Loan Policy In Banks

Loan Policy - Objectives

1. Profitable deployment of resources in line with ALM requirements 2. To aim at a common approach in credit appraisal and monitoring standards to meet genuine credit needs of existing clients and to enlarge client base through client acquisition besides facilitating quick and prompt credit decisions. 3. To set up standard and uniform credit evaluation system and procedures to monitor portfolio performance and set up guideposts to augment income from non-fund exposures 4. Strengthen the credit delivery system and to clearly lay down the preferred deployment area of credit keeping in view the socioeconomic obligations profitability, past experience of asset impairment and with greater focus on retail banking. 5. To address issues of credit concentration and to set up prudential credit exposure norms. 6. To build and maintain a well diversified portfolio for an orderly asset growth 7. To set up a Credit Risk Management System with parameters for risk identification, measurement, monitoring and mitigation

Loan Policy - Objectives

8. To provide for Loan Review Mechanism and 9. To set up a risk based Loan Pricing Policy 10. To provide for dissemination of information to enable informed credit decision making at all levels and to facilitate proper training of field staff on credit appraisal and monitoring 11. To provide for adequate delegation of discretionary authority at all levels consistent with the cannons of this Policy Document and 12 To improve market share in identified areas of business through
1. 2. 3. 4. 5. Maintaining continuous contacts with the existing clients to meet their credit requirements for their business and expansion plans etc Obtaining reference from existing clients for increasing the customer base and cross selling of various banking products Such references may also be obtained from various associations of merchants/industries/traders etc Acquiring new clients, by identifying potential non customers, establishing contacts for bringing them to our fold, adhering to take over codes and policy guidelines By leveraging the technological advantages of the Bank

REGULATORY COMPLIANCE
Fair Practices Code (FPC)
In compliance to Reserve Bank of Indias directives the Bank has formulated its Fair Practice Code for Lenders. The basic tenets of the Code are as under: To be fair and honest in disclosures, dissemination of information and presentation while releasing information to public and marketing of Loan Products. If sought, to render necessary assistance to customers applying for loans. Not to discriminate on the basis of religion, caste, sex, descent etc. To provide professional, efficient, courteous, diligent and speedy services in the matter of retail lending. To provide customers with accurate and timely disclosure of terms, costs, rights and liabilities as regards loan transactions. To attempt with good faith to resolve any disputes or differences with customers by setting up complaint redressal cells within the organizations.

REGULATORY COMPLIANCE Fair Practices Code (FPC) To comply with all regulatory requirements in good faith.
To spread general awareness about potential risks in contracting loans and encourage customers to take independent financial advice and not to act only on the representation from the Bank. Loan application forms shall be comprehensive and include information about the fees/charges, if any, payable for processing, amount of such fees refundable in case of non-acceptance of application, pre-payment options and any other matter that affect the interest of the borrower so that meaningful comparison with that of other Banks can be made and informed decision can be taken by the borrower. Such information shall be furnished by the Branches separately also till revision in application forms are furnished. Wherever the loan applications are rejected by the Bank, it shall, convey in writing, within stipulated time, the main reason/reasons for which, in the opinion of the Bank have led to rejection of the applications. Bank shall furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.

Regulatory Compliance - KYC Norms

As part of Know Your Customer (KYC) principle, RBI has issued several guidelines on proper customer identification and advised the banks to put in place systems & procedures to help control financial frauds, identify money laundering and suspicious activities and for scrutiny / monitoring of large value cash transactions. The objectives of the KYC framework are twofold.
To ensure appropriate customer identification To monitor transactions of suspicious nature.

Branches shall strictly adhere to KYC guidelines, obtain all information necessary to establish the identity, legal existence of each new customer and to be vigilant while opening a/cs for new customers to prevent misuse of banking system for perpetration of frauds. KYC procedures are to be applied as per the extant policy guidelines for all existing accounts as well as new accounts.

CIBIL (Credit Information Bureau (India) Ltd

E xponential credit growth resulted in increased competition and credit delinquencies, wherein risk assessment is of critical importance. In this direction, comprehensive credit information on the credits availed by the borrower along with payment track record is of utmost importance before assuming exposures. The establishment of CIBIL is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors portfolio quality. CIBIL, established in 2000 under aegis of RBI is a repository of information, which contains credit history of commercial and consumer borrowers. Under reciprocal basis, CIBIL provides vital information to its members in the form of credit information reports, which allows its Members to make informed, objective and faster credit decisions. As our Bank is one of its members, the functionaries may use the services of CIBIL in their credit decision process. To facilitate the Bank in submission of details of all borrowal accounts to CIBIL for compilation of credit information database (performing & non-performing), it is required that
Consent of the Borrower should be obtained Periodic updated information to CIBIL is provided Integrated Risk Management Department provides ID and Password to functionaries to facilitate online accessing CIBIL data base.

Loan Delivery System for Working Capital Limits

The system was introduced in April 1995. It cover large borrowers enjoying working capital credit limits of Rs.10.00 crores and above from the banking system. The Loan Delivery system is applicable to borrowal accounts classified as Standard or Sub-Standard The fund based working capital limits are bifurcated into demand loan and cash credit component, which shall be decided upon the merits of each case by the loan approving authority. Certain business activities, which are cyclical and seasonal in nature or have inherent volatility, the strict application of loan system may create difficulties for the borrowers. For this reason, activities like Tea, Sugar, `Contractor etc are exempted from the loans system of delivery.
Export credits sanctioned to borrowers should be excluded before

bifurcation of the working capital limit into loan and cash credit components.

Restrictions as per Section 20 of the Banking Regulation Act, 1949

No Banking Company shall:

Grant any loans or advances on the security of its own shares, or Enter into any commitments for granting any loan or advance to or on behalf of any of its Directors any firm in which any of its Directors is interested as Partner, Manager, Employee or Guarantor any company (not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956 (1 of 1956) or a Government company, of which (or the subsidiary or the holding company of which) any of the Directors of the banking company is a Director, Managing Agent, Employee or Guarantor or in which he holds substantial interest, or any individual in respect of whom any of its Directors is a partner or guarantor.

Restrictions in terms of Section 77A (1) of the Companies Act, 1956 on Credit to Companies for Buy-back of their securities

In terms of Section 77A (1) of the Companies Act, 1956, the companies are permitted to purchase their own shares or other specified securities out of their a) free reserves, or b) Securities premium account, or c) proceeds of any shares, or d) other specified securities subject to compliance of various conditions specified in the Companies (Amendment) Act, 1999. Therefore, the Bank shall not extend loans to companies for buy-back of its own shares / securities.

Regulatory Guidelines on credit restrictions

The Bank shall not grant loans against primary security of Certificate of Deposits The Bank shall not grant loans against primary security of deposits of other Banks. The Bank shall not undertake financing of Badla transactions The Bank shall not extend loans to partnership / proprietorship concerns against the primary security of shares and debentures The Bank shall not extend finance for setting up new units consuming /producing Ozone Depleting Substance (ODS) The Bank shall not extend advances for speculative purposes or extend advances against company shares to promoters of such companies during lock-in-period Bank shall not grant temporary credit facilities for adjusting overdues in other accounts. Purchase of cheques drawn in favour of borrowers by their associate concerns, friends or close relatives without trade transactions / considerations.

The discretionary powers to sanction loans to relatives of staff members are given seperately

Regulatory Guidelines on credit restrictions

Unless sanctioned by the Management Committee of Board of Directors, banks should not grant loans and advances aggregating Rs.25.00 lakh and above to:

Directors (including the Chairman / Managing Director) of other Banks Any firm in which any of the directors of other banks is interested as a partner or guarantor and Any company in which any of the directors of other banks holds substantial interest or is interested as a director or as a guarantor.
Unless sanctioned by the Management Committee of Board of Directors, banks should not also grant loans and advances aggregating Rs.25.00 lakh and above to:

Any relatives of their own Chairmen / Managing Directors or other directors Any relatives of the CMD or other Directors of other Banks Any firm in which any of the relative as mentioned at a) and b) above holds substantial interest or is interested as a Director or as a Guarantor Any company in which any of the relatives as mentioned in a and b above hold substantial interest or is interested as a director or as a guarantor Includes directors of Schedules Co-operative Banks, directors of subsidiaries/trustees of mutual funds / venture capital funds.

Restriction on Advances against Sensitive Commodities under Selective Credit Control (SCC) With a view to preventing speculative holding of essential commodities with the help of bank credit and the resultant rise in their prices, in exercise of powers conferred by Section 21 & 35A of the Banking Regulation Act, 1949, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest to do so, issues, from time to time, directives to all commercial banks, stipulating specific restrictions on bank advances against specified sensitive commodities. Presently the following commodities are covered under stipulations of Selective Credit Control: Buffer stock of sugar with Sugar Mills Unreleased stock of sugar with Sugar Mills representing levy sugar, and free sale sugar Margin Stipulations: Margin on Sugar Buffer Stock of Sugar Minimum Margin With effect from 0% 1.4.1987

Unreleased stock of sugar with sugar mills representing Levy Sugar

10%

22.10.1997

Free Sale Sugar

10%

10.10.2000

Negative List

Plantation firms in the nature of NBFCs Unregistered NBFCs Partnership firm, where HUF is one of the partners

Discretionary List
Registered NBFCs Chits/Chit Funds & Credit/Thrift Cooperative Societies Marriage Hall Film Industry Cinema Hall T V Serials Entertainment & Amusement Parks Solvent Oil Extraction / Soya Industry Vegetable Oil and Vanaspati Sector Ship Breaking Manufacturing & Trading of Liquor Chemical Industries Fertilizer Industries Casting of Iron & Steel, Sponge Iron & Ferro Alloys Telecom Cables & Equipments Textile Jute, Denim Real Estate (other than housing/infrastructure) development including construction of shopping malls /multiplex Sugar Mills/Factories Gem & Jewellery

CREDIT RISK MANAGEMENT POLICY

Bank has last approved the Credit Risk Management Policy. The Credit Risk Management Policy would be guiding principle for the Loan Policy. While Loan Policy would not only address the business development facet, the guidelines under Credit Risk Management Policy will also be integrated to build quality asset portfolio and to minimize risks.

Guidelines under Credit Risk Management Policy shall be strictly adhered to, with specific reference to Credit Risk Rating, Credit Monitoring, Risk Mitigation, Pricing and Operational procedures.
Credit Risk Identification
The Bank recognizes that every credit decision, in respect of both FBL and NFBL, involves Credit Risk. Therefore, the Bank has put in place the Credit Risk Rating System towards effective measurement, monitoring and mitigation of such risks in its credit portfolio.

Credit Risk Measurement

The measurement of credit risk in respect of borrowal accounts with credit limits (FB & NFB) of Rs 10 lakhs and above through a system of Credit Rating as approved by the Board of Directors and as amended from time to time.

Credit Risk Rating System

The Bank will follow Risk Rating system applicable to all borrowers with total exposure limit of above Rs.10.00 lakhs (Fund Based & Non Fund Based). The credit rating model will vary in the level of sophistication and complexity, depending upon whether the loans are for new units /projects or for existing units. As per extant policy guidelines risk rating system is applicable to all borrowers with total fund based & non fund based exposure of above Rs.10.00 lakh.

In case of borrowers availing aggregate credit limits of Rs.5 Crore and above, external rating shall be obtained for which Bank had entered into MOU with CRISIL, CARE, ICRA & FITCH.

Credit Risk Mitigation Methodology

Guidelines for Operational Units:
With a view to enable operational units to build up a credit portfolio of good quality, the Bank will adopt pro-active credit risk management policies like bringing out periodically industry monitors/updates, studies on mortality rate of assets etc. The Bank will also provide and periodically update its documents setting out credit origination and maintenance procedures (i.e. Manual of Instructions on Credit), guidelines on pro-active portfolio management and remedial management (rehabilitation/ restructuring/re-schedulement of credit etc). The control mechanism will have two dimensions, first, ensuring compliance of necessary monitoring terms, maintaining continuous follow up and supervision measures, secondly, adoption of suitable risk mitigation measures. In the later stage, the available options include:

Avoidance by staying away from risky borrowers. Reducing exposure i.e. adherence to lower limit. Fixing higher level of margin Insurance cover of assets against loss, damage, calamity etc. Obtaining guarantees and counter guarantees/ collaterals. Institutional guarantee cover against default risk from Credit Guarantee Fund Scheme for small industries/ECGC etc. Credit derivatives may be resorted to as and when available/required.

Portfolio Risk Diversification Methods

Bank shall strictly comply with the RBI guidelines on Prudential Exposure Norms.

Prudential Exposure Limits

INDIVIDUAL BORROWER EXPOSURE LIMITS (15% of capital funds of the Bank) INDIVIDUAL NBFC (10% of capital funds of Bank) INDIVIDUAL NBFC-AFC (15% of capital funds of Bank) For Infrastructure Projects (Individual Borrower only) (20% of Capital Funds of the Bank) Where exposure in excess of 10%/15% of capital funds to NBFC / NBFC-AFC is on account of funds on-lent to infrastructure sector, then, exposure limits are: For NBFC (upto 15% of capital funds of the Bank) For NBFC AFC (upto 20% of capital funds of the Bank) GROUP BORROWER EXPOSURE LIMITS (40%of Capital Funds of the Bank) For Infrastructure Projects (Group Borrower only) (50%of Capital Funds of the Bank)

Internal exposure limits for Corporate Borrowers

For Individual Borrower General, including NBFC & NBFC-AFC Specific PSUs AAA rated Corporate Borrowers Infrastructure projects : (Other than PSUs & AAA rated Borrowers) For Group Borrower General Infrastructure projects

Exemptions
Rehabilitation of Sick/Weak Industrial Units The ceilings on single /group exposure limits would not be applicable to existing/additional credit facilities (including funding of interest and irregularities) granted to weak/sick industrial units under rehabilitation packages. Food Credit Borrowers to whom limits are allocated directly by the Reserve Bank, for food credit, will be exempt from the ceiling. Guarantee by the Government of India The ceilings on single/group exposure limits would not be applicable where principal and interest are fully guaranteed by the Government of India Loans against own Term Deposits Loans and advances granted against the security of banks own term deposits may be excluded from the purview of the exposure ceiling.

Exposure to Capital Market

In line with RBI guidelines, the Banks overall exposure to Capital Market Sector under the prudential capital market exposure norms effective from 1.4.2007, is restricted to 40% of Net Worth based on the Audited Balance Sheet of previous year and Banks direct capital market exposure to 20 per cent of its net worth.

Items excluded from Capital Market Exposures are listed below:

Banks investments in own subsidiaries, joint ventures, sponsored Regional Rural Banks (RRBs) and investments in shares and convertible debentures, convertible bonds issued by institutions forming crucial financial infrastructure such as NSDL, CDSL, NSCCL, NSE, CCIL, CIBIL, MCX, NCDEX, NMCEIL, NCMSL After listing, the exposures in excess of the original investment (i.e. prior to listing) would form part of the Capital Market Exposure. Tier I and Tier II debt instruments issued by other banks; Investment in Certificate of Deposits (CDs) of other banks; Preference Shares; Non-convertible debentures and non-convertible bonds; Units of Mutual Funds under schemes where the corpus is invested exclusively in debt instruments; Shares acquired by banks as a result of conversion of debt/overdue interest into equity under Corporate Debt Restructuring (CDR) mechanism; Term loans sanctioned to Indian promoters for acquisition of equity in overseas joint ventures / wholly owned subsidiaries under the refinance scheme of Export Import Bank of India (EXIM Bank);

Sub-ceilings on exposure to Capital Market :

The maximum ceiling prescribed by RBI for Loans against the security of shares, debentures and PSU bonds to individuals, if held in physical form should not exceed the limit of Rs.10.00 lakh per individual borrower (Rs.20.00 lakh per individual borrower, if the securities are held in demat form). The above ceiling is now applicable for the Loans to individual from the entire banking system. Therefore, before according sanction of credit limits to individuals, declaration shall be obtained from the applicant on the details of credit limits availed by him/her from other Banks, so as to ensure Compliance to above prescription

Advances against shares to Stock Brokers and Market Makers :

The Banks are free to provide credit facilities to stockbrokers and market makers on the basis of their commercial judgment, within the policy framework approved by their Boards. However, in order to avoid any nexus emerging between inter-connected stock broking entities and banks, the banks should fix, within the overall ceiling of 40% of Net Worth, a sub-ceiling for total advances to All the stock brokers and market makers (both fund based and non-fund based i.e. guarantees) and To any single stock broking entity, including its associates / inter-connected companies.

Advances to borrowers appearing in Defaulters List/ Caution List

In respect of borrowers appearing in Willful defaulters list, credit approval authorities will be as under:

Fresh / Enhancement

MC/Board

Renewal CMD and in his absence ED, within their discretionary powers

Advances to borrowers appearing in Defaulters List/ Caution List

In respect of borrowers whose name appear in Defaulters List/SAL-ECGC Fresh/ Enhancement Renewal

MC/Board

GM and above, within their discretionary powers.

Credit Risk Management for Takeover of Advances

In case of taking over of an account from other Bank (fund based & non fund based facilities), the Bank should obtain satisfactory credit report of the borrower from their bankers. OR Alternatively The Branch Manager should obtain the Banks statement of accounts for the last one year (atleast one year) and certify that the operations in the account including servicing of interest/installments are satisfactory, which also should be confirmed by way of a certificate from the borrowers chartered accountants. However, Bankers Credit Report should necessarily be obtained, before release of the limits being taken over.

Specific Industry/Sectoral Limits (Credit Concentration)

Ceiling as percentage to Gross Bank Credit Not to Exceed (of last quarter)

Sr 1

Industry / Sector Infrastructure Finance a) Power b) Roads /Bridges /Ports & Dams c) Telecom

15.00%
7.50% 7.50% 5.00% 7.50% 7.50% 5.00% 1.00% Shares & 1.50% 10.00% 0.50% & 7.50% 5.00% 2.50% 5.50% 2.50% 2.50% other 5.00%

2 3 4

Information Technology & Bio-Tech Gems & Jewellery Iron & Steel

5
6 7 8

Metal & Metal Products

Sugar Industry Advances against Debentures Advances to NBFCs

9
10 11 12 13 14

Ship Breaking
Construction including Builders Developers Chemical & Petrochemical Pharma Textiles Educational Institutions

15
16

Real Estate Sector

Others-Advance to any Particular Industrial Sector

Definition of Infrastructure lending

Any credit facility in whatever form extended by lenders (i.e. banks, FIs or NBFCs) to an infrastructure facility as specified below falls within the definition of Infrastructure lending. In other words, a credit facility provided to a borrower company engaged in: developing or operating and maintaining or developing, operating and maintaining
any infrastructure facility that is a project in any of the following sectors, or any infrastructure facility of a similar nature : a road, including toll road, a bridge or a rail system--------- 1 a highway project including other activities being an integral part of the highway project a port, airport, inland waterway or inland port a water supply project, irrigation project, water treatment system, sanitation and sewerage system or solid management system telecommunication services whether basic or cellular, including radio paging, domestic satellite service (i.e. a satellite owned and operated by an Indian company for providing telecommunication service), network of trunking, broadband network and internet services an industrial park or special economic zone generation or generation and distribution of power transmission or distribution of power by laying a network of new transmission or distribution lines construction relating to projects involving agro-processing and supply of inputs to agriculture construction for preservation and storage of processed agro-products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality construction of educational institutions and hospitals any other infrastructure facility of similar nature

Exit Policy
In the case of borrower where the score obtained as per Credit risk rating system is less than 55, no enhancement is to be considered by any authority below ED/CMD and borrower should be advised to make alternative arrangement at the earliest so as to provide exit route to the Bank.

CREDIT MONITORING POLICY

Credit Portfolio Monitoring:
The Bank will monitor its credit portfolio regularly with particular reference to exposures, industry wise and to sensitive sectors. Such monitoring will also focus on exposure by way of unsecured advances. All such reviews conducted on quarterly basis shall be placed before the Committee of Directors on Integrated Risk Management / Board of Directors by Credit Risk Management Department, HO.

Borrower wise Monitoring:

The Bank will strengthen its extant systems and procedures on monitoring of its advances, borrower wise. Specific attention will be paid to monitoring, at monthly intervals, of troubled exposures / weak credit i.e. Standard B category assets of Rs.5 lakh and above which exhibit signs of weaknesses. Large Accounts causing concern shall also be subjected to Special Audit by experienced firms of Chartered Accountants to identify areas of weaknesses in such accounts in order to take necessary corrective action. Wherever found necessary, Regional Managers & above are authorized to permit and appoint CAs for undertaking such special audits. Further, the extant system of monitoring all irregularities in borrowal accounts with credit approvals or exposure levels of Rs 25 Lakhs and above by Head Office will be adhered to. In case of borrowal accounts with credit limits of Rs.5 Lakh to Rs.25 lakhs, the same will be monitored by respective Regional Offices. Based on early warning signals (EWS), the Standard assets are grouped in to 7 categories viz. P1, P2, P3 (for performing assets), R (Restructured with regular operations), S1 & S2 (Standard B Stressed & Highly Stressed0 and M (Mega Projects). (Detailed guidelines issued vide Circular No.328/16/2006 dated 19.12.06).

CREDIT MONITORING POLICY

Loan Review Mechanism

The Bank views Loan Review Mechanism (LRM) as an important tool of credit risk control. The Bank will adopt the following approach to LRM:
Credit Audit of borrowal accounts above Rs.5 crore (reduced from the existing level of Rs.10 Crore) shall be taken up every year with comprehensive scrutiny on quality of management, financial position, risk perception, project viability, and operations etc. Such Credit Audit Reports shall be placed before Audit Committee of the Board along with views / suggestions of concerned General Manager by the Internal Audit & Inspection Department, HO. Inspection & Internal Audit Department shall frame operational guidelines and undertake Credit Audits.

 Monitoring through MMR In the light of restructuring and/or up-grading of non-performing Assets, it is essential that review of large borrowal account/s is/are undertaken constantly and vigilantly to ensure that any warning signal regarding weakness of the borrowal accounts are identified and any irregularity/ies found in the operations of the account are arrested at the initial stage itself.
The remedial measures will be taken by the operational units at the sight of first signal in the change of health of the borrowal account, which would be easily identified either through the conduct of the account at the operational level or non compliance of certain critical terms of sanction. The Monthly Monitoring Report (MMR) would be a tool to identify such signals for taking corrective measures at the appropriate time. The yearly review / renewal would enable the branch to have a close look at the financial position of the borrowal account. Based on the MMR of borrower, any deficiency, noted in the conduct of the account such as frequent exceeding, non payment of quarterly interest/installments etc. and non co-operation / compliance, non-submission of stock statements, inadequate insurance etc., besides status of documentation/ charge registration etc. could be easily identified and corrective steps / compliance etc could be taken up promptly. The Bank will ensure a continuous control over the large borrowal accounts to see that they remain standard and do not slip into NPAs. It will also be ensured that all the columns in the MMR are filled with accurate information at Branch level to enable the controlling offices to render scientific analysis of the data received on the borrowers transactions.

CREDIT MONITORING POLICY

Time Norms
No A Category / Sector Proposals under Anti Poverty Programmes / Government sponsored Schemes Proposals from SSI & Other priority sectors with limits of less than Rs 10 lakhs Proposals Schemes under Retail Banking Maximum time limit for sanction 30 days

30 days

C D

30 days

Proposals for Export Finance 45 days 30 days 15 days

(i) Proposals for sanction of fresh/ enhancement of credit limits. (ii) Proposals for renewal of existing limits (iii) Proposals for sanction of ad-hoc credit facilities E In all other cases:

(i) Proposals for sanction of fresh/ enhancement of credit limits. (ii) Proposals for renewal of existing limits ( iii) Proposals for sanction of ad-hoc credit facilities

60 days 45 days 30 days

Methods of Assesment
For NBFCs NOF Method For Credit limits upto Rs.2 crore (Rs.5 crore in case of SSIs) Turnover Method

In case working capital cycle is higher, the borrower will have the choice to be assessed under Turnover method or Modified MPBF method.

For Credit limits beyond Rs.2 crore (Rs.5 crore in case of SSIs)

For operating cycle is reasonably uniform and working capital Modified MPBF Method remains more or less stable

For industries, where operations are seasonal or project Cash Budget Method based in nature like, Tea, Sugar, Software, Contractors, Builders & Developers etc.

Bench Mark Ratios - Total Debt Equity Ratio

Sr. No. Category Borrower of the Indicative Total D/E Ratio In Case of 100% or more Collateral Security Indicative Total D/E Ratio 4.5:1 5:1 6:1 7:1 6:1 6:1

a) b) c) d) e) f)

Total Debt Equity Ratio Industries (Medium & Large) Industries (SSI) Traders Ship Breaking Service Industry Infrastructure Sector

3.5:1 4:1 5:1 6:1 5:1 5:1

Current Ratio:
Sr.No. 1 2 Assessment Method Turnover Over Method Modified MPBF Method :i)Working capital limit upto Rs.10.00 Crore ii)Working capital limit above Rs.10.00 Crore Ratio (Indicative) 1.10:1

1.17:1 # 1.25:1 #

# Wile working out MPBF, minimum margin to be taken @ 15% or 20% of total current assets so that minimum current ratios are maintained at 1.17 and 1.25 respectively. In case of item no 2 (i) & (ii), where the adequate future cash accruals are envisaged and the present current ratio is lower than the minimum, the Bank may consider Working Capital Term Loan (WCTL), repayable over a period of of 3 to 5 years and comply with the current ratio. In case of assessment under turnover method a) Margin requirements are to be maintained upfront. b) Where upfront NWC is higher than the minimum margin requirements, the MPBF may be computed by excluding the minimum margin requirement from 25% of the accepted turnover.

Interest Coverage Ratio:

Interest Coverage is an indicator as to the number of times the profit covers the interest liability of the company. This is a risk parameter and an indicator to the extent to which the interest liability will be serviced on time. Profit for this purpose would mean the gross profit before interest. The ratio should be minimum 1.5:1.

Debt Service Coverage Ratio (DSCR):

The Bank normally considers projects having average DSCR between 1.50 to 2 as adopted by the FIs. The Bank proposes to continue with the same policy.

Current Assets Turnover Ratio: {Gross Sales/(Debtors+ Inventory)}:

This ratio will indicate the turnover of the current assets in a year. Generally this will be above 1.75.

Bench Mark - Term loans

Internal Rate of Return on discounted cash inflow: In case of term loans of Rs.5.00 crores and above, this needs to be worked out and the same should not be lower than the cost of funds.

Sensitivity Analysis: In case of term loans of Rs.5.00 crores and above, sensitivity analysis should be worked out. It is clarified that Sensitivity Analysis is required to be carried out for Term Loans for funding projects and the same is not required for Short Term Loans, Unsecured Loans approved by the Banks. In case of advances to Public Sector Undertakings including State Electricity Boards/ Corporations, the sanctioning authority may waive conducting sensitivity analysis on case to case basis.

Deviations:
The sanctioning authorities shall look for sound financial parameters in terms of prescribed benchmarks. The stipulated parameter benchmarks for five ratios (TDER, Current Ratio, ICR, DSCR and CATO) as mentioned above will serve as suggestive and indicative tool for the sanctioning authorities to ensure a holistic credit decision. In case of existing borrowers whose dealings are satisfactory and limits are fully secured, sanctioning authorities at branch levels may renew the limits even if two parameters are not as per policy guidelines.
In case of deviations in respect of more than two parameters where renewal or enhancement is involved, Regional authority shall consider all the proposals falling within the powers of branches. In all other cases, where proposals fall within the powers of Regional Managers/AGMs and above, the respective sanctioning authority may permit deviations with due justification, on the merits of each case and having due regard to the business expediency, within their respective discretionary powers

Though the deviations are allowed by the respective sanctioning authorities as prescribed above, there should be endeavour to ensure that the borrower attains the benchmark level of ratio/financial parameters with in a specified time frame.

Primary Securities Margin Norms:

Bank has prescribed detailed guidelines for margins to be stipulated for various credit facilities/securities. The respective sanctioning authority at the level of the RM and above may deviate from prescribed margin with due justification

Collateral Securities: The Banks policy with regard to Collateral securities shall be as under: For New Borrowers: The Bank shall endeavour to obtain collateral security by way of fixed assets/ cash margin / shares etc. 10% to 20% of Fund based & Non Fund Based limits. However, in case of PSUs and borrowers with AAA, AA, and A rating as per our Bank's rating system no collateral may be insisted upon. In case of Consortium advances, the Bank will follow the decision on the Collaterals as agreed to by the Consortium bankers. Bank may insist on collateral security up to 10% in case of medium scale borrowers. Collateral Security for tiny sector and Small Scale Sector will be as per HO guidelines (Circular no.310/64/2004 dated 15-1-2004) and revision from time to time For existing Borrowers (upon sanction of enhanced FBL/NFBL limits): The requirement of collateral security shall be 10% to 20% of Fund based and Non Fund Based limits Normally no collateral security may be insisted upon over and above existing collateral security if any, provided prescribed margins are maintained and the borrower is having good track record, sound financial position and satisfactory dealings with the Bank. In case of PSUs and borrowers with AAA+, AA, A rating as per our Bank's policy no collateral security need to be insisted upon. In case of Consortium advances, the Bank may follow the decision on the Collaterals as agreed to by the Consortium bankers.

Risk Based Pricing: Interest Rate Policy:

The Bank will follow a policy of Risk based pricing. All credit exposures should be priced appropriately. The Bank has adopted the Cost Plus pricing approach with Sub BPLR lending decision viewed in terms of pricing by market competitors. Basically, the pricing will be done taking into account the following: Cost of Funds; Administrative Cost; Cost of Capital required to be maintained for that credit exposure; Reasonable Return on Capital; and Risk Premium With increased competition amongst banks for garnering new business, interest rates have become a major tool to determine competitiveness of a bank for attracting new business and to retain the existing clients. Keeping in view business interest, under-mentioned authorities are empowered to consider relaxation in rate of interest as under, provided such concession is supported with proper justification in business interest of the bank and/or overall yield for deployment of resources :

Risk Based Pricing: Interest Rate Policy:

CONCESSION IN INTEREST RATES: Designated Authorities for extending concessional interest rate 1% below the applicable rate as per Credit Rating and not less than BPLR within his discretionary powers DGM 2% below the applicable rate as per Credit Rating and not less than BPLR 1% within his discretionary powers GM 2% below BPLR irrespective of Credit rating and discretionary powers ED 4% below BPLR, irrespective of Credit rating and discretionary powers CMD