ANDHRA PRAGATHI GRAMEENA BANK HEAD OFFICE :: KADAPA Circular No. 57-2009-BC-CD Date:19.03.09 CREDIT POLICY OF THE BANK - 2009 Attention of the Branches and Regional Offices is invited to Circular No.47-2006-BC- CD dated 14.08.2006. Since the earlier Credit Policy issued in August 2006, the dynamics that govern dispensation of Bank Credit have undergone several changes. Within this period, there has been dramatic shifts on various fronts impacting Bank credit. There is a need to match the changing dynamics in credit demand with appropriate changes in our policy imperatives focus areas of business, credit strategies. Accordingly, the credit policy has been revised consolidating the additions modifications made during the intervening period and taking the various initiatives forward, in order to place the Bank in a position from which it can take advantage of the emerging trends in the credit market during the period ahead. The revised credit policy, which has been approved by the Board of Directors in their meeting held on 13.02.09, is enclosed. The revised credit policy comes into force with immediate effect. It is clarified that while credit policy document enunciates the broad policy / procedural guidelines on credit, for other detailed operational / procedural guidelines, Branches / Regional Offices shall refer to the relevant Circulars / Desk Guide and other communications issued from time to time. Clarifications required, if any, on this circular may be sought from Credit Department, Head Office, Kadapa. (M.JAI PRAKASH) CHAIRMAN
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Farming, Vermiculture and Vermicomposting, Venture Capital, Cold Storage, Milk
Chilling Centres, etc.
7 PRAGATHI RETAIL CREDIT CARD:
The scheme covers retail trade, small business, professional and self employed
persons up to Rs.2 lakhs. No collateral security up to Rs.1 lakh. Above Rs.1 lakh,
collateral security is required.
8 PRAGATHI FLEXI TRADE LOAN:
To finance traders/small business men who intend to avail working capital term
loans instead of cash credit finance. The repayment period will be 60 months.
The security is, up to Rs. 1 lakh- hypothecation of the stock-in-trade; above Rs.1
lakh - hypothecation of stock in trade and mortgage of immovable property. The
security coverage shall be 150% of the loan. The borrower’s contribution will be 25%.
9 PRAGATHI SWAROJGAR CREDIT CARD SCHEME:
NABARD has issued comprehensive guidelines on SCC under which the working
capital or block capital or both to small artisans, handloom weavers, service
sector, fishermen, self-employed persons and other micro entrepreneurs are
covered. SHGs can also be covered under SCC Scheme. Hence, it should be the
endeavour of the Bank that all the above activities should be financed under this
scheme wherever their credit needs are up to Rs.50000/-.
10 PRAGATHI GENERAL CREDIT CARD:
NABARD has given detailed guidelines of the scheme. The loan amount is limited
to Rs.25000/-. This facility is in the nature of over draft or cash credit and it is
designed for meeting out the general credit needs of the customers of small
means, without insisting on purpose and end use of the credit. This should be
used as a major tool to achieve 100% financial inclusion of rural and semi-urban
households.
Contd….9
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11 PRAGATHI VIDYA SCHEME:
Maximum loan amount for studies in India is Rs.10.00 lakhs and for studies in
abroad is Rs.20.00 lakhs. No security up to Rs.4.00 lakhs. Collateral security in
the form of satisfactory third party guarantee acceptable to the Bank shall be
obtained for amount above Rs.4.00 lakhs and upto Rs.7.50 lakhs and collateral
security of 100% of loan amount for the loans above Rs.7.50 lakhs. Repayment
for these loans is 5 to 7 years commencing from 1 year/6 months after
completion of course or on securing the job whichever is earlier.
12 PRAGATHI SWAGRUHA SCHEME:
Maximum loan amount of Rs.20.00 lakhs subject to 85 % of the estimated
construction cost/valuation of ready built house will be considered under the
scheme. Security is mortgage of the site and building to be constructed thereon.
For repairs/renovations also, we will consider loans up to Rs.2.00 lakhs in
municipal areas and Rs.1.00 lakh in other areas.
13 PRAGATHI MULTI PURPOSE MORTGAGE LOAN (PRAGATHI MPML):
In this scheme, maximum Rs.25.00 lakhs of loan will be considered subject to
50% of valuation of property, 5 times of annual income, 50% of cut back. Security
for the loan is mortgage of building/commercial complexes, layout approved plots
etc. Repayment period of the loan is 7 years. Branches shall ensure end utilization by obtaining relevant bills / receipts, proofs etc.
14 PRAGATHI MULTI PURPOSE SECURED OVERDRAFT (PRAGATHI MPSOD):
The Board of Directors in their Board meeting held on 13.2.2009, advised the
Bank to withdraw this scheme with immediate effect and the existing PMPSOD
accounts would be either recovered in full or to be converted into PMPML (Term
loan) within a year. Accordingly, PMPSOD scheme which is appended in the “Desk Guide on advances” stands withdrawn with immediate effect.
15 PRAGATHI SWARNA CREDIT CARD:
All the individual customers of the branch, who are having SB a/c, are eligible for
coverage under the scheme. The loan is extended for meeting both productive
and consumption requirements with a per party limit upto Rs. 2.00 lakhs.
Contd….10
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: 10 :
The Account shall be in the form of Cash Credit/Overdraft facility for a period of 2
years from the date of arranging the facility. The per gram lending rate is Rs.650/- per gram on the net weight of the ornaments or 70% of the market value as
on the date of arranging whichever is less.
The OD carries at present an interest rate of 15% p.a. with monthly rests and an
overdue interest @ 2.25 % over the normal rate shall be charged on the overdue
loan a/c. the loan is secured against the security of jewels with 22 carat
purity/gold bars, gold coins with 24 carat purity. The interest rate and per gram
lending rate are subject to change from time to time.
16 PRAGATHI COMMERCIAL COMPLEX LOAN:
Financial assistance up to 50% of estimated cost of construction will be
considered under the scheme for construction of commercial complexes,
school/college buildings, etc. Mortgage of site and building to be constructed
thereon shall be taken as security. Repayment of loan is within 10 years,
including the gestation period allowed.
17 PERSONAL BANKING LOANS:
These loans can be considered to salaried class up to 15 months’ gross salary
subject to 60% cut back norms. Repayable in 60 EMIs. All employees in Govt.,
Quasi Govt., Local Bodies, Govt. Aided Bodies, etc. who are drawing their salar-
ies through our branches are eligible to avail these loans.
18. PRAGATHI SRTO:
This scheme is introduced to meet the financial requirements for purchase of
power driven vehicles i.e. Auto Rickshaws, Van, Boat, Lorry, Truck, Cabstar,
Cars etc. An individual or an association of not more than 6 persons propose to
own and operate by himself or themselves as the case may be are eligible for
the loan. Finance is restricted to 75% of the cost. Security for the loan upto
Rs.1.00 lakh is by hypothecation of vehicle to be purchased and for the loan
amount above Rs.1.00 lakh requiring mortgage of immovable property worth
100% of loan amount apart from hypothecation of vehicle purchased.
Repayment period is 3 to 5 years.
Contd….11
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19 SCHEME FOR SANCTION OF LOANS UNDER CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE):
The Bank has joined as Member lending institution with Credit Guarantee
Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises and
the scheme is implemented with effect from 15.04.2008.
The Credit Guarantee Fund Trust for Micro & Small Enterprises was set up by
GOI and SIDBI with an objective to provide Bank Credit without the hassels of
collaterals / third party guarantees. Importance given to project viability and
secure the loan purely on the primary security of the assets financed.
It is our endeavour to give composite loans, both term loan working capital
facilities to the borrower. Interest rate is in accordance with GOI / RBI
guidelines.
Credit facility sanctioned to Micro and Small Enterprises as defined under
MSMED Act 2006 (Both manufacturing and service sector excluding Retail
Trade) can be covered under the scheme. Eligible credit facility under the
scheme is Rs.50.00 lakhs per borrower. Credit facility of above Rs.50.00 lakhs
can also be covered under the scheme. The Guarantee and service fee shall be
passed on to the borrower.
20. PRIME MINISTER’S EMPLOYMENT GENERATION PROGRAMME (PMEGP)
The GOI introduced a new scheme called “PMEGP” by merging REGP (KVIC)
and PMRY schemes. The scheme will be implemented by KVIC at national level
and at State level KVIB, District Industries Centre and Bank.
The main objective of the scheme is to generate employment opportunities in
rural and urban areas of the country and to increase wage earning capacity of
artisans. The maximum cost of project under manufacturing sector is Rs.25.00
lakhs and the maximum cost of project under Business/Service sector is
RS.10.00 LAKHS .The rate of subsidy under General category is 15% in urban
areas & 25% in rural areas in project cost. Under Special category like
SC/ST/OBC/Minorities/Women/ Physically challenged the subsidy in the project
cost will be 25% in urban areas &35% in rural areas.
Contd…12
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The individual above 18 years of age is eligible and there will be no income
ceiling for assistance for setting up projects. However, for setting project costing
above Rs.10.00 lakhs in manufacturing sector & above Rs.5.00 lakhs in the
Business sector the beneficiary should posses at least VIII th standard pass
educational qualification. The repayment schedule is ranging between 3 to 7
years.
21. CLCSS – Credit Linked Capital Subsidy Scheme for upgradation Small and Micro Enterprises:
The scheme aims to facilitate technology upgradation of Small and Micro Enter-
prises units, by providing 15% capital subsidy for induction of well established
and improved technologies.
The operation of the scheme is extended from X plan to XI plan (i.e. 2007-2012).
Sole proprietorship, Partnership, Co-operative Societies, Private and Public
Limited Companies in SSI sector are eligible borrowers. Capital subsidy under
the scheme shall be available for such projects, where term loan have been
sanctioned by eligible PLIs, on or after 4 th December 2002. Small Industries
Development Bank of India, SIDBI and NABARD will act as the Nodal Agencies.
Promoters contribution, security, debt-equity ratio, upfront fee will be deferred as
per existing norms. Unit availing subsidy under CLCSS shall not avail any other
subsidy for technology upgradation from Central / State / UT Government. The
scheme will be monitored by Governing and Technology Approved Board (GTAB).
22. ADVANCES TO REAL ESTATE SECTOR:
Loans granted for the purpose of acquisition of land, site, plot and/or construction
of dwelling apartments or office space with an intention to generate income by
selling the same and clearing the loan out of such sale proceeds may be
classified as Real Estate Advances as follows:
• Advances to Buildings
• Advances to property developers
• Advances for construction of housing/office/ commercial complexes, shops,
flats, dwelling units/houses for the purpose of resale. Contd…13
• Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 13 :
• Advances to this sector shall not exceed 4% of the gross credit of the Bank• Prior clearance shall be obtained from the sanctioning authority to entertain
proposals under real estate sector since the Bank has to exercise caution in view of the high risk involved and restrictions communicated by RBI.
Minimum criteria for considering Real Estate loan proposals:• Loans to be project specific and the loan should invariably co-terminate with project
completion and sale proceeds should clear the loan in full settlement.
• The borrower should already have been in this line of business with necessary proof
of having executed such projects in the past preference shall be given to applicants
who are existing clients of the Bank. New clients should be entertained on a very se-
lective basis on merits.
• Value of the security both primary and collateral offered shall not be less than 200%
of the limits sought.
• The margin should be 50% of the project.
• The average debt/equity ratio over the last 3 years should not have been more than
2:1.
• The average solvency ratio over the last 3 years should not have been more than
4:1.
• The repayment shall not exceed 35 months period.
• The prudential exposure limit shall not exceed two times the tangible net worth of the
borrower.
• The end utilisation should be ensured that the bank credit is used for production de-
velopment/construction activity and not for activity connected with speculation in real
estate.
• Take-over of accounts in this category is not permitted.
23. TERM LOANS:
Loans which are repayable in not less than 36 months period are referred as
Term Loans. There is need to increase lending under term loan category of
our Bank both under Farm Sector and Non-Farm Sector. Concerted efforts
have to be made to increase the advances under this category of loans and
this alone will help to increase the outstanding advances and to sustain the
growth rate and profitability.Contd…14
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: 14 :
24. REPHASEMENT OF TERM LOANS:
Rephasement of term loans may be considered by the respective sanctioning
authorities on merits, after getting permission from the next higher authority,
taking into account factors such as delay in implementation of project, delay in
commencement of production and other genuine difficulties faced by the
borrowers.
25. NON FUND BASED BUSINESS:
It generates non-interest income for the Bank without committing the funds of
the Bank. Plans are to be drawn for improving non-fund based business to
ensure that bank gets substantial business under this head.
26. SMALL & MEDIUM ENTERPRISES (SMEs):
Govt. of India has announced that Small and Medium Enterprises would form
a thrust area for the lending operations of the Banks. SME financing would
therefore constitute one of the key areas of focus in the business strategy of
the Bank and efforts shall be made to improve the Bank’s share under SME
sector.
27. POLICY FOR TAKE OVER OF LOANS FROM OTHER FINANCIAL INSTITUTIONS BANKS:
Take-over of borrowal accounts from other banks or financial institutions
directly is one of the preferred ways of achieving healthy credit expansion.
The effective use of pricing advantages can be employed in taking over well
conducted accounts from other banks/financial institutions. However, no
lender would normally wish to lose a good borrowal account. Certain
precautions are to be observed while taking over of accounts. The guidelines
to be followed while taking over of borrowal accounts are narrated below.
A. Take over of housing loans:Before taking over of any housing loan from another bank/financial institution,
Branch Managers have to seek prior approval from Regional Offices by
submitting all the required details about the existing loan and other details
required as per the guidelines. For the loans under the powers of the Regional
Offices prior clearance has to be obtained from HO-Credit Department.Contd…15
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 15 :
After getting clearance from Regional Office/HO-Credit Department, the loans for
taking over housing loans can be sanctioned by the Branches and the Regional
Offices up to their delegated powers. Loans beyond their powers have to be
referred to Head Office-CRD for sanction.
The guidelines for taking over of housing loans are as follows:
1. Branches/Regional Offices can be permitted to selectively take over Housing
Loans from LIC Housing Finance Ltd., HDFC, Public Sector Banks, other banks,
Housing Intermediaries, Non Banking Financial Companies (NBFCs), Housing
Finance Companies (HFCs,) Cooperative Banks and Cooperative House Building
Societies.
2. It shall be ensured that the account does not have overdues at the time of
take over and did not show any significant spell of overdues during the earlier
period also. If possible, loan ledger extract may be obtained and enclosed to the
application.
3. It shall be further ensured that the underlying security viz. the house/flat does
not suffer from any impairment or deficiency in the matter of title, value or market-
ability.
4. The repayment period may be so fixed to co-terminate with the repayment
period of the earlier loan or a longer repayment period may be given as permiss-
ible under the housing loan scheme. Latest property tax paid receipt should be
enclosed.
5. While taking over Housing loans, the legal opinion on the title taken by earlier
lender may be accepted subject to the same being vetted and found satisfactory
by our bank’s Legal Advisers on production of subsequent up to date E.C. and
property tax paid receipt. Valuation report obtained by the previous financing in-
stitution may also be accepted provided margin is maintained to the satisfaction
of our Bank, subject to the loan not exceeding the liability outstanding with the
other bank/financing institution, if additions, alterations and repairs are not re-
quired / undertaken for the building. Subsequent valuations may be done through
Bank’s approved valuer periodically as required of mortgage loans.
Contd…16
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 16 :
6. While taking over housing loans, if the owners wish to make any additions or
internal/external alterations to the original building, after obtaining the necessary
approvals from the appropriate authority, additional loan may be considered
along with take over loan up to 85% of the cost of such additions and alterations.
If any necessary repairs have to be undertaken (only after 5 years of original con-
struction), 75% of the cost of such repairs can be considered for additional loan
subject to the maximum loan amount fixed for this purpose under the scheme for
repairs from time to time. Additional loans for furnishing can also be considered,
while taking over, up to 75% of the cost of such furnishing subject to
a maximum amount not exceeding 10% of the total cost of construction of the
house. The outstanding balance in the existing loan to be taken over and the ad-
ditional loan considered put together should be within the eligibility norms and de-
duction/cut-back are within the stipulated norms/repaying capacity of the borrow-
er.
7. The financial institution shall give a “No Objection Certificate/Letter” either
to the party or to our Bank stating that they have no objection to hand over the
original documents to any financial institution/bank interested in taking over of
their housing loan, on receipt of proceeds, equivalent to the outstanding loan
amount, from loan taking over bank/institution.
8. There should not be much time-gap in arranging the loan and in getting back
the documents of title deeds (from other bank/institution) and creation of mort -
gage in favour of our Bank. If the time gap is more than 4 days, then bank should
collect 1.25% service charges for the actual days of time-gap, from the
borrower/s. The parties should also give an undertaking to our bank stating that
they will collect back the title deeds and produce to the Bank immediately.
9. Branch should inspect the property, conduct local enquiry with regard to the
value of the property and scope for appreciation of value of the property. Further,
branches should submit AF-27 (valuation certificate of immovable property),
along with 3 photos (front view, both side views) duly signed by the borrower/s
Contd…17
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 17 :
and the Manager on the back side of the photos. The value of the property should
be sufficient to cover the loan amount with the required margin as per the
scheme.
B. Take over of Personal Banking Loans (DL-Contingencies):
Branch Managers/Regional Managers are permitted to take over PBS Loans up to their delegated powers only after getting prior clearance from Regional
Office / HO-Credit Department respectively, by submitting the required particulars
for consideration of such loan. The proposals beyond their powers should be
referred to Head Office for sanction. However, the taking-over of Personal
Banking Loans shall be on a very selective basis and not in a routine manner. 1. Such loans shall be regular at the time of take over. This can be confirmed
by referring to the statement of accounts or certificate received from the
financing banker.
2. Loan shall be sanctioned as per the eligibility norms and terms and condi-
tions existing at the time of take over. The loan amount can be more than
the loan amount to be taken over if his/her eligible loan amount is more as
per our norms.
3. After arranging the loan at the branch, first release should be made by way
of Pay Order/Demand Draft favouring the Bank from which the loan is to be
taken over and that should be sent directly to the Bank and a confirmation
for receiving the pay order/demand draft and closure of the loan should be
obtained and kept with the documents.
4. If the loan amount sanctioned is more than the loan amount to be taken
over, after following the procedure as mentioned under Point No.3 above,
balance amount can be released as second instalment.
C. Take over of all the term loans and all the working capital limits should also be referred to Head Office for clearance and sanction. Prior clearance from
Head Office has to be obtained before the complete proposal is entertained, by
submitting the basic details necessary to ascertain whether they conform to the
take over policy enunciated. Contd…18
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: 18 :
D. Take over of Term Loans (other than housing loans and PBS loans) from Banks / Financial Institutions:
1. Specific reasons for shifting to our Bank should be ascertained.
2. It should be ensured that there are no overdues with the banks/finan-
cial institutions not only at the time of take over but also during earlier period.
3. None of their associate accounts should have any overdues with finan-
cial institutions/other banks/our bank.
4. The term loan should have been availed for acquisition of new assets only.
5. The underlying securities should be distinctly identifiable.
6. The average DSCR should not be less than 1.8.
7. If it is a running unit of more than 3 years old, it should have registered profits,
during the preceding 3 years.
8. The project should not be in implementation phase. It should have com-
menced commercial production and surpassed the break even phase.
9. The activity should have good prospects in future.
E. Take over of Working Capital / Short Term loans and advances from Banks / Financial Institutions:
1. None of the group account should have defaulted in repayment of dues
to the bank including our bank and/or financial institutions.
2. The unit/borrower should be consistently showing an increasing trend
in respect of sales (volume and value), net profits and tangible net worth.
3. Current Ratio and Debt Equity Ratio should be within the acceptable
levels/bench marks (presently, the acceptable levels fixed are Current Ratio
1.33 : 1 and Debt Equity Ratio = 2.5 : 1).
4. The average utilisation of working capital should be to the extent of
75% of the
sanctioned limit.
F. Other Guidelines (Except for Take over of PBS Loans):
a) While taking over borrowal accounts along with the requirements already
prescribed above, the following shall also be insisted:
Contd…19
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 19 :
1. Confidential opinion of the previous lender in respect of the borrower and
guarantor. In case confidential opinion is not received even after taking up
with the previous lender, wherever feasible, the concerned branch official can
have a discussion with the officials of the lending institution and the informa-
tion on the conduct of the account elicited from them may be recorded in the
appraisal note.
2. The statement of account for the past 2 years or since the date of opening
whichever is later.
3. Copies of earlier sanction letters with amendments, if any.
b) The take-over shall be in full and also preferably that all accounts of the party
are taken over to ensure exclusive dealings. All the securities also are to be
taken over without exception.28. FINER RATES OF INTEREST/COMMISSION/SERVICE CHARGES:
The finer rates on interest, commission and service charges constitute a part
of a Bank’s business strategy to retain the existing business and addition of
new business. All such proposals should be referred to Head Office through
Regional Office and no concession should be extended unless permitted by
Head Office.
“Finer rates for the bank’s advances can be extended by the Chairman
selectively up to a maximum of 2% less than the normal existing interest rates
unless or otherwise with the sanction/approval of the Board, taking into
account the volume of business, lesser risk involved, competition in the
market coupled with risk of loosing the business and the credit expansion
needs of the bank.” The interest concession mentioned above may be
extended only in respect of
i. individual loan facility with a minimum limit of Rs.10.00 lakhs and
ii. group loans (example: Employees of any Institution/Govt. Department) with a
minimum number of 30 loans.
In all these cases prior sanction/approval of the Board is to be obtained.Contd…20
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 20 :
“Concession in the commission/service charges can be extended by the
Chairman selectively, taking into account the volume of business, the threat of
loosing the entire existing business due to competitive/lesser rates offered by our
competitors, the long range advantages/future business growth potential, lesser
operative/ servicing cost and any other business advantages anticipated. The
extent of concession shall be up to a maximum extent of 50% of the normal
commission/service charges, unless or otherwise with the sanction /approval of
the Board.”
29. ASPECTS TO BE COVERED IN THE RECOMMENDATION FOR FINER RATES:
• Value of account
• Volume of business
• Threat of loss of existing business
• Income derived from ancillary business passed on by the customer
• Perception of long term benefit
• Availability of security minimum 100%
• Competition factor
• Customers length of relationship dealing with the Bank
• Strategic consideration
Branches may forward the proposals for finer rate with their specific
recommendations to HO-Credit Department through the respective Regional Offices.
30. APPRAISAL STANDARDS:
The appraisal process has been standardised in the Bank for the assessment of
working capital, non-fund based and term loan facilities.
Working capital assessment:
The working capital requirements of borrowers shall be assessed by adopting the
following methods:
i. Simplified method in case of borrower seeking fund based working capital lim-
its of up to Rs.5 lakhs adopting a holistic approach, taking into account the bor-
rowers business potential, business plans, past dealings, credit worthiness, mar-
ket standing, collateral security and ability to repay, etc. The working capitalContd…21
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09ii .
: 21 :
requirement may be considered 20% of the annual projected scales accepted by
the Bank.
ii. Liberal trade finance scheme to the small traders and small businessman on
the basis of total turn over declared in the sales tax returns or 20% of their turn
over in their accounts with us, up to a limit of Rs.10 lakhs under Pragathi MPS-
OD.
Basic financial parameters for working capital assessment:The following are the basic financial parameters to be complied within the use of all
the borrowers [Non SSI, SSI and Small Scale (Industry related) Service and
Business Enterprises (SSSBE) irrespective of the methods of assessment excepting
where limits have been assessed through simplified procedure for less than Rs.5
lakhs.
Financial parameters Name of the Ratio Prescribed Band
i) Liquidity Current Ratio 1. 1.33 under EWCL.
2. 1.25 to 1.33 under
Projected Turnover
Method for non SSI/
SSSBE borrowers.
3. Minimum of 1.25 un-
der Projected Turnover
Method for SSI and
SSSBE borrowers.ii)Indebtedness Solvency Ratio (TOL:TNW) Below 5:1.
However, in exceptional
cases, it may be allowed up
to 10:1 by the sanctioning
authority. This need not be
treated as a deviation for
which approval of the higher
authorities is required.
iii) Security Security Coverage Ratio Minimum 1.25 for SSI and
SSSBE borrowers and 1.30
for non SSI/SSSBE
borrowers.
iv) Profitability Net Profit – positive The minimum requirement shall be that the business is making profit and not incurring losses for the past two years. However exceptions may be made by the Sanctioning Authority wherever the borrower suffers temporary setback leading to loss in any one year. This need not be treated as a deviation for which approval of the higher authorities is required.
For new units/venture, item Nos. (i), (ii), (iii) and (iv) may be on the basis of projected figures.
Contd…22
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 22 :
OVERALL COMPLIANCE TO THE BASIC FANACIAL PARAMATERS
While it may be ideal to look for sound financial parameters say, current ratio
at 1.33, low TOL:TNW ratio, high profitability, strong security position etc. in
practice it may not always be possible to get the borrowers with all the
financial parameters strong. In view of this, one of the parameters is allowed
to be relaxed if other financial parameters have stronger values within the
prescribed bands. In other words, all the basic financial parameters accepted
for sanctioning the credit facilities should collectively afford proper risk
management.
However, in case of existing borrowers, whose dealings are satisfactory and
limits are fully secured by way of mortgage / deposits /
IVP/NSC/KVP/Surrender value of LIC Policies, sanctioning authorities may
renew the limits even if more than one of the basic parameters are not
complied with and in case any enhancement is involved clearance from the
next higher authority shall be obtained.
The delegates at Head Office however, may permit deviations in other cases
required on the merits of each case and having due regard to the business
expediency.
ASSESSMENT OF NON-FUND BASED FACILITIES:
1. Bank Guarantees:It is absolutely essential to appraise the proposal for Bank Guarantees also with
same diligence and vigorous scrutiny as in the case of fund based limits and
obtain adequate cover by way of cash margin/security so as to prevent the
constituents to develop a tendency of defaulting in payments when guarantees
are invoked.
2. Financial Guarantees:At the time of advising requirement of issuing financial guarantees, it is to be
satisfied that the customer would be in a position to reimburse the Bank in case
the Bank is required to make payment under the guarantee.Contd…23
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
: 23 :
3. Performance Guarantee:In case of Performance Guarantees, branches should exercise due caution and
have sufficient experience with the customer to satisfy themselves that the
customer has the necessary experience, capacity and means to perform the
obligations under the contract and is not likely to commit any default.
Precautions:
Branches shall normally refrain from issuing guarantees on behalf of custom-
ers who do not enjoy credit facilities with them, unless such guarantees are fully
secured by cash margin/tangible securities.
Branches are not empowered to give partly secured/unsecured Bank Guaran-
tees.
Branches should avoid recommending unsecured/partly secured guarantees
for large amounts.
ASSESSMENT OF TERM LOAN:
For assessment of term loan the forms prescribed are used and debt equity
ratio, average DSCR and security coverage ratio are taken into consideration.
The following minimum financial parameters are required to be satisfied for a
term loan proposal:
- Debt Equity Ratio – not more than 2.5 : 1
- Average DSCR - not less than 1.8
- Security Coverage Ratio - minimum 1.5
Ratios for appraising working capital and term loans:
A) For Working Capital limits
Sales: Achievement of projected turnover (%)
Actual sales X 100Projected sales
Current Ratio Current Assets /Current Liabilities
Solvency Ratio (TOL/TNW)
Total Outside Liabilities/Total Net Worth
Security Coverage Ratio Total value of security offered for working capital limits (including collateral)
Total credit limits sanctioned including non-fund based.
Profitability (%) (Net Profit /Net sales) x 100
Contd…24
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B) For Term Loans
Debt Equity Ratio Long Term Debt /Tangible Net Worth
Average DSCR Net Profit + Depreciation + Interest on term loan Term Loan instalment +Interest on term loan
Internal exposure ceilings for various business entities:
1) The Bank’s exposure to any borrower shall not exceed five times of the tan-
gible net worth of the borrower (two times of the tangible net worth of the bor-
rower in case of real estate loans), subject to monetary ceiling given below:
Category of borrowers Monetary ceiling for exposure limit
2) Computation of Tangible Net Worth (TNW) of business entities for the purpose of internal exposure guidelines:
The Tangible Net Worth for the purpose of exposure guidelines shall be
computed as under:
a) Tangible Net Worth (TNW) = Capital + Reserves (excluding revaluation re-
serves) less intangible/ fictitious assets.
b) In case of borrowers enjoying credit limits of above Rs.10.00 lakhs, the Tan-
gible Net Worth shall be determined on the strength of audited Balance
sheets.
c) However, in case of borrowers enjoying credit limits of Rs.2.00 lakhs and
above and upto Rs.10.00 lakhs, the TNW may be determined on the strength
of the unaudited balance sheets.
d) In case of borrowers enjoying credit limits of less than Rs.2.00 lakhs where
Balance sheet is not available, TNW of the party shall be calculated as under:
1.Individual / Proprietary concern:
i. Movable assets such as Bank deposits, gold / ornaments, jewellery etc.
Contd…25
Enclosure to Circular No.57-2009-BC-CD Date:19.03.09
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ii. Personal immovable properties, self acquired properties of an individu-
al, share in the ancestral properties acquired on the division of the joint
Hindu family less personal liabilities.
2.Partnership firms / Joint Hindu family concerns:
i. Capital invested in the business.
ii. Undivided profits or accumulated losses, if any.
iii. Total worth of individual partners.
iv. While assessing the worth of the partners, his investment in the firm
should be ignored as such investment will form part of the firm’s worth.
e) Quasi capital in the form of funds infused by relatives / partners in specific
cases may be accepted for computation of TNW.
3) Permission to include Quasi capital for computation of Net Worth in ex-ceptional cases:
In exceptional cases, the competent authority, on merits may permit the
following type of quasi capital to be included in the computation of tangible net
worth, for the limited purpose of internal exposure ceilings.
Loans and Advances from relatives / Partners of the proprietor / Partners
which are long term in nature and not withdrawable during the tenure of the
credit facilities extended.
4) Applicability of exposure limits:
All the sanctions, except the following, shall be subject to prudential exposure
limit guidelines.
Loans / Overdrafts against Deposits and Bank Guarantees covered by 100%
cash margin.
5) Relaxation in internal exposure norms:
a) Occasionally, a proposal may merit consideration though the exposure
norms my not be met, as the proposal involves financing of long standing
customers etc. The Sanctioning Authority, in such cases may recommend
Contd…26
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the proposal explaining the reasons for relaxations / deviations to the next
higher authority seeking permission for such relaxations in internal expos-
ure norms.
b) The next higher authority may consider the above relaxations on the re-
spective merits of each case, after recording the circumstances warranting
such relaxations in the internal exposure norms and precautions taken for
safe guarding the interest of the Bank (say, in the form of additional capital
to be brought in within a stipulated period, additional securities to be
offered, undertaking not to withdraw quasi – capital without Bank’s prior
permission etc.)
c) The Chairman is empowered to relax internal exposure norms in individual
cases on merits in respect of their sanctions.
6) Sector wise Deployment of credit:
a) The sector wise deployment of credit furnished as under, mandated by
regulatory authorities.
Priority sector 60% of gross Bank Credit
Advances to agriculture 18% of gross Bank Credit
of which, direct agriculture 13.5% of gross Bank Credit
Advances to weaker sections 15% of gross Bank Credit
Advances to Cottage, Khadi & Village Industries, Artisans, Tiny Industries with investment in plant and machinery upto Rs.5 lakhs
40% of advances to SSI
Advances to SSI units with investment in plant and machinery above Rs.5 lakhs and up to Rs.25 lakhs.
20% of advances to SSI
Advances to SSI units with investment in plant and machinery exceeding Rs.25.00 lakhs
40% of advances to SSI
Advances to women beneficiaries 5% of net Bank credit
DRI loans 1% of previous year’s total advances
Real Estate 4% of Gross credit
Contd…27
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b) Limits on unsecured exposure (fund based and Non-fund based):
The outstanding unsecured exposure shall not exceed 25%of total outstanding
advances.
STATUTORY AND OTHER RESTRICTIONS:
Restrictions have been placed on certain types of advances by statutory
regulating and other authorities. The list of such restrictions are given below.
While granting loans/advances, branches shall ensure that there is no inadvertent
breach of statutory, regulatory and other restrictions.
• Loans and Advances shall not be extended against shares/debentures as se-
curity.
• Loans and advances against fixed deposit receipts of other banks shall not be
extended.
• Loans shall not be granted against certificate of deposits.
• Finance for construction of buildings meant for Govt./Semi Govt./ Municipality
Panchayat shall not be granted.
• Accommodation bills should not be purchased/discounted/negotiated.
• Advances against gold bullion should not be granted.
• Advances to silver bullion dealers should not be granted for speculative pur-
poses.
• Bank Guarantees having maturity of more than 10 years should not be issued.
DELEGATION OF POWERS FOR CREDIT SANCTIONS:
One of the basic regulatory prescriptions for a robust credit risk management
system is a scheme of delegation of credit sanctioning powers which
empowers sanctioning authorities to sanction higher credit limits to better
rated/quality customers. The guiding note on credit risk management issued
by RBI also emphasises that Banks should have multiple credit approvers
making financial sanctions subject to approvals at various stages.
It has also been emphasised that for successful Credit Management, Bank
should have a clear, well dominated scheme of delegation of powers for credit
sanction.Contd…28
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With these broad objectives, the credit sanctioning powers of various
functionaries of the Bank have been approved. It is hoped that these
delegated powers would enable quicker decisions and reduced response time
in meeting customer needs. This should lead to addition of fresh quality credit
at a faster pace so that the medium term goals of the Bank which seek to
realise a quantum leap in business are fulfilled.
Revised credit sanctioning powers delegated to various functionaries at
present are already communicated vide our Cir. No. 91-2007-BC-CD
dt.21.05.07.
Any restriction in the sanctioning powers of different functionaries has to be
placed before the Board for prior approval. While exercising the credit
sanctioning powers, the sanctioning authorities shall be guided by the
guidelines described in the sections, which follow. These sections will serve
as “Best practice code” for exercise of credit sanctioning powers for various
functionaries.
USE OF DELEGATED POWERS TO BE JUDICIOUS:
The delegated powers shall be exercised judiciously by the delegatees with
due care, in good faith and in relation to the responsibilities and the duties
entrusted to them. They shall ensure compliance with the guidelines/rules laid
down by the Head Office, including any other regulatory/instructions issued
from time to time by the Head Office or any other controlling authority.
CRITERIA FOR EXERCISE OF SANCTIONING POWERS:
1. At branches, sanctioning
powers are vested with Managers in charge of
branches, including those holding charge temporarily, depending upon
his/her scale.
2. Higher authority may exercise the powers vested in lower authority
but lower
authority cannot exercise the powers of higher authority, unless duly
authorised.
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3. Wherever a higher authority passes orders which are beyond his/her delegated
powers, the lower authority acting upon the orders of such higher authority, will
presume that the higher authority has obtained the required sanctions from the
appropriate authority for passing the said order. However, the higher authority has
to make necessary noting in this regard.
EXERCISING DELEGATED POWERS DURING THE PERIOD PRIOR TO RETIREMENT:
1. Sanction of loans and advances by Branch Manager during the period of six months prior to their normal retirement/superannuation/voluntary retirement
shall be reviewed by the Regional Office with due care to ensure that the sanc-
tions are in conformity with the delegated powers and laid down policy guidelines.
Regional Offices shall send a report to HO-Credit Department, in this regard.
2. Executives at Head Office and Regional Managers are permitted to exercise
all the delegated sanctioning powers independently, even during 6 months period
prior to normal retirement/superannuation/voluntary retirement.
APPLICATION FORMS/PROCESS NOTES:
Credit sanctioning powers can be exercised only after receipt of appropriate
application form/receipt in writing from the borrower and based on which the
appraisal of proposals as per prescribed norms has been completed. To the
extent possible, all credit proposals shall be processed only in the structured
formats prescribed by the Bank. Credit proposals falling within branch sanctioning
powers shall be processed in the structured process note formats or the process
note format forming part of the printed application forms. When credit facilities are
sanctioned, sanction letter shall invariably be issued to the borrower giving full
details and terms and conditions of sanction. Signature of the borrower shall be
obtained on the duplicate copy of the sanction letter as a token of his having
accepted the terms of sanction and the same shall be preserved with the loan
papers.
Contd…30
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LOANS & ADVANCES TO DIRECTORS OF THE BANK AND THEIR RELATIVES:
In the cases of loans and advances to Directors of the Bank and their
relatives, firm/ companies in which they are interested, branches shall obtain
prior clearance from Head Office, Credit Department. The expression ‘relative’
for the purpose of sanction referred here is defined as follows: