ANNEXURES TO THE CREDIT POLICY & FY 2019-20 · 5 Revised KYC-Risk-Categorisation of Customers 38 6 Indicative List of Early Warning Signals 39 . ANNEXURES 2019-20 ... Revision Date:

ANNEXURES 2019-20

Annexures 2019-20 Page 1

ANNEXURES TO THE

CREDIT POLICY & CREDIT MANUAL

FY 2019-20

KERALA FINANCIAL CORPORATION

ANNEXURES 2019-20


INDEX

Particulars Page No. 1 Operation Manual for Contractor Loan Schemes 3 2 Format for Preliminary Screening of Applications 23 3 Process Flow Chart for Receipt & Processing of Applications for Financial Assistance 25

4 Schemes for Lending

Scheme for Term Loan for Industrial Activities 26 Working Capital Revolving Fund Loan Scheme 26 Scheme for Financing Construction Activities & Housing Projects 26 Short Term Loan Scheme 26 Scheme for Special Working Capital Assistance to Hotels 26 Scheme for Financial Assistance for Producing Feature Films & TV Serials 27

Vehicle Loan Scheme 27 Working Capital Term Loan Scheme 27 Scheme for Modernisation, Upgradation, Expansion & Diversification of Existing Manufacturing Units/Hotels/Hospitals 27

Special Revolving Fund Scheme for Existing Customers 27 Receivable Finance Scheme 28 Liberalised Scheme for Financing up to Rs 100 lakhs to Units under KSEDM 29

Startup Support Scheme 30 Scheme for Financing Working Capital Requirements of Startups for Executing Purchase Orders 33

Scheme for Funding Venture Debt for IT Hardware & Software Enterprises 35

Scheme for Funding Enterprises set up for Defibering of Coir Husk under Government Subsidy Scheme 37

5 Revised KYC-Risk-Categorisation of Customers 38 6 Indicative List of Early Warning Signals 39

ANNEXURES 2019-20



HEAD OFFICE, VELLAYAMBALAM, THIRUVANANTHAPURAM 695 033

CONTRACTOR LOAN SCHEMES

OPERATIONAL MANUAL

Version 3.0

Revision Date: 29/04/2019

This Manual is the property of Kerala Financial Corporation and shall not be reproduced in full or part without the written permission from the Managing Director of the Corporation

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Table of Contents

Sl No Item Page

1 Introduction 5

2 Eligible customers 5

3 Type of facilities available to Contractor from the Corporation 5

4 Line of Credit 6

5 Validity of Line of Credit 6

6 Processing fee 6

7 Sanctioning authority 7

8 Facility A - Performance Guarantee/Bank Guarantee Facility

(PG/BG Facility). 7

9 Facility B - Work Execution Facility (WE Facility). 9

10 Facility C - Early Bill Discounting Facility (EBD Facility). 11

11 Facility D - Government Bill Discounting Facility (GBD Facility). 14

12 Facility E - Equipment Finance Facility(EF Facility) 18

13 Bank takeover of contractor Loans 19

14 General Points on contractor loan schemes 20

15 Legal requirements 21

16 Automation of the System 22

17 On Job Training. 22

18 Enhancing the Line of Credit 22

19 Monitoring of the Scheme 22

20 Conclusion 22 - Annexures provided at Employee online portal

ANNEXURES 2019-20


KERALA FINANCIAL CORPORATION CONTRACTOR LOAN SCHEMES - OPERATIONAL MANUAL

(Revised on 29.04.2019)

1. Introduction. Kerala Financial Corporation has an existing scheme for assisting Government contractors for undertaking contract works of State/Central/other Government Agencies. The Corporation has now been included in the Bill Discounting Scheme of the Government and the Government have also accorded sanction to accept the Performance Guarantee issued by the Corporation. The Corporation has also launched a new scheme to discount the bills where pending payment is confirmed by Work Issuing Authority.

PWD alone is according sanctions to contract works about Rs.5,000 crore annually and considering the works executed by other Government departments and PSUs, the volume of contract works comes to about Rs.15,000 crore annually. With new schemes and facilities introduced, the Corporation is now able to extend full package for contractors. This is a good opportunity to build Corporation’s portfolio by funding good contractors.

Considering the business opportunities in contractor loans, it has become necessary to have a comprehensive operational manual for smooth implementation of the scheme and bring all facilities available to the contractors under a single scheme for convenience.

2. Eligible Contractors. To become eligible for any of the facilities under contractor loan schemes, the applicant contractor/ contracting entity shall meet the following eligibility criteria:

(a) Contractors approved by State/Central and Other Government Agencies. The contractor or contracting entity shall be a registered contractor under State/Central/Other Government Agencies/PSUs having a valid Contractor ID issued by PWD or other Government Agencies.

(b) Established contractors based on quality of past works executed. The applicant contractor or contracting entity must have completed at least three contract works of Government agencies. The applicant contractor or contracting entity shall have satisfactory audited balance sheet/IT return statements. The contractor should be in possession of at least one Selection Notice/Work order, while sanctioning the Line of Credit.

The project officer shall conduct necessary enquiry about the applicant through concerned work issuing authorities, other existing good contractors of the corporation, banks from where the applicant has facilities, debtors/creditors of the applicant, etc. His CIBIL and KYC documents should be verified properly. The project officer concerned shall conduct necessary local enquiry about the contractor regarding his financial strength, capacity and means to perform the obligations under the contract.

3. Type of facilities available to Contractors from the Corporation

(a) Facility A – PG/BG Facility - Performance Guarantee/Bank Guarantee Facility (b) Facility B - WE Facility - Work Execution Facility (c) Facility C - EBD Facility - Early Bill Discounting Facility (d) Facility D - GBD Facility - Government Bill Discounting Facility (e) Facility E - EF Facility - Equipment Finance Facility

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4. Line of Credit. Under this scheme, a Line of Credit shall be sanctioned for a period of 5 years as a line of credit and all facilities provided in Para 3 above can be provided within the sanctioned Line of Credit, during the period of its validity. The upper limit of line of credit shall be Rs.2000.00 lakhs for all entities. Government vide GO(Ms) No.39/2019/Fin dated 21.01.2018 have granted permission to the Corporation to increase the limit of financial assistance to registered contractors from Rs. 8 Cr to Rs.20 Cr. The Copy of the GO is enclosed as Annexure ‘AC’.

The line of credit to a contractor shall be sanctioned depending on the present Selection Notice/Work order, security coverage available, prospects of getting new contract works, past experience/turnover, etc. Once the Line of Credit is sanctioned, Branch Head shall allow different contract works, issue guarantees, discount bills, etc within the Line of Credit.

5. Validity of Line of Credit. The Line of Credit sanctioned is valid for a period of 5 years from the date of sanction, which is to be re-sanctioned once in five years only. Three months prior to the due date re-sanction of a loan, the concerned project officer shall intimate the enterprise and its promoters, in writing, the date of scheduled re-sanction and the procedures for the same. The project officer should reappraise the proposal as a new loan proposal and submit before the respective sanctioning authority for re-sanction.

If the Corporation feels that it is prudent to get the loans repaid at any time or if the enterprise is not interested in re-sanction the Line of Credit, they have to be provided with a schedule for repayment according to the expected repayment of each work. No further facility should be provided in such cases.

The project officer shall do annual renewal of the Line of Credit as per the format provided at Annexure ‘A’. Neither the request of the promoter is required nor the processing fee is to be charged for renewal. The securities for the Line of Credit should be verified and land tax receipts should be collected. The audited balance sheet and Income Tax Returns shall be analysed and re-rating done at the time of each renewal of the limit. The renewal shall be done only if the repayment track record is good, works are progressing satisfactorily, security is intact and analysis of financial statements and tax returns indicate satisfactory levels.

If the Corporation feels that it is prudent not to renew the LoC, all facilities shall be recalled or they have to be provided with a schedule for repayment according to the expected repayment of each work. No further facilities shall be provided in such cases.

In case the promoters is not submitting the required documents for renewal, an additional interest of 0.50% shall be charged for the existing facilities and no further facilities shall be allowed, till the renewal is done and the exposure found eligible for further funding. 6. Processing fee. 0.5% plus GST of Line of Credit sanctioned. 25% of estimated processing fee should be remitted as advance at the time of registering the application. Maximum processing fee to be remitted is limited to Rs.5 lakhs plus GST.

No additional processing fees shall be charged for any of the facilities provided to the contractor during the first year of sanction. After first year, the rates as applicable to the facilities have to be charged.

While re-sanctioning the Line of Credit after 5 years, processing charges at the rate of 0.5% plus GST of the Line of Credit will be charged.

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7. Sanctioning authority. As per Credit Manual. Sanction / re-sanction once in five years should be done by respective sanctioning authority as per credit manual. The facilities within the line of credit shall be allowed by the Branch Head as stated in respective facility schemes. 8. Facility A - Performance Guarantee/Bank Guarantee Facility (PG/BG Facility).

(a)Introduction. Government vide GO(P)No.168/2018/Fin dated 02.11.2018 have accorded sanction to accept the performance guarantee of the Corporation. The copy of the GO is enclosed as Annexure ‘B’. As per the GO, the amount collected as the performance guarantee, at the time of executing the work contract will be 5% of the contract value (agreed PAC) and the deposit will be retained till the expiry of the Defect Liability Period. At least 50% of this deposit shall be in the form of Treasury deposit and rest in the form of Guarantee issued from banks/KFC. The Defect Liability Period is the period fixed by Work Issuing Authority (WIA) based on the use period of the work. A GO fixing the Defect Liability Period is provided at Annexure ‘C’ for reference.

The Work Issuing Authority also insists for additional performance guarantee, in cases where the quoted rates are below 10% of estimated value. The GO with respect to Additional Performance Guarantee is provided at Annexure ‘D’ for reference.

(b)Objective. To offer Performance Guarantee/additional Performance Guarantee/Bank Guarantee for the eligible activities, either before start of the contract work or during the work period.

(c)Maximum Guarantee Eligibility: 100% of the Guarantee required.

The Performance Guarantee shall be normally 2.5% of the contract value(agreed). Additional Performance guarantee is normally calculated as follows:

“If the rate quoted by the contractor is ‘X%’ below estimate cost(where X lies between 10 to 25%), the additional performance guarantee will be equal to (X – 10)% of the estimate amount.”

Bank guarantee for renewal of contractor registration, EMD for undertaking contract works, other Guarantees, etc shall be as per rules of the concerned dept.

The percentages mentioned above are subject to change as per the rules framed by the Government/Work Issuing Authority.

(d)Minimum Promoter’s contribution. Nil

(e)Overall Exposure limits. The exposure to the applicant entity includes guarantees .

(f)Maximum Guarantee Period. The validity of guarantees will be as insisted by the WIA. No guarantee should have a maturity of more than 10 years.

(g)Sanctioning Authority. Branch Head can allow eligible Guarantees for a particular work within the sanctioned limit of line of credit, subject ACR as per norms is maintained. (h)Guarantee Commission. The Guarantee commission shall be at the rate of 2% plus GST per year of the guaranteed amount, subject to a minimum of Rs.500 plus GST per year. Minimum one year guarantee commission shall be collected.

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The applicable guarantee commission plus GST for the entire guarantee period shall be collected upfront. (i)Refund of Guarantee Commission. At any case the Guarantee commission for the first full year is not refundable. If the guarantee is terminated, the proportionate fee for after one year shall be refunded. At no case GST collected will be refunded. For example, if guarantee period allowed is 4 years and the guarantee is terminated after 1 year 5 months, the guarantee fee of 1 year 5 months will be retained and the balance guarantee commission can be refunded without GST. If Guarantee is terminated after six months, the Guarantee fee of one year will be charged and the fee for the balance 3 years can be refunded. Branch Head is delegated to take a decision on refund. No refund shall be allowed in case the Guarantee is invoked.

(j)Processing fee. 0.10% plus GST, subject to a minimum of Rs.500 plus GST per guarantee. The processing fee shall be collected upfront along with request.

(k)Security for the Guarantee. The Guarantee Amount shall be covered with collateral security worth 100%.

(l)Credit Rating. Not Applicable.

(m) Renewable or not. Not renewable. Guarantee shall at any case be renewed or extended. In case any guarantee needs to be extended, existing guarantee shall be cancelled and fresh guarantee shall be issued.

(n)Procedures for processing and Issuing Guarantee.

(i)Once Line of Credit is sanctioned and its loan agreement is executed, the contractor can request for a Guarantee. The written request for guarantee shall be collected along with Selection Notice issued by Work Issuing authority.

(ii)Within the Line of Credit sanctioned, Branch Head can allow Guarantee. The project officer concerned shall put up a note to BM in the format provided in Annexure ‘E’ for approval, after collecting applicable processing fee.

(iii)Once the Guarantee has been approved by Branch Head, the details of guarantee sanctioned should be updated in CFS (provision has been made in CFS) and guarantee commission should be collected upfront for the full guarantee period.

(iv)The Guarantee shall be issued to respective work awarding authority, in the prescribed format (Annexure ‘F’, covering letter and guarantee in stamp paper). The guarantees should be serially numbered and should be signed by two officers jointly and one of the officers should be CM/BM and other officer should be the officer who is authorised to sign cheques of the BO. BOs shall maintain a register and record the details of guarantee issued with serial number of guarantee.

(v)BOs should get the Guarantee verified by the applicant before issuing the same and get his signature in the office copy.

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(vi)The Guarantee should be sent to the concerned authority with a covering letter, with a copy to ZM. In case the WIA is seeking confirmation of Guarantee, it can be confirmed by the concerned Zonal Manager.

(vii)Where guarantee period has been expired, a registered notice should be sent to WIA as per the format enclosed at Annexure ‘G’ after 15 days of expiry, and if no reply is received within 15 days, the Guarantee shall be deleted from CFS. Care should be taken to ensure that the notice is not sent before the expiry of the claim period.

(viii) Release of document or closure certificate to the contractor shall be issued only after receipt of original guarantee deed/clearance certificate from WIA.

(o)Additional Documents to be collected for processing Guarantees. Valid Contractor ID, Selection Notice by Work Issuing authority, etc

(p)Invoking the Guarantee. In case guarantee is invoked/enforced the amount can be released to the contract awarding authority. The Branch Head can release funds from the Line of Credit sanctioned. The released amount shall be converted as a loan with interest rate as applicable for contractor loans. The guarantee amount invoked is due as on disbursed date. Letter should be issued to the contractor regarding invoking the guarantee and the guarantee amount should be recalled. The Guarantee shall be terminated in CFS by entering the necessary details. The excess Guarantee fee collected shall not be refunded. No further facility shall be allowed to the contractor in such cases.

(q)Accounting of Guarantees. The Head office F&A department shall account the guarantee commission collected on accrual basis. The outstanding guarantees as on FY end shall be reflected in the annual reports.

9. Facility B - Work Execution Facility (WE Facility).

(a)Objective. To provide financial assistance to eligible customers for executing eligible activities either before start of work or during the work period.

(b)Maximum Loan eligibility. 75% of the cost of work awarded (excluding the cost of materials supplied or advance paid by the work issuing authority). This maximum eligibility is relaxable by Branch Head up to 80% of cost of work awarded(excluding material and advance), where provision up to 10% of loan amount is made to pay interest during execution of the work and final receipt of bill payment.

(c)Minimum Promoter’s contribution. 25%, which can be relaxed up to 20% by Branch Head, in cases where provision up to 10% is made to pay interest.

(d)Repayment period. Each work will have separate repayment schedule depending on the duration of work and expected receipt of amount from the WIA. Sufficient moratorium shall be allowed for the facility, considering the period of work execution and delay in getting the final bill amount. The maximum moratorium period of three years, stated in the Credit Manual, will not be applicable for contractor loans. The moratorium can be fixed as per requirements.

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(e)Processing fee. 0.10% plus GST, subject to a minimum of Rs.2500 plus GST per work. The processing fee shall be collected upfront along with request.

(f)Interest rate. As per the general interest rate Circular based on credit rating of the entity.

(g)Credit Rating. To be done as per credit rating format for contractors. The rating is to be done at the time of sanction of the Line of Credit and annual rating as per rating policy of the Corporation.

(h)Security coverage. Each work shall be secured with collateral security of 100%. All works should be secured by POA registered with WIA. Sanctioning authority can insist for additional securities, if required. (i)Fore-closure premium. No fore-closure premium except in case of bank take over.

(j)Renewable or not. Not Renewable.

(k)Procedures for processing the Work Execution Facility.

(i)Once a Line of Credit has been sanctioned for a contractor, Branch Head can sanction and disburse for each work within the Line of Credit.

(ii)When the contractor submits the Selection Notice issued by Work Issuing authority, if Guarantee is required for the contract works, Guarantee can be issued by BM within the sanction Line of Credit.

(iii)The contractor will then execute the contract work with Work Issuing Authority and will produce a copy of work contract and accepted schedule of the work along with a written request for a work contract loan.

(iv)After verifying work contract and accepted schedule of the work, a letter has to be issued to the Work Issuing Authority (WIA) as per annexure ‘H’, requesting the details of work allotted to the applicant.

(v)After receipt of the reply from WIA, the contractor has to execute POA in stamp paper (as per the rules of the WIA) in favour of Corporation in front of a Notary. The format of POA is provided at Annexure ‘I’. A letter in the format provided at Annexure ‘J’ to be issued to Work Issuing Authority requesting to register the POA of the Corporation.

(vi)The work issuing authority will accept the POA and will normally acknowledge the same with an official letter and will return the original POA or send a copy of the attested POA. The original POA shall be kept with document cover and a copy in general file.

(vii)The project officer shall submit a note to Branch Head for approval of work and first disbursement as per the format provided at Annexure ‘K’. Subsequent disbursement shall be done as per Annexure ‘L’. Disbursement can be done as per procedure stated in Para ‘m’.

(viii)The procedure from (iii) to (vii) can be repeated within the sanctioned Line of Credit for each work.

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(l) Additional Documents to be collected.

- Valid Contractor ID, Selection Notice by Work Issuing authority, PG/APG details, Treasury Deposit details, work contract, accepted schedule of the work, POA, letters from Work Issuing Authority.

(m)Mode of disbursement. The Branch Head can release eligible funds from the work sanctioned, within the Line of Credit sanctioned, subject ACR as per norms is maintained. 1/3rd of the sanctioned assistance(less interest provision made) per work order can be disbursed as advance, if necessary, based on the request of the promoter. Balance amount will be disbursed after verifying the utilization of previous instalments with PC. The utilization of amount disbursed shall be certified by the work awarding authority/competent authority and the same has to be counter checked by the Corporation in each stage.

The utilisation certificates and verification by the Corporation shall be insisted at minimum two stages, at 33% and 66% of the work completion. Within the stages, Branch Heads can disburse the funds in instalments as per the requirements of the promoters based on their written request.

The repayment should also be monitored work wise.

(n) Advances received from WIA. In some contract works like, PMRY, WIA releases an initial advance to the contractors. Since POA has been created, the fund will be released to the Corporation. The fund received from the WIA shall be kept in suspense account. In such cases, the fund can be disbursed to contractor, by BM, based on the written request of the contractor, provided there are no arrears in his accounts. In such cases loan eligibility shall be reduced and re-fixed accordingly.

10. Facility C - Early Bill Discounting Facility (EBD Facility).

(a)Objective. To ensure sufficient liquidity in the business by extending additional finance to eligible contractors, whose pending payment is confirmed by WIA.

(b)Eligible Applicants. The Contractor should be executing/should have executed the works for Government Departments/ Government Agencies/PSUs. The contractor has submitted the final bill or part bill and the bill has been cleared by the Work Issuing Authority in all respects and forwarded to Government/concerned payment releasing authority, for release of payments by Bill Forwarding Authority.

(c)Maximum Loan eligibility. 90% of the value of the net bill amount will be provided as financial assistance to the Contractor. Net Bill amount is amount arrived after deducting material cost, advances received, taxes, contribution to KCWWF and other recoveries from Gross Bill. Terms and conditions specified in work contract/schedule of work should be analysed for understanding the fund releasing pattern.

(d)Minimum Promoters’ Contribution. 10%. (e)Period of Repayment. Maximum One Year.

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(f)Rate of Interest. Base rate plus 1% per annum, compounded monthly. Rebate for prompt repayment will be 0.5%. Penal interest 2% as per rules of the Corporation.

(g)Security for the Assistance. 50% collateral. Power of attorney should be available to the Corporation. Sanctioning authority can insist on additional collateral, if required.

(h)Credit Rating. Not applicable.

(i)Processing Charges. 0.10% plus GST, subject to a minimum of Rs.2500.00 plus GST per bill.

(j)Foreclosure Premium. No fore-closure premium except in case of bank takeover.

(k)Disbursing Authority. The Branch Head can release eligible funds within sanctioned Line of Credits, subject ACR as per norms is maintained. The entire interest for one year period will be collected upfront at the time of release of funds. (l)Renewable or not. Not renewable

(m)Procedures for sanctioning the loan.

(i)Soon after the request has been received for early bill discounting, examine whether existing customer or new customer.

For existing customer. For existing customer, the bill proposed to be discounted can be of the same work, where KFC has already financed under Facility B or it may be a bill of a different work.

If already financed for the same work under facility B. In this case, the BO is already having required contracting documents and POA has been executed in Corporation’s favour. BO shall issue a formal letter to the Work Issuing Authority/Bill Forwarding Authority in the format provided as Annexure ‘M’ seeking the details of percentage of work completed, attested copy of Bill submitted for discounting, NOC for bill discounting, whether the bill has been submitted to Government for release of fund, Check List of pending Bill (Annexure ‘N’), Print out from EMLI software (if available) attested by Bill Forwarding authority, etc.

If not financed for the same work under facility B. Then the BO has to collect all required documents of the contract work like Selection Notice by Work Issuing authority, work contract, accepted schedule of the work, POA details, and progress of works. BO shall also send a letter to Work Issuing Authority/Bill Forwarding Authority for details as per Annexure ‘M’ & Annexure ‘N’ and conduct a site visit as stated in the above Para and collect the details. In case the POA has been executed in favour of any other bank, POA should be transferred to the Corporation and NOC has to be obtained from Bank. In case NOC from any bank has not

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been received, project officer should visit the bank and details of discussion with bank officials shall be recorded in appraisal note.

For New Customer. For new customer, BO has to sanction a Line of Credit. Letters should be issued to Work Issuing Authority/Bill Forwarding Authority as stated in paragraphs above. POA should be transferred to the Corporation and NOC has to be obtained from the bank. In case NOC from the bank has not been received, project officer should visit the bank and details of discussion with bank officials shall be recorded in appraisal note.

(ii) The project officer shall verify the present status of the work.

(iii)Once the POA has been transferred in favour of Corporation and NOC from banks has been obtained, the bill discounting proposal should be processed and submitted before Branch Head in the format provided at Annexure ‘O’.

(iv) An undertaking shall be obtained that “I/We hereby agree to hypothecate the Bill No ........ dated ..... for a sum of Rs........ being the sum that represents the value of the payment against the Work NO............ Name of Work ............. ......... to KFC and KFC shall receive all proceedings against the said bill. I/We have not availed any assistance from Banks/Other FIs for the work concerned in which the bill is discounted. This undertaking shall form the part of loan agreement dated .......” .

(v)Collect processing fee and disburse the loan after retaining the interest portion.

(vi)In case of discounting the bill of the work funded by Corporation, the disbursement shall be adjusted in the work concerned. Excess amount, if any, received from WIA can be released to the promoter.

(vii)In case of discounting the bill of the work not funded by Corporation, possibilities of adjusting the disbursement in other works of the promoter shall be explored. Releasing the fund to the promoter can be considered by BM, if there no arrears in accounts.

(viii)Send a letter to WIA stating that Corporation has disbursed the amount against the bill.

(n) Additional Documents to be collected.

- Copy of Bill attested by WIA and counter signed by the applicant. - Check List of pending Bill certified by WIA. - Print out from EMLI software, if applicable, attested by Bill Forwarding

authority - Certificate from Bill Forwarding Authority starting that the bill has been

forwarded to Government. - NOC from banks, wherever required

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(O) Relaxations in the Facility. The security requirement of 50% collateral can be waived by sanctioning authorities for Final Bills (Final Bill means the work is fully completed and WIA is certifying the same. The project officer should discuss with WIA and confirm the same), in following case:

The contractor should have satisfactory audited balance sheet for last three years. His CIBIL and repayment track record with banks/KFC should be satisfactory.

Provided the contractor produces the following additional certificates:

(i) ’No Statutory Dues’ certificate from entity’s auditor. (ii) Certificate from WIA stating that no Arbitration case/ Vigilance case/Vigilance enquiry/other Departmental enquiry is pending against the present or previous works done by the applicant contractor. The project officer shall make necessary enquiry with the department concerned and the details of discussions shall be noted in the appraisal/disbursement note.

In case collateral security is relaxed by the sanctioning authority, the maximum loan eligibility will be 80% of the value of the net bill amount and the rate of interest will be Base rate plus 2% per annum. The following securities are to be insisted:

- Hypothecation of Bills. -Additional charge shall be created on the existing collateral securities for

contractors who are funded by the Corporation under any other scheme. -Guarantee of the applicant entity. -Personal Guarantee of all promoters and co-obligants.

Sanctioning authority can insist on further additional collateral, if required.

11. Facility D - Government Bill Discounting Facility (GBD Facility).

(a)Objective. Government vide GO(P) No.123/2016/Fin dated 29.08.2016 have introduced Bill Discounting System 2.0 whereby contractors are given the option to obtain promissory notes against their pending bills from Government, for discounting the same before a financial Institution. Government will bear half of the discounting charges subject to maximum of 5% per annum. The copy of the GO is enclosed as Annexure ‘P’.

(b)Eligible Applicants. The Contractor should have executed the work/should be executing the work, for Government Departments and whose payment is pending with Government. The pending bill of the contractor has been included in the State wide seniority list prepared by Finance department and the GO has been issued by Government.

(c)Maximum Loan eligibility. 100% of the value of the bill amount provided in the Promissory Note issued by Finance Department.

(d)Minimum Promoters’ Contribution. Nil. (e)Period of Repayment. Maximum Period of One Year.

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(f)Rate of Interest. Base rate plus 0.5% per annum, compounded monthly. The entire interest for the period will be collected upfront at the time of release of funds to the Contractor, considering the expected date of fund release from Government as per GO. The excess interest collected, in case of release of funds by the Government, will be released to the Contractor.

(g)Collateral/Security for the Assistance. Collateral : Nil.

The following securities are to be insisted.

- Pledging of Promissory Note

-Additional charge shall be created on the existing collateral securities for contractors who are funded by the Corporation under any other scheme.

-Guarantee of the applicant entity.

-Personal Guarantee of all promoters and co-obligants.

-Sanctioning authority can insist on further additional collateral, if required.

(h)Credit Rating. Not applicable.

(i)Processing Charges. 0.10% plus GST, subject to a minimum of Rs.2500 plus GST per bill. The processing fee shall be collected upfront.

(j)Foreclosure Premium. No fore-closure premium except in case of bank take over.

(k)Disbursing Authority. The Branch Head can release eligible funds, subject ACR as per norms is maintained.

(l)Mode of Operation.

(i)The BDS of Government is run through an e-platform developed by NIC. KFC has been given User ID and password, which can be accessed only from Head Office Credit Department.

(ii)Once the bill is forwarded to secretariat by concerned Bill Forwarding Authority, the process takes further eight to ten months, for approval and release of payment. Soon after the payment is cleared for release of funds by Finance Dept, Government will issue a GO specifying a future specific date for payment of the amount. A Copy of a specimen GO is attached as Annexure ‘Q’.

(iii)Soon after the GO is issued, Head Office Credit Department will log in the BDS e-platform and download the list of contractors with bill amount, whose payment has been approved for discounting and the list will be circulated to all BOs for information. BO may contact concerned contractors.

(iv)Contractors, who opt for discounting the promissory notes, will submit an application to the BO concerned in Form No. I (manually). BO should verify the details of the Form No I and generate a Virtual loan account generated

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from CFS in consultation with IT Department and write that number in the Form I.

(v)BM shall sign the Form No I, with seal and office seal, after complying the procedures specified in Para ‘n’. The original shall be handed over to the contractor for submitting before Division Office. BO shall keep a copy in the file and a scanned copy shall be sent to Head Office Credit Dept with details of WIA, Division, Sub-Division, etc immediately through email. Head Office Credit department shall download the Form No I and maintain the same in a file.

(vi)The Division Office will issue Form II generated from the software specifying the details of bills, Power of Attorney holder, the account number to which the amount to be credited etc. Head Office Credit Dept will verify and approve the account number through the online platform, on the basis of Form No I received from BO.

(vii)The Divisional officer shall send a digitally signed letter(Form III) to Finance Department intimating the request of the contractor through the software.

(viii)Government after processing the request shall issue a promissory Note in Electronic Form to the Contractor against the bill. Contractor may obtain the copy of this promissory Note from the Division. Head Office Credit Dept. shall download the promissory note and send to concerned BO.

(ix)BO shall inform the contractor regarding the receipt of promissory note. After disbursement, issue a letter to the contractor in Form No.IV.

(x)A copy of form No IV shall be sent to Head Office Credit Dept on the same day by email. Head Office Credit Dept. shall immediately do a digital signature in Form IV through the software and a copy of digitally signed copy shall be downloaded and sent to the BO for record purpose.

(xi)Government will transfer the bill amount with half of interest subject to a maximum of 5%pa to the current account number specified in Form No I on the date specified in the GO. Head office credit department shall verify with the loan account on specified due date and ensure that fund is credited.

(m)Procedure to start a virtual account through CFS for GBDS. BO has to generate a loan number from CFS in consultation with Head Office IT Department and the virtual account number created accordingly shall be written in the Form I.

(n)Procedures for sanctioning the loan.

(i)Soon after the request has been received for discounting a bill under Government BDS, BO should generate a virtual loan account from CFS in consultation with Head Office IT Department. For each promissory note separate virtual account shall be generated.

(ii)If the contractor is an existing customer of the Corporation, the BM shall sign the Form I immediately as stated in the Mode of Operation.

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(iii)If the contractor is a new customer, BM shall verify his KYC details, CIBIL, other basic documents related to funding a contractor loan and after consulting the concerned Nodal officer of Zone shall sign the Form I. In this case, prior approval of BRC need not be insisted.

(iv)Once the Form I is signed, the promissory note is issued normally in seven days. For new customers, BO/Hub has to process the Line of Credit sanction in seven days and get the Line of Credit sanctioned by concerned sanctioning authority in seven days, in anticipation of promissory note. Necessary sanction communication and loan agreement shall be executed for such cases.

(v)Soon after the promissory note is received from HO, an undertaking shall be obtained that “I/We hereby pledge the promissory note dated ..... for a sum of Rs........ being the sum that represents the value of the payment against the bill ID ......... to KFC and KFC shall receive all proceedings against the said instrument. I/We have not availed any assistance from Banks/Other FIs for the work concerned to bill discounted. This undertaking shall form the part of loan agreement dated .......” .

(vi)The disbursement, after holding interest portion, can be done by Branch Head in format provided at Annexure ‘V’.

(vii) If an existing customer is discounting the bills, the fund shall be adjusted in Facility B or facility C, where he has already availed loans against the works. For new customers, the discounted amount can be disbursed to his bank account.

(viii)As far as possible, the fund shall be disbursed to his bank account where he has availed OD or limit for contractor loans.

(o)Additional Documents to be collected for processing Guarantees.

- Valid Contractor ID, work contract, accepted schedule of the work, Promissory note, print outs of emails received from HO Nodal Officer, etc.

(p) Relaxations. Since discounting with PN under Govt scheme is risk free, the sanctioning authority can allow relaxations on general conditions specified in Para 2 of the manual.

In case Government issues Letter of Credit (LC) to contractors, instead of Promissory Note (PN), CMDLC can allow processing the facility, within the Line of Credit sanctioned, on a case to case basis, in line with GBDF, provided Power of Attorney (PoA) in favour of the Corporation is executed and registered with Work Issuing Authority (WIA) and Corporation’s Bank Account Number is noted in the LC for release of payment directly to the Corporation.

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12. Facility E - Equipment Finance Facility (EF Facility).

a) Objective To provide financial assistance to eligible contractors to acquire new equipments/machinery/vehicles, etc for executing eligible activities under Contractor loan scheme.

b) Project cost Project cost includes cost of chassis, required accessories, body construction, extra fittings, road tax & registration charges.

c) Loan eligibility For vehicle and other earth moving equipments where hypothecation endorsement in RC book is available, up to 85% of on the road price.

For other equipment, 75%

d) Security margin As per Credit Manual.

e) Repayment period 60 months including maximum gestation period of 6 months. The gestation period is fixed depending on the time fixed for body building/installation of machine. The repayment shall be fixed based on the life of the machinery/vehicle and also based on DSCR.

f) Processing fee 0.1% of loan sanctioned subject to minimum of Rs.2500 plus GST. First year no fee.

g) Sanctioning authority

Within the sanctioned Line of Credit, Branch Head can allow.

h) Mode of disbursement The amount earmarked for chassis/vehicle can be disbursed in lump sum to suppliers. 50% of the amount earmarked for body construction and other fittings can be disbursed to the borrower as advance. Balance 50% will be disbursed after assessing the utilization of the previous installment.

i) Overall asset coverage - Collateral coverage required is 100%. - The hypothecation charge over machinery/vehicles - POA should be collected wherever possible. - Project Officer shall keep the duplicate key, for

vehicles, in the document cover with acknowledgement of the same in the file.

j) Fore-closure premium

No fore-closure premium except in case of bank take over.

k) Renewable or not Not renewable.

l) Other conditions It should be ensured that our hypothecation charge is noted in the RC Book of the vehicle and a copy of the RC Book shall be obtained and filed. Copy of insurance to be submitted annually.

m) Procedure Within sanctioned Line of Credit Branch Head can allow the facility.

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Collect request of the promoter and connected papers Process the case in format as per Annexure ‘W’ and on recommendation of project Officer, Branch Head may approve. Disbursement shall be done as per usual procedures followed in term loans. Normally disbursement shall be done to the supplier (vehicle/machinery), after ensuring that the promoter margin has been paid to the supplier or alternatively the promoter margin shall be deposited with Corporation and full amount shall be given to the supplier, based on the written request of the promoter.

n) 13. Bank takeover of contractor Loans. Contractor loans or limits with a

Bank/FIs/NBFCs can be taken over by the Corporation provided the contractor and its activities come under the eligible activities of the Contractor Scheme. Due caution to be exercised in taking over contractor loans. During take over it will be ensured that the promoters are financially sound and managerially capable. The proposal has to be appraised as a new loan and has to comply with all the financial norms fixed by the Corporation. Non-performing assets and even stressed assets shall not be taken over. Appraisal team shall ensure that the account has not been non-performing or stressed, at least for the past two years, through verification of bank statements and discussion with bank officials. CIBIL score, financial statements, tax returns, outstanding statutory dues, etc. have to be verified. The reasons for the applicant coming to the Corporation should also be highlighted. The loan disbursement shall be directly done to the bank/financial institution/NBFC after ensuring margin as per the norms of the Corporation. All securities created in the favour of the Bank/FI/NBFC will be transferred to the Corporation immediately on receipt of the payment by them.

Since the banks are sanctioning limits to the contractor, it will not be easier to have overview of the works undertaken within the OD facility at a glance. Necessary study of each work of the contractor has to be done separately. The eligibility for take over shall be worked out as follows:

Work 1

Work 2

Work 3

Work 4

Total

Work No - Name of WIA - Name of Work - % of work completion - POA holder - PG/BG details - Name of Bank financed

the work

Details of bills pending for payment with WIA or Government

Details of bills discounted under any scheme

A Contract value(as per agreement or revised subsequently)

B Cost of material supplied

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by WIA C Advance received from

principal before starting the work

D Net Contract value (A –B-C)

E KFC Loan eligibility(75% of D)

F Part bill amount received from WIA so far

G Net value of contract work to be taken over (E-F)

The total of G shall be the eligible amount to be taken over from bank, provided bank has financed all works. In case PG/BG is to be taken over, that also has to be included. The takeover is possible only if bank has given NOC with full details as above and also certificate from WIA has been obtained for each work. POAs of all works are to be transferred to KFC. The contractor has to settle PG/BG with bank. Alternatively the Corporation can provide counter guarantee to the bank if that is acceptable to bank or issue fresh guarantee to WIA, if original PGs issued by the bank are cancelled. Site visit and necessary enquiry of all works have to be carried out and should be recorded in appraisal note.

14. General Points on contractor loan schemes.

(a) It shall be ensured that the contractor has enough experience and expertise to carry out the proposed contract works. He/she should be financially sound with good repayment history.

(b) The terms of contract shall not contain onerous clauses, which may affect smooth implementation of the work and release of payment.

(c) The project officer and Branch Head shall keep a constant touch with Work Awarding Authority and Bill Forwarding Authority for the developments in the sector.

(d) The service rendered to the contractors is most important. Many of the requirements like Guarantees, discounting, etc are time bound activities and hence BO should be able to meet the requirements of the contractor in a time bound manner.

(e) Third party collateral shall not be encouraged. The collateral of close relatives can be accepted.

(f) Security is not always a must to sanction a Line of Credit. Where the promoter is approaching for facilities like GBDF/EBDF (without collateral), a Line of Credit can be sanctioned without collateral securities also. However for availing facilities like PG/BG/WEF/EFF/etc necessary security as per norms are to be furnished.

(g) It is preferable to sanction a Line of Credit for a period of five years so that within a single loan agreement, all facilities can be allowed to the contractor within this period.

(h) Disbursement shall be done need based only. Drawing excess funds is a negative indication and should be dealt with caution. It shall be ensured that funds are utilised in the works allotted only.

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(i) The Loan application form for contractor loans has been provided at Annexure ‘X’.

(j) The appraisal format for sanctioning a Line of Credit is provided at Annexure ‘Y’.

(k) Since contractor undertakes works all over the State, BO can fund works located anywhere in the State under this scheme.

(l) No project report is required to be collected for processing contractor loans.

(m) Since service to Contractors is urgent, proposals need urgent sanction can be proceeded by BOs/Hubs in anticipation of BRC clearance, after discussion with GM(C).

(n) The promoter should be given a facility sanction letter by BO on approval of each facility by Branch Head as per Annexure ‘Z’ and get his acknowledgement in the office copy.

(o) The Project Officer stated in the Manual is the officer appraising the Line of Credit while sanctioning the Line of Credit. Once the sanction is completed, the Project Officer will be the concerned disbursing officer/Field Officer of BO.

(p) Processing fee shall be adjusted in first disbursement once new software is put in place.

(q) The Virtual Loan Account generated from software shall be mentioned in Power of Attorney (PoA), letters to Work Issuing Authority (WIA), etc. so that the fund received from WIA is directly credited in the loan account.

(r) The Line of Credit sanctioned shall be considered as sanction for recording the performance of the Corporation in operational statements and facilities allowed subsequently shall not be considered under the same.

15. Legal requirements.

(a) Bio-data/KYC document validity. As per standard procedures for processing the loan applications, necessary Bio-data/KYC documents are to be collected. Where existing good customers are approaching for enhancing LoC, insisting to submit same documents again causes difficulties to the customers and hence it has been decided that KYC documents shall be collected only once in a year, if there is no change in KYC status of the promoters. The asset liability statement can be collected in normal letter, if required.

(b) Loan Agreements. Since a Line of Credit is sanctioned to the promoter for five years and within the Line of Credit the promoter can avail all facilities provided in the scheme, a loan agreement shall be executed initially with a provision to allow assistance under all facilities and based on the written request of all promoters, any of the

ANNEXURES 2019-20


facilities shall be allowed. In order to issue PGs, the contractor has to execute Counter Guarantee along with other agreements. However where additional security is offered for the facility, supplementary agreement shall be executed. The formats for executing the loan agreements are provided at Annexure ‘AA’.

16. Automation of the System. It is proposed to automate the whole process of contractor loans in CFS and till that BOs are directed to manage the procedures manually and follow guidelines provided at Annexure ‘AB’ for updating the details in CFS.

17. On Job Training. Since the schemes and procedures are totally new to many of the officers, necessary trainings will be most useful for efficient management of the system. The project officers shall get acquainted with the procedures through on job training from BMs having experience in contractor loan lending, as and when necessary, with permission of Head Office HR Dept.

18. Enhancing the Line of Credit. The promoter is free to seek enhancement of the sanctioned Line of Credit, as per the fresh requirements. In such case, the project officer has to re-appraise the proposal and submit before concerned sanctioning authority, as per credit manual. A fresh loan agreement shall be executed for the enhanced Line of Credit with facilities availed/proposed to be availed. After that the validity of existing Line of Credit will stand ceased. Applicable processing fee @0.5% for the new Line of Credit set should be collected.

19. Monitoring of the Scheme. The facilities provided under the scheme shall be monitored by the Credit Department at Head Office through a designated officer (State Nodal Officer) and status of each case, funded under the scheme by the Branch, shall be monitoring on daily basis. All facilities in contractor loan schemes shall be verified by the officer concerned. Till the time automation is completed, the officer shall get reports from BOs and monitor the progress. In order to render field support to all BOs, a project officer will be designated Zone wise.

20. Conclusion. Advances to contractors have been one of the traditional areas of credit portfolio. The Corporation has limited exposure to the sector at present, but the sector has huge potential. Involvement of field level officers, automation of the procedures and centralised monitoring is vital for implementing the scheme. The Corporation is looking forward for positive implementation of the scheme with an aim to double its portfolio in coming years.

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2. FORMAT FOR PRELIMINARY SCREENING OF APPLICATIONS

KERALA FINANCIAL CORPORATION, BRANCH OFFICE, ----------------

PRELIMINARY SCREENING OF APPLICATIONS BEFORE

DETAILED APPRAISAL DOC NO. AMP1F01 PAGE NO.

Date of Interview: 1 Serial Number 2 Date of Registration 3 Name & Address of the Unit 4 Contact Person, Phone Number,

e-mail id

5 Amount Applied for and Purpose 6

a Promoters Name Address Age Qualification & Experience b Co-obligants Name Address Age Qualification &Experience

7 Amount promoters can raise 8 Do they have any outstanding loan

with KFC, If yes, give details

9 Has any of other family members/near relatives availed any loan from KFC. If yes, give details

10 What are the existing business interest of the promoters

11 What does the analysis of balance sheet of above indicate

12 Name the promoters who are present for Interview

13 Do the promoters have any experience in this line of activity

14 Does the promoter possess any technical experience/expertise

15 Power Requirements a Approximate power requirements in

KVA/KW

b Are there likely to be delay in getting power connection

16 Estimated Project Cost Land Building & Civil Structure Plant & machinery Vehicles Quality Control Equipments Other Misc. assets Contingency provision Prel. & Pre-op. expenses Margin Money for W. capital

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Total Funding Pattern (Rs. in lakhs)

Promoter’s Contribution Special Capital Term Loan Any other source (Specify) Total

17 Working capital requirements a Approximate quantum b Name of the Bank in the Service

Area

18 Whether the land & building are owned by entity / on rental basis / on hire purchase

19 a. List of Strengths of the Proposal b. List of Weakness of the Proposal

20 Are required Legal Documents submitted

21 Are the above documents prima-facie acceptable to the Corporation. If not, Why?

22 List of documents/details further required

1. 2. 3.

23 Recommendation of the Screening Committee

a Cleared for further appraisal b Date fixed for site inspection &

land valuation, if cleared for detailed appraisal

c Documents required for final decision (copy of letter given to promoter to be filed)

24 Evaluation a Recommendation b Name, Designation & Signature of

members of the Screening Committee

c Name, Designation & Signature of representatives of the applicant entity

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3. PROCESS FLOW CHART FOR RECEIPT & PROCESSING OF APPLICATION FOR FINANCIAL ASSISTANCE

TIM

E L

IMIT

– 1

4 D

AY

S

WALK IN LEADS

CUSTOMER RELATIONS MANAGER (CRM)

FURTHER ENQUIRY BY PERSONNEL IN THE HIERARCHY

CRM ZONAL MANAGER (ZM) BRANCH HEAD (BM)

OUTPUT FROM CFS ON PENDING ENQUIRIES

FORTNIGHTLY REVIEW BY GENERAL MANAGER & ZONAL MANAGER

3 D

AY

S

REJECTED ACCEPTED FOR FURTHER PROCESSING

DETAILED COMMUNICATION TO ENQUIRER STATING DOCUMENTS TO BE SUBMITTED AND SPECIFYING TIME FRAME

10

DA

YS

TEMPORARY CLOSURE

SPECIFIED DOCUMENT NOT SUBMITTED

SPECIFIED DOCUMENTS SUBMITTED

FINAL EVALUATION BY DESIGNATED SCREENING COMMITTEE

15

DA

YS

REGISTRATION OF APPLICATION WITH COLLECTION OF INITIAL PROCESSING FEE

DETERMINE RESULTANT EXPOSURE, INCL PROPOSED LOAN, TO THE CLIENT /GROUP

UP TO RS 100 LAKHS ABOVE RS 100 LAKHS

APPRAISAL TEAM CONSTITUTED BY BRANCH HEAD

APPRAISAL TEAM CONSTITUTED BY ZONAL MANAGER

PRESENTATION BEFORE SANCTION AUTHORITY

DECISION

COMMUNICATION TO CLIENT

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4. SCHEMES FOR LENDING

Scheme for Term Loan for Industrial Activities Objective To meet long term requirements for projects Eligible Customers All eligible customers as per Policy Eligible Activities All activities as permitted by State Financial Corporations Act, 1951

Working Capital Revolving Fund Loan Scheme Objective To provide working capital, on a revolving basis. Eligible Customers All new and existing enterprises, eligible to be funded by the

Corporation, except CRE projects Eligible Activities All eligible manufacturing and service activites Eligibility Criteria The enterprise should have been prompt in their dealings with their

funding agencies. The enterprise should be profit making.

Scheme for Financing Construction Activities & Housing Projects

Eligible Customers - Promoters should be financially sound and successful in their

other business areas. - Promoters should be prompt in servicing loans availed by them. - Existing clients of the Corporation will get preference. - Minimum cibil score shall be 600.

Eligibility Criteria - The project should have minimum five residential units. - The project has to be located within the State - All necessary approvals have been obtained. - Project land will not be considered in project cost and for

arriving at loan eligibility based on DER.

Short Term Loan Scheme Eligible Customers - New and existing units.

- Should be prompt in servicing their liability, if any, in this and other projects of theirs

Eligible Activities All permissible activities Eligibility Criteria - Existing units should be functioning well and posting increased

turnover and profits - The funds have to be provided for meeting specific

requirements of the unit. The requirement should be verified prior to sanction of loan and utilization verified based on field valuation and certificate from their chartered accountant.

Scheme for Special Working Capital Assistance to Hotels

Objective To provide short term working requirements of well run hotels

with minimum procedures. Eligible Customers - Existing well run hotels.

- Servicing their debt promptly with all lenders & maintaining asset in standard category, at least for the last three years.

- Posted net profit during the last three financial years. Eligible Purpose - For paying 100% of the bar license fee.

- For meeting 90% of the working capital requirement based on latest audited financial statements or on realistic assessment.

- For annual maintenance of hotels.

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Scheme for Financial Assistance for Producing Feature Films & TV Serials

Objective To extent short term finance to meet costs in producing feature films, documentaries and TV serials.

Eligible Customers Reputed and experienced producers backed by an established team in the field. Should have earlier made at least three successful films.

Eligibility Criteria All necessary permissions from concerned authorities have to be obtained.

Vehicle Loan Scheme

Eligible Activities Purchase of all types of vehicles which are used for commercial purposes. These include Light Commercial Vehicles, Passenger Buses, Luxury Coaches, Volvo Buses, Goods Vehicle, JCBs, Excavators, Bulldozers, Road Rollers, Concrete Mixing Machine with Vehicle, Tarring Machines with Vehicle, Cranes, Earth Movers, etc. Water transport vehicles like Fishing Boats, House Boats, Tourist Boats, Luxury Boats, Fishing Trawler, Tugs an also be financed. Purchase of two wheelers, if required as part of the project and if their number is at least ten.

Working Capital Term Loan Scheme

Eligible Customers Existing and New Enterprises in Manufacturing & Service Sectors, except CRE projects.

Eligible Activities All activities eligible for funding by the Corporation in manufacturing and service sectors, except CRE projects

Eligibility Criteria If existing they have to be operating well and servicing their financial obligations to their lenders promptly.

Scheme for Modernisation, Upgradation, Expansion and Diversitation of Existing Manufacturing Units/Hotels/Hospitals/Theatres/Multiplexes

Objective To provide financial assistance for modernization, upgradation, expansion and diversification so as to enable the existing enterprises keep pace with the current requirements in technologies, amenities and market requirements

Eligible Customers Existing units in manufacturing sector/Existing hotels/Existing hospitals/Cinema Theatres & Multiplexes

Eligibility Criteria Should have started commercial operation at least two full years prior to placing application for financial assistance. Should have satisfactory financials. Should have been servicing their financial commitments well and have been maintaining their assets with funding agencies in standard category.

Special Revolving Fund Scheme for Existing Customers

Objective To meet urgent credit requirements of existing customers of the Corporation, connected with the working of the enterprise and with proper justification

Eligible Customers Existing clients whose accounts are in standard category and have been maintained in this category at least during the last one year. Shall have a minimum credit rating of 60% in the internal credit rating. Enterprise should have been in operation for at least three years on the date of submission of application for assistance.

Eligible Activities Enterprises in Manufacturing Sector, Hotels, Resorts, Hospitals, Amusement Parks, Theatres, Kalyanamandapams

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Receivable Finance Scheme Objective To ease the cash flow of MSME units by discounting bills for a

maximum period of 180 days Eligible Customers Existing well run MSME units which have been in operation for the

last three years and should have earned net profit in the previous two Financial Years Shall have credit rating of 70% as per internal credit rating module Should not be in default to any Banks/Financial Institutions Should have a positive net worth Bills of Public Sector Undertakings and Government Bodies only will be discounted Both Drawee and Drawer should have a CIBIL rating score of 650 and above

Eligible Activities Sale of finished goods of MSME units Eligibility Criteria There shall be an MoU with KFC and the Drawee to pay the bill

amount directly to the Corporation Upper Loan Limit Rs 500 lakhs Sanctioning Authority

MDLC

Validity of Sanction 3 years Minimum Promoters’ Contribution

15%

Maximum Repayment Period

180 days

Mode of Operation The Corporation discounts the Bill of Exchange/Invoice drawn by the Supplier (Drawer) on the buyer (Drawee), who have accepted it, and pay the amount of the Bill to the Drawer after deducting a margin of 15%. The Corporation subsequently presents the bill on the borrower's customer (Drawee) on the maturity of the Bill (normally 90 days) and collect the total amount. Wherever Bill of Exchange is not furnished by the unit, based on acceptance on the invoices and proof of delivery challan/Goods Received Note, discounting is made as per agreed terms between the unit and KFC. The Corporation shall discount bills supplied to purchasers (drawee) who are agreeable to make the payment directly to the Corporation. The antecedents of the purchaser (drawee) will have to be confirmed. Only bills in respect of which the materials have been received by the purchaser (drawee) and they have verified the quality of the products and the purchaser is agreeable to make payment directly to the Corporation will be discounted.

Security Requirement/Asset Coverage Ratio

Personal guarantee of the Promoters Demand Promissory Note Post-dated cheque from drawee for principal and from drawer for interest Need based collateral security can be insisted up on by the sanctioning authority

Foreclosure Premium

Not applicable

Renewal or Not Renewable Other Conditions In case the drawee is not ready to offer post-dated cheques for

the principal amount the same from the drawer needs to be collected. The scheme will be reviewed from time to time taking into account the Corporation's experience in the field. Sanction of Bill purchase limit is confined only to units having

ANNEXURES 2019-20


excellent track record. Branch Office has to ensure that there is a genuine business transaction between supplier and purchaser. The receipt of goods by purchaser has to be ensured. During the validity period of one year any number of bills can be discounted, with the condition that the upper limit of balance outstanding does not exceed the loan sanctioned. In the event of the supplier seeking enhancement of limit already sanctioned any time during the first year or at the time of renewal, the same may be considered subject to eligibility. Processing fee of 0.5% has to be paid for the enhanced limit. Bills of firms which are approved by the Corporation alone will be discounted. Initially the scheme will be limited to firms (drawee) which are owned by State or Central Government owned firms. The Buyer drawee has to give letter in the format prescribed by KFC regarding receipt of goods & that the goods are of acceptable quality. The buyer has to undertake payment of the bill. Certified contract between the PSU and supplier to be submitted. Certified copy of the Bill and acceptance letter from PSU to be deposited.

Liberalised Scheme for Financing up to Rs 100 lakhs to Units under KSEDM

Type of Loan Composite Loan including both term loan and working capital Objective To finance the expansion/scaling up of enterprises set up under

KSEDM to meet their requirements for purchase of fixed assets, working funds for marketing, launch, salary, other eligible tangible and intangible expenses.

Eligible Customers MSME units, either registered with District Industries Centres or having Udhyog Aadhaar Registration. Units set up under KSEDM and going in for expansion Should have completed one year of operation after availing the loan under KSEDM Have minimum rating of 60% in the internal credit rating module

Eligibility Criteria There will be a scrutiny committee consisting of an industry expert, representative of the Institution of Chartered Accountants of TiE and the State Coordinator of KSEDM and any Officer nominated by MD to recommend the units eligible under this scheme and to comment on the funds requirement indicated by the promoters in their project report. Zonal Manager will be nominee of MD in the Committee. The quorum for the meeting shall be three members, including the concerned Branch Head

Upper Loan Limit Rs 100 lakhs Minimum Promoters’ Contribution

20%

Maximum Repayment Period

Seven years

Maximum Moratorium

One year

Security Requirement/ACR

Overall ACR of 1:1 or collateral coverage of 25% of the sanctioned loan amount.

Foreclosure Premium

Applicable

Renewal or Not Not renewable

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Startup Support Scheme Type of Loan Composite including both Term Loan and Working Capital Objective of the Scheme A startup is a newly formed entity, the purpose of which is

to develop new, usually innovative products or services in uncertain circumstances. If it satisfies a new need, present in a broader area or even globally, it also has great growth potential. Startup entrepreneurship is crucial because of innovations, new jobs and bringing competitive dynamics into the business environment. Growth is mostly generated by highly ambitious entrepreneurs who find and realize promising business opportunities. Their companies grow quickly and so increase the employment rate. They also contribute to the promotion of the research and innovation system and introduce values of pro-activity into the society. Being the developmental agency of the State, in line with Government policy towards Startups, Kerala Financial Corporation aims to support such Startups with all necessary hand holding and mentoring support. Since the CGTMSE limit available to the Corporation is Rs.10 Crores, it is proposed to extend the facility to 100 deserving startups.

Eligibility Criteria (a) Entity New entities working towards innovation, development,

deployment or commercialization of new products, processes or services driven by technology or intellectual property and makes it scalable for achieving commercial success provided that such entities are registered and operated in Kerala and not formed by splitting up or reconstruction of a business already in existence. Entity means a Private Limited Company (as defined in the Companies Act, 2013), or a Registered Partnership Firm (registered under section 59 of the Partnership Act, 1932) or a Limited Liability Partnership (under the Limited Liability Partnership Act, 2002). An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialize a new product or service or process or a significantly improved existing product or service or process that will create or add value for customers or workflow. The mere act of developing products or services or processes which do not have potential for commercialization or undifferentiated products or services or processes or products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.

(b) Promoters The eligibility criteria for promoters of the Startup entity shall be First line entrepreneurs only Age of promoters shall be between 18 - 35 years as on date of selection. All of them must have passed higher secondary course or successfully completed a vocational course or ITI or Diploma in Engineering or equivalent approved by Government. Engineering graduates or Engineering students shall be given priority. Should not be permanently employed

ANNEXURES 2019-20


None of them should be members of any other entity promoted under similar Schemes and not availed similar concession earlier in similar Schemes/KSEDM. Where, owner/ owners of security properties offered for the loan or other parties offering guarantee for the loan or technical/ financial/ management experts essential for implementing the project and they are to be inducted as partners/ directors/ guaranteers/ sureties/ co-obligants, etc of the entity availing loan, Selection Committee /Branch Head can allow adding such persons without considering the above qualifications prescribed, considering the genuineness of the case, provided their CIBIL, KYC norms, etc are satisfactory and they are otherwise eligible to avail a loan from Corporation. In such cases a speaking justification is to be given. However, selection Committee/Branch Head should ensure that at least 50% of the promoters in the entity meet the qualification and age prescribed as per the scheme. Any further relaxation can be given by MD, KFC only.

Procedure Applications under the scheme will be processed in Ernakulam branch only. An officer of the Corporation/Project Executive appointed for this purpose on contract basis shall be made Nodal Officer of the scheme for processing the applications, monitoring the units and for extending all necessary hand holding support to the units. Desirous promoters shall submit the project report to the concerned BO and nodal officer shall place the eligible cases before Selection Committee for taking a decision.

Selection Procedure Selection of enterprises shall be done by a Selection Committee constituted for the purpose including external experts. The selection committee shall scrutinize the project based on the project report submitted by the promoters and should decide whether the project comes under the definition of Startup, whether project is technically and commercially viable, promoters are capable, etc. The committee shall also comment on the fund requirements indicated by the promoters in their project report and disbursement schedule based on certain milestone achieved. Once the project is cleared by the Committee, loan can be sanctioned by Branch Head based on financial viability after legal vetting.

Project Cost. Entities may require term loan for creation/acquisition of fixed assets, lease/rent advance, etc and working funds for monthly salary, rental expenses, electricity charges, launch expenses, marketing expenses, travel expenses and other related expenses. All eligible expenditure for the development or implementation period can be considered in project cost.

Upper Loan Limit Rs.10.00 lakhs Loan Eligibility 90% of project cost Minimum Promoters’ Contribution

10%

Repayment Period Maximum 5 years including gestation period based on cash flow.

Gestation Period Upto 1 year. As the startups do not generally generate income during the project development and implementation stage and the promoters are first generation entrepreneurs, they can

ANNEXURES 2019-20


be given interest moratorium during the gestation Period. The interest falls due after the gestation period can be funded for deserving units with repayment period as of term loan considering cash flow of the unit. In deserving cases, moratorium can be given up to 18 months.

Interest Rebate on prompt repayment

In case unit is eligible for interest subvention as per Circular No: KFC/CIR 34/CR 17/13-14 dated 19.02.2014(Interest Subvention Scheme as per Government order G.O.(Rt)No.51/2014/Fin. dated 02-01-2014), 3% rebate for term loan, limited to fixed asset portion, for a period of 3 years from the date of first disbursement shall be allowed. Selection committee will be sanctioning authority to decide on whether a proposal can be considered under this scheme. In case unit is not eligible for interest subvention as per Interest Subvention Scheme, 1% rebate shall be allowed for TL and Working capital loan for prompt repayment. Interest reduction based on credit rating shall not be applicable to this scheme.

Penal Interest Penal Interest @ 2% pa will be charged for defaulted amount for the defaulted period.

Processing Fee 0.50% of the sanctioned amount + ST. 25% of probable processing fee should be remitted as advance at the time of registering application and the balance at the time of issue of sanction communication. The processing fee paid shall be capitalized in project cost.

Loan Sanctioning Authority Branch Head Security & Asset Coverage Ratio

All primary properties are to be mortgaged and loans should be covered under CGTMSE. The personal guarantee of all promoters/ partners/ directors/ guaranteers/ sureties/ co-obligants should be obtained. ACR concept shall not be made applicable if loan is covered under CGTMSE. Initial CGTMSE fee shall be capitalized in project cost and renewal fee shall be collected from promoters. In case promoters are not willing for CGTMSE coverage, additional security can be insisted by sanctioning authority for maintaining the ACR of 1.0. Additional security may be in the form of mortgage of collateral assets or personal guarantee of Solvent Sureties/Government employees, etc.

Disbursement Disbursements shall be done as per the needs of the project. Branch Heads are authorized to make advance disbursements upto 50% of the security available or CGTMSE coverage amount as per the requirements of the project.

Foreclosure Premium Nil Renewable or not Not renewable Hand holding/ Mentoring support

The Nodal Officer and Branch Head shall extend all possible advice and assistance to the startups. The Selection Committee/Branch Heads shall also identify experts/experienced persons to be appointed as mentors of the unit.

ANNEXURES 2019-20


Scheme for Financing Working Capital Requirements of Start-ups for Executing Purchase Orders

Eligible Applicants

- Should be a Start-up. Start-up is an entity which was set up less than 7 years from the date of application and whose turnover has never exceeded Rs 25 crores in any financial year.

- Constituted as a Private Limited Company or Limited Liability Partnership Private Limited Companies have greater acceptability

- The applicant entity shall be a MSME, registered with the Government.

- The Applicant Entity has firm purchase orders from Reputed Companies.

- The Applicant Entity should have successfully executed purchase orders worth, value of, three times the amount applied for.

- Preference shall be given to proposals recommended by Kerala Startup Mission (KSUM)

Eligible Activities - Manufacture of IT Hardware / Software Products - Manufacture of Bio-Technology Products

Upper Loan Limit - Rs 100 lakhs.

The assistance will be sanctioned as a credit limit, to be used for executing one or more purchase orders. At no time shall the outstanding liability, of the entity to the Corporation, exceed the sanctioned credit limit.

Validity Period

- Five Years from the Date of Sanction of the Limit No amount will be disbursed, from a credit limit, after the expiry of five years from the Date of Sanction. Hence before deciding to accept a purchase order for funding, with a sanctioned credit limit to an entity, it has to be ensured that the full amount will be disbursed within the validity period for that limit.

Sanction of Fresh Limits

- In case the funded enterprise if performing well and has been servicing all its commitments promptly and if it needs to be funded beyond the validity period of the existing credit limit, then a fresh limit can be sanctioned to the entity. In case of a fresh limit being sanctioned to an entity under this scheme, then it has to be ensured that the total exposure to the entity, under this scheme, shall not exceed the freshly sanctioned limit.

Upper Limit for Disbursement for Each Purchase Order

- The Share of Materials/Cost of Resources, Required for Execution of a Purchase Order, shall not be less than 60%.

- The Maximum Amount that can be Disbursed for execution of a Purchase Order shall be limited to the Expenses required for its execution and shall not exceed 80% of the value of the Purchase Order.

- The quantum and periodicity of disbursement will be finalized by the screening committee initially and will be reviewed periodically.

Screening of Proposals, Periodic Review and Determining the Modus of Disbursement

- A Committee will screen the proposal and finalise on the orders to be funded. It will also analyse the requirements of funds on a quarterly basis and determine the amount to be released each quarter. The Committee will also fix targets for execution of the purchase orders and on revenue generation. The Committee will also review the progress of each of the assisted enterprises on a quarterly basis.

- The Committee will consist of the following persons: 1. Nominee of Chief Executive Officer of Kerala Startup Mission 2. Nominee of Managing Director of Kerala Financial Corporation 3. Zonal Manager of Kerala Financial Corporation 4. Branch Head of Kerala Financial Corporation 5. Project Officer dealing with the concerned financial assistance in KFC 6. Any other expert nominated by Chief Executive Officer (KSUM) / Managing

Director (KFC), depending on the requirement of the project.

Security Coverage

- Mortgage/Hypothecation of Primary Assets of the Entity The marginalized value of primary assets of the entity shall not be less than 40% of the value of the credit limit proposed to be sanctioned.

- Guarantee from the Government of Kerala The guarantee fee has to be paid by the beneficiary, in addition to the interest & other charges, on an annual basis and at the start of the annual. The amount payable each year will be on the amount sanctioned and not on the amount outstanding.

ANNEXURES 2019-20


Mode of Disbursement

- The Disbursement of Funds from the Sanctioned Credit Limit will be done based on the Quarterly Estimate of Upper Limit for Disbursement for Each Purchase Order, communicated and agreed up on before start of Disbursement for Executing that Purchase Order.

- Subsequent Disbursements shall be done after: - submission of written statements, from the entity, to the effect

that the earlier installments have been utilized as per the agreed pattern

- obtaining report, from the purchase order issuing authority, that the execution of the order is progressing as per envisaged plan

- verification, of the above, by the officials of the Corporation - The accounts, with the Corporation, for each Purchase Order will be

maintained separately under different Sub-Accounts.

Mode of Repayment

- There shall be a pre-determined programme for payment for the materials supplied.

- The payment from the purchase order issuing authority, for executing a purchase order, shall be made directly to the Corporation and this shall be credited to the loan account with the Corporation.

- The maximum time allowed for execution of purchase order shall not exceed two quarters from the date of start of disbursement of financial assistance for it execution.

- The maximum time allowed for full payment of the amount advanced for execution of a purchase order shall be limited to 180 days from the execution of the purchase order, in full.

Rate of Interest - The Corporation will charge interest as per its rate structure for the MSME Sector.

Foreclosure Premium

- No Foreclosure Premium is applicable in the Financial Assistance provided under this Scheme.

Sanctioning Authority

- Only Managing Director Level Committee can sanction limits under this Scheme.

Disbursing Authority

- The Branch Head can release funds from the limits sanctioned under this Scheme, based on the recommendation of the Project Officer.

Monitoring Responsibility

- All processes associated with the operation of this scheme, including sanction, disbursement, monitoring, etc., shall be done by the same person who will be the Project Officer for all Limits sanctioned to the entity.

Recall of Loan

- The entire credit limit, sanctioned to an entity, will be recalled if it is found that the same has failed to satisfactorily execute any of the purchase orders, it has taken up for execution.

- In case of recall of a limit, the entity will be asked to repay the full amount, outstanding to be paid by that entity to the Corporation before the end of notice period for recall, which generally is 15 days.

- In case the amount outstanding in a credit limit is not paid within the above notice period, the Corporation will proceed with measures to invoke the security and guarantee for realization of the amount due to it.

- Up on the amount, outstanding in a credit limit, being recalled the full amount will be deemed to have become due as on the date of expiry of the notice period and interest, including the penal interest, will become applicable on the outstanding amount from that date.

ANNEXURES 2019-20


Scheme for Funding Venture Debt for IT Hardware & Software Enterprises

Eligible Applicants

- Constituted as a Private Limited Company or Limited Liability Partnership Private Limited Companies have greater acceptability

- The applicant entity shall be a MSME, registered with the Government.

- The Applicant Entity has undergone due diligence by a SEBI accredited Venture Capital Fund and they have confirmed the amount to be invested and the mode of the same.

- Preference shall be given to proposal recommended by Kerala Startup Mission (KSUM)

Eligible Activities - IT Enterprises engaged in both, hardware and software products.

Eligible Purpose - To meet the requirement of the applicant for manpower, materials, marketing, etc.

Upper Loan Limit - Rs 500 lakhs. Minimum Promoters’ Contribution

- 20% of the Project Cost


- The sanctioned financial assistance will be disbursed, in installments, based on the disbursement pattern suggested by the screening committee.

Screening of Proposals, Periodic Review and Determining the Modus of Disbursement

- A Committee will screen the proposal and finalise on the terms of funding. It will also analyse the requirements of funds on a quarterly basis and determine the amount to be released each quarter. The Committee will also fix targets for achievement on a quarterly basis and on revenue generation. The Committee will also review the progress of each of the assisted enterprises on a quarterly basis.

- The Committee will consist of the following persons: 7. Nominee of Chief Executive Officer of Kerala Startup Mission 8. Nominee of Managing Director of Kerala Financial Corporation 9. Zonal Manager of Kerala Financial Corporation 10. Branch Head of Kerala Financial Corporation 11. Project Officer dealing with the concerned financial assistance in KFC 12. Any other expert nominated by Chief Executive Officer (KSUM) / Managing

Director (KFC), depending on the requirement of the project.

Security Coverage

- Mortgage/Hypothecation of Primary Assets of the Entity - Guarantee from the Government of Kerala

The guarantee fee has to be paid by the beneficiary, in addition to the interest & other charges, on an annual basis and at the start of the annual. The amount payable each year will be on the amount sanctioned and not on the amount outstanding.

Mode of Repayment

- The moratorium period and period of repayment for the exposure under this loan will be fixed by the screening committee based on anticipated revenue generation and cash flows.

- The maximum moratorium period allowable is two years and the maximum repayment period allowable, including the moratorium period, shall not exceed 5 years.

- The periods above will apply from the date of screening by the Committee.

Rate of Interest

- The Corporation will charge interest as the rate of 15.00%, compounded on a monthly basis. The due date shall be the first of each month. Penal interest, at the rate of 2.00%, will be charged on the defaulted portion of principal, interest and other debits for the defaulted period.

Foreclosure Premium

- No Foreclosure Premium is applicable in the Financial Assistance provided under this Scheme.

Sanctioning Authority

- Only Managing Director Level Committee can sanction loans under this Scheme.

Disbursing Authority

- The Branch Head can release funds from the loan sanctioned under this Scheme, based on the recommendation of the Project Officer.

ANNEXURES 2019-20


Monitoring Responsibility

- All processes associated with the operation of this scheme, including sanction, disbursement, monitoring, etc., shall be done by the same person who will be the Project Officer for the entity.

Recall of Loan

- The entire amount outstanding from an entity is liable to be recalled in case of its misutilisation or if it is felt that the entity is failing to adhere to the targets fixed by the Committee.

- The recall decision, if any, shall be with the endorsement of the members of the screening committee.

- In case of recall of a limit, the entity will be asked to repay the full amount, outstanding to be paid by that entity to the Corporation before the end of notice period for recall, which generally is 15 days.

- In case the amount outstanding in a credit limit is not paid within the above notice period, the Corporation will proceed with measures to invoke the security and guarantee for realization of the amount due to it.

- Up on the amount, outstanding in a credit limit, being recalled the full amount will be deemed to have become due as on the date of expiry of the notice period and interest, including the penal interest, will become applicable on the outstanding amount from that date.

ANNEXURES 2019-20


Scheme for Funding Enterprises set up for Defibering of Coir Husk under Government Subsidy Scheme

Eligible Activities

New Coir Defibering Mills New units set up for manufacture of products using coir pith as main raw material. For this purpose the cost of coir pith shall not be less than 50% of the total cost of raw materials used for the manufacturing activity.

Eligible Enterprises

Enterprises recommended by the Project Officers of Directorate of Coir Development.

Maximum Project Cost

Rs 50 lakhs (Including Working Capital) The cost of land and building in the project cost must not exceed the value of plant, machinery & equipment. In case the value of land and building exceeds the above limit, it shall be limited to value of plant, machinery & equipment. The value of land adopted for the project cost shall be the document value or the value certified by the revenue authorities, whichever is less. If the document is more than 10 years old, the valuation of revenue authorities can be accepted as the value adopted for project computation. Working capital requirement shall be provided along with the term loan under the scheme as the same is proposed as a composite loan. The working capital requirement shall be limited to stock of raw materials to operate for 7 days, stock of finished goods for 14 days and receivables for 60 days.

Minimum Promoters Contribution

20% of the project cost.

Rate of Interest Base Rate + 1.00%, payable monthly. Penal interest @ 2.00% is chargeable on the defaulted portion for the defaulted period.

Repayment of Loan

The loan has to be repaid within a period of 60 months, including an initial moratorium of 3 – 6 months.

Security Coverage

All primary asset of the unit shall be mortgaged to the Corporation for the loan. The loan shall be secured by marginalised value of assets, not less than 1.4 times the proposed loan.


The loan shall be disbursed based on valuation, by the officials of the Corporation, of assets created. The working capital shall be disbursed based on operation, after analyzing the statements produced by the unit with regard to the stock of raw materials, finished goods and receivables.

Foreclosure Premium

No foreclosure premium is applicable in the financial assistance provided under this scheme.

Sanctioning Authority Branch Level Sanction Committee

Disbursing Authority Branch Head

Claiming of Subsidy from Government

Application for Subsidy shall be submitted to the Directorate for Coir Development immediately on the unit starting commercial operation. In no case shall be submission of application for subsidy delayed by more than one month from the date of start of commercial operation. The subsidy amount, as and when received, will be adjusted to the principal of the loan amount and no part of is shall be released to the promoters.

Monitoring of Operation of the Scheme

The operations under the scheme shall be monitored by the Head of the Credit Department at the Head Office and a report on the progress, unit wise, shall be submitted to the Managing Director on a monthly basis.

ANNEXURES 2019-20


5. Revised KYC-Risk-Categorisation of Customers

Sl No Customer Category

Whether Applicable

or Not A High Risk

1

Individuals and entities in various United Nations Security Council Resolutions (UNSCRs) such as UN1267, etc. or listed in the schedule to the order under Section 51A of the Unlawful Activities (Prevention) Act, 1967 relating to purposes of prevention of and for coping the terrorist activities or in watch lists issued by Interpol/other similar international organizations

2 Persons/entities with dubious reputation as per public information available or commercially available watch lists (including entities where such persons have significant stake*).

3 Individuals and entities specifically identified by regulators, FIU and other competent authorities as high risk.

4 Politically exposed persons (PEPs) of foreign origin, customers who are close relatives of PEPs & accounts of which a PEP is the ultimate beneficial owner (including entities where such PEPs have significant stake).

5 Non-resident customers, foreign nationals and off-shore (foreign) corporation/business (including entities where non-resident customers/ foreign nationals/foreign entities have significant stake).

6 Non face-to-face walk-in customers. 7 High net worth individuals. 8 Firms with ‘sleeping partners’**. 9 Companies having close family shareholding or beneficial ownership.

10 Trusts, societies, charities, non-government organizations/not for profit organizations (NGOs/NPOs) and organizations receiving donations (excluding (NPOs/NGOs) promoted by United Nations or its agencies).

11 Customers where due diligence of any of its members/constituents/ parties/underlying beneficiaries having significant stake in the entity is not possible.

B Medium Risk

12 Business having collections predominantly in cash such as restaurants, petrol pumps, retail shops, movie theatres, travel agencies, etc.

13 Deals in high value or precious goods (eg jewel, gems, precious metals) 14 Partnership Firms (unregistered or in existence/registration of less than 5 years) 15 Non-banking financial companies (other than those categories as low risk) 16 Persons and entities not categorized as Low or High risks C Low Risk

17 All borrowal customers (Other than those specifically categorized as high/ medium risk) where due diligence is done at the time of granting facilities

18 Government departments and their agencies, Government owned/ controlled entities, public sector enterprises, regulatory and statutory bodies

19 Not for profit organizations (NPOs) / non Government organizations (NGOs) promoter by United Nations or its agencies

20 Significant and well established entities such as companies in the “Nifty/ CNX100” lists of NSE or “Sensex”/ “A category” of companies listed on BSE

21 Individuals (other than high net worth) and entities whose identities and sources of wealth can be easily identified (for e.g. salaried employees, people belonging to lower economic strata of the society)

22

Regulated entities such as scheduled banks, Indian branches of foreign banks, systemically important NBFCs registered with RBI, venture capital fund registered with SEBI, insurance companies holding a valid certificate of registration issued by IRDA, housing finance companies regulated by National Housing Bank

* Significant stake is to be treated as under:

For partnership firms: All partners, irrespective of shareholding. For unlisted companies: Shareholding is equal to or more than 10%. For listed companies: Shareholding is equal to or more than 24%.

** A sleeping partner is one who contributes capital, shares profits and losses of the firm but takes no part in the day to day management of the affairs of the firm, as evidenced from the partnership deed or clearly implied by the course of their roles in the partnership business.

ANNEXURES 2019-20


6. INDICATIVE LIST OF EARLY WARNING SIGNALS

i. Non-cooperative attitude of promoters of the assisted enterprise ii. Not inviting nominee director to Board meetings iii. Absence of key personnel in Board meetings iv. Non-submission of project completion report / progress reports v. Non-submission of Financial Statements vi. Inconsistencies in CA certificate / sources & disposition of funds vii. Not taking timely/proper insurance cover viii. Not furnishing Balance Confirmation Certificate/Acknowledgement of Debt & Securities ix. Avoidance/absence of promoters during follow up visits x. Adverse market reports/banker’s reports/opinion xi. Filing of suit/takeover of stocks/assets by banker/other lenders xii. Appearance in caution list / defaulter list / willful defaulter list xiii. Takeover by other company / group without prior approval xiv. Raids on promoters/directors by government/statutory authorities xv. Reports of excise/tax violations, improper business practices, mismanagement xvi. Failure to pay statutory liabilities xvii. Reports of siphoning/diversion of funds xviii. Reports of acquisition of disproportionate assets by promoters during implementation

of project xix. Reports of dissent among promoters xx. Complaints of non-payment /inadequate payment by suppliers xxi. Undue delay in shipment / non-shipment of stock / goods etc. xxii. Steady decline in production/sales and/or profits, increasing level of sundry creditors,

debtors exceeding 6 months, abnormal rise in inventory levels, downward trend in order book position, etc.

xxiii. Unit going for expansion before implementation of the assisted project. xxiv. Frequent dishonour of cheques xxv. Devolvement of LCs and nonpayment within a reasonable period. xxvi. Return / Nonpayment of bills discounted.

CREDIT POLICY 2019-20

CreditPolicy2019-20 Page1

CREDIT POLICY

FY 2019-20




INDEX

Particulars Page No. Preamble 3 Validity 3 Authority 3 Eligible Activities 3 Industry/Sectoral Exposure 4 Thrust Areas 4 Eligible Borrowers 7 Schemes of Funding 7 Upper Loan Limit 8 Committee Based Approach 8 Branch Jurisdiction 8 Business Development and Canvassing of Applications 8 Appraisal Process 9 Base Rate 9 Periodicity of Demand 9 Rebate for Prompt Payment 9 Income Recognition 9 Funding of Second Hand Machinery 9 Time Limit for Disposal of Loan Applications 9 Processing Charges 10 Statutory Dues 10 Credit Monitoring 10 Timely Completion of Projects 10 Undisbursed Commitments 10 Insurance of Pledged Assets 10 Pledging of Assets 10 Guarantee of Entity & Associated Persons 10 Risk Management Committee 10 Premium for Foreclosure of Loan Accounts 11 Operational & Management Audit 11 Staff Accountability 11 Fair Practice Code for Lenders 11 Recognition for Good Clients 11 Jurisdiction for Litigation 11 Conclusion 11



1 Preamble 1.1 The basic business objective of the Corporation is term lending to industries to support sustained industrial growth in the State with special attention to the MSME sector. The significant role played by MSMEs in the Indian Economy is well known. 1.2 The banking environment is becoming increasingly competitive with customer demand on the rise and spreads on the decrease. The market scenario is also witnessing rapid changes with time. Thus flexibility, responsiveness, innovation in products and services offered, analysis of the changing business environment and operational efficiencies are necessary to garner desired business. 1.3 Extending credit has, associated with it, risks. We have to continuously strive to minimize this through development of internal competencies and processes for credit assessment and effective monitoring. 1.4 Considering the mandate given to it, the Corporation has to strive to develop entrepreneurship through counseling, consultation and escort services. 1.5 The capabilities of the Corporation in these areas are being strengthened through the Comprehensive Credit Policy Document, its manual and annexure, which are being reviewed annually. 2 Validity 2.1 This policy shall remain in force from the date of its circulation and till a revision of this policy or a fresh policy is circulated. This policy shall supersede the previous guidelines on the subject, provided that such supersession shall not invalidate or affect any action or decisions taken, before the commencement of this policy. 3 Authority 3.1 Need based flexibility is required to ensure that the Corporation continues to perform the objectives mandated on it. Further practical difficulties are likely to be encountered while implementing the policy and manual. Executive Committee of the Board shall be the authority to allow any deviations from the stipulations of this policy and manual. 3.2 However for financial assistance being considered by the Committees below that of the Managing Director Level Committee, viz. Branch Level Committee, Zonal Level Committee and General Manager Level Committee, need-based deviations can be approved by the Managing Director Level Committee. 4 Eligible Activities 4.1 The State Financial Corporations’ (SFCs) Act 1951 prescribes broadly the types of activities for which the Corporation can provide financial assistance. 4.2 Saturation, obsolescence, un-viability, economies of scale, geographical factors, environment issues, infrastructure, global economy/market, etc. have a bearing on the lines of industrial/business activity to be encouraged for financing. Some of these parameters keep changing from time to time depending on the external environment within the industry/sector. Corporation will continuously review the performance of the activities and determine a policy on supporting any activity at a particular period of time and at a particular geographical location. 4.3 The sectors to which the Corporation provides finance are manufacturing, hospitality, service, entertainment, infrastructure, power, housing and real estate, marketing, etc.



5 Industry/Sectoral Exposure 5.1 The thrust of the Corporation is to enable establishment of viable projects in the manufacturing and service sectors. The general policy of the Corporation is to avoid sectors that do not contribute to the economy. The policy also realizes that funding to wide range of sectors and industries help to minimize the risks. The development of different sectors and industries is also dependent on the geography, availability of resources and consumption pattern existing in an area. Considering all these factors the Corporation has fixed a cap in lending to various sectors. 5.2 The Credit Department, at Head Office, will monitor the exposure to the various sectors on a monthly basis and report to the Board regularly on the same. The exposure of the Branch and the Corporation as a whole, to the concerned sector, will be reported in each of the proposal for sanction of financial assistance. 6 Thrust Areas 6.1 The business strategy of the Corporation revolves around identification of thrust areas for direct lending, charting out a focused business development strategy, encouraging product innovation, improving credit delivery and having in place a pricing policy which supports business growth and links it to risks. 6.2 The focus of the Credit Policy is on asset growth with quality. Accordingly, due emphasis is accorded to credit assessment, risk management, credit monitoring & review, exposure management, enhancing skill sets of the employees, etc. while maintaining the focus on customer needs. Looking into the increasing competition and the resultant margin pressures, the Corporation would also put in place a suitable strategy to rapidly develop and increase the size and scope of its portfolio for generating fee based income. 6.3 The Policy emphasizes the need to support the manufacturing sector and will team up with institutions such as Coconut Development Board, Coir Board, Rubber Board, Spices Board, etc to support innovative projects. The Corporation will also work closely with the Kerala Startup Mission to promote technology-intensive sectors such as Information Technology and Biotechnology. 6.4 Keeping in mind the need to support growth of the State’s economy and creation of a healthy and vibrant asset base for the Corporation, the following areas are currently given thrust while selecting projects for funding. 6.5 Existing MSME Units 6.5.1 The Corporation has been able to increase its retail customer base over the years. It will continue to cater to the requirements of existing customers and devise suitable products/processes to serve them better. Simplified processes, quick credit decision and timely credit delivery would help in building up sizable ‘quality assets’ from existing customers. 6.6 MSME Manufacturing Sector 6.6.1 Assistance will be given to MSME projects in the manufacturing sector for their varied business needs. Emphasis will be on traditional industries of Kerala like coir, spices, hand-looms, rubber, food-processing, light engineering, cashew, furniture, tourism, bricks, dairying activities, sea food, rice mill, plywood, crusher, etc. in clusters or individually. 6.6.2 Considering its importance towards the overall growth of the State, the Corporation has fixed the rate on interest applicable to this sector at the minimum. For continuing to receive the minimum rate, units in manufacturing sector will have to produce the Udhyog Aadhaar registration certificate within six months of start of commercial operation.



6.7 Service Sector 6.7.1 The share of the service sector in the Indian economy is continuously increasing and the sector contributes significantly in employment generation and export earnings. Segments such as healthcare, telecommunication, biotechnology, IT and IT-enabled services continue to witness healthy growth. Towards meeting the growing financial requirements of the sector, the Corporation would target the service sector projects, an indicative list of which is given below: • Hospitality & tourism related activities (including health tourism) • IT, IT-enabled services and communication services • Biotechnology • Renewable Energy Projects • Advertisement and promotion services • Infrastructure support services including activities relating to telecom • Transport Services • Logistic services 6.7.2 Some of the projects in the service sector, even though do not create tangible assets and may not meet security related norms, are found to generate comfortable cash flows. These include IT and other knowledge based industries, retailing, franchising, assisting channel partners of leading manufacturers, lease rental discounting, etc. As there is good potential for considering assistance to these sectors, proposals of such kind with borrowers having sound financial position, past performance as reflected in previous balance sheets/cash flows and management track record could be considered for KFC’s financial support based on factors like order book position, projected cash flow, etc. 6.7.3 Significant investments are also being made in the state for setting up of infrastructure for Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO) and other knowledge based activities like call centres, technical help desks, medical transcriptions, IT/IT-enabled services, bio-informatics, contract research, etc. Some of these services/activities are outsourced to India and have large potential for employment generation. Moreover many big companies/PSUs in the state itself are outsourcing their requirements through ancillary units/vendors in the MSME/transport sectors, etc. which offers business potential for the Corporation. Considerable opportunities are opening up for MSMEs with regard to sub-contracting of various work to them by the larger Corporates undertaking such activities, provided the MSMEs are in a position to consistently deliver high quality and timely output. 6.7.4 Besides, business opportunities in new areas such as setting up of service stations (petrol and gas filling stations, auto workshops, etc.), events management, and establishment of design houses/studios, cafeteria could also be considered for financing by the Corporation. 6.7.5 In respect of stand-alone IT/telecom services projects, the credit risk aspects should be properly addressed and in this regard safeguards like tie-up with established corporates/ contractors, participating under consortium financing, adequate promoters’ contribution being brought in, etc. would be ensured. 6.8 Credit Delivery in Cluster 6.8.1 The MSME sector in Kerala is highly diversified in terms of industry segments and geographical terrain. A large segment of MSMEs operate in clusters which have developed at different geographical locations due to various factors like historical availability of certain skill craftsmanship in the location, proximity to raw material or customer, etc. MSMEs located in clusters have similar characteristics and face similar challenges. Corporation’s credit linked interventions will involve providing financial assistance to MSME units in clusters through special dispensations using customised products and processes keeping in view their needs and requirements. Customisation is considered a key requirement as the



normal schemes & bench mark norms, which are designed for standalone customers, are sometimes not exactly suited for such cluster interventions. 6.8.2 As part of its business strategy, the Corporation would continue to accord greater focus on MSME clusters as the hubs of potential business centres with growth outlook and relatively lower risk, through its branch network. For this the Corporation would involve other intermediaries/ institutions for developing customised cluster based lending strategy. 6.9 Micro Manufacturing 6.9.1 Traditionally manufacturing has been about scale. However with a densely populated landmass, Kerala has not traditionally been seen as viable as a major manufacturing hub. Hence Corporation intends to facilitate the new concept of micro manufacturing, which replaces the traditional manufacturing model and brings about paradigm shift in the manufacturing activity which will result in innovation as well as inclusion. 6.9.2 The idea is to set up distributed micro-manufacturing units in various parts of the state making a common product/products under one brand name that can be established anywhere even from people’s homes. This concept is well suited to Kerala where we have industrious people with high level of skills. The target group includes engineering, polytechnic, ITI students, educated unemployed women, existing technicians, Gulf- returnees, NGOs, social and other groups, etc. 6.9.3 The Corporation has established its credentials to cater to the micro sector through its efforts in developing about 2000 startups under the Kerala State Entrepreneur Development Mission (KSEDM) during the period 2011-16. It is felt that a lot can still be done to foster the spirit of innovation and the entrepreneurial spirit of the youth by providing finance to start-up projects undertaking a distributed manufacturing activity under a common brand, where risks are low and conventional funding through schemes of the Corporation may not be possible. 6.9.4 KFC intends to partner with innovative manufacturers or non-government organisations which will provide the manufacturing capability, technology, consultancy for the distributed manufacturing units (DMUs) that can manufacture a series of innovative and attractive products that could be marketed under a common brand. 6.9.5 The proposed model involves execution of an MOU between KFC and the partner which will specify each party’s roles and responsibilities. The partner will identify innovative products for decentralized micro manufacturing and thereafter consider selection of individual entrepreneurs or groups on the basis of their technical as well as entrepreneurial capability. They would give some basic technical training to the selected persons and also give the details of the Production Model. The model would include arrangements for centralized Quality Control mechanism and Marketing Plan, which may also include partial buy back of the final product from the DMUs either directly or through a nominated Production and Marketing Company (PMC). They will also enter in to an MoU with the DMUs about mutual responsibilities. It would be a tri-partite MoU whenever a PMC also becomes a part of the arrangement. They will also help DMUs in preparing project reports or financial plans for submission to KFC. It would also prepare a manual for quality control of the DMUs. The partner will levy only reasonable Technical fee or Consultancy fee, Royalty, Quality control fee, etc. for its support services to the DMUs. 6.9.6 KFC will finance DMUs if they have entered in to MoUs with the partner agency. The products developed will effectively create a ‘Made in Kerala’ supply chain that would bring a steady stream of revenue in the hand of entrepreneurs. It will also result in production of various innovative and socially relevant products from Kerala with assured quality and competitive pricing.



6.10 Renewable Energy Projects 6.10.1 Considering the acute power shortage faced by Kerala State, it is proposed to extend loans to renewable energy projects. The Corporation will have a liberal policy towards financing projects generating solar energy, wind power, etc. 6.10.2 Existing units will be encouraged to meet part of their energy requirements from renewable energy sources. Corporation will extend finance to acquire equipments for this purpose. 6.11 Energy Saving Projects 6.11.1 In view of the growing need for energy saving and importance of energy conservation, the Corporation has formulated a special scheme to promote energy saving measures in SMEs by providing financial assistance for the implementation of Energy Saving Devices/Projects. 6.12 Enterprises Promoted and Operated by SC/ST Entrepreneurs 6.12.1 Corporation will provide encouragement to enterprises promoted and fully owned by SC/ST entrepreneurs by providing financial assistance at concessional rates of interest. 6.13 Enterprises Promoted and Operated by Women Entrepreneurs 6.13.1 In order to encourage women entrepreneur to start manufacturing concerns the Corporation provides financial assistance at concessional rates of interest. 6.14 Fee Based Activities 6.14.1 The Corporation would encourage non-fund based business by way of offering appraisal/management/escort/consultancy services, loan syndication, skill/EDP trainings, etc. The aim is to help first generation entrepreneurs as well as to increase fee-based income and thereby improving the Corporation’s bottom line subject to norms and guidelines in this regard. The Corporation will actively explore the vast opportunities available in such fee-based business which, on the other hand, will also help bringing more direct business through entrepreneurial confidence and image building and the Corporation would ultimately be able to emerge as a one-stop-shop for entrepreneurs. 7 Eligible Borrowers 7.1 The Corporation will provide assistance to proprietary concerns, partnership firms, limited liability partnerships, private & public limited companies, one man companies, producer companies, societies, trusts, government owned companies, corporations established by law and co-owners/co-borrowers. As a prudent practice and a step towards risk mitigation customers will be encouraged to adopt a corporate culture by establishing limited companies of public/private/limited liability partnership nature from the inception itself and/or during the life of the entity. 8 Schemes of Funding 8.1 The parameters that guide efficient funding vary with type of loan, duration of loan, sector, industry, activity, purpose, etc. Depending on these the Corporation has, in operation, schemes for funding. Schemes are available for term loans, working capital term loans, working capital revolving fund loans, line of credits, long term loans, short term loans, contractors, construction of built-up space, film/serial production, new units, expansion/diversification/modernization/upgradation of existing units, startups funding, scaling up loans, special schemes for IT/biotechnology sector, receivable finance, special loans for existing customers, etc.



8.2 The Corporation has rationalized its various products based on the experience gained in operating them and the feedback received from the operational level. 8.3 The objective is to meet the requirements of all the target groups by offering them need based financial assistance. It will be the endeavor not to deny assistance to the worthwhile bankable project from the target group merely for want of a standard product/scheme. 9 Upper Loan Limit 9.1 The SFCs Act has fixed the upper limit for funding by the Corporation at Rs 2000 lakhs for the Corporate Sector and Rs 800 lakhs for the non-Corporate sector. 9.2 Through G.O.(Ms)No.39/2019/Fin dated 21/01/2019 of Finance (Public Undertakings – A) Department, Kerala Financial Corporation has been granted permission to increase the limit of financial assistance to registered contractors from Rs 800 lakhs to Rs 2000 lakhs, for all entities. 9.3 In some sectors, purposes and types of loan, the Corporation has fixed ceiling limits depending on the requirements, risks, outgo due to concessions granted, etc. 9.4 As stipulated by SFCs Act, the Corporation takes approval from SIDBI when sanction of loan enhances the total exposure above Rs 1000 lakhs in the Corporate sector and Rs 400 lakhs in the non-Corporate sector. 9.5 In order to limit its exposure to a group having different entities under it, the Corporation has fixed upper limits to a group at 2.5 times of that to an entity in the group. 10 Committee Based Approach 10.1 In all credit operations like scrutiny, appraisal, sanction, etc. the Corporations follows the Committee concept. Depending on the hierarchy committees have different levels of authority to accept, process and modify conditions. The Corporation operates at three tiers, viz. Branch, Zone & Head Office. Committees work at the Branch Head, Zonal Head, General Manager and Managing Director level. Proposals for sanction of loans in which the total exposure is above Rs 1500 lakhs is decided up on by the Executive Committee of the Board. 10.2 The key tool for managing the internal processes of the Corporation is the Delegation of Powers which has been formulated keeping in view the requirements of quick decision making and the level of experience and expertise obtained by the personnel at various positions. The delegation of powers, apart from indicating the financial and other powers of the committees and the individual functionaries, also puts in place suitable systems of checks and balances in credit related decision process. 11 Branch Jurisdiction 11.1 The Corporation has Branches or Field Offices in each of the District of the State. Since business development, evaluation, monitoring and follow up are the major function they engage in, the personnel working need to keep visiting the assisted units. To facilitate this, the Corporation has a policy that the Branches do business in the geographical area of their jurisdiction. Provisions and criteria are put in place to cater to need-based deviation in this. 12 Business Development and Canvassing of Applications 12.1 Development of good business forms the foundation for creation of a healthy loan portfolio. The main emphasis is on identifying good proposals from the references, received from within/outside and providing quality service to the customers. A capable Customer Relations Manager (CRM) is the epicenter around which the Corporation achieves this objective. Enquiries received are monitored through the CFS and discussed at all levels, up



to that of the Managing Director. These discussions help the Corporation to evolve its strategy and prioritize the area of lending. 13 Appraisal Process 13.1 Extensive and effective project appraisal is the next base on which a quality portfolio is developed. Internal competencies are developed for the purpose and these are being improved up on a regular basis. The project appraisal is a comprehensive data-based assessment of project viability covering the technical, commercial and financial areas, estimation of loan requirement and its effective injection, analyzing the risks and its mitigation, etc. The promoters, entity and the project are rated through its internal rating continuum. Information is extensively gathered from marketing channels, lenders, etc. Benchmarks norms are in place and these are continuously visited based on experience with different sectors and products. 14 Base Rate (BR) 14.1 An aggressive pricing strategy is required to ensure quality and growth of its loan portfolio. The interest rates applicable for a loan will be fixed linked to the BR. The Corporation revises the BR from time to time depending up on the market condition and the cost of its funds. The loans are provided on floating rates with fixed spreads above and below the BR, unless otherwise specified. Interest rate reset clauses are incorporated in the loan agreement and is applicable on the outstanding balance. Borrowers have the option to either accept the revised rate or to repay the outstanding amount, without any foreclosure premium, if done within 15 days of the date of receipt of communication. 15 Periodicity of Demand 15.1 The Corporation demands interest on the loan and repayment of principal on a monthly basis. 16 Rebate for Prompt Payment 16.1 To encourage investment in desirable sectors, improve the quality of its portfolio, to reward longstanding and healthy association with the Corporation, to fight competition from other funding agencies and to encourage prompt repayment, the Corporation has a policy of providing rebate for prompt payment. 17 Income Recognition 17.1 Interest income on loans and advances is accounted for on accrual basis. However interest in loan accounts, in which interest and/or principal installment is due for more than 90 days as on the date of balance sheet, is accounted on actual receipt basis as per RBI norms for term lending. Similarly penal interest is accounted on actual receipt basis in view of significant uncertainty about their realisability. 18 Funding of Second Hand Machinery 18.1 The Corporation has in place procedures for funding second hand machinery, both imported and indigenous, in deserving proposals. 19 Time Limits for Disposal of Loan Applications 19.1 It will be the endeavor of the Corporation to take decision on applications for financial assistance within specified time limits. To ensure this the time limits fixed for this activity, has been brought under the Kerala State Right to Services Act 2012.



20 Processing Charges 20.1 The Corporation collects services charges from the client for processing an application for financial assistance, while renewing a limit, when supplementary processing is required based on requests of customer, viz. revalidation, substitution of security, reconstitution of promoting entity, external valuation, etc. 21 Statutory Dues 21.1 The Corporation keeps track of the timely payment of statutory dues by the clients. 22 Credit Monitoring 22.1 Effective follow up and supervision of borrower accounts would continue to be given emphasis as this contributes substantially towards creating a healthy portfolio. Multi-level systems of monitoring are in place. The credit manual lays emphasis on this area and the project / field officers are provided with methodology of assessing critical and sub-critical accounts, measures to bring them out of criticality, etc. 22.2 All rehabilitation measures, through restructuring of extended financial assistance, shall be governed by the Loan Monitoring Guidance Note (LMGN) issued separately. 22.3 Resolution of Non-Performing Assets (NPAs) through Compromise Settlement (CS) is an effective tool in realization of amounts due to the Corporation. This activity is governed by the Loan Compromise Settlement Guidelines (LCSG) issued separately. 23 Timely Completion of Projects 23.1 Timely completion of projects is a critical factor in the viability of the same. The Corporation has put in place a mechanism to ensure this with targeted time fixed for completion of legal documentation and drawal of loan. Power to condone delays, in genuine cases, is vested with higher authorities depending on the quantum of delay. 24 Undisbursed Commitments 24.1 To ensure timely completion of projects and to ensure that early warning signals are received promptly a process to review the undisbursed commitments is in place. 25 Insurance of Pledged Assets 25.1 All assets pledged to the Corporation, including collaterals, shall be insured adequately throughout the tenure of the loan. Responsibility is fixed and procedures are in place for ensuring this. Clients are also incentivized for maintaining the pledged asset insured. 26 Pledging of Assets 26.1 Unless otherwise specified, Corporation will generally get all the assets, financed by it and those offered to it as additional cover, through equitable mortgage/hypothecation/lien. 27 Guarantee of Entity & Associated Persons 27.1 The financial assistance provided by the Corporation will also be secured by the Corporate Guarantee of the assisted entity and the personal guarantee of promoter directors and shareholders having more than 5% share holding in the financed entity. 28 Risk Management Committee 28.1 Risk Management Committee at the Head Office shall discuss all loan proposals, above Rs 500 lakhs, before placing before the respective sanction committees. The



recommendations of the Risk Management Committee shall be factored in the recommendations to the sanction committee and in its minutes. 28.2 Sector-wise performance analysis shall also be carried out by the Committee periodically to take pro-active steps to reduce NPA in a particular sector. 28.3 The Committee will also evaluate all advances on the internal credit rating format, on an annual basis, and prescribe the rate of interest applicable to each of the advances of the Corporation. 29 Premium for Prepayment/Foreclosure of Loan Accounts 29.1 Although provision is there for prepayment and foreclosure of the loans, a premium is charged by the Corporation for the same. The premium will be charged based on the policies existing in the Corporation at the time of foreclosure of loan accounts. The primary objective of this policy is to prevent takeover of its portfolio by other funding agencies. With this objective in mind the sanctioning authority and MDLC are vested with powers to waive the premium amount, based on prudent analysis. 30 Operational & Management Audit 30.1 These are covered separately in the Audit Policy of the Corporation. 31 Staff Accountability 31.1 Concept of Staff Accountability is implemented in the Corporation. The details of these have been issued as a separate document. 32 Fair Practices Code for Lenders 32.1 The Corporation will subscribe to Fair Practices Code for Lenders, as stipulated by the Reserve Bank of India. 33 Recognitions for Good Clients 33.1 Excellent clients of the Corporation will be recognized by branding them as KFC Gold Card customers. They will be provided cards on an annual basis and will be eligible for special facilities from the Corporation. 34 Jurisdiction for Litigation 34.1 Any dispute arising out of implementation of this policy shall be adjudicated through Courts within the State of Kerala only. 35 Conclusion 35.1 Efficient credit delivery is the key to quality portfolio build up and customer retention. The Loan Policy gives adequate flexibility to develop viable business proposals. The Policy has also put in place a suitable structure for approval / clearance of new products. Hence, any business proposition considered to be viable and bankable should not be lost on account of non-availability of a suitable scheme/product. It will also be the endeavor of the Corporation to provide adequate and timely support to the industrial sector for the economic development of the state. The corporation would give emphasis on the viability of a project than on security oriented approach, as no amount of security/collateral can replace the normal course of recovery of a loan out of the income generated from the support, nor any lender can derive the satisfaction of seeing through a successful project which serve many economic and social objectives of the State.



35.2 The Corporation will continue its efforts to simplify and streamline procedures/processes to expedite the credit delivery besides making efficient use of IT for internal credit monitoring. Strategic alliance entered into with commercial banks would also be utilised for giving better facilities and services to the MSME customers. 35.3 Various internal business processes will be monitored to achieve operational flexibility/ simplicity and adequate control over business operations. Sd/-

Chairman & Managing Director

CREDIT MANUAL 2019-20

CreditManual2019-20 Page1

CREDIT MANUAL

FY 2019-20




INDEX

Particulars Page No. Introduction 3 Classification of Enterprises 3 Eligible Borrowers 3 Assistance to Trusts 4 Eligible Activities 4 Industry/Sectoral Exposure Caps 6 Schemes for Lending 6 Takeover of Loans given by Banks/Financial Insitutions/NBFCs 7 Upper Loan Limit 7 Group Exposure 8 Sanction Committees 9 Branch Jurisdiction 11 Business Development & Canvassing Applications 11 Registration of Application for Financial Assistance 12 Preliminary Scrutiny of Loan Applications 12 Processing Charges/Guarantee Commission 12 Appraising Teams 13 Appraisal Process 13 Bench Mark Financial Norms 18 Computation of Working Capital 25 Rate of Interest 25 Loan Disbursement 26 Audit at Sanction and Disbursement Stage 30 Credit Monitoring 30 Prepayment/Foreclosure of Loan Account 33 Fair Practice Code for Lenders 34 KFC Gold Card Customer 34 Deviations from the Credit Manual 35



INTRODUCTION The Credit Policy gives a broad frame work for efficient management of the credit operations within the Corporation. The methodology by which the same is achieved is detailed in the Credit Manual. An extensive and comprehensive document for operation of Contractor Loan Scheme was approved and circulated on 30/01/2019. This document has been amended and is added as Annexure to this document. CLASSIFICATION OF ENTERPRISES The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 has shifted the focus from “industry” to “enterprise”. The definitions adopted for classification of manufacturing and service sector activities under MSMED Act are as under:

Enterprise Category

Manufacturing (Original Investment in P&M)

Services (Original Investment in Equipment)

Micro Up to Rs 25 lakhs Up to Rs 10 lakhs Small Up to Rs 500 lakhs Up to Rs 200 lakhs Medium Up to Rs 1000 lakhs Up to Rs 500 lakhs For classification of an enterprise as micro, small or medium the purchase value of plant & machinery has to be reckoned and not the book value. For ascertaining the investment in plant & machinery the following documents could be relied upon: a. A copy of the invoice of the purchase of plant & machinery, or b. Gross block for investment in plant & machinery as shown in the audited accounts, or c. A certificate issued by a Chartered Accountant regarding purchase price of plant &

machinery. ELIGIBLE BORROWERS The Corporation provides financial assistance to customers having the following constitutional framework. They are broadly classified into the Corporate and Non-Corporate sector as the limits of accommodation is dependent on which category they fall into.

Corporate Sector

Public Limited Companies Private Limited Companies Government Owned Companies Corporations established by Law Registered Co-operative Societies

Non-Corporate Sector

Limited Liability Partnerships Partnership Firms Proprietary Concerns Registered Trusts Societies, including Charitable Societies One Person Companies Producer Companies Co-owner/Co-borrowers

Preference to Entities in the Corporate Sector As a prudent practice and as a step towards risk mitigation, customer would be encouraged to adopt a corporate culture by establishing limited companies of public/private/limited liability partnership nature. They can also be allowed time even after sanction/disbursement to convert a firm/concern/society/trust into such entities, which will give them better growth prospects and market acceptability. However no worth-while proposal will be denied assistance for want of such conversion.



New and Existing Entities The Corporation provides financial assistance to both new and existing entities. A new entity is one newly set up / proposed to be set up. This would also include entities, established in the past, but with nil or insignificant commercial operation. An existing entity is one which has already been established and is engaged in commercial operation, with or without financial assistance from the Corporation. Limitation regarding Aggregate of Paid-up Share Capital and Free Reserves Section 28(d) of the SFCs Act prohibits Corporation from granting any form of assistance to any industrial concern in respect of which the aggregate of the paid-up share capital and free reserves exceeds Rs 10 crores or such higher amount, not exceeding Rs 30 crores, that the State Government, on the recommendation of the Small Industries Bank, may, by notification in the Official Gazette, specify. Government of Kerala, vide Gazette notification dated 05/06/2009, have permitted Kerala Financial Corporation to grant any form of assistance to any industrial concern in respect of which the aggregate of the paid-up share capital and free reserves does not exceed Rs 30 crores. Limitation regarding Score in Internal Credit Rating The applicant entity has to obtain a minimum credit rating of 40% based on Internal Credit Rating module of the Corporation. For scores between 40% and 50%, the appraising officer / field officer shall justify the reason for the fall in the rating below 50% and the same shall be endorsed by the sanctioning authority. Companies with Registered Offices outside Kerala Under SFC’s Act the Corporation is to fund projects within its geographical jurisdiction only. We have been receiving proposal for projects, being set up in the State, by entities registered outside the State. In such cases the requirement of the project, being set up in the State of Kerala, can be funded if the Company has a Corporate Office or Regional Office in Kerala and the operations in the funded enterprise are managed by this office. Assistance to Trusts There is no barrier in providing financial assistance to a Trust as per the SFCs Act. However considering the hardships involved in enforcing the trust property for realization of assistance provided, we usually refrain from granting loan to Trust. Hence financial assistance to Trusts will be governed by strict compliance of the following conditions. 1. It must be a Private Trust. 2. The required provisions must be in the Trust Deed. 3. Value of the Trust Property should not be taken for security purpose. 4. Credit worthiness of the trustees should be looked into. 5. Personal guarantee of the trustees and the settler to be obtained. 6. Collateral security should not be a trust property, hospital or educational institution as

recovery steps against these properties are found to be difficult. 7. Independent collateral security to be obtained to the satisfaction of the Corporation. 8. Undertaking from the Co-obligant/Guarantor/Title Holder of the collateral security

property to the effect that, in case of default made by the borrower, they will not raise any objection/claim that primary security property should be acted upon and amounts realized before acting on the collateral security.

ELIGIBLE ACTIVITIES All new and existing units taking up industrial/infrastructural activities are eligible. The following types of activities, inter alia, are covered:



• MSMEs in the manufacturing/service sector. Large units can also be considered on

selective basis. • Ancillary/vendor units. • Acquisition of machineries/equipment, DG sets, computers, etc for industrial purposes on

standalone basis. • Skill training & educational activities directly linked to industrial activities. • Hotels, resorts, restaurants, cafeteria, catering services, amusement parks and other

tourism related activities. • Hospitals, nursing homes, diagnostic centres, health clinics, veterinary clinic, etc. • Renewable energy, solar energy and wind energy projects. • IT/ICT enabled as well as logistic services. • Infrastructure facilities such as industrial parks/estates (including

modernization/refurbishing), power projects – both conventional and non-conventional, Common Effluent Treatment Plants, road construction benefiting industries, etc.

• Warehouses/Godowns, container freight terminals, cold-storage facilities, etc. • Malls, showrooms, shopping/commercial complexes, display/exhibition/convention

centres, business incubation centres, auditorium, internet café, multiplexes, etc. • Transport sector including agency - managing taxis/buses/trucks and other contract

carriers. • Purchase of vehicles. • Funding of Government Contractors • Qualified professionals for their offices/shops/transport needs. • Petrol/diesel/gas filling stations, vehicle servicing centres, workshops, etc. • Fisheries and aquaculture • Sericulture and horticulture • Acquisition of existing concerns and units taken over by KFC. Any other activity permitted under the State Financial Corporations’ (SFCs) Act, 1951. Activities classified into Sectors The eligible activities are broadly classified into the following sectors. Manufacturing Sector - All manufacturing activities including processing & preservation

Hospitality Sector - Hotels, lodges, restaurant, convention centres, seminar halls, tourist resorts, amusement parks, etc., The State’s growth is increasingly dependent on this sector.

Service Sector - Transport, fishing boat/trawlers, house boats, marketing, IT parks, hospitals, pathological laboratories, medical equipment, professionals like Doctors & Architects, Funding of Government Contractors, etc.

Entertainment Sector - Setting up new multiplexes, upgradation/modernization/renovation of existing cinema theatres, production of feature films and TV serials, etc. This is an emerging sector, in the State, with good business potential.

Infrastructure Sector - Development of industrial areas, industrial estates, IT parks, roads, training institutions, etc. These are a basic requirement that form the engine for economic growth.

Power Sector - Power generation/distribution including alternate sources of power like windmills and solar energy - as they provide pollution-free additional power as also help tax – saving plans.

Housing & Real Estate Sector - Residential apartments, villas, commercial spaces, shopping malls, etc. These cater to the changing lifestyle and needs of the population of the State.

Marketing Sector - Commercial complexes, construction of go-down, input suppliers / vendors, stockists, etc. These provide important backward and forward linkage.



INDUSTRY/SECTORAL EXPOSURE CAP It is always desirable to have exposure to different sectors. To achieve this, the Corporation has been fixing limits up to which exposure in a sector can be allowed in the policies for each financial year. The exposure cap fixed by the Corporation for various sectors is given below. These caps are for the Corporation as a whole.

Sector Exposure Cap for Current Financial

Year Manufacturing / Processing Industries* 35.00

Service Sector

Classified Hotels without Bar including 5-star with Bar 10.00 Classified Hotels with Bar 10.00 Unclassified Hotels, Tourist Homes, Lodges, Hostels, Restaurant, Bakeries, etc. 16.00

Hospital, Medical Services 5.00 Auditoriums, Convention Centres, Kalyanamandapams 2.60 Multiplex, Cinema Theatres 2.50 Film/Serial Production 0.25 Contractor Loans 20.00 Other Service Sectors 5.50 Total for Service Sector 71.85

Commercial Real Estate (CRE) 16.50 * Currently it is seen that the level of non-performing assets is the minimum in small loans given to manufacturing / processing sector. Funding such enterprises is in tune with the purpose for which the Corporation has been created. Hence Branches are to encourage proposals in this sector and exposure limit, to manufacturing / processing industry indicated in the Table above, is only indicative in nature. Reporting in each Proposal for Sanction of Loan Each proposal for sanction of financial assistance has to comment on this aspect and certify that the exposure, for the Corporation as a whole, is within the allowable limits. Data Base in Core Financial Solutions (CFS) There is provision in CFS to obtain the exposure to different sectors, for the Corporation as a whole and for the Branch. The exposure will include the current principal outstanding in that sector and the amount of undisbursed commitments to the sector. SCHEMES FOR LENDING The objective is to meet the requirements of all the target groups by offering them need based financial assistance. It will be the endeavor not to deny assistance to the worthwhile bankable project from the target group merely for want of a standard product/scheme. Depending on the activity, industry, sector, purpose and type of client, the parameters applicable will vary. Based on these the Corporation has the following schemes for lending in operation. 1. Scheme for Term Loans for Industrial Activities 2. Working Capital Revolving Fund Loan Scheme 3. Scheme for Financing Construction Activities & Housing Projects 4. Short Term Loan Scheme 5. Scheme for Special Working Capital Assistance to Hotels 6. Contractor Loan Scheme



7. Scheme for Financial Assistance for Producing Feature Films & TV Serials 8. Vehicle Loan Scheme 9. Working Capital Term Loan Scheme 10. Scheme for Modernisation, Upgradation, Expansion & Diversification of Existing

Manufacturing Units/Hotels/Hospitals/Cinema Theatres, etc. 11. Special Revolving Fund Scheme for Existing Customers 12. Receivable Finance Scheme 13. Liberalised Scheme for Financing up to Rs100 lakhs to Units under KSEDM 14. Startup Support Scheme 15. Scheme for Financing Working Capital Requirements of Startups for Executing Purchase

Orders. 16. Scheme for Funding Venture Debt for IT Hardware & Software Enterprises 17. Scheme for Funding Private Enterprises set up for Defibering of Coir Husk under

Government Subsidy Scheme During the previous financial year it was realized that the financial assistance for infrastructure projects through government contractors is an area that has not been fully exploited by the Corporation. To increase penetrations in this area many measures were adopted. It was also noted that the operation of this scheme requires an approach, different from that for other schemes. Resultantly a comprehensive operation manual had been brought out on 30/01/2019. This manual has been amended and is added as Annexure to this document. Takeover of loans given by Banks/FIs/NBFCs In order to increase the loan portfolio it is proposed that loans given by any other Bank/FIs/NBFCs can be taken over by the Corporation provided the project comes under the eligible activities of the Corporation. During takeover it will be ensured that the promoters are financially sound and managerially capable. The viability of the project shall be ensured and separately assessed by the branch rather than fully relying on the appraisal of the Bank/FI/NBFC. The proposal has to be appraised as a new loan and has to comply with all the financial norms fixed by the Corporation. Non-performing assets and even stressed assets shall not be taken over. Loans of enterprise having negative net worth and accumulated losses too shall not be taken over. Appraisal team shall ensure that the account has not been non-performing or stressed, at least for the past two years, through verification of bank statements and discussion with bank officials. CIBIL score, financial statements, tax returns, outstanding statutory dues, etc. have to be verified. The reasons for the applicant coming to the Corporation should also be highlighted. The loan disbursement shall be directly done to the bank/financial institution/NBFC after ensuring margin as per the norms of the Corporation. All securities created in the favour of the Bank/FI/NBFC will be transferred to the Corporation immediately on receipt of the payment by them. UPPER LOAN LIMIT The SFCs Act has fixed the upper limit up to which the Corporation can fund an entity. The limits are as follows: Corporate Sector – Rs 2000 lakhs Non-Corporate Sector – Rs 800 lakhs The Government of Kerala has exercised the options available in Section 25(e) of the SFCs Act and granted permission to increase the limit of financial assistance to registered contractors from Rs 800 lakhs to Rs 2000 lakhs, for all entities. The permission was granted through G.O.(Ms)No.39/2019/Fin dated 21/01/2019 of Finance (Public Undertakings – A) Department and the Board of the Corporation has decided to implement the same.



In some sectors, purposes and types of loan, the Corporation has fixed ceiling limits depending on the requirements, risks, outgo due to concessions granted, etc. These limits are indicated in the following Table.

Particulars Maximum Upper Loan Limit Special Revolving Fund Scheme for Existing Customers* Rs 250 lakhs

Scheme for Financial Assistance for Producing Feature Films & TV Serials Rs 200 lakhs

Vehicle Loan Scheme Rs 200 lakhs Scheme for Special Working Capital Assistance to Hotels Rs 100 lakhs

Concessional Finance under Energy Saving Projects** Rs 100 lakhs

Concessional Finance to Women Entrepreneurs*** Rs 100 lakhs

Concessional Finance to SC/ST Entrepreneurs Rs 100 lakhs * Subject to the condition that it does not exceed 30% of the total term loan availed by the enterprises and the

resultant exposure does not exceed the total term loans availed by the enterprise from the Corporation ** Energy Management Centre (EMC) has to recommend the proposals for consideration. The proposals received

at Branch Offices after initial processing will be forwarded to Credit Department for onward transmission to EMC. The effective interest rate under the scheme is kept at 6% p.a. and no processing fee will be charged. The aim of this scheme is to reduce the energy consumption of existing SMEs by implementation/ replacement of existing devices to Energy efficient devices.

*** The definition of an enterprise owned by women entrepreneur is as follows: - Proprietary concern owned by women entrepreneur - In the case of partnership, limited companies, societies, etc at least 75% of the partners/directors shall

be women and they shall have at least 75% of the share holding. The Managing Partner/Managing Director shall be women.

Relaxation in the definition of women entrepreneur can be allowed, in deserving cases, by Managing Director In-principle clearance from SIDBI SIDBI vide Circular dated 1-3-2011 has informed the Corporation that prior approval of SIDBI is required under section 26(i) & (ii) of SFCs Act where the loan proposed to be sanctioned exceeds Rs. 1000 lakhs in the case of a Corporation established by law, a Company as defined in Companies Act 1956 or a Co-operative Society registered under Co-operative Societies Act, 1912 and Rs. 400 lakhs in respect of proprietary concern/partnership firm/trust, etc. However, to avoid delay in sanction and disbursement of assistance such approval can be sought after sanction of the loan. Sanction communication, in such situation, can be issued by branches in anticipation of getting permission from SIDBI, to avoid delay. Immediately after sanction of loan above Rs. 1000 lakhs in case of Corporate entities, etc. and loans above Rs. 400 lakhs in other cases, the Project Officer should complete the specified format based on the appraisal note and forwarded it to the Credit Department at Head Office for seeking permission from SIDBI under Section 26(i) & (ii) of SFCs Act. Group Exposure Maximum financial assistance that can be extended per unit (individual exposure) by the Corporation has been fixed, in terms of the norms prescribed by SIDBI based on Section 26 of SFCs Act, 1951. These are detailed in the above section. The same group may be having different entities operating under them and each of these can be funded by the Corporation up to the maximum level allowed by the Act. But too much of exposure to a group has risks associated with it. Hence the Corporation has fixed upper limits for funding to a group, i.e. to different entities promoted by the same group.



For group exposure the ceiling of financial assistance would be two-and-a-half times the ceiling for individual exposure as under:

Particulars Cap (Rs. in lakhs)

For a Unit For Group Corporate Sector 2000 5000 Non-Corporate Sector 800 2000 The total exposure to all proprietary concerns put together shall not exceed Rs. 800 lakhs. As stated, in earlier section under upper loan limit, Government of Kerala has granted permission to increase the limit of financial assistance to registered contractors from Rs 800 lakhs to Rs 2000 lakhs, for all entities. The increased limit will not be applicable for determining eligibility under group exposure norms. Group concerns are defined as companies, firms, trust, etc. which are under the same management. Two entities shall be deemed to be under the same management if they have 1. Common Managing Director/Managing Partners. 2. Majority Common Promoter Directors/Partners 3. Not less than one third voting power of both the companies/firms is controlled by the

same individual or body corporate. 4. Proprietor of one unit is the partner in another unit. 5. Concerns started by husband and wife. There can be instances when group companies avail loan from different Branch Offices. In these cases the Branch Offices have to verify whether the Group exposure norms will be applicable and the loans should be sanctioned by the respective authority, as per the delegation of powers, considering the total exposure. SANCTION COMMITTEES

Loan amount up to Rs 100 lakhs Branch Level Sanction & Settlement Committee (BLC)

Above Rs 100 lakhs and up to Rs 500 lakhs

Zonal Level Sanction and Settlement Committee (ZLC)


General Manager Level Sanction Committee (GMLC)


Managing Director Level Committee (MDLC)

Above Rs 1500 lakhs Executive Committee (EC) Scheme for Special Working Capital Assistance to Hotels

Branch Level Sanction and Settlement Committee (BLC)

Special Revolving Fund Scheme for Existing Customers

Zonal Level Sanction and Settlement Committee (ZLC)

These limits shall include existing balance outstanding, amounts pending for disbursement, proposed loan and group exposure, if any. Managing Director Level Committee can sanction loan proposals without considering the group exposure provided the loan to the entity is within its powers, reckoned based on other parameters. Reporting of Sanction All sanctions done by any of the above Committees shall be reported to the next higher level committee on a monthly basis. The convener of the Committee has to ensure that the report is sent to the higher committee before the 10th of the succeeding month.



Constitution of Committees The Zonal Managers are empowered to constitute the Branch Level Committees. Immediately on constitution, the same shall be intimated to the Credit Department at Head Office. While constituting the Committee, Zonal Managers have to include senior officers in the Branch, who are not associated with appraisal and disbursement, also in it. Zonal Managers should also strive to include senior officers from Zonal Office and other Branches, in the Zone, to have a divergent view and to improve interaction and knowledge sharing among the officers of different Branches/Zonal Office. The Zonal Level Committee, General Manager Level Committee and Managing Director Level Committee shall be constituted with approval from Managing Director, based on the recommendations of the Chairman/Convener of Committee. Power to Approve Changes After sanction has been accorded and during the life of the loan, requests for modification in sanction conditions may be requested for by the clients. Depending on the impact of the change on the asset, the modifications are classified as Major and Minor. The classification is given in the following Table. The Committee that sanctioned a financial assistance to a concern is empowered to decide on modifications that are minor in nature and those which are major in nature have to be referred to the higher committee for a decision. For assistance sanctioned by the MDLC, EC and Board, requests for both, minor and major changes, can be decided up on by the MDLC.

Particulars of Change Nature of Change

Change in constitution Major Change in management involving change in promoters, promoter groups or directors Major

Inclusion / exclusion of investors / share holders, change in share holding pattern, change of co-obligants Major

Approval for alteration in memorandum and articles of association, partnership/trust deeds, etc. Major

Change in location of a project Major Revaluation of landed property in case existing valuation is less than 3 years old Major Releasing of part security and ceding of charge with dilution of security margin / asset coverage till the time the loan is fully disbursed Major

Releasing of part security and ceding of charge without dilution of security margin / asset coverage Minor

Partial release of mortgaged assets without diluting original security position, as per appraisal, in comparison with balance outstanding Minor

Security position as per appraisal in comparison with balance outstanding Minor Change in Project Cost including change in individual project cost heads, change in machinery suppliers, change of machinery, change in product/service profile or technical scope of project, etc.

Minor

Changes in composition of means of finance Major Variation in norms / parameters, stipulated security and subsequent change of these norms / parameters during credit rating, re-appraisal, disbursement, etc. Major

Change in key sanction conditions, critical to the project Major Granting approvals arising out of the loan agreement, general conditions, undertaking, etc. Major

Relaxation required in approvals relating to site plan, building plan, KSEB, PCB and other statutory bodies Minor

Delay in completion of project beyond originally envisaged date of commencement of business Major

Recall / cancellation of sanctioned loan due to its misutilisation Minor



Any other change, from that at the time of sanction, which is not minor change Major BRANCH JURISDICTION During the life of an account, viz. from the time of enquiry to the closure, frequent visits to the premises and interaction with the promoters is very essential to maintain the asset quality and to ensure that the Corporation fulfils its obligation to mentor and guide the enterprise. Since the personnel of the Branch keep moving within the area, under its jurisdiction, it is always advisable that accounts are processed and maintained by the Branch limited to the above area. However in situations, like the following, when it seems prudent that an enterprise be funded by a Branch outside its jurisdiction then facility is available for Branches to fund outside its area of jurisdiction. - The controlling office is located away from the enterprise. - The group has operations in different places and the same is funded by the Corporation’s

Branch in that area. - Branch not having jurisdiction over the area may be convenient to deal with due to

geographical and communication proximity If due to any of these and other compelling reasons any project outside its jurisdiction has to be processed at a Branch, then the application has to be registered only after a detailed evaluation and report by the Branch, which has jurisdiction over the area in which the project is coming up/or is proposed. After the initial scrutiny by both the Branches, the proposal has to be sent to the Credit Department at Head Office for permission to process such applications. BUSINESS DEVELOPMENT AND CANVASSING APPLICATIONS Canvassing good applications, along with proper appraisal and effective monitoring, are the main pillars on which the Corporation can develop a healthy portfolio. Every Branch shall have a Customer Relations Manager (CRM). CRM is responsible for extending a warm welcome with pleasant and prompt services to all existing and prospective customers. CRM would also be in regular contact with existing customers not only to understand their problems, if any for quick resolution, but also to explore the possibility of further business opportunities and relationship building. If it is a new loan enquiry, relevant scheme details with all its conditions and pre-requisites would be explained to the customer. The CRM should be conversant with all loan related procedures and formalities of the Corporation including technical and legal matters. Branch Head is responsible for assigning this duty to a suitable person in the Branch for performing this vital function. Development of good business and creating a healthy portfolio is the collective responsibility of all the personnel working in a Branch and the Branch Head has to provide the leadership role to achieve this. Personnel working in a Branch are frequently on the move within the area of its jurisidiction. No opportunity to participate in meets and for interaction with possible clients must be missed. Branch head should ensure this too. The leads, developed through these field visits and interaction, has to be provided to the CRM who in turn shall follow up further on these leads with the aim of converting them into business. Walk-in enquiries can also be there. Immediately after the lead has been enquired into and the walk-in enquiry is received, the CRM shall enter the details in the loan enquiry module of the CFS and submit a print out to the Branch Head and sent a copy to the Zonal Manager. The Branch Head and Zonal Head shall follow up on these and make further enquiries and arrive at conclusive decisions on the prospect.



General Manager, in charge of Credit Department, shall visit all Zonal Officers/Appraisal Hubs on a fortnightly basis and review business development activities, marketing, loan enquiries, pending sanctions, UDCs, etc. The review reports shall be submitted to the Managing Director for approval. REGISTRATION OF APPLICATION FOR FINANCIAL ASSISTANCE Immediately on receipt of an application for financial assistance the CRM shall enter the details in the CFS and the output of the application shall be printed out and detailed discussion done with the Branch Head. The application shall be registered immediately, as a temporary measure, and a written communication given to the application citing the additional documents that he needs to submit so as to enable the appraisal of the application to be taken up. The communication should segregate the additional documents to be submitted into those that are mandatory for initiating the appraisal process and those that are to be submitted before sanction, legal documentation, first disbursement, subsequent disbursement and final disbursement. This communication has to be issued within three working days of the receipt of application. As and when the papers, required for initiating appraisal are received, the application has to be taken up for details scrutiny. If the required papers, as above, are not received within a weeks’ time the applicant has to be informed of the same in writing. This communication has to be sent within 10 working days of the issue of the earlier communication calling for the documents. The application can be closed temporarily and taken up, under the same customer code, as and when the documents, called for, have been received. Applications for Working Capital Assistance, irrespective of amount, can be accepted for processing only after getting written consent from the concerned Zonal Manager. If the proposal has been cleared by the Committee consisting of the General Manager and Zonal Manager and endorsed by the Managing Director, this written consent need not be obtained. Project Report All loan applications would normally be submitted along with a project report prepared by a chartered/cost accountant or a professionally capable agency and incorporating all essential aspects of a project, including market study. However in case of smaller loans, say up to Rs. 25 lakh, the requirement of formal project report from a chartered/cost accountant, etc. is not required, provided all relevant information in the form of a business plan is submitted along with the application which should also be filled up fully and properly. Preliminary Scrutiny and Collection of Advance Processing Fee Evaluation of Proposal, to maximum extent possible, at the registration stage helps reduce complexities at later stages. The in-depth analysis at this stage and transparency in appraisal process also gives confidence to the promoters of the applicant entity. Hence the proper preliminary scrutiny of application, with as much participation of the concerned officers and in consultation with the promoters, is of paramount importance. The format for preliminary scrutiny is provided in Annexure. The format shall be prepared in the presence of the members of the scrutiny committee and the promoters, signed immediately and a copy forwarded to the Zonal Manager, who in turn shall endorse the same with his opinion on the recommendations of the Committee and forward to the Credit Department at Head Office preferably on the same day itself. The involvement of senior and experienced personnel in the process has to vary with the quantum of exposure, including all existing balances outstanding in the loans availed by the entity and the group. The scrutiny process and the authority for acceptance varies with the amount of financial assistance sought and these are explained in the following Table.;



Total Exposure to Entity, incl. the Assistance

Sought

Scrutiny Process Authority for Acceptance

Up to Rs 100 lakhs

The scrutiny shall be done by the Branch Level Sanction Committee, other personnel in the Branch likely to be associated with the processing of application and the promoters.

For applications with quantum of exposure up to Rs 100 lakhs the decision regarding registration of application and further processing shall be taken by BLC

Above Rs 100 lakhs

Preliminary scrutiny of such applications shall be done by the Zonal Level Committee, other personnel likely to be associated with the processing of application and the promoters.

For applications with quantum of exposure above Rs 100 lakhs the decision regarding registration of application and further processing shall be taken by ZLC

Once the application is screened for processing the requisite processing fee has to be collected, the details of which are provided in the following sections. Processing Charges The Corporation will charge 0.50% of the sanctioned amount, subject to a maximum ceiling of Rs 5 lakhs, as loan processing charges. For Commercial Real Estate (CRE) projects the processing charges are higher at 0.75% of the sanctioned amount and the maximum ceiling is Rs 7.5 lakhs. 25% of this, based on application amount, will be collected in advance at the time of registration of application for financial assistance. The balance processing fee will be collected immediately after issue of sanction communication and latest before execution of loan agreement. While renewing limits processing charges at the rate of 0.25% of the renewed amount will be charged on the customer. This amount will be collected before renewal of the loan. This renewal charge is also applicable each time the loan under special working capital assistance to hotels is provided. If sanctioned financial assistance is to be revalidated because of the failure of the promotes to implement it in the prescribed time then a revalidation charge, limited to 10% of the original processing charge levied for the project, shall be charged from the entity. Normally processing charges are not refundable. In some situations refund can be considered if it is felt that the application has been rejected in spite of the applicant satisfying all conditions for receipt and processing of loan applications. For deserving CRE cases the processing charged could be reduced from 0.75% to 0.50% and upper limit from Rs 7.50 lakhs to Rs 5 lakhs. A decision on the refund and reduction will be taken only by the Managing Director Level Committee. The processing charge for substitution of collateral security is given in the following Table.

Value of Asset/Balance Outstanding (Higher of the Above) Processing Charges

Below Rs 10 lakhs Nil Rs 10 lakhs to Rs 100 lakhs Rs 10,000 Above Rs 100 lakhs Rs 20,000 APPRAISING TEAMS



Proper and effective appraisal contributes substantially towards building a good loan portfolio for the Corporation. Zonal Managers shall strive to identify suitable persons in the Branches in the Zone, guide them in ensuring effective appraisal, create expertise in major sectors in which substantial loans are given and ensure contribution from persons in other Branches to enable the Corporation create quality appraisal teams within their Zone, irrespective of the Branch in which they are posted. Through consultation with the Branch Heads, Zonal Managers shall try to bring in this change in all applications for financial assistance processed in their Zone. However for applications with quantum of exposure above Rs 100 lakhs, the above system has to be compulsorily implemented. Specialised persons are being provided in the Zonal Offices for appraisal of loans. For applications falling in this category Zonal Managers shall allot the appraisal to a better qualified and experienced team. Through continuous monitoring and evaluation, Zonal Managers will be able to mould and grade the officers within their Zone in terms of capability to process applications in various sectors. The appraisal team will be headed by a project officer. The personnel from the technical and legal stream will form the other members of the team. For all proposals, irrespective of the quantum of exposure, the project officer shall present the loan proposal before the sanction committee in the Branch/Zonal Office and try to present, in association with the Zonal Manager, the loan proposal before sanction committees at the Head Office. For loans, with exposure above Rs 100 lakhs, the project officer, doing the appraisal, will monitor all post-sanction operations, including disbursement, monitoring, etc. till the closure of the loan account. This will help improve the quality and capability of the project officer with each proposal presented and monitored. Through this process the Corporation will be able to develop a pool of quality project officers over a period of time. Through this the Corporation hopes to develop project officer based concept for all loans rather than having the present system of having different teams/personnel for appraising, disbursement and monitoring. The processes detailed above are schematically shown in a flow chart as an Annexure to this Manual. APPRAISAL PROCESS The Corporation will follow industry practices in analyzing and appraisal of loan applications and will endeavour, constantly, to improve them. The project appraisal will be a comprehensive data-based assessment of project viability, the loan required, evaluation of the security available, the risks involved, the quantum of loan and its repayment, etc. Viability assessment will be done covering the key areas. The MSME sector has characteristic traits like high degree of dependence on the promoters’ capabilities, infrastructural bottlenecks, marketing challenges, non-availability of reliable data, etc. Nevertheless, the Corporation would introduce comprehensive appraisal mechanism, which will now be linked to 'Core Financial Solution'. The broad operational guidelines on Project Appraisal has already been circulated vide Circular KFC/CIR49/CR2/10-11 dated 31-1-2011. These guidelines shall be complied with by the field level offices to ensure maintaining expected appraisal standards, effective project monitoring and efficient risk management. The appraisal will cover, mainly, determination of the following. Technical Feasibility The project's technical content - essentially products, product-mix, technology adopted, plant and machinery, availability of utilities like power, water, anti-pollution and effluent disposal processes, labour, managerial staff; proximity to source of inputs and market, etc.



Commercial Viability Market, demand – supply position for the products, marketing and selling strategies, pricing, competition and the strategy to meet it, export potential, product life cycle, breakeven level of production / sales and the applicant's capability to reach the market. Financial Appraisal The applicant's present and projected financial position (balance, statements of profit and loss; cash flow) expected cash generation; requirements of working capital, LC’s etc. and arrangements made for them; hedging Foreign Currency risks, etc. Analysis will be on audited financials of the latest financial year. Risk Score Matrix During Appraisal the Risk Score Matrix of all cases have to be prepared and has to be a part of the appraisal memorandum. The format for the same is provided along with KFC/CIR28/CR12/15-16 dated 30/11/2015. At the time of receipt of application itself the Branch has to categorise the customers as per the format into high/medium/low risk. In the case of medium & high risk customers, the Branch has to make a detailed study of their antecedents and source of income and give justification for considering the proposal. Format for this is provided as Document to this procedure. Proposed Date of Commencement of Commercial Operation It may be noted that any restruturing package* rendered after the commencement of commercial operation treats the asset as non-performing as per Reserve Bank of India (RBI) guidelines. There could always be vagaries, unexpected at the time of estimating the project at the appraisal stage, and this could alter the proposed date of commencement of commercial operation. Hence appraisal teams shall take this aspect into consideration and the proposed date of commencement of commercial operation (DCCO) shall provide for a cushion for such contingencies. DCCO shall be clearly mentioned in the appraisal note. The moratorium period allowed at the time of sanction shall be fixed based on this and the schedule of implementation. * RBI defines Restructuring as an act in which a lender, for economic or legal reasons relating to the borrower’s financial difficulty, grants concessions to the borrower. Restructuring will normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/repayable amount/the amount of installments/rate of interest/rollover of credit facilities/sanction of additional credit facility/enhancement of existing credit limits/compromise settlements where time for payment of settlement amount exceeds three months. For an existing entity, the appraisal memorandum shall indicate the date on which the enterprise had declared commencement of commercial operation and also the proposed date of commencement of commercial operation for the project being funded through the proposed loan. Credit Rating All financial assistance is credit rated, based on internal credit rating modules. Periodic re-rating is also done to verify the status. Interest rates, applicable for a loan, are fixed based on these ratings. The rating is controlled by the Risk Management and Rating Department and separate guidelines are issued by the Department for the same. Know your customer (KYC) & Anti Money Laundering (AML) Norms



With the aim to develop and evolve a robust system to prevent abuse of a financial institution as conduit for money laundering and combating financing of terrorism, RBI has advised banks and FIs to prepare comprehensive policy on KYC Guidelines and AML Standards with the approval of Board of Directors. Comprehensive guidelines on the same have been put in place and made available to the operating offices. A system of categorisation of the customers into low, medium and high risk categories in terms of the nature of business activity, constitution, location of customer and his clients, mode of payments, etc., at the time of appraisal is required. CIBIL Caution List / Willful Defaulters’ List The appraisal memorandum shall indicate the CIN and DIN of all entities and directors and verification has to be done using these numbers. At the time of appraisal, the name of the company or its promoters, directors / partners or any of the group / associate concerns, would need to be checked in the lists issued from time to time, as under: • RBI’s caution list • RBI list of non-suit filed accounts of willful defaulters of Rs 25 lakhs & above. § RBI list of non-suit filed defaulters of Rs 100 lakhs & above. • CIBIL list of suit filed accounts of willful defaulters of Rs 25 lakh & above. § CIBIL list of suit filed accounts of Rs 100 lakhs & above. • AML standards - List of Terrorist Individuals/Organisations As regards willful defaulters, RBI/SIDBI has stipulated that no additional facilities should be granted to such defaulters. In addition, the entrepreneurs/ promoters of companies where banks /FIs have identified siphoning/diversion of funds, misrepresentation, falsification of accounts and fraudulent transactions should be debarred from institutional finance from scheduled commercial banks, DFIs, Government owned NBFCs, investment institutions, etc. for floating new ventures for a period of 5 years from the date the name of the willful defaulter is published in the list of willful defaulters by RBI. For identification, declaration and reporting of willful defaulters and frauds, a two tier system of Zonal Level Committee and Committee headed by Managing Director is adopted in the Corporation and guidelines given under Circular CIR39/REC09/15-16 dated 22/12/2015 should be adhered to. However, in line with RBI’s instructions, while dealing with willful default of a single borrowing company/unit in a group, the Corporation would consider the track record of the individual company/unit, with reference to its repayment performance to its lenders. Such proposals would need to be submitted to MD for consideration and justification for grant of assistance to such borrower should be properly brought out in the loan proposal. Further, Government officials and representatives of banks/FIs, including retired officials associated with such companies/units as ‘nominee directors’ whose names have been reported along with a defaulting borrower may not be taken into consideration for the purpose of being categorised as willful defaulters. Likewise, professional directors like Chartered / Cost Accountants and Management Consultants who neither have commercial interest or financial stake in the company/unit, nor are involved in the day-to-day management of the company/unit, need not be equated with the promoter directors or directors who are promoters’ family members / relatives and who are involved with the day to day management of the company/unit. In case it is observed that name of borrower, its directors/ partner(s)/ proprietor appear on the RBI’s Caution / Willful Defaulters list, subsequent to extension of assistance by the Corporation, further enhancement in exposure would generally not be considered. However, in case enhancement in exposure becomes necessary from the consideration of maintaining asset quality or in cases of willful default by any other single borrowing company/unit in a group, etc., the same could be considered. In such cases, the reasons for need to enhance exposure would be highlighted in the appraisal memorandum.



Care may be exercised while considering assistance to any company or its promoters, directors / partners or any of group / associate concerns whose name appears in any of the lists mentioned above. Further Assistance to Client who have Settled Loans under OTS/CSS Assistance to clients of the Corporation who had closed earlier loans under OTS/CSS, waiver of penal/belated interest, etc. can be considered on a case to case basis with the approval of MDLC after a lapse of three years from the closure of the account and on remitting an amount in lieu of the concession availed. The amount to be remitted in lieu of the concession given can be decided by MDLC. CIBIL Data Base The Branch Offices should make use of the CIBIL data base, including Commercial Credit Information Reports and Consumer Credit Information Reports on the borrowers/customers and promoters/guarantors and associate concern/group companies and its promoters for ascertaining credit history of the applicants, wherever available. Normally a CIBIL score of 650 and above can be accepted. In respect of scores between 500 and 650 the Branch Offices should have a detailed analysis on the promoters and decide the application has to be processed. The defaults shown in the credit rating by CIBIL has to be analyzed by the Appraising Officers and in case of defaults or serious irregularities the loan application would be rejected forthwith. Scores below 500 can be considered, only with the approval of Credit Department at Head Office. Minimum CIBIL score for financing to CRE sector shall be 600. The acceptable CIBIL MSME rank of a unit shall be in the range of 1 to 6. If the CIBIL MSME rank is 7 or more, the appraisal officer shall make thorough enquiry of the unit / promoters before taking a decision on funding. Guidelines on Connected Lending While considering the proposal for assistance, in terms of RBI guidelines to all India FIs on connected lending, Branches have been advised not to consider loans and advances and non-fund based facilities to, or on behalf of, any of the Directors or to any of the firms in which any of the Directors is interested as partner, manager, employee or guarantor. The RBI guidelines in respect of loans and advances to relatives of the Corporation’s Directors, Directors of other FIs/banks and their relatives, and officers of the Corporation or their relatives are required to be adhered to. NOC from Existing Lenders In the normal course NOC should be obtained from the existing lenders for creation of charge in favour of the Corporation on the assets being created out of Corporation’s assistance. However, in order to avoid delay in credit delivery, NOC need not be insisted from the existing lenders having charge on the existing assets of the unit, in case any difficulty is encountered. Instead, they shall be informed about creation of exclusive first charge in favour of the Corporation on the assets being created out of the Corporation’s assistance. In case charge on the assets to be created out of the Corporation’s assistance is to be shared with the existing lenders and whenever assistance is granted on the security of current assets [subject to compliance of Corporation’s guidelines], NOC from the working capital banker must be obtained prior to disbursement of the Corporation’s assistance. Due Diligence of Machinery Suppliers With a view to ensure proper end use of funds, due examination of credentials of the machinery suppliers should be undertaken in all cases of financing projects / equipment. Enquiries are to be made with the major machinery suppliers to know the cost, delivery period, etc. Physical examinations of machinery at the suppliers’ site and the project site may be needed to ensure it is as stipulated in the appraisal note.



As far as possible, a commitment letter may be issued to the machinery supplier for supply of machinery along with promoters’ margin money. Payment may be made after verification of machinery at the customer’s site. Credit Report from Funding Agencies and Analysis of Financial Statements Funding is a process with associated risks. To minimize the risks the appraisal team must be capable of evaluating of pre-empting the future likely scenario. The credit reports from all funding agencies of the applicant entity and associated concerns and analysis of financial statements and cash credit accounts for a sufficient period of time could give some indications towards this. So while appraising a project the appraisal team shall obtain and study these before concluding that it is fundable. If the credit reports have not been received from any of the funding agencies above, the appraisal team shall visit the agency discuss with reliable persons there, in person preferably and at least over phone if a visit in unviable, and report the results of the discussion, including the name, designation, contact information and association with the entity of the person contacted, in the appraisals note. Even if the credit report has been received from the funding agencies it is advisable to contact them personally, as an abundant precaution, and discus the performance of the unit in general and conduct of the loan with them. Reporting this too, in the appraisal memorandum, is to be done. If the receipt of credit report / discussion with the responsible persons in that institution takes place after the sanction of the assistance, then the sanctioning authority shall be updated regarding the credit opinion. Credit reports shall be obtained in the format prescribed for the same by the Reserve Bank of India. Enquiry with Creditors and Debtors Appraising Officer / Field Officer shall contact major creditors and debtors of the applicant entity / promoters, as part of the enquiry process, before recommending a loan to understand their credit worthiness. The details of such discussions shall be recorded in the appraisal memorandum / local enquiry report indicating the details of the persons contacted for the purpose. Financing of Imported/Indigenous Second-Hand Machinery In certain proposals, especially in the MSME sector, the viability will improve with the use of quality second-hand/refurbished machinery. Sanction authorities are allowed to consider such assets for funding with proper justification for their adoption by the project/promoters. While considering such assets their quality, performance, residual life (of a minimum of 1.25 times of the loan period), value, necessity for the enterprise, value advantage, etc. shall be certified by a Chartered Engineer. In case the value of such assets contributes more than 30% of the project cost the decision on their adoption has to be taken by the Managing Director Level Committee (MDLC). Bench Mark Financial Norms The following benchmark financial norms are to be maintained while appraising projects: Maximum Debt-Equity Ratio (DER)

Parameter Benchmark Norms

For the entity as a whole, including the proposed assistance

Micro Enterprises in Manufacturing Sector 4:1

Small, Medium & Large Enterprises in the Manufacturing Sector 2:1

Service Sector Enterprises 2:1 CRE Sector Enterprises 2:1



Minimum Promoters’ Contribution (PC) The benchmark norm for Promoters’ Contribution is generally 33.33%. In certain cases, as indicated in the Table below, the benchmark norms are different. Special Working Capital Assistance to Hotels – For Bar License Fee 0% Special Working Capital Assistance to Hotels – For Purposes other than for Bar License Fee 10%

Modernisation Scheme, Market Research, Quality Standards, DG Sets, Testing Laboratories, Research & Development, Incubation Centres

10% for Purpose 33.33% for Unit

Short Term Loan Scheme 20% Micro Enterprises in Manufacturing Sector 20% Vehicle Finance Scheme (Includes required accessories, body construction, extra fittings, road tax & registration charges) 30%

Scheme for Financial Assistance for Producing Feature Films & TV Serials (A realistic & non-inflated cost, provided by the producer, can be accepted as project cost)

50%

Acquisition of Existing Industry – Depreciated value of plant & machinery of enterprise being acquired 50%

Acquisition of Existing Industry – Value of land and building of the enterprise being acquired. (Value to be limited to the document value plus documentation charges or value fixed by the Corporation, whichever is lower) (The general condition that the land value shall be limited to 50% of the promoters’ contribution shall not be applicable in this case)

25%

Projected Debt Service Coverage Ratio (DSCR)

Parameter Benchmark Norms For all loan proposals 1.5:1 Overall Asset Coverage Ratio (ACR) and Security Concerns The main criteria for supporting a project would be its viability and bankability, rather than security. However, in order to comply with prudential norms, prescribed by RBI, it is necessary to have adequate security coverage for financial assistance provided by the Corporation. The security coverage shall be in the form of primary security along with required collateral coverage. The appraisal team shall endeavour to get subsequent charge over assets of the enterprise, over which other funding agencies have first charge and at least one personal property of the chief promoter as collateral security. Primary security for the loan shall be existing assets of the borrowing unit and assets proposed to be created with the financial assistance proposed. All other assets offered as security will be treated as collateral security. The security concerns are sought to be overcome with overall asset coverage ratio, additional collateral security and other forms of comforts. The following assets will be considered as security for the loan:

- Mortgage/hypothecation of immovable/movable assets. - Fixed deposits of scheduled commercial banks. - Bank Guarantee - Government Guarantee - Non SLR Bonds issued by the Corporation - Other securities acceptable to the Corporation



While considering an additional request from an existing client the total exposure, including existing and proposed, shall be governed by the security concerns existing at the time of sanction of the proposed loan. In such cases the asset coverage will be determined in the following manner.

Overall Asset Coverage =

Tangible security, including collateral security, available for Existing Loan + Additional Security for Proposed Loan Balance outstanding for Existing Loan + Proposed Loan

Margin on Primary Security = Total value of Tangible Security – Loan Amount X 100 Security value

For the purpose of coverage of financial assistance assets, at their current/market value, cannot be considered as their value could depreciate with time. To account for indicative depreciations margins to be adopted for fixing value to be considered for security purposes is given in this section in a tabular form.

Parameter Benchmark Norms MSMEs in the Manufacturing Sector (Other than with CGTMSE Coverage)

New Entity 1.4:1 Existing Entity 1.3:1

MSMEs with CGTMSE Coverage 1.2:1 Service Sector Projects 1.75:1 Commercial Real Estate (CRE) Projects 2:1 The ACR shall be determined by considering the primary assets of the entity and value of collateral security, after deducting the additional collateral security requirements in cases stipulated in the following Table. The benchmark norms given above are those applicable generally. In certain cases, as indicated in the Table below, the benchmark norms are different. CRE Projects - 25% collateral coverage within the overall ACR of 2:1

CRE Projects – Housing Projects by New Entrants

- 50% collateral coverage in addition to ACR of 2:1. - New entrant is one who has not successfully completed at least two

similar size projects - This enhanced coverage is also applicable for additional loan by such

clients

CRE Projects

- Project Officer shall ensure that a board stating that the Project is financed by the Corporation shall be exhibited, visibly, at the Project Site

- Project Officer shall send letters to the concerned Sub Registrar stating that the project land is mortgaged to the Corporation and requesting him not to allow any registrations on these properties without the consent of the Corporation

- Project Officer shall send letters to all banks, which have approved the project for providing housing loans, stating that the loans be provided only with the consent of the Corporation and the proportionate home loan disbursement be routed through the Corporation.

Financial Assistance for Production of Feature Films

- Primary security will be the right over custody of negative (physical, digital or in any other form) and equipment acquired for shooting/recording.

- The sanctioned loan amount shall be secured with collateral coverage of



& TV Serials 200%. Half of this security shall be owned by a person who has earlier made a film. No third party collateral will be accepted.

Multiplexes & Cinema Theatres

- Part of the collection shall be routed to the Corporation by their bankers. Appraisal shall specify the part, based on surplus generated after paying statutory charges and amount required for servicing the loan.

Vehicle Loan Scheme

- Collateral coverage required is 100% for vehicles operating on land and 150% for those operating on water.

- The hypothecation charge, in favour of the Corporation, shall be noted in the same. Project Officer shall verify the same and file a copy of it, attested by him.

- Project Officer shall keep the duplicate key in the document cover with acknowledgement of the same in the file.

Granite Crushing

- To cover the high level of wear & tear in this sector, the proposed loan amount earmarked for machinery shall be covered with additional collateral security coverage of 50%. This shall not include quarry land.

Modernisation, Upgradation, Expansion & Diversification

- Loan shall not exceed 50% of the value of existing assets of the enterprise.

- The contribution of machinery & equipment, towards this value, shall not exceed 50% of the total value.

Special Revolving Fund for Existing Customers

- For the purpose of ACR the value of machinery shall be limited to 50% of the total value.

Short Term Loan Scheme

- ACR shall be a minimum of 1.5:1 for non-CRE projects and 2:1 for CRE projects

Primary Land not Mortgaged

- Relaxable in very exceptional cases with the consent of the Credit Department at Head Office.

Rented Premises

- Minimum ACR required is 2:1. - Relaxable for MSME units in Manufacturing Sector by Sanctioning

Authority to 1.5:1 based on prudent analysis and with collateral coverage of at least 50% of the proposed exposure.

Industrial Estates

- The financing shall be guided by prescriptions in Circulars KFC/CIR25 /CR12/13-14 dt 21/10/2013 & KFC/CIR30/CR14/13-14 dtd 19/12/2013.

Working Capital Component

- Coverage with at least 150% collateral security is essential. - Relaxable to 50% in the case of MSME units if there is ACR coverage of

1.5 for the working capital component in addition to the stipulated coverage for term loans.

- For special working capital assistance to hotels, no additional collateral security is required, if covered by adequate ACR

Trusts & Charitable Societies

- 100% collateral coverage with assets not owned by the applicant entity. - Collateral security owned by members or their close relatives can be

considered. - Guidelines for financing trusts, issued through Circular dated

07/04/2007, shall be followed.

Acceptable Collateral Security

- Appraisal team has the responsibility to ensure that the collateral security accepted for a loan is enforceable, in case of its need during recovery process.

- Collateral security shall be owned by the promoters as far as possible. Security owned by their close relatives can be considered by the appraising team.

- Quarry land, in the case of crushing and mining projects, shall not be considered for collateral coverage.

Personal Guarantee

- All promoters, co-obligants and share holders having more than 5% share holding shall offer their personal guarantee.

- Personal guarantee of professional directors need not be insisted, if not essential. The sanctioning authority is empowered to determine the essentiality of the guarantee of professional directors.



Corporate Guarantee - The corporate guarantee of the funded entity has to be insisted.

Additional Comforts

Depending on risk perceptions additional comfort, in any one or a combination, of the following forms can be insisted by the sanctioning authority. - Additional Collateral Security above the Bench Mark norms - Escrow Mechanism for Servicing the Liability - Brand Value - Corporate Guarantee of Associated Concern / Guarantee of Banks &

Financial Institutions - Key-man Insurance - Life Insurance Policies - Traded Shares of Assisted/Other Entities - Fixed Deposits with Banks / Financial Institutions - Post-dated Cheques - Demand Promisory Notes, etc.

Share of Asset Values that can be considered for Security Considerations

Item

Depreciation/

Margin (%)

Value to be taken

as security

(%) a) Land including land development/land scaping / Gardening NIL 100 b) Building / Building Renovation 15 85 c) Plant & machinery and equipments including erection,

electrification

15

85 d) Second hand imported and reconditioned machinery 25 75 e) Other second hand machinery 50 50 f) Moulds & Dies 25 75 g) Tools/Accessories/Fittings 75 25 h) Furniture /Fixtures / shelf

i. For Hotel Sector 25 75 ii. For Other Projects 75 25

i) Technical know how i. Developed by the Promoter and has patented / copyright is

hypothecated with Corporation and entered into non-disclosure agreement

75 25

ii. Others 100 Nil j) Computer & accessories

including erection, electrification

50

50 k) Software

i. Developed by the Promoter and has patented / copyright is hypothecated with Corporation and entered into non-disclosure agreement

75 25

ii. Others 100 Nil l) Interior decoration

i. If recommended by Technical Officer 50 50 ii. Others 75 25

m) Office equipments and furniture 75 25 i. If recommended by Technical Officer 50 50

ii. Others 75 25



n) Medical Diagnostic equipments which are part of a hospital (life of the items should cover the loan period)

25 75

o) Diagnostic and testing equipments/ lab equipments 50 50 p) Furnishing/ curtains/ and decorative items 100 NIL q) Crockery, cutlery and vessels 75 25 r) Vehicles including extra fittings cost of body, essential tools

and excluding insurance, Road tax etc. 20 80

s) DG set 15 85 t) Lift, Fire fighting equipments, Air Conditioners etc. 25 75 u) Cost of optical fibrelines 100 NIL v) Gymnasium equipments 50 50 w) Reference books 100 NIL x) Kitchen equipments including erection and electrification 25 75

While calculating security value, preliminary expenses, other intangible expenses, deposits with Electricity Board, Margin Money for Working Capital etc. are not to be taken. Guarantee cover of CGTMSE Availability of bank credit without the hassles of collaterals / third party guarantees would be a major source of support to the first generation entrepreneurs especially from the economically and socially disadvantaged sectors to realise their dream of setting up a micro or small industrial unit of their own. Keeping this objective in view, Ministry of Micro, Small & Medium Enterprises (MSME), Government of India, has launched the Credit Guarantee Scheme so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector. To operationalise the scheme, MSME Ministry and SIDBI have jointly set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The main objective of CGTMSE is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. Further, the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency. The Credit Guarantee Scheme seeks to reassure the lender that in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 / 80/ 85 per cent of the credit facility. KFC, in line with RBI/SIDBI instructions, would encourage collateral-free lending to the SME units wherever feasible for loan size up to Rs. 50 lakh with guarantee cover under CGTMSE scheme. Units in rental premises can be considered under CGTMSE scheme provided the industrial premises are taken on long term lease or they are coming up in Government owned Industrial Estates/Kinfra Industrial Parks/Techno Park/IT Parks, etc. Vehicles, which are a part of the project, can be financed under CGTMSE Scheme. Further details on CGTMSE scheme can be had from Circular KFC/CIR35/CD4/13-14 dated 17-02-2014. Other Benchmark Financial Norms Sl No Parameter Benchmark Norm

a)

Debt ratio for the company = Total Debt Total Asset (Capital Employed) Purpose: to find the degree of indebtedness; proportion of assets financed by loan.

2 : 3

b) Maximum Payback Period 10 yrs c) Current ratio = Current Assets 1.33:1



Current Liabilities

d) Quick ratio = Cash + Receivables + Investments Current Liabilities – Overdraft

1:1

e) Account Receivable Turnover Ratio Net Credit Sales Average Accounts Receivable 2 months or 6 times

f) Inventory Turnover Ratio Cost of Goods Sold (or Sales) Average Inventory

2 months or 6 times

(Ratios c to f to be calculated for working capital loans) The above benchmark financial norms are not applicable for assistance to projects under joint finance arrangements. The norms for such proposals would be in line with the norms of the consortium partners. Maximum Repayment Period and Maximum Moratorium The repayment period and moratorium has to be fixed based on cash flow analysis and to maintain the benchmark Debt Service Coverage Ratio (DSCR). Generally the maximum repayment period is 10 years and maximum moratorium period is 2 years. Higher moratorium period of 3 years can be give to Hotels, Hospitals & CRE Projects if the schedule of implementation is long. In certain cases, as indicated in the Table below, the repayment period is fixed differently.

Particulars of the Case Maximum Repayment and Maximum Moratorium Period

Special Working Capital Assistance to Hotels

- 11 months including maximum moratorium of 1-2 months - The sanction is valid for a period of 5 years. Fresh disbursements

can be made every year, within the valid sanction period, with separate terms and repayment and under different loan accounts provided the performance of the enterprise has not undergone any drastic degradation from that prevailing at the time of sanction of loan.

Financial Assistance for Producing Feature Films & TV Serials

18 months including maximum moratorium of 6 months

Short Term Loans 3 years including maximum moratorium of 6 months Working Capital Term Loan Scheme 6 years including maximum moratorium of 1 year

Scheme for Financing Construction Activities & Housing Projects

6 years including maximum moratorium of 3 years

Vehicle Loan Scheme

66 months including maximum gestation period of 6 months. The gestation period is fixed depending on the time fixed for body building

Revolving Funds

- The following schemes are renewable in nature and valid for a period of 5 years from the date of sanction. - Working Capital Revolving Fund Loan - Special Revolving Fund for Existing Customers

- Three months prior to the date for renewal of a loan the concerned field/project officer shall intimate the enterprise and its promoters, in writing, the date of scheduled renewal and the procedures for the same. Before issuing this communication the field/project officer has to verify the working of the enterprise in the case of working capital revolving fund loan and ensure that the work is satisfactorily executed and payment process is in progress smoothly in the case of loans given to contractors.



- If the enterprise wants to renew it, they should give a letter requesting us to renew it. All promoters and co-obligants should sign on the request for renewal.

- The renewal is effected , with orders of the Branch Head, in the loan account by simply postponing the starting of repayment schedule further by next one year. Renewal can be done only if there is no interest arrears in the loan account. More over if any account with KFC of the same promoter is in default, no renewal will be given to WCRFL. It can be renewed again and again in such a way that the total period should not exceed 5 years from the date of first disbursement. They can also reduce the limit sanctioned on a monthly basis and can recoup it as and when required.

- If the enterprise is not interest in renewing it or if the Corporation feels that it is prudent to get it repaid, they have to be provided with a schedule for repayment with a maximum period of 4 years, from the scheduled date of renewal.

Line of Credits

- In the Scheme for Financial Assistance for Producing Feature Films and TV Serials (if the producer has made at least 5 successful films), the sanction is accorded for a period of 5 years as a line of credit and any number of projects can be funded within the sanctioned line of credit during the period of its validity.

Computation of Working Capital Requirement Working capital can be calculated as per Projected Example: (Rs. in Thousands)

Current Liabilities Current Assets Creditors for Purchase 100 Stock of Raw Materials 200 Other Current Liabilities 50 Stock in Progress 20 Finished Goods 90 Receivables 50 Other Current Assets 10 Total 150 Total 370 Total Current Assets 370 Less Current Liabilities Other than Bank Borrowing 150 Working Capital 220 Less: Margin 25% (Minimum) 55

A. Maximum working capital loan permissible 165 B. Average Working Capital should also be computed on the basis of last two years balance sheet figures C. Eligible Working Capital shall be lower of A or 1.25 times B. D. Working Capital can also be calculated on the basis of turnover. In which case

working capital eligibility will be 25% of the turnover. 75% of the working capital can be given as loan.

In cases where the enterprise has been in existence for more than two years, the working capital loan proposed shall be that calculated based on past turnover and shall not exceed 1.25 times the average working capital computed based on last two years’ audited balance sheet.

For working capital loans fixed asset coverage ratio shall also be computed and the same shall not be less than 1.25 times. Rate of Interest The interest rate, applicable to advances, will be linked to Base Rate, which will be issued periodically by ALCO of the Corporation.



Interest Subvention Scheme Government of Kerala, as part of Budget for 2013-14, had announced a special scheme to support industrial enterprises in the state, which use state-of-art/innovative technologies. In particular, support would be extended to projects based on technologies developed by Research & Development organisations. As per the scheme, eligible units which avail term loans from the Corporation to be used for creation of fixed assets will get interest subsidy of 3% for loans up to Rs. 1 crore and 2% for loan above Rs. 1 crore. The salient features of the scheme are as follows- a. The scheme is applicable only to new term loans sanctioned by the Corporation on or

after 02-01-2014 (Date of Government Order). b. Projects involving innovative technologies or high-end/ state of art technologies only

will be eligible for availing interest subsidy benefits under the scheme. Priority will be given to projects based on innovative technologies developed by research institutions functioning under the auspices of Central and State Governments. An illustrative list of eligible areas under this scheme will include Food Processing, Information Technology, Electronics, Apparels, Handicrafts, Manufacturing of Gift Articles, Agro Processing/Fish Processing & Packagings etc.

c. Branches may take permission of MDLC for extending the benefit of the scheme to units which are found to be prima-facie eligible for the benefit. MDLC will be authority to decide on whether a proposal can be considered under this scheme. Once the project is cleared by MDLC, actual sanction of loans can be done by the respective committees as per delegation given under Loan Policy without any deviations.

d. The beneficiary unit should be in operation during the period of availment of interest subvention.

e. The benefit of interest subsidy will be passed on along with the rebate for timely repayment at the beginning of each month. Thus eligible units under this scheme will be given a special reduction of 2% or 3% in interest rates in addition to the normal rebate now allowed.

f. The period of interest subvention will be 3 years from the date of first disbursement or till the erosion of government funds earmarked for the scheme.

g. The chief promoter/Managing Director should be aged between 18 and 65 years. h. The interest subsidy will be given only for the portion of loan used for acquisition of

plant and machinery needed by the unit. In the case of IT units, special norms would be followed to assess the items eligible for subsidy.

i. Managing Director is authorized to approve any relaxation with respect to the scheme based on merit of each case.

Time Schedule for Disposal of Loan Proposals Subject to submission of complete information by the applicant, the decision on the same shall be taken and communicated within a period of 15 working days from the date of registering an enquiry if the decision falls within the purview of the Branch. The time limit can be extended by another 15 days if the decision is to be taken by the Zonal Office. Branches shall ensure that the time limits fixed by the Government under Kerala State Right to Service Act 2012 and adhered to. Preparation of Sanction Communication To avoid delays in the process and to ensure that the sanction details, and related conditions, are correctly reflected in the communication, the appraising officer, in the credit hub and branch as the case may be, shall prepare the draft sanction communication, endorse the same and forward to the Branch/Disbursement section through the Zonal Head/Branch Head. LOAN DISBURSEMENT



Branch offices are given the power to disburse all loans subject to the compliance of sanction conditions, norms and eligibility criteria. Loan disbursals will be made on complying with all pre-disbursement conditions (key conditions) and creation of specified security in favour of the Corporation. The sanctioned financial assistance has to disbursed based on creation of assets maintaining the promoters’ contribution and asset coverage ratio within sanctioned limits. In exceptional case it can be disbursed on pro-rata basis in proportion to the contribution brought in by the promoters and in installments commensurate with the physical progress of implementation. The appraisal shall contain a realistic schedule for disbursement of the proposed assistance, prepared in consultation with the promoters. It shall contain the dates of all installments, quantum of investment then and proposed amount of disbursement. To enable speedy implementation and to improve the viability, efforts have to be made to get the promoters invest, their full contribution, in the initial stages itself. The schedule of disbursement shall form a part of the sanction communication. Certain conditions of sanction may not be compliable before disbursement of loan or implementation of a project. These issues which would appear as “other conditions” of sanction can be complied with during or after implementation of the project. Normally, the promoters would have undertaken as prescribed in the Loan Agreement to comply with such conditions. Project Officers will ensure that these conditions are compiled with during the course of implementation of the project, after first disbursement or any stage of disbursement including the last installment. The promoters will be free to seek disbursement in advance based on the drawal schedule furnished by them for meeting the project expenditure, say for a maximum period of three months, which would be released subject to their bringing in full or part (50% or more) of promoters contribution as prescribed, satisfying all terms and pre-disbursement conditions, and creating full security as specified in the sanction letter. There would be no practice of disbursement on reimbursement basis which is considered a major contributor to project over-run and project failures for want of money at the hands of promoters when it is needed the most to implement a project. Initial payment would be normally restricted to civil works wherever applicable. Release of payment for plant and machinery would be normally made after ensuring completion of civil works, availability of power, etc. Before release of payment, it would be ensured that the projected demand for funds is genuine and there is sufficient progress in the project as envisaged in the appraisal note. A certificate from the entity’s Chartered Accountant on the expenses already incurred may be obtained, if required. The project officer should examine the Chartered Accountant certificates and verify the position and progress at site during visits. While disbursing the loan amount subsequently, need based relaxations of the conditions of sanction and various aspects of a project as specified in the detailed appraisal note relating to the project, can be considered by the sanctioning authority or by an authority higher than the sanctioning authority, depending on the criticality of the subject matter classified as major changes or minor changes. In the case of special working capital assistance to hotels the amount earmarked for bar license fee can be disbursed in one installment at the time of its requirement. Other funds under this scheme has to be disbursed in installments after assessing necessity at the time and ensuring that the amounts released earlier are properly utilized. The amount earmarked for bar license fee and that for other purposes shall be disbursed under different accounts to ensure their proper servicing. While financing vehicles the amount earmarked for chassis/vehicles will be paid directly to the supplier in one installment and that earmarked for the body work to the borrower. 50% of this amount can be released as advance and balance after completion of work and inspection by the personnel of the Corporation.



The working capital term loan shall be disbursed in installments based on requirement in operation cycle and capacity utilization. Operation shall be assessed by the field/project officer and also certified by the clients’ chartered accountant. Not more than 50% of the assistance can be released as first installment. In the case of scheme for modernization, upgradation, expansion and diversification of existing manufacturing units/hotels/hospitals a reasonable part of the loan, not exceeding 50%, can be disbursed as advance and the balance after verification of utilization of the amounts advanced earlier. While disbursing funds under the special revolving fund for existing customers it has to be ensured that the same is used only for the purpose of the entity to which the loan is provided and to substantiate this certificate from their chartered accountant shall be obtained and maintained with the Corporation. All additional assets acquired through this finance shall be mortgaged / hypothecated to the Corporation. The finance under the Short Term Loan Scheme shall be disbursed in installments based on evaluation of progress and certification by their chartered accountant. The month of the first disbursement shall be excluded for computing the moratorium period. Engagement of External Valuer/Scrutiny In case of lack of availability of Legal Officer/Technical Officer or if the existing officers are busy with other proposals Branch Offices can engage an external valuer for technical valuation with the approval of Zonal Manager. The terms of engagement will be as per Circular No. KFC/CIR 75/CR28/11-12. Similarly in case of legal scrutiny branches can engage an outside Advocate experienced in the field for conducting detailed legal scrutiny and title clearance with the approval of Zonal Manager concerned. Wherever title reports and valuation are prepared by external valuers the concerned BMs/CMs have to formally accept the title report and record the same in the file. For outsourcing legal work guidelines given in Circular KFC/CIR24/CR11/15-16 shall be followed. The maximum fee that can be paid will be as follows - a) For land, building and machinery - 0.125% of the total valuation amount subject to a

maximum amount of Rs. 10000/- b) Land alone - Rs. 5000/-, if the valuation is done for a vacant land. c) Travelling Allowance at Rs. 10/km from headquarters. Any other expenses incurred for

collection of details from Government Departments, etc. needs to be paid on actual basis on production of Bills/proof.

d) Higher amount for valuation can be paid only with the consent of Credit/Recovery Department at H.O.

e) The fee for valuation will be normally paid by the Corporation and debited to the respective loan account.

f) Higher amount for valuation can be paid only with the consent of Credit/Recovery Valuation of Assets Created The Corporation has in-house personnel for doing valuations of creation of assets and the disbursement is done maintaining sanctioned Debt-Equity Ratio. This necessitates multiple valuations during the course of implementation of a project, being financed by the Corporation. Till now the valuations in the Corporation are done by personnel from the technical wing. With the ultimate aim to remove compartmentalization, more and more of these valuations have to be done by the project / disbursement officials. The following norms apply for valuation by personnel from the non-technical wing.



a. The first and last valuation, in a project funding, shall be done by the personnel from

the Technical Wing. b. After disbursement of every Rs 100 lakhs, one valuation shall be done by the

personnel from the Technical Wing. c. The intermediate valuations shall be done by the project / disbursement official. d. While doing such valuations the official shall obtain statements from the promoter

regarding the investment made in the project and these have to be certified by the auditor of the entity. The official shall verify the genuineness of the bill submitted, through enquiry with the suppliers. Copies of the Bank Statements have also to be verified to ascertain the genuineness of the reported payments.

Timely Completion of Funded Projects Timely completion of projects is essential for the project to operate viably and as per estimated figures. Delays in implementation could result in cost over-runs, put financial strain, affect financial and market viability, alter risk perceptions, etc. To ensure timely completion of projects it is mandated that the legal documentation has to be completed within three months and loan withdrawal starts within six months of sanction. Sanction will be deemed to be automatically cancelled if any of these are not accomplished in time and the Branch has to inform the client of the same immediately. Considering the risk aspects associated with delayed implementation, mentioned above, condoning of delay, in deserving cases, can be considered only after due diligence. Hence the power to condone delays has been vested with different levels in the hierarchy and as indicated in the Table below. All proposals for condoning delays shall be presented only after analyzing the possible impact on the project finances and viability. If the first installment of loan is not drawn within 6 months of sanction the sanction will be deemed to be automatically cancelled. If reappraisal is required Loan Revalidation Fee shall be charged. Completion of Legal

Documentation Approving Authority Drawal of First Installment of Loan Approving Authority

Within 3 months of sanction None Required Within 6 months of

the sanction None Required Within 6 months Branch Level Committee

(BLC)

Beyond 6 months Managing Director Level Committee (MDLC)

Beyond 6 months of sanction

Managing Director Level Committee (MDLC)

Re-verification of Status As already indicated in earlier sections all possible efforts should be put in to understand the credit worthiness of the entity and the promoters. Some of the measures adopted for this are the cibil reports, statements from funding agencies, discussion with persons in the channel, funding agencies, etc. Generally these are done at the initial stage to decide on whether an enquiry is to be entertained further. Between this verification and the disbursement of first installment of the loan, there could be some time gap. To ensure that the study of credit worthiness still holds, the project officer has to re-check the information collected in the initial phase and be satisfied with them before recommending disbursement of funds. Review of Undisbursed Commitments The undisbursed commitments in a Branch shall be reviewed on a monthly basis by the Branch Heads and report sent to the Zonal Manager for review. The Zonal Managers shall prepare a separate report on those cases which need immediate attention during the



following month and sent this report to the Branch, with a copy to the Credit Department at Head Office. This report shall reach the Credit Department on or before 10th of each month. The Branch Heads shall take action based on this report of the Zonal Manager and send an action taken report to the Zonal Manager, with a copy to the Credit Department at Head Office. The action taken report has to reach the Credit Department before the 5th of the succeeding month. Reduction and Refixation of Loans Irrespective of the quantum of loan the power for Reduction and Refixation / Cancellation shall be vested with the Zonal Level Committee. Powers of the Branch Head The Branch Head can exercise powers in the following areas, associated with appraisal and disbursement: - Acceptability of assets as security - Recommendation of Margin Money Loan / Subsidy and release of the same - Ceding second charge over mortgaged assets to other Banks/Financial Institutions - Disbursement on satisfying the sanction conditions and execution of security documents - Decision on legal scrutiny by external advocate - Decision on valuation of assets by an external valuer AUDIT AT SANCTION AND DISBURSEMENT STAGE These are covered separately in the Audit Policy of the Corporation. CREDIT MONITORING Effective follow up and supervision of borrower accounts would continue to be the main pillars in the Corporation’s credit administration and risk management framework. Instructions have been issued, from time to time, based on experience, feedback received from operating offices, observations of internal audit, concurrent audit, audit by AG’s Office, audit by SIDBI, etc. to ensure effectiveness of credit monitoring mechanism in the Corporation. With an aggressive business strategy intended to be pursued under the various schemes strengthening of credit monitoring mechanism is necessary and due emphasis will be bestowed to ensure its effective implementation so as to ensure that projects are implemented as per schedule and are successfully operated. The key objectives of credit monitoring include: • Compliance with terms & conditions of sanction • Obtaining of approvals from Government authorities, and Regulatory Bodies • Securities offered / charged / documentation being in order • Adequate and uninterrupted insurance cover • Payment of statutory liabilities, to avoid litigation and winding up • Monitoring financial & business performance of assisted units vis-à-vis the projections • Monitoring of asset quality, rating migrations, critical accounts, etc. • Detection of early warning signals • Monitoring changes in management structure, reconstitution, death or resignation of a

key person and other causes of concern leading to possible deterioration in the quality of the assets

• Monitoring of stressed accounts and preventive NPA management • Detection of diversion/siphoning of funds, willful defaults and fraudulent practices For the purpose of assessing criticality level, the critical and sub-critical accounts shall be defined as under:



Critical Accounts are those which show the following characteristics:

• Cases where key sanction/disbursement conditions remain uncomplied • Cases where final security is yet to be created • Projects under implementation • Slippage in implementation schedule of the project • Time/cost overrun • Stressed Assets • Suspected fraud Sub-critical accounts are those which show alarm features that are not critical in nature. Such features are: • Debt servicing track record • Slippage in internal/external rating • Detection of early warning signals listed out in Annexure • Observations of concern in reports of Nominee Directors, Field Officers, etc. • Observations of concern in Financial Statements and Periodic Operational Reports • Remarks of other lenders to the unit/group Methodology for credit monitoring in the Corporation will be on the following lines. The Branch Head shall allot each of the assisted units to one of the personnel working under him and he shall be the field/project officer for that unit. The field/project officer shall visit all the assisted units under his/her control at least once in three months. Critical and rehabilitated accounts shall be visited every month. Subcritical accounts have to be visited at least once in two months. The report shall be filed through the CFS portal for the same and the Branch Manager shall also incorporate his comments through CFS. A print out of each report shall be generated through the CFS and maintained in the loan file. Annual re-rating for all existing borrowers should be undertaken on the basis of current data to enable monitoring of credit migration at borrower and portfolio levels. The date of re-rating, date of approval by the risk management committee, period of validity of the rating and score obtained in rating shall be endorsed by the project / field officer in each of his visit reports. In all loan accounts acknowledgement of debt / balance confirmation as on September 30 and March 31 should be collected and maintained in the loan file. The status of this has to be reported by the project/field officer in each of his visit reports. Branches have to ensure that all assets mortgaged to the Corporation are valued once in every three years. The date of last valuation has to be reported by the project / field officer in each of his visit reports. Financial statements (Profit & Loss account and Balance Sheet), IT returns, GST returns, tax paid receipt and EC should be collected annually. These returns would be carefully scrutinised at the operating offices and wherever corrective actions are to be initiated, these would be carried out without delay. The project/field officer shall comment on the results of the analysis of the above in each of his visit reports. Further, the branch offices would be in regular contact with the working capital bankers, other lenders to the unit, vendors, marketing channel, etc. so as to obtain early feedback/news on unit’s performance and likely problems. The operating offices would also participate in State/District Level Bankers’ Committee, Bankers’ Club meetings and other meetings amongst bankers, CII, SSI/Management Associations, etc. and use such interactions for getting information on developments taking place in the local area, market, industry, client units, etc. besides generating new business. Results of visits to such critical sources of information with names, designation and contact details of the persons contacted shall also be provided by the project / field officer in each of his visit reports.



In all cases where working capital is provided by the Corporation, the customer shall submit quarterly stock statements. The field/project officer shall ensure that these are received regularly, analysed and result of analysis exhibited in their periodic visit reports In the case of working capital loans, provided by the Corporation, the current assets have to remain insured adequately and continuously. Sometimes in view of project exigencies, disbursements are made pending compliance of certain key conditions like obtaining of statutory/regulatory approvals for the project; non conversion of share application money into share capital; submission of supporting documents in respect of security/ guarantee created; etc. In such cases, a reasonable time is given to the borrower for compliance of such conditions. These cases should be strictly monitored and compliance should be ensured within the stipulated time. In the event of non-compliance, the Sanctioning Authority can charge additional interest of 1% p.a. till such time the compliance is pending. The existing standard assets of the Corporation shall be rated under the Internal Credit Rating Model and the overall portfolio rating concentration and individual rating migrations would be monitored closely. Credit Rating and Risk Department would keep a watch on the rating concentrations of new business and take necessary steps to ensure that the rating profile of the new business is within acceptable grades. The monitoring of assistance would be made more efficient and effective by use of IT enabled services and continuous improvements/developments will be made in them. The operational staff will be assisted through system outputs on enquiry registrations, pending applications, undisbursed commitments, stress on accounts, insurance of assets, likely slippages, etc. These will enable them to plan and implement remedial measures. While the primary responsibility to monitor the individual accounts would continue to rest with the Branches concerned, for the overall monitoring purpose, a multi-tier monitoring structure based on the criticality would be followed for collective review of all standard assets. i. Macro-level monitoring by Asset Management Department ii. Asset Monitoring in respect of comparatively larger accounts at Zonal Offices iii. Intensive monitoring at Branches. Field/Project Officers shall be identified for each of the

asset funded by the Branch. Monitoring of Stressed Accounts/Special Mentions Accounts (SMAs), viz. SMA-O, SMA-1 and SMA-2, will be done by Asset Management Department as per guidelines given under Loan Monitoring Guidance Note (LMGN). The role of Nominee Directors as an effective mechanism for monitoring and follow-up, the need for vigilant monitoring by the nominees appointed on the Board of assisted units as also timely submission of report and action thereon have been emphasised by SIDBI, RBI and GoI. The MSME sector, in particular the smaller enterprises, is characterised by owner-manager type of structures and most of these often lack good corporate governance practices. Due to this, the units have generally not been found to be amenable to this tool of monitoring. The MD can consider appointing Nominee Directors or observers to the Board/Management meeting of loanee wherever felt necessary, keeping in view the specific requirements and exposure of the individual accounts. Such Nominee Director/observer should not however in any manner interfere in the functioning of the Loanee company or influence its decision unless they directly impact the recovery of the loan. They should submit a report on all such meeting attended by them to the MD. Insurance of Pledged Assets



The officer in charge of the loan, at any stage, shall ensure that the assets pledged to the Corporation are insured adequately throughout the tenure of the loan. In case the promoters fail to renew the policy the Corporation has to get the asset insured, debit the premium amount in the loan account and inform the client of the same along with the next interest demand. Construction up to lintel level need not be insured as in the case of land. Machineries are to be insured for its Reinstatement Value (RIV Clause) and in the joint names of the Corporation and the Borrower (Bank Clause). Transit insurance covers are available for projects under implementation. Wherever possible the original policy document meant for the lender should be maintained by the Corporation. In case this document is not available a copy of the policy document should be maintained. These shall be kept in safe custody along with other loan documents. The Branch Head has to maintain a register giving details of the insurance of each of the assisted unit. Client is free to take insurance from any agency approved by IRDA. However the Corporation has entered into an MoU with the New India Assurance Company Ltd to act as a corporate agent to insuring assets of assisted units. The customers have to be made aware of this arrangement, made for enabling hassle free processes. The concerned officer has to ensure that the agency code of the Corporation, viz. CA00002438, is noted in the insurance policy in such cases. In each of his visit reports on an assisted unit, the project / field officer shall indicate the amount for which insurance is taken and the date up to which it is valid. Statutory Dues The dealing officer has to ensure that all statutory charges like goods & services tax, excise duties, provident fund contributions, land tax, building tax, water & electricity charges, etc. due to the government or concerned authorities are paid by the client and that there are no dues on these accounts throughout the tenure of the loan. Necessary conditions have to be incorporated in the appraisal memorandum, sanction communication and loan documents to ensure this. Policy on Exit from Loans Exits from the term loans take place in the normal course on final payment as per the amortization schedule. The exit also takes place if a borrower insists on pre-payment of loans/advances, which is accepted on receipt of applicable pre-payment interest from the borrower. In case of financially weak borrowers, or those want to quit the business, exits without levy of pre-payment interest could also be considered wherever collection of prepayment interest is not possible. Further, the Corporation would also consider exit from loans by way of securitisation/assignment/sale to Asset Reconstruction Companies (ARCs) or another bank/FI/NBFC on portfolio or individual loan basis if attractive returns are expected. PREPAYMENT/FORECLOSURE OF LOAN ACCOUNT The facility of prepayment of loan will be available to the borrowers. In such a situation the borrower has to pay prepayment/foreclosure premium at the rate of 2.00% of the principal outstanding, as per original schedule, as on the date of closure of the account.

Branch Heads can allow exemptions in payment of prepayment/foreclosure premium in the following cases:

- 75 percent of the loan period, as per original schedule, is over. - Recall notice has been as a prelude to initiation of recovery action for realization of dues. - In financial assistance provided under the following schemes:



- Short Term Loan - Working Capital Revolving Funds Loan - Working Capital Term Loan Scheme - Working Capital Component in Loans under Single Window Scheme - Special Working Capital Assistance to Hotels - Special Revolving Fund for Existing Customers - Financial Assistance for Construction Activities & Housing Projects - Financial Assistance to Civil Contractors - Financial Assistance for Producing Feature Films & TV Serials - Receivable Finance Scheme - Startup Support Scheme - Scheme for Financing Working Capital Requirements of Startups for Executing

Purchase Orders - Scheme for Funding Venture Debt for IT Hardware & Software Enterprises

The authority, that sanctioned a financial assistance, can also allow exemptions in payment of premium if it is convinced that the same is being done with own funds with a view to reduce liability.

In cases where there are small excess remittances the same shall be kept separately under a different head and used to service subsequent demands on the account. In case of any deviation from the above norms the approval of Managing Director Level Committee will to be obtained. FAIR PRACTICE CODE FOR LENDERS The Fair Practices Code for Lenders, as per Reserve Bank of India guidelines, are required to be followed by the Corporation in its operations. The Code sets out the guidelines for processing of loan applications, appraisal, disbursement, post-disbursement supervision, etc. All information relating to charges/fees for processing would be disclosed in the loan application forms. Further, the customer would be informed of all costs to be borne in sourcing finance from the Corporation and the procedure, method and requirements for disbursement of the loan. A copy of signed Loan Agreement would be given to the borrower. Guidelines on Grievance Redressal Mechanism should also be followed at various operational levels to resolve the disputes arising out of the Fair Practices Code. KFC GOLD CARD CUSTOMER Customers of the Corporation who have completed three years of association based on disbursement of loan and having an excellent track record will be recognized by providing them with KFC Gold Card, renewable on an annual basis, if they satisfy the following criteria.

a. Internal credit rating is above 70%. b. All accounts are in standard category throughout. c. Unit is in commercial operation and functioning well. d. Has submitted the audited balance sheets and the turnover of the unit should show an

increasing trend, has positive net worth, positive net profit and no statutory dues pending.

e. Latest CIBIL scores of the promoters and the entity are satisfactory.

MDLC is empowered to issue Gold Card based on recommendation from BLC and ZLC. Annual renewal can be done by ZLC based on recommendation of the BLC.

KFC Gold Card Holders are entitled to the following additional facilities from the Corporation.

(a) Additional Finance of up to 30% of the total term loans disbursed subject to maximum assistance of Rs.250.00 lakhs as per Scheme No.11 of the loan policy, ‘Special Revolving



Fund Loan for Existing Good Customers’. The delegation for sanction of loans under this scheme is given to BLC for Gold Card Holders, irrespective of the resultant exposure.

(b) ZLC can allow up to 50% concession in processing fee while sanctioning additional/new loans to Gold Card holders.

(c) MDLC is vested with powers to sanction other facilities, based on recommendation of BLC & ZLC.

DEVIATIONS FROM THE CREDIT MANUAL Need based flexibility is required to ensure that the Corporation continues to perform the objectives mandated on it. Further practical difficulties are likely to be encountered while implementing the policy and manual. Executive Committee of the Board shall be the authority to allow any deviations from the stipulations of this policy and manual. However for financial assistance being considered by the Committees below that of the Managing Director Level Committee, viz. Branch Level Committee, Zonal Level Committee and General Manager Level Committee, need-based deviations can be approved by the Managing Director Level Committee. Sd/-

Chairman & Managing Director