent Authority to waive penal interest for extension of validity period:

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 5

Credit Risk Rating (CRR) Loaning Powers

External Risk Rating-

Prudential exposure norm-

Category Ceiling for other than Infra Ceiling including infra

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 6

If the difference in valuation of two valuers is

Category of valuer Work experience Value of property

Exceptions where CR need not ordinarily be compiled:

Forms prescribed for preparing CRs are as under:

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 7

UNIQUE DOCUMENT IDENTIFICATION NUMBER (UDIN)

USE OF E-WAY BILL

Type of Mortgages in India

Sec. 58 of the Transfer of Property Act, 1882 defines mortgage as -

1. Simple Mortgage(Transfer of Property Act 182 Sec 58(b))

2. Mortgage by Conditional Sale – (Cannot sue in court)

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 8

3. Usufructuary Mortgage - (Cannot sue in court)

5. Equitable Mortgage (Mortgage by deposit of title of deeds )-

Anomalous mortgage is a combination of different types of mortgages.

Equitable mortgage of IP without making the owner as borrower/ guarantor:

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 9

Periodicity of visits to the site of mortgaged property

Particulars Primary Collateral

Investigation of Title and Search Report, NEC:

Other types (Other than mortgage) of charges-

Pledge( ICA (Indian contract Act 1872 Sec 172)

1. A pledge occurs when goods are delivered for getting advance.

 Sell the goods pledged after giving reasonable notice,

Difference between Lien and pledge

Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 10

Assignment(Transfer of property Act 1882 Section 130)

Registration of charges with RoC (L&A Cir No-80/14)

Type of Charges to be registered:

 within or outside India,

Additional period to register the Charge:

STAGE PARTICULAR TIME PERIOD Days FEES

i. Registration of Within 30 days of Creation 0+30 Normal Fees