GIST OF CREDIT MANAGEMENT & RISK POLICY FOR THE YEAR 2013-14

The Bank understands the importance of measuring and mitigating the credit risk. With overall objective of strengthening the structure and processes of Credit Risk Management for ensuring sustainable growth of loan portfolio enumerates the Credit Management and Risk Policy every year. Policy for the year 2013-14 has been circulated vides L&A Circular No.37 dated 26th March 2013, the gist of which is placed hereunder:

Framework: CREDIT RISK MANAGEMENT STRUCTURE A. 1. 2. Integrated Risk Management Division (IRMD): At HO Circle Risk Management Departments (CRMDs): At Circle Offices

B. Risk Management Committee (RMC) is a Sub-Committee of Board with overall responsibility of formulating policies/procedures and managing all the risks C. Credit Risk Management Committee (CRMC) is a top level functional Committee headed by CMD and comprises of EDs, CGMs/GMs of Integrated Risk Management, Credit, Treasury, etc. as per the directives from RBI. D. Credit Committees: The bank has in place Grid/Committee system in credit sanction process operational at the Circles Offices as also in Head Office. E. Credit Audit Review Division (CARD) Bank has also set up a Loan Review/Audit Mechanism to be looked after independently by CARD. F. Formation of Credit Approval Committee Based on the communication received from Department of Financial Services, Ministry of Finance, Govt. of India, Credit Approval Committee (CAC) at HO/CO level have been formed as under: CAC at CO/HO level Headed by Credit Proposals COCAC Level-I CH Loaning powers beyond Incumbent of branch but within vested loaning powers of CH(AGM/DGM as the case may be) COCAC Level-II FGM Loaning powers beyond Circle Head but not exceeding Rs.35 crore. HOCAC Level-I Senior Most GM Above Rs.35 crore but upto Rs.50 crore. (Credit) HOCAC Level-II Senior Most ED Above Rs.50 crore & upto Rs.100 crore. HOCAC Level-III CMD Above Rs.100 core & upto Rs.400 crore. Branch Officials in various scales shall continue to exercise their vested loaning powers as per the extant system.

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CREDIT RISK POLICY & STRATEGY In order to provide a robust risk management structure, the policy aims to provide a basic framework for implementation of sound credit risk management system in the bank. The bank has implemented the Standardized Approach of credit risk, as prescribed by RBI in its final guidelines on NCAF, yet the bank shall continue its journey towards adopting Internal Rating Based Approaches. RBI has come out with the final guidelines on implantation of the Internal Ratings Based Approaches for calculation of Capital Charge for Credit Risk. Bank has already submitted its Letter of Intent to RBI indicating its willingness to migrate to IRB approaches. The bank has implemented the following system for adopting Standardized Approach: Capital Charge for Credit Risk Risk Weight Claims on Govt./RBI/Banks Risk Weight Claims on Central Govt. and accounts guaranteed by Central Govt. State Govt. guarantees claims Claims on RBI/DICGC/CGTMSE Claims on ECGC Claims on SCBs having CRAR of at-least 9% Claims on other banks having CRAR of at-least 9% Claims on banks having CRAR less than 9% Risk Weight Claims on Corporate (CARE, CRISIL, INDIA RATING, ICRA, BRICKWORK,SMERA) Corporate with rating AAA AA A BBB BB and below Un-rated exposure Restructured/rescheduled claims 0%

20% 0% 20% 20% 100% Up to 625%

Risk Weight 20% 30% 50% 100% 150% 100% 125%

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Risk Weight Others Regulatory retail portfolio Housing loans outstanding up to 30 lac & LTV up to 75% Housing loans outstanding above 30 lac & less than 75 lac (LTV up to 75%) Housing loans Less than 75 lac LTV ratio more than 75% Housing loans above 75 lac irrespective of LTV ratio Rescheduled Housing loans Claims secured by commercial real estate Venture Capital fund Consumer credit including personal loans and credit card Capital market exposure Staff loans fully covered by superannuation benefits Other staff loans

75% 50% 75%

100% 125% 25% (addnl.) 100% 150% 125% 125% 20% Regulatory retail

Risk Weight NPAS Risk Weight Specific provisions Residential Mortgage 100% 75% 50% Other NPAS 150% 100% 50%

Not less than 20% of NPA outstanding of NPA At least 20% and up to 50% of outstanding of NPA At least 50% of outstanding of NPA

1. Off balance sheet items (non-market related) would also attract risk weight after applying CCF (Credit conversion factor). 2. Undrawn credit facility of partially drawn CC limit shall also be included in the nonmarket related Off balance sheet items and attract risk weight after applying CCF. In order to prevent excessive leveraging, a ceiling has also been prescribed on Loan to Value Ratio (LTV) in respect of residential housing loans to public as under: Loan to Value Ratio (LTV) in respect of housing loans should not exceed 80 per cent.

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However, for small value housing loans, i.e. housing loans up to Rs. 20 lac (which get categorized as priority sector advances), LTV ratio should not exceed 90 per cent.

Internal Rating Based Approach The IRB approach allows banks, subject to the approval of RBI, to use their own internal estimates for some or all of the risk components {(Probability of Default(PD), Loss Given Default(LGD), Exposure at Default (EAD) and Effective Maturity(M)} in determining the capital requirement for a given credit exposure. Credit Risk Mitigation Techniques RBI has prescribed list of eligible financial collaterals, method of valuation of these collaterals and haircut thereon etc., which would help the bank in reducing the exposure amount by permitting offset of such collaterals against the exposure. o Credit Risk Mitigation techniques such as use of CRM and Use of Collaterals and Haircut to mitigate/transfer risk factor. o Eligible collaterals for CRM are Cash, Gold, deposit with banks, Central Govt. Securities, IVPs, LIC policies, Debt securities. o Equities including convertible debentures are no longer part of the CRM. CREDIT RISK STRATEGIES A. Identification of Target Market for the bank B. Decision on Risk Acceptance levels C. Quantitative Exposure Ceilings A.IDENTIFICATION OF TARGET MARKET FOR THE BANK An important aspect of targeted marketing is to have matching delivery channels. Bank has created proper credit delivery channels for building up a sound credit portfolio. Bank has created specialized structure, wherein relationship management concept has also been introduced. I. THRUST AREAS In the year 2013-14, the thrust areas for the bank shall be as under: Retail Segment Retail segment, for business ownership credit dispensation purposes is considered a segment of borrowers governed by the schemes developed by Retail Assets Division. The performance, monitoring and control of all the Retail Segment Schemes is looked after by Retail Assets Division. The retail segment should not be construed as defined by RBI as regulatory retail in the New Capital Adequacy Framework (NCAF). The Policy of the Bank will also aim at higher recovery rates, strictly implementing the System of monitoring Retail Loan Accounts by encouraging steps to improve Branch-wise recovery to minimum 90% and NPAs of less than 2%. The process of sending SMS alerts will also be initiated where alerts to retail loan borrowers whose instalments are due/ have become due, be sent besides constitution of dedicated recovery teams at Circle/ Branch level to monitor NPAs/ potential NPAs.

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Priority sector Credit: Bank will continue to direct its policies for boosting advances to all segments of Priority Sector to remain ahead of the national goals under priority sector, agriculture, weaker sections, women beneficiaries, etc. In additional to agriculture, thrust shall remain on boosting Micro Credit through financing of Self Help Groups and also to have higher growth under Small Enterprises, Education and Housing segments of Priority Sector. The following revisions undertaken in PNB Kisan Card(KCC)Scheme shall be leveraged to remain competitive in the marked: I. KCC Scheme has been extended to cover pledge financing against negotiable warehouse receipts. II. The system of fixing the KCC limit has been changed. Instead of existing system of 25% of the limit for consumption purposes, the branches may provide for 10% of limit towards post harvest/household/consumption requirements+20%of limits towards maintenance expenses of farm assets. Similarly for 2nd and subsequent years, the first year limit plus 10% of the limit may be allowed for every successive year (2nd, 3rd, 4th and 5th). III. Maximum KCC limit will be Rs.20 lac. The restriction of maximum 50% of total limit for production/consumption loan has been dispensed with. IV. The existing ceiling of Rs.1 lac for consumption loan has been dispensed with. V. Cheque book facility allowed to all KCC holders. VI. Facility of reducing TL allowed for land development, minor irrigation, purchase of farm equipments, allied agricultural activities etc., and the withdrawals may be allowed upto Drawing Power which may be reduced each year as per the repayment schedule within 5 years. VII. Both Cash Credit limit and Reducing TL can be disbursed in cash. VIII. The margin requirement for Crop loan under KCC has been dispensed with.

Focused attention shall be paid to increasing disbursements under following schemes: a) PNB Kisan Card (KCC) b) PNB Krishak Saathi Scheme (the increase in maximum limit under the scheme from Rs 50000 to Rs 1 lakh shall be leveraged). c) Scheme for financing tenant farmers and oral lessee farmers. d) Dairy/Poultry Venture Capital scheme e) Advance against warehouse and cold storage receipts upto Rs.25 lac. f) Advance for purchase of Tractors and other agricultural implements including agriculture transportation. g) Minor Irrigation with emphasis on drip and sprinkler irrigation h) Allied agricultural activities like dairy, poultry, fishery, piggery, sheep/ goat etc. i) Loan for construction of Rural Godowns/Cold Storages. Thrust shall be given on taking advantage of the relaxations given in rate of interest, upfront fee and documentation charges under Capital Investment Subsidy Scheme for Construction/ renovation/ expansion of rural godowns. j) Credit linked back ended subsidy scheme for development/ strengthening of agricultural marketing infrastructure k) Agri-clinics/Agri-business centres l) Agriculture infrastructure like cold chains, refrigerated vans etc. for transport and preserving perishable goods.

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m) Dairy Vikas Card. The produce marketing loan limit has been enhanced from Rs.10 lac to Rs.25 lac. The bank has launched one new scheme namely PNB Kisan Tatkal Card Yojana and modififed three existing schemes: a. PNB Krishi Bhu Swami Yojana b. PNB Sona Krishi Rini Yojana c. PNB Saur Urja Yojana. Lending under these new schemes is to be promoted. Advances To Micro, Small & Medium Enterprises (MSME): In line with GOI policy directives to achieve 20% year on year growth in credit to Micro Small & Medium Sector, the Bank under Vision 2013 documents envisages growth of more than 25%. 1. 60% of total advances to Small Enterprises should be reserved for Micro Enterprises as per PS guidelines of RBI. 2. Bank will attain 25% growth in MSME sector against GOI policy directive to achieve 20% growth. 3. Bank has made mandatory coverage of loans up to 1.00 crore to MSEs under CGTMSE. 4. Collateral free loans to MSEs up to Rs. 10 lac have been made mandatory by the bank. 5. BMs have been vested with higher powers to sanction loans under MSEs. Scale II Manager can exercise powers of Scale III and Scale III can exercise 125% of their powers for disposal of proposals at branch level for Micro Enterprises (Mfg.) under CGTMSE. 6. WC finance is made as per Nayak Committee up to credit limit of Rs. 5.00 crore to Manufacturing unit and Rs.2.00 crore to Service Units. Current Ratio has been relaxed to 1.25:1. 7. 10% annual growth in number of accounts of lending to Micro enterprises. 8. Simplified Loan application (PNB-1067) introduced for WCDL up to Rs. 10.00 lac. 9. Bank will provide 20% concession in processing/upfront fee in case loan application is received on line. Disposal of Loan Applications within the prescribed time limit is to be ensured as under: Upto Rs. 2 lakh Above Rs.2 lakh & upto Rs.50 lakh Above Rs.50 lakh & upto Rs.100 lakh Above Rs.100 lakh & upto Rs.100 crore Above Rs.100 crore 2 Weeks 4 weeks 5-6 weeks 6-7 weeks 8-9 weeks

As per RBI mandatory guidelines, loans up to Rs. 10.00 lac to Micro and Small enterprises which are covered under CGTMSE are to be considered on merits without accepting any collateral/3rd party guarantee.

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CD Ratio In order to boost CD ratio of rural and semi urban branches, specific emphasis will be laid on marketing and financing under rural based lending schemes. The benchmark for CD ratio will be 60%. Priority Sector Targets: Sector National Goal (Computed against ANBC or credit equivalent of Off Balance Sheet Exposure whichever is higher) 40% 18% 10% 5% 1% of total advances as of previous year

Priority Sector Total Agriculture Weaker Sections Women beneficiaries DRI Advances

Apart from the above, efforts will be made to achieve the target of 15% of Priority Sector advances to Minority Communities. Export Credit Export credit shall also continue to remain our thrust area and our Endeavour will be to achieve the ratio of export credit to net bank credit of 12% as prescribed by RBI. The bank has formulated Gold Card Scheme to boost export credit.

Other Strategies Non-fund business shall be increased to augment non-interest/ Fee based income. Only borrowal accounts in Standard Category having Risk Rating BB and better shall be taken over from other banks. Borrowal accounts would be taken over on selective basis with the permission of next Higher authority. MCBs will handle proposals between Rs.5 crore and Rs.25 crore at places where LCBs are also located the loan proposals of Rs.5 crore and above at places where LCBs are not located. LCBs will handle loan proposals above Rs.25 crore. Linking of loaning powers with Risk Rating In case of AAA & AA rated borrowers, CM and above can exercise 125% of their loaning powers. In A rated accounts, 110% of the normal loaning powers can be exercised. In B rated accounts, the enhancement can be made at all level within normal loaning powers. In such type of fresh loans, the officials other than GM(HO/Field), ED, CMD can exercise 75% of their vested powers except in case of B- and B rated accounts. However CMD/ED/GM can exercise normal powers. No fresh exposure is to be taken in C & D rated accounts. However, MC/CAC is empowered to sanction loan in C and D rated accounts.

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Unfavorable Industry A list of industry rating including the unfavorable industries have been advised vide L&A Circular No. 85 dated 30.10.2012. In case industry is upgraded, the restriction shall be removed automatically. Adhoc limits: To check frequent sanction of adhoc limits to the borrower without ascertaining genuineness of the requirement, loaning powers for sanction of adhoc limits at the branch level has been withdrawn. In order to facilitate operational convenience, Temporary Overdrawing and Adhoc Limits have been defined and will be exercised as under: Temporary Overdrawing (TOD) In fund-based secured advances overdrawing may be allowed for payment of statutory dues, salaries, wages or any other justifiable debits for very short period say 2-3 days, but not exceeding 7 days (including roll over, if any) to meet temporary mismatch of funds in unforeseen circumstances by officials at branch level within their vested loaning powers for sanction of adhoc facility. Reference Lending Rate - Base Rate Base Rate has been made mandatory with effect from 1.7.2010. The bank has approved credit rating agencies like SMERA, CRISIL, ICRA, ONICRA and BRICKWORK for rating of the MSME units and is extending interest concession of 0.50 for first two rating grades and 0.25% to third rating grade only. FGMs may allow 100 basis point relaxations in rate of interest on applicable card rate. However, while allowing relaxations certain aspects be kept in view. Other Policy Matters 1. Sanction of limit in anticipation of approval of MC can be considered by CMD/ED. In Principal consent can also be considered by ED/CMD. 2. Fresh advances to stand alone Sponge Iron Units are to be considered at HO level only. 3. All real estate proposals above 500 lac including hotel industry, finance against Lease rentals shall require administrative clearance from ED/CMD. Administrative clearance from GM(CO/FGM) in respect of proposals up to 500 lac. (in case of show-room/shop, no clearance is required. 4. Loaning powers for sanction of proposals for Hotels including Guest Houses shall be exercised by CM and above within their vested loans powers with the precondition of prior approval. 5. Finance to retailers under SME for purchase of shop/show-room are exempted from administrative clearance. 6. All proposals relating to Cement Industry and Civil Aviation sector shall be considered at HO.

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7. No fresh advances should be made to Tea and Rubber industry. 8. The officials upto AGM level are to exercise 50% of their vested loaning powers for considering TL for financing educational institutions. 9. In respect of borrowal accounts availing limits over Rs.20 lac, interest rates have been linked with credit risk rating with certain exceptions. 10. Presently BPLR is 14% w.e.f. 01.05.2012 and Base Rate is 10.25% w.e.f 09.02.2013. 11. Short Term Loans Minimum A rating is required for loans exceeding 500 crore and B rating for loans up to 500 crore. Credit Risk Rating should not be based on Balance sheet older than 15 M. The ceiling for aggregate STL is fixed at 18% of total advances. 12. An account is considered as weak if irregularity persists for more than 60 days or PMS rank is 6 and above. This is based on RBI guidelines on Special Mention Accounts. 13. Prudential Exposure norms as per RBI guidelines are 15% of Capital funds for single (additional 5% for infrastructure projects) and 40% for group (additional 10% for infrastructure projects). These limits can be exceeded up to 5% of Capital funds in case of PSU borrower and AA rated borrowers. The exposure limit for single will be 25% in respect of Oil Companies who have been issued Oil bonds and do not have SLR status. There is further bifurcation of exposure limit on basis of rating by the bank. 14. Prudential norms with in Overall Ceiling in respect of individual borrowers are as under: %age of Capital Funds AAA/AA rated accounts & PSUs A rated accounts BB/B rated accounts C rated accounts D rated accounts 15% + 5% for infrastructure 14% + 3% for infrastructure 12% + 3% for infrastructure 9% + 3% for infrastructure 6% + 3% for infrastructure

15. Exposure is restricted to: Proprietorship Concerns Rs. 30.00 Crore. Partnership Concern Rs. 75.00 Crore. Single entity with constitution as Society, Trust & HUF Rs. 100.00 Crore. 16. In order to reduce concentration, risk in few accounts, substantial exposure limit has been fixed : Private Sector Borrowers :100% of Capital funds of bank Public Sector Borrowers : 300% of Capital funds of bank. 17. Unsecured Exposure should not exceed 25% of total outstanding advances. Exposure (FB+NFB) where the realizable value of Tangible Security is not more than 10%, ab initio of the outstanding exposure shall be treated as Unsecured. 18. Exposure to Film Industry is restricted to 20 crore for fresh cases. 19. Exposure to NBFC- 7% of Capital funds.(12% for infrastructure) Group Exposure 20% and 30% for infrastructure. 20. Exposure to Real Estate will be 20% of Total Advance with separate segment wise ceiling as under: Ceiling (% of the total S.No Segment advances of the bank as at close of last quarter) (i) Exposure on NHB & HFCs 5.00%

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(ii)

Commercial Real Estate a) Land developers & builders

10.00% 6.00% (out of 10%)

b) Other commercial real estate i.e. 4.00% (out of 10%) IPs(commercial), lease rentals, Hotels etc. (iii) (iv) Residential mortgages Total No sub-ceiling 20%

21. Ceiling for Capital market exposure is fixed at 40% of its net worth with further bifurcation of individual and overall. 22. Aggregate outstanding to Windmills has been fixed at 1% of Total Advances as on close of previous quarter..Proposal to be sanctioned at DGM level. 23. Credit Risk Rating Models as per our internal rating system are as under: Applicability S.No. Credit Risk Rating Model Total Limits Sales 1 Large Corporate Above Rs. 15 Crore Above Rs.100 Crore, (OR) except Trading concerns 2 Mid Corporate Above Rs.5 Cr and up to Above Rs.25 Cr and Rs.15 Cr. (OR) up to Rs.100 Cr. All trading concerns falling in the Large Corporate category shall also be rated under this model 3 Small Loans Above Rs.50 lakh & up Up to Rs.25 Cr. to Rs.5 Cr (AND) 4 Small Loans II Above Rs.2 lakh & up to Rs.50 lakhs 5 NBFC All Non Banking Financial Companies irrespective of Limit 6 New Projects Rating Above Rs. 5 Cr. (OR) Cost of Project above model Rs.15 Cr. 7 Entrepreneur New Borrower setting up new Cost of Project upto Business Model business and requiring Rs.15 Cr. finance above Rs 20 lac upto Rs. 5 Cr (AND) However, all new trading business irrespective of limits shall be rated under this model New Non Banking Financial Companies (NBFCs)/New Micro Finance Institutions (MFIs). New borrower entities, setting up new business requiring only working capital/NFB limits of above Rs.5 crore but not involving setting up of any project as such. Projects already completed with own finance, audited results for first year of operations are not yet available and proposal is only for sanction of WC/NFB facilities.

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Half Yearly Review of i) All listed companies rated on Large / Mid Rating corporate rating models. ii) Other borrowal accounts rated on Large / Mid corporate rating models availing limits (FB+NFB) above Rs.50.00 crores from our bank. 9 Facility Rating Assigning rating to facility sanctioned to the Framework borrower based on default rating and securities available 10 Credit Risk Rating All banks and Financial Institutions models for Banks/ FI 11 NPA Model For marking NPA accounts in on-line PNB Trac Credit Risk Rating System 12 Future Lease Rental Advances to property owners against future lease Model rentals 24. PNB Score is a rating system to evaluate risk in Retail loans. 8 models have developed for Conveyance Loans, Housing Loans, Education loan, Doctors loan, Personal loan and Traders loans etc. Model for Gold and Jewellery with limits upto Rs.50.00 lac has also been put on server. 25. Score model for SME has been developed separately to evaluate risk in SME advances. 5 models have been developed for the purpose. 26. Valuation of Property from valuer is required if limit is Rs. 10.00 lac and above or Value of Property is Rs. 20.00 lac and above. Valuation will be done from 2 valuers if Value of property is Rs. 5.00 crore and above.(In case of Plant and Machinery to be charged is 50 crore and above, Valuation from minimum 2 valuers is required.). Valuation is required to be renewed after every 3 years. 27. Simplified Turnover Method will continue to be applicable in WC limits up to Rs. 2.00 crore (5 crore for SME units) and MPBF system for units requiring WC exceeding above limit. Cash Budget System will be followed in Sugar, Tea, Service Sectors, Construction activity, Film production etc. 28. Legal Compliance Certificate is required for all credit limits of Rs. 10.00 lac and above. 29. Vetting of loan documents is also required in sanctioned limits of Rs. 2.00 crore and above . 30. LRM (Loan Review Mechanism 1. Credit Audit by Concurrent Auditor will be done in all Standard Accounts with exposure from 10.00 crore to 20.00 crore in AAA, AA, A BB & B rated accounts , but In weak (C& D rated ) accounts, this will be done in accounts with O/S between 3.00 to 8.00 crore. 2. Credit Audit by CARD Auditor will be done in all Standard Accounts with exposure exceeding 20.00 crore in AAA, AA, A BB & B rated accounts, But In weak (C& D rated) accounts, this will be done in accounts with O/S exceeding 8 crore. The frequency of credit audit will be as under: In AAA, AA, A credit audit of such accounts shall be conducted once in a year BB & B risk rated accounts showing moderate risk shall be subject to credit audit on half-yearly basis. C & D risk rated accounts with higher risk shall be subjected to credit audit on quarterly basis.

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Credit audit of accounts of PSUs shall be done yearly (irrespective of risk rating 31. Scoring in Agriculture lending : Bank is in the process of developing Scoring Models for PSLB schemes including Agriculture Loans for limits above Rs. 1 lac and up to Rs 50 Lacs as under: 1. Direct Agriculture with limit above Rs. 1 lac and up to Rs. 50 lacs 2. Allied Agriculture with limit above Rs. 1 lac and up to Rs. 50 lacs 3. Direct Agriculture with limit above Rs. 1 lac and up to Rs. 50 lacs (Renewal/Enhancement) 4. Allied Agriculture with limit above Rs. 1 lac and up to Rs. 50 lacs (Renewal/Enhancement 32. PMS is applicable in all borrowal accounts having sanctioned limit above Rs. 1.00 crore. 33. Annual Stock Audit is conducted in all accounts with fund based Working Capital limit of Rs. 5.00 crore and above.( Rs. 3.00 crore in B and below rated accounts. 34. Monitoring of weak/Irregular accounts is done by I/C in accounts with O/S up to Rs. 1.00 lac. CH will monitor in loan accounts having O/S above Rs. 1.00 lac up to Rs. 10.00 lac. Committee of GMs will monitor all weak and irregular accounts under Standard category having outstanding above Rs. 10.00 lac up to 50 lac. ED/CMD will monitor accounts with outstanding above Rs. 50.00 lac. 35. Corporate Debt Restructuring (CDR) and Debt Restructuring mechanism (DRM) for SMEs are already in place for accounts having total exposure more than Rs. 10.00 crore enjoying from Multiple/Consortium Banking. However need may arise for the bank to reschedule/restructure the accounts outside CDR/DRM for SMEs. Identification of potentially viable accounts shall be an on-going process. 36. Consortium Arrangement may preferably be considered in case of borrowers enjoying fund based limits of Rs. 50 crore and above from more than one bank. Multiple Banking Arrangement and syndication are other alternatives of group approach. 37. Credit restrictions imposed on financial assistance to Industries producing/Consuming Ozone Depleting Substances (ODS). 38. Sanctions for Working Capital and Term Loan are valid for 6M from date of sanction. The competent authority may revalidate within 12M. 39. CIBIL Data verification is a pre-requisite to sanction any type of loan. Our bank is a member of Credit Information Bureau of India. CIR should be drawn while considering fresh proposals/enhancements and renewals. Proposal to finance should not be considered if the name of the company/director appears in RBIs defaulters list. 40. Advances against Security of Shares and Debentures Maximum ceiling: 10 lac for non-demat and 20 lac for Demat. There will be a ceiling of Rs. 10 lakh and Rs. 20 lakh for financing individuals for acquiring shares under IPO/FPO and ESOP respectively. Selective Credit Control: Based on the guidelines issued by RBI from time to time, credit limits will be sanctioned to borrowers dealing in sensitive commodities.

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Use of data of Credit Information Companies and RBI defaulters list With the aim of taking informed credit decisions, the bank has become a member of four Credit Information Companies (CICs) namely: 1. Credit Information Bureau (India) Ltd. 2. M/s Experian Credit Information Co. of India Pvt. Ltd., 3. M/s Equifax Credit Information Services Pvt. Ltd. And 4. M/s High Mark Credit Information Services, These CICs have been set up for creation of the database in respect of the Borrowers, Guarantors & Co-obligants of banks/FIs and sharing the same with its member banks. Credit Information Report (CIR) should be drawn while considering fresh/enhanced/renewal proposal. This initiative helps the bank in better credit decisions thereby resulting in lower NPAs. Adoption of Fair Practice Code Based on the broad guidelines on the Fair Practices Code for Lenders advised by RBI, our bank has introduced Fair Practices Code in a bid to refine standard of customer services and transparency in the lending activities. The code contains various important declarations, which should be followed in letter and spirit. Grading of borrowers under Rating System Rating Signification Description category PNB AAA Minimum Risk Excellent business credit, superior asset quality, excellent debt capacity and coverage. PNB-AA Marginal Risk Very good business credit, very good asset quality and liquidity, very good debt capacity and coverage. PNB-A Modest Risk Good business credit, good asset quality and debt capacity & coverage. PNB-BB Average Risk Average business credit with satisfactory asset quality and liquidity, good debt capacity and coverage. PNB-B Marginally Acceptable business credit with average risk, Acceptable Risk acceptable asset quality, modest debt capacity. PNB-C High Risk Not creditworthy, generally acceptable asset quality. PNB-D Caution Unacceptable business credit, normal repayment in jeopardy, inadequate projected net worth and paying capacity. 1. In accounts with limit of 50 lac and below, both rating and vetting will be done at branch level. 2. The rating becomes due for updating after expiry of 12M from the month of confirmation of rating or 18M from the date of balance sheet whichever is earlier. The rating is treated as overdue after expiry of 15M from the month of confirmation of rating or 21 M from the date of Balance sheet whichever is earlier. 3. Ratings with AAA, AA, A, BB and B grades signify Investment Grade and C and D rating grades are called High Risk Grade.

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Industry-wise Credit Exposure Limits (as %age to total advances (FB+NFB) of the bank as on last audited quarter): Industry/Sector Ceiling in %age for next 12 months or till review of limits 10% 5%

Iron & Steel, All Engg., Construction, Infrastructure Telecom, Infrastructure Roads, Infrastructure others, Food Processing Other Textiles Electricity, Infrastructure Power Environmental Issues

3% 11%

To stabilize emission of greenhouse gases in the atmosphere an international agreement between 141 countries, popularly known as Kyoto Protocol was signed in the year 1997, shall remain valid upto 2012. The Kyoto Protocol permits meeting the national targets through a combination of domestic climate change activities and the use of the Kyoto Flexible Mechanisms. The use of these mechanisms has led to the emergence of a carbon trading market. Bank has put in place comprehensive guidelines for financing Carbon Credit. There are restrictions on giving financial assistance producing/consuming ozone depleting substances (ODS). to identified industries

Review Of Term Loan : All the Term Loans with sanctioned limit of Rs. 1 crore & above needs to be reviewed annually. Debt Equity Ratio: In view of RBI directions, desired level of Debt Equity Ratio project financing is 2:1. However, it can be relaxed in terms of LA Cir. No. 9 dated 15.1.2009. Debt Service Coverage Ratio: It is a ratio of Net Profit (After taxes) plus Depreciation to total obligations in a period. The ratio of 1.5 to 2 is considered reasonable. The above guidelines are abridged version of Credit policy circulated by the bank. However, this is not a substitute of the Circular. Contributions from: Kanwal Kumar, Sr. Faculty Rajinder Kumar, Sr. Faculty Zonal Training Centre, Ludhiana

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