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INTEGRATED RISK MANAGEMENT DEPARTMNENT
DOMESTIC LENDING POLICY Page 1 of 198
ALLAHABAD BANK
INTEGRATED RISK MANAGEMENT DEPARTMENT
HEAD OFFICE: 2, NETAJI SUBHAS ROAD, KOLKATA – 700001
INSTRUCTION CIRCULAR NO. 14220/CPRMD/2015-16/22 DATE: 22.03.2016
BANK’S DOMESTIC LENDING POLICY
To: All Offices/Branches
Attention of Branches/Offices is drawn to Instruction Circular No. 13340/CPRMD/2014-
15/14 dated 30.09.2014 as well as subsequent amendment on Bank’s Guidelines on
“Bank’s Domestic Lending Policy”.
Meanwhile, in view of the suggestions/various guidelines received from Ministry of
Finance/ RBI/ IBA, the Bank’s Board in its meeting held on 11.03.2016 have reviewed/
amended “Bank’s Domestic Lending Policy”. A copy of the revised guidelines duly
approved by the Bank’s Board is enclosed as “Annexure B”. The gist of major
amendments is as per “Annexure A”.
These revised guidelines will be effective from the date of this circular.
The Branches / Offices are advised to carefully go through the guidelines and note the
contents therein for strict compliance.
(S. L. Jain)
General Manager (IRM)
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Annexure A
GIST OF MAJOR AMMENDMENTS
i. Regulatory Priority sector targets and sub-targets is included.
ii. As a part of Credit Risk Measurement, 19 RAM Models, 11 Score Card & Thumb
Rule have been included along with Facility Rating & Composite Rating under
RAM as per HOIC No. 14025 dated 26.11.2015.
iii. RBI relaxed certain categories of loan to Chief Executive Officer/ Whole Time
Directors, which has been added.
iv. Commodities i.e. Food Grains, Oil Seeds, Raw cotton & Kapas and cotton textile
added under Selective Credit Control as per RBI guidelines.
v. Restrictions on other loans and advances pertaining to “Using long term export
advance to liquidate rupee loans which are classified as non-performing assets”
included.
vi. Other Restriction (Prohibited category of borrowers) : Clause for willful defaulters
revised as “Borrowers/Directors/Partners/Proprietors/Guarantors who is/ are
included in the Willful Defaulters list issued by RBI will be debarred from
institutional finance for floating new ventures for a period of five years from the
date of removal of their name from the list of willful defaulters as published/
disseminated by RBI/CICs”.
vii. Bills Discounted under Letter of Credit: Where Bill discounting/ Negotiation/
Purchase and LC issuing bank is our bank, the same will be classified as
exposure to borrower.
viii. Share Application money: Definition & treatment clarified in the policy.
ix. Ownership criteria of step-down subsidiaries by Indian Companies from more
than 51% holding to minimum 51% holding modified.
x. The Sanction Letter should include information pertaining to Loan amount &
Term of loan, Interest, fees payable, penalty, EMI, Securities etc. to all the
borrowers included.
xi. In Pre-sanction Scrutiny & Credit Appraisals, additional points also to be taken
care are a) Market information, b) Involvement in legal disputes, c) Raids
conducted, d) Validation of data from ROC.
Further, to incorporate a clause in the appraisal note that ‘ No third party is involved at
any stage in the loan sanction process’ as a tool of preventive vigilance.
xii. Non-Fund based facilities including Partial Credit Enhancement (PCE) may be
extended to those borrowers who do not avail any fund based facility from any
bank in India, subject to certain conditions incorporated.
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xiii. In order to extend timely adequate credit to borrowers in the MSE segment within
the broad MSME policy guidelines, consideration of sanction of additional
Standby Credit facility for Fresh Term Loans for project loans / funding capital
expenditure and additional Working Capital Limits specified.
xiv. The criteria for Bank Finance to Factoring Companies amended.xv. Bill Finance : Purchase /discount/negotiation of bills under LCs clarified.
xvi. HLCC ED and above is authorized to permit establishment of LC with non
recourse clause on behalf of our clients, in favour of AAA/AA/A rated Public
Sector Enterprises added.
xvii. The sanctioning authority will take a view & permit/ issue NOC for Re-
Constitution of Firm/ Company.
xviii. Undrawn Exposure: Disbursement schedule should be mentioned in sanction
letter for conservation of capital specified.
xix. Discretionary Authorities for considering Relaxations under Retail LendingSchemes is as per HOIC No. 14188/Retail Credit/2015-16/19 dated 11.03.2016.
xx. Credit Audit can also be entrusted to empanelled Retired Bank Officers is
included.
xxi. While doing Review of Borrowal Accounts, diversion of funds, adequacy of
drawing power, stress in group accounts, market developments, stock price
movements, etc. should also be examined.
xxii. Early warning signals mentioned to enable branches to take timely preventive
corrective measures.
xxiii. Separate Chapter on Restructuring/Rescheduling and para on Strategic DebtRestructuring Scheme, Flexible Structuring & Refinancing Long Term Project
Loan incorporated.
xxiv. Financing Second Hand Assets: The Authority to reduce the gap between the
residual life of the asset and the repayment period of the loan as also margin is
specified.
xxv. Financing of purchase of units for onward sales in part / scrap: Amendment in
respect of minimum margin, tangible collateral security, maximum exposure per
borrower and Discretionary Power specified.
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Annexure B
ALLAHABAD BANK
DOMESTIC LENDING POLICY
INTEGRATED RISK MANAGEMENT DEPARTMENTHEAD OFFICE
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Contents
1. INTRODUCTION & OBJECTIVE OF THE LOAN POLICY .............................................. 9
1.1. Introduction ......................................................................................................................... 10
1.2. Policy Coverage ................................................................................................................ 10
1.3. Basic Objectives ................................................................................................................ 10
1.4.
Regulatory Credit .............................................................................................................. 11
1.5. Definition of Regulatory Retail for the purpose of Calculation of CRAR .............. 12
1.6.
Strategies to achieve objective ...................................................................................... 12
1.7. Loan Policy Compliance & Relaxation ......................................................................... 13
1.8. Credit Risk Management ................................................................................................. 14
1.8.1.
Credit Risk Identification ...................................................................................14
1.8.2.
Credit Risk Measurement .................................................................................15
Credit Risk Rating System / Modules ...........................................................................15
1.8.3.
Credit Risk Mitigation and Collateral Management .................... ................ 17
1.8.4.
Strategy for Credit Management .....................................................................19
1.9. Industry wise Lending Guidelines ................................................................................. 19
2.
Credi t Deployment......................................................................................................... 20
2.1. Credit Planning & Budgeting .......................................................................................... 21
2.2.
Thrust Areas ....................................................................................................................... 21
2.3. Asset Liability Management ............................................................................................ 22
3. STATUTORY RESTRICTIONS ....................................................................................... 24
A. Statutory Restrictions ................................................................................................................. 25
3.1. Prohibitions List ................................................................................................................. 25
3.1.1. Restrictions as per Section 20 of the Banking Regulation Act, 1949.................... 25
3.2. Regulatory Restrictions ................................................................................................... 29
3.2.1. Restrictions on Grant of Loans and advances to off icers and relatives of Senior Officers of
Banks 29
3.2.2. Advances to self /close Relatives.................................................................................. 30
3.2.3. Restriction on Advances against Sensitive Commodities under Selective Credit Control: 30
3.2.4. Restrictions on other loans and advances .................................................................. 31
3.2.5. Financing Infrastructure/ Housing Projects ................................................................. 34
3.2.6.
Issue of Bank Guarantees in favour of Financial Institutions .................................. 35
3.2.7. Loans and advances to Real Estate Sector ................................................................ 35
3.2.8. Bridge Loans against receivables from Government ................................................ 36
3.2.9. Restriction on Guarantee & Co-acceptances: ............................................................ 36
3.3. Other Restriction (Prohibited category of borrowers) ............................................... 36
3.4.
Hurdle Risk Rating for Financing ................................................................................... 37
3.4.1. Guidelines on Fresh Exposure- Hurdle Rating for Credit Limits of Rs 25 Crore & above 37
4.
EXPOSURE MANAGEMENT ......................................................................................... 39
4.1.
Capital funds ...................................................................................................................... 40
4.2. Exposure ............................................................................................................................. 40
4.3. Exposure Ceilings ............................................................................................................. 40
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4.3.1.
Exposure Norms Prescribed by RBI ............................... ............................... 40
4.3.2.
Credit Exposures to Individual/Group Borrowers ........................................ 40
4.3.3.
Substantial Exposure Limit ...............................................................................41
4.3.4.
Bills discounted under Letter of Credit (LC) ................................................. 41
4.3.6.
Exposure Norms for NBFC as prescribed by RBI ....................................... 41
4.3.7.
Bank’s Internal Prudential Exposure limit for Individual and Group Borrower 42
4.3.8. Prudential Exposure Limit for Individual and Group Borrower ................. 43
4.4.
Exemptions to Exposure Ceiling ................................................................................... 44
4.5. Exposure to Capital Market ............................................................................................ 44
4.6. Exposure to Individual /Proprietorship/Partnership Firms /H.U.F /LLP/AOP ...... 46
4.7.
Advances to Individuals against shares....................................................................... 47
4.8. Exposure to Indian Joint Ventures/ Wholly Owned Subsidiaries/ Step- down Subsidiaries. 47
4.9. Sector wise Exposure Ceiling ........................................................................................ 49
4.10. Secured and Unsecured Advances .............................................................................. 51
4.10.1. Exposure by way of Unsecured Guarantees and Unsecured Advance ............... 51
4.11. Export Credit ...................................................................................................................... 53
4.12.
Bank Financing to PSU Disinvestments...................................................................... 53
4.13. Intra group Exposure (For the purpose of Loans) ..................................................... 54
5. System & Proc edures ................................................................................................... 55
5.1. Fair Practice Codes for Lenders .................................................................................... 56
5.2. KYC Norms including e-KYC.......................................................................................... 57
5.3. Credit Information Bureaus and Credit Reports ......................................................... 57
5.4. Credit Reports from Bankers & Exchange of Information ....................................... 58
5.5. Guidelines for trigger points for shares / unit of mutual funds held as primary / collateralsecurity. .............................................................................................................................................. 59
5.5.1. In cases, where listed shares / mutual funds are kept as prime security ............. 59
5.5.2. In cases, where listed shares / mutual funds are kept as collateral security as exclusivecharge 60
5.5.3. In cases, where listed shares / mutual funds are kept as collateral security under pari-passucharge with other lenders ............................................................................................................... 60
5.5.4. In cases, where unlisted shares / mutual funds are kept as collateral security .. 60
5.6. Advances to borrowers appearing in Defaulters’ List/ Caution List ....................... 60
6.
PRE-SANCTION, APPRAISAL & EVALUATION .......................................................... 63
6.1. Credit Approval Authorities ............................................................................................. 64
6.2. Credit Approval Committees .......................................................................................... 64
6.3.
Pre-sanction Scrutiny & Credit Appraisals .................................................................. 64
6.3.1. Lending to PSUs / Central and State Government Corporate / Municipal Committees /
Corporations etc............................................................................................................................... 67
6.4. Appraisal cum Proposal Memorandum........................................................................ 67
6.5. Due diligence on Suppliers ............................................................................................. 68
6.6.
Exposure in case of Forex Loans – Hedging Requirements .................................. 69
6.8. New Business Group ....................................................................................................... 70
6.9. Environmental Pollution ................................................................................................... 71
6.10. Adoption of Environment and Social Risk Framework (ESRF) Guidelines ......... 72
6.11. Methods of assessment................................................................................................... 72
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6.12.
Financing to NBFC ........................................................................................................... 76
6.12.1.
Broad classification of NBFCs .........................................................................76
6.12.2. Bank Finance to NBFCs registered with RBI ..................................... .......... 76
6.12.3.
Bank Finance to NBFCs not requiring Registration .................................... 77
6.12.4.
Bank Finance to Residuary Non-Banking Companies (RNBCs) ............. 77
6.13. Bank Finance to Factoring Companies ........................................................................ 77
6.14.
Sick/Weak Units ................................................................................................................ 77
6.15.
Finance to Construction Companies ............................................................................ 78
6.17. Additional Credit Limits to Exporters ............................................................................ 78
6.18. Holding Periods ................................................................................................................. 79
6.19. Composite Limit /Sub-Limits ........................................................................................... 80
6.20. Bench Mark Ratios ........................................................................................................... 80
6.21.
Treatment of items while calculating MPBF ................................................................ 85
6.22. Term Loan .......................................................................................................................... 86
6.22.1. Techno economic viability study norms (For Fresh Term Loan) ............................ 88
6.22.2. Relaxations in financial parameters .............................................................................. 91
6.23.
Line of Credit ...................................................................................................................... 92
6.24. Bill Finance ......................................................................................................................... 92
6.25. Bridge Loan ........................................................................................................................ 96
6.26.
Loan System for Delivery of Bank Credit .................................................................... 96
6.27. Bank Guarantee ................................................................................................................ 96
6.28. Deferred Payment Guarantees ...................................................................................... 99
6.29. Letter of Credit ................................................................................................................... 99
6.30. Other guidelines .............................................................................................................. 101
6.31.
Extension of Expired Limit ............................................................................................ 102
6.32. Security ............................................................................................................................. 103
6.33.
Margin................................................................................................................................ 106
6.34. Induction of promoters contribution ............................................................................ 109
6.35. Conveying of Sanction ................................................................................................... 110
6.36. Valuation of Collateral Securities & Empanelment of Valuers .............................. 110
6.37. Pricing ................................................................................................................................ 111
6.38.
Quoting of Interest Rates .............................................................................................. 112
6.39. Time Frame for Disposal of Proposals ....................................................................... 113
b. Monitoring of pendency of loan proposals ................................................................ 113
6.40. Documentation Standards ............................................................................................ 115
6.41. Ad hoc Credit Facilities/ Overdrawing ........................................................................ 117
6.42.
Re- Constitution of Firm / Company........................................................................... 118
6.43. Undrawn Exposure ......................................................................................................... 118
6.44. Syndication of Loan ........................................................................................................ 118
6.45. Interchangeability and operation in the account on devolvement of LC and invocation ofGuarantee ........................................................................................................................................ 119
7. CHAPTER: MONITORING OF LOAN ASSETS ........................................................... 121
7.1. Monitoring of Loan Assets ............................................................................................ 122
7.2.
Submission of MDA ........................................................................................................ 122
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7.3.
Monitoring before Disbursement ................................................................................. 123
7.4. Post Disbursement Monitoring ..................................................................................... 124
7.5. Preventing slippages for Technical Reasons ........................................................... 134
8. CHAPTER: RESTRUCTING/ RESCHDULING, FLEXIBLE STRUCTURING ............. 135
8.1. Restructuring / Rescheduling ....................................................................................... 136
8.2.
Eligibility & other Criteria for restructuring of advances ......................................... 142
8.3. CDR Mechanism ............................................................................................................. 145
8.4. SMA Loan Account ......................................................................................................... 145
8.5. Restructuring through Joint Lenders Forum (JLF) .................................................. 146
8.6. Strategic Debt Restructuring Scheme ........................................................................ 147
8.7. Review/ Renewal of Restructured Accounts ............................................................ 148
8.8. Flexible Structuring and refinancing Long Term Project Loan to the Infrastructure and CoreIndustries ......................................................................................................................................... 148
9. IMPORTANT SECTORAL FINANCES ......................................................................... 150
9.1. Financing to Infrastructure ............................................................................................ 151
9.2.
Financing Second-Hand Assets.................................................................................. 154
9.3. Financing Promoter’s Equity ........................................................................................ 155
9.4.
Acquisition of assets through assignment of debts/IBPCs/ Securitization etc. . 156
9.5. Securitization of Assets / Future Receivables .......................................................... 157
9.6. Project Finance ................................................................................................................ 157
9.7. Financing for purchase of industrial units .................................................................. 158
9.8. Financing of purchase of units for onward sales in part / scrap ........................... 158
9.9. Short Term Loan for corporate and PSUs ................................................................. 159
9.10. Commercial & Other Real Estate ................................................................................ 159
9.11.
Buyers/Suppliers’ Credit ................................................................................................ 159
10. RELAXATIONS, CONCESSIONS AND OTHER CREDIT RELATED ISSUES........... 161
10.1. Reporting of Deviations/Concessions ........................................................................ 162
10.2. Other General Guidelines ............................................................................................. 162
10.3. Sunset Clause ................................................................................................................. 163
ANNEXURES ......................................................................................................................... 164
I.
Committees associated with Lending Policy ........................................................... 165
II. Consortium/ Mult iple Banking/Joint Lenders Forum .............................................. 167
III.
Group concept ............................................................................................................. 181
IV. Procedures for cancellation of expired guarantee .................................................. 184
V. Guidelines on Sanctioning & Moni tor ing of LC & BG facil iti es .............................. 187
VI. List o f private banks whose L/Cs, Co-acceptance can be accepted for the purpose of
discount ing of bi lls .............................................................................................................. 189
VII. Top Sheet: Check points ............................................................................................ 190
VIII. Risk Rating& Validation .............................................................................................. 192
A.3. Compos ite Rating ......................................................................................................... 193
IX. Operat ional Review Format ........................................................................................ 195
X. Salient Features of National Building Code (NBC) 2005 ......................................... 198
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1. INTRODUCTION & OBJECTIVE OF
THE LOAN POLICY
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1.1. Introduction
The Domestic Lending Policy of the Bank was last reviewed and revised by the Board
of Directors in its meeting held on 29.09.2014.
The Bank’s Domestic Lending Policy is annually reviewed by incorporating theregulatory and operational guidelines circulated by Reserve Bank of India, IBA, and
GoI, suggestions/comments given during Annual Financial Inspection / Long Form
Audit Report (LFAR) etc. Further the amendments in the policy is also made from time
to time to meet the market realities and business priorities so as to help all
functionaries at the Bank in discharging their responsibilities for a steady and healthy
growth in credit portfolio
1.2. Policy Coverage
Domestic Lending Policy of the Bank is the Mother Policy for all credit relatedpolicies. As such any specific policy shall be read in conjunction with the
mother policy for better understanding and interpretation thereof.
The policy is designed in such a way so as to give an overall flavor about
certain basics of lending, Exposure norms, pre-sanction appraisal, post-
sanction monitoring.
The provisions of the Lending Policy will be applicable to entire portfolio
(domestic) of the bank, if otherwise not prescribed in specific schematic
advances under Retail, MSME, Priority Sector and Recovery. The Policy does
not cover in itself all the instructions and guidelines related to lending andhave to be read in consonance with other Operational Instructions, Manuals,
Circular issued/ amended by the bank from time to time.
The guidelines contained in loan policy documents are subordinated to
RBI/FEMA/SEBI/other regulatory guidelines. All regulatory guidelines
subsequent to this loan policy guidelines and not covered will be integral part
of the loan policy documents and will be followed strictly.
This loan policy does not include matters relating to investments, derivatives
and overseas lending, for which bank has in place separate policy
documents/guidelines.
1.3. Basic Objectives
To provide broad guidelines for extending financial assistance to various
business segment.
Balanced growth and maintenance of healthy credit portfolio with sound Risk
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Management culture and practices.
Focus on qualitative credit for meeting corporate objectives.
Enlarge clientele base of corporate and non-corporate segments through
Credit Marketing and focus on their genuine credit needs.
To increase Non-fund and Non-interest income
To ensure credit discipline at all levels viz. borrowing entity, operating staff
and the management.
Due compliance of all regulatory requirements, such as capital adequacy,
exposure norms, asset-liability management guidelines etc.
To strengthen the credit delivery system and to instill a sense of credit culture
enterprise-wide.
1.4. Regulatory Credit
Bank will strive to augment diversified credit portfolio with a mix of Corporate,MSME, Priority Sector and Retail Segments in sync with National Priorities.
Bank aims to achieve following Priority Sector Targets in-line with the RBI
directives (Ref: HOIC 13803 dated 13.07.2015):
Sector
Targets
(Computed against Adjusted Net Bank Credit or credit equivalent
amount of Off-Balance Sheet Exposure, whichever is higher as on the
corresponding date of the preceding year)
Priority Sector 40%
Within Priority sector
Total Agriculture 18% (Within Agriculture, Small & Marginal Farmers – 8%, to be achieved in
a phased manner i.e. 7% by March’2016 & 8% by March’2017)
Micro Enterprises 7.5% (to be achieved in a phased manner i.e. 7% by March’ 2016 and
7.5% by March’2017).
Weaker Section 10%
Export Credit Incremental export credit over corresponding date of the preceding year, up
to 2 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher, effective from April 1, 2015 subject to a
sanctioned limit up to Rs 25 crore per borrower to units having turnover of
up to Rs 100 crore would be classified as Priority Sector.
.
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1.5. Defini tion of Regulatory Retail for the purpose of Calculation of CRAR
In line with the Basel Guidelines, Exposure (both FBL & NFBL) to a borrower for
Rs.5 crore & below will be considered as Regulatory Retail for the purpose of
calculation of CRAR. The other criteria for inclusion in regulatory retail areas
under:
a) Orientation Criterion- The exposure to an individual person or persons or
to a small business where the total average annual turnover is less than
Rs 50 Crore. The turnover criterion will be linked to the average of the last
three years in the case of existing entities; projected turnover in the case
of new entities; and both actual and projected turnover for entities which
are yet to complete three years.
b) Product Criterion- The exposure should be in the form of cash Credit,Overdraft, lines of credit, term loans and leases etc.
c) Granularity Criterion - Aggregate exposure to a single borrower should
not exceed 0.2 per cent of the overall regulatory retail portfolio. NPAs
under retail loans are to be excluded from the overall regulatory retail
portfolio when assessing the granularity criterion for risk-weighting
purposes.
However, the following exposure even if below Rs.5.00 Crore, both FBL & NFBL,shall be excluded from the regulatory retail portfolio:
a. Housing Loans and Commercial Real Estate as they qualify for separate
treatment for CRAR;
b. Loans and Advances to bank’s own staff which are fully covered by
superannuation benefits and / or mortgage of flat/ house;
c. Consumer Credit, including Personal Loans and credit card receivables;
d. Capital Market Exposures;
e. Venture Capital Funds.
f. NBFCsg. Or any other categories of loans as defined by RBI from to time.
1.6. Strategies to achieve objective
a. Adherence to the norms of Fair Practices Code for Lenders.
b. Prescribing general norms and standards for existing as well as new
borrowers.
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c. Mobilization of fresh/ quality credit proposals ensuring proper return.
d. Need based enhancement in existing limit on review.
e. Focus on tapping Non-fund business.
f. Balanced diversification/ rebalancing of loan portfolio so as to avoid
Concentration Risk.g. Effective Supervision and Monitoring to keep loan assets performing.
h. Acquisition of assets through assignment of debts/IBPCs/ Securitization of
rent, toll, cess, rights, trade receivables etc.
1.7. Loan Pol icy Compliance & Relaxation
a. All the Branches/Offices (Branches, Zonal Offices, FGM Offices and Head
Office) are expected to comply with the policy guidelines laid down in this
document. In case of any doubt about the applicability of any aspect of these
policy guidelines to any situation, clarification/approval shall be sought fromIntegrated Risk Management Department, Head Office. The authority for
interpretation / clarification shall vests with the Executive Director.
b. The policy requires a degree of flexibility to the decision makers to cope
with the competitive business environment as such this policy contains
necessary provisions indicating the authority competent to permit relaxation
from various provisions in the policy guidelines and scheme formulated by
Bank.The deviation / exemption from the norms / bench-mark levels laid down
in the Policy may be permitted only in genuine and exceptional cases, onaccount of business exigencies.
The deviations / exemption from the norms / benchmark levels shall be clearly
mentioned in the appraisal note, duly recording the reasons / justifications
/mitigations thereof. The relaxation will be permitted on case to case basis.
c. On account of business compulsions, CAC is empowered to sanction
proposals, allow deviations/ exemptions/ amendments, falling under the
authority of MCBOD and the same will be reported to MCBOD in the ensuing
meeting.
d. MCBOD will have full powers for sanction of limits (including over and
above Internal Prudential Cap but within Statutory/ RBI Ceilings) and also
permitting deviations/ relaxations over and above mentioned in the policy.
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In case of sanction of limits above internal prudential cap, it will be reported to
Board in their next meeting. In case of sanction of limits above RBI Ceiling
(beyond 15%/20% and 40%/50%), approval from Board is required to be
obtained beforehand.
e. Deviations / Modifications in sector specific schemes will be permitted as
per the guidelines given in the respective schemes. Deviations / modifications
which are not covered or beyond the scope of the respective schematic
guidelines will be considered by HLCC GM and the same will be placed
before the CAC in tabular form on monthly basis for information/ ratification.
f. Micro level issues pertaining to assessment of credit requirement and
other operative guidelines are not dealt in detail in this document. Various
sanctioning authority to take suitable credit decision on case to case basiswithin the broad contour of this policy guidelines and subsequent
modification, if any.
1.8. Credit Risk Management
a. The Credit Risk Management would be guiding principle for the Lending
Policy. While Lending Policy would 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.
b. Guidelines under Credit Risk Management shall be strictly adhered to,
with specific reference to Credit Risk Rating, Credit monitoring, Risk
Mitigation & Collateral Management, Pricing and Operational procedures
c. The Credit Risk Management process consist of following steps:
1.8.1. Credit Risk Identification
The Bank recognizes that every credit decision, in respect of both fund
based limits (FBL) and Non-fund based limits (NFBL), involves Credit
Risk
Identification
Risk
Measurement
Risk Mitigatio
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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.
1.8.2. Credit Risk Measurement• All credit exposures should be rated under internal rating
modules/score-cards.
• Risk Grading System serves as a single point indicator of diverse risk
factors of counterparty and for taking credit decisions in a consistent
manner.
• Accurate and timely credit grading is one of the basic components of
an effective portfolio management and loan review mechanism.
• Credit Risk Grading involves assessment of credit quality, identification
of problem loans and assignment of risk-rating. A proper credit gradingwould support evaluation of portfolio quality and as such it should be
given priority at all levels.
• To reveal / assess the overall risk of lending, critical inputs for setting
pricing and non-price terms of loans and also for meaningful review
and management of loan portfolio, the Guidelines on Credit Risk
Grading System as set out by the Bank should be meticulously
followed.
Credit Risk Rating System / Modules
• The borrower account shall be rated on any of the Model/ Score Card
System as under :
a) 19 Models under CRISIL RAM,
b) 11 Score Cards,
c) Thumb Rule
Further, the facility rating & composite rating will be calculated on RAM
Modules.
The details of above models are outlined in the HOIC No.14025 dated
26.11.2015.
• Validation of risk rating of commercial loans (i.e. other than agricultural
loan, schematic lending, Retail loans etc.) will henceforth as follows:
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Sanctioning Authori ty Rating validating Authori ty
Scale – 1 to 3 Branches Branch Head
Scale – 4 & above BranchesSecond line officer handling Credit
Department.
ZLCC AGM/DGM / FGM LCC Second-line officer or Head of CreditDepartment in ZO/FGMO
HLCC GM/ ED/ CAC/ MCBOD IRM Deptt Head Office
• The sanction will be made only after validation of rating by the
appropriate authority / department.
• Since Bank is in the process of migration to IRB approaches, the
updation of Internal Rating in CBS system is of paramount importance.
Hence, immediately after validation of Internal Rating, the same should
be fed into CBS system.
• Matters relating to Credit Risk Rating will be governed by the Model
Risk & Risk Rating Policy of the Bank.
• Normal credit Risk assessment exercise should be done in case of
PSUs / Central and State Government Corporate / Municipal
Committees / Corporations etc and no specific exemptions favoring to
them, if any be allowed. The primary criteria for the loan have to be
based on economic parameters as applicable to evaluation of any
other loan project supported with a statement of cash flow.
• Balance Sheet, Auditor’s report, Notes on Accounts, qualification of
auditors as also consolidated financial statements wherever available,
should be analyzed thoroughly within one month of receipt of audited
financials for accounts having exposure of Rs 1 Crore & above and
adverse features including impact on ratings, if any, should be brought
to the knowledge of sanctioning authority. Compliance in this regard
will be monitored as under:
Offices Sanctioning Authority
Zonal Offices ZLCC & Branches under them
FGMO FGM LCC
Credit Deptt., HO HLCC GM & above
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External Ratings
• Bank will encourage Corporate borrowers including PSU and NBFC
(AFC/IFC/HFC) enjoying total credit limits of Rs.10 Crore and above to
go for external rating from RBI accredited rating agencies such as
CRISIL, CARE, ICRA, Brickwork, India Ratings (formerly FITCH) &SMERA Ltd.
The sanctioning authority may stipulate necessary conditions including
charging of additional rate of interest over the applicable interest to be
charged and/or withdrawal of concessions granted, if any, in case the
borrower fails to obtain credit rating afresh or within 6 months from
sanction/enhancement/ renewal/ expiry of existing rating.
• Under Standardized Approach, the rating assigned by the eligible
External Credit Rating Agencies will largely support measure of CreditRisk. However, the in-house risk grading will continue to be part of
Credit decision making and accordingly the discretionary powers for
credit related decisions has been delegated. The External rating will
however would help the bank to continuously assess the accuracy of
internal model and fine-tuning the same to switch over to Advanced
approaches under Basel Guidelines.
Under standardized approach the Risk weights are assigned based on
External ratings and as such better rated portfolio will save the capital
charge.
1.8.3. Credit Risk Mitigation and Collateral Management
• There is grave risk on loan without security. As such, the Bank will
continue to obtain collateral security.
• Under Basel III Standardized Approach, Bank will get the benefit in
calculation of regulatory capital charge on eligible financial collaterals
and guarantee. As such, possibilities be explored for obtaining such
eligible financial collaterals/ guarantees.• Eligible financial collateral includes Cash, Deposit receipts, NSC, KVP,
Gold, Securities issued by Central/ State Govt, Surrender value of Life
Insurance Policies, Debt securities rated/ unrated by a chosen credit
rating agency, units of mutual funds regulated by the securities
regulator.
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• Eligible guarantees include CGTMSE, ECGC. Central & State Govt.
guarantee.
• Bank will maintain a proper balance in various risk grade-wise
exposure for a meaningful distribution of loan assets. With this
objective, total exposure in various grades should normally becontained within following ceiling of gross credit :
Risk Profile Credit Risk Rating Portfolio Distribution
Low Risk AB-1, AB-2 and AB-3 45% maximum in each category
Moderate Risk AB-4 and AB-5 35% maximum in each category
High Risk AB-6
AB-7 and AB-810% maximum in each category
• CAC is authorized to ratify a breach up to the extent of 10% in any of
the Low / Moderate Risk categories, which will be subsequently
reported to the Board for information. The above grade wise ceiling
may be reviewed/revised or amended by the RMC as and when
required based on Risk appetite of the Bank.
• Records for exposure beyond the ceiling of 10% in AB 6 category due
to migration of account should be kept separately at IRM Department,
Head Office.
• The control mechanism will have following dimensions:
o Ensuring compliance of necessary monitoring terms,
maintaining continuous follow up and supervision measures.
o Adoption of suitable risk mitigation measures like ensuring
obtaining financial collaterals / guarantees.
o Avoidance by staying away from risky borrower.
o Reducing exposure i.e. adherence to lower limit.
o Fixing higher level of margin
o Insurance cover of assets against loss, damage, calamity etc.
o Institutional guarantee cover against default risk from Credit
Guarantee Fund Scheme for small industries/ECGC etc.
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1.8.4. Strategy for Credit Management
a. Primary Focus of Credit Risk Management process would be at two
levels as under:
i. Portfolio Level (Macro level approach for Intrinsic Risk of Bank’s
Credit Portfolio i.e. Prudential Limits / Concentration etc.).
ii. Individual Borrower Level (to deal / address default risk of
individual borrower through Assessment/Measurement of asset
quality of borrowal accounts and risk through Credit Risk
Grading /Rating.
b. Loan pricing on a scientific basis preferably based on risk grading of
the accounts and also keeping in view the interest rate charged by
other banks/lenders.
c. Controlling the risk through Loan Review Mechanism, by effectivelyimplementing Bank’s Lending Policy containing exposure norms for
borrowers / group / sectors / industries etc., so as to maintain healthy
and diversified portfolio, Portfolio Management. Credit selection should
be based on credit risk acceptability criteria / hurdle rate.
d. Building up of historical data base on migration of borrowal accounts
over various rating grades for using the same in measurement of credit
risk under advanced approaches (IRB Framework).
e. Prudential credit risk management practices shall receive greater
attention by timely identification, quantification, management and
mitigation of various risks associated with credit.
f. Compliance with all the Statutory and Regulatory
stipulations/requirements shall be strictly ensured in credit operations
of the Bank.
1.9. Industry wise Lending Guidelines
a. Wherever necessary, the Bank shall frame, with approval of the Board
of Directors / Committee of Directors on Integrated Risk Management,specific guidelines for adherence.
b. Industry specific policies in respect of IT Software, Iron & Steel
Industry, Diamond Industry, Textile Industry, Commercial Real Estate,
Ship Breaking Industry, Construction Contractors, and Advance
against Shares etc., besides retail, priority sector credit schemes etc.
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2. Credit Deployment
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2.1. Credit Planning & Budgeting
a. The Bank will formulate credit budgets in consultation with field
functionaries.
b. Bank’s credit is to be broadly covered under Priority Sector and Non-Priority Sector lending. Bank would adopt the RBI guidelines on Lending
targets set under Priority Sector.
c. The Bank will endeavor to increase credit exposure to all types of
customers such as Individual, Proprietorship concerns, Partnership firms,
Limited Liability Partnership, Companies registered under Companies Act,
Association of Persons and Undertakings owned by Governments
including PSUs etc.
The borrowers eligibility includes:i. The Borrower(s) and activity of the borrower should be legally
permitted.
ii. Satisfactory track record with the existing Bank, wherever
applicable.
iii. The borrower(s) are having good track record, managerial
competence, and satisfactory market reports.
iv. Acceptability under KYC/AML norms.
v. Compliance of CIBIL score/waiver.
vi. An affidavit shall be obtained from all new borrowers and fromexisting customer (in case of enhancement) to the effect that none
of the accounts of their associates /group concerns are classified
as NPA with other banks / financial institutions.
vii. The dealings of a borrower customer, either individual or group
account, shall preferably be confined to one branch only, unless
specific reasons justifying multi branch dealing is accepted.
2.2. Thrust Areas
a. The primary goal before the Bank is to scatter the credit risk in its portfolio
in productive sectors and therefore, the Thrust Area concept will be
utilized to channelize credit into low credit risk avenues.
b. Agriculture, SME and Retail Banking shall remain the focus area and the
Bank has separate policy guidelines for SME and Retail Banking products.
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Lending to Agriculture would be guided by extant guidelines issued by
Priority Sector Department. Lending to SME segment and Retail Products
segment would be guided by the extant guidelines issued by respective
functional departments.
c. Based on the experience/ industry scenario received from various
sources, the thrust areas may be communicated to the field functionaries
by Credit Monitoring Department/PSC department/IRM Department/Credit
Department, HO from time to time.
2.3. Asset Liabi li ty Management
a. As a financial intermediary, Bank’s prime responsibility is to provide term
& working capital finance to all productive sectors i.e. Corporate, Retail
banking including housing and other requirements of credit worthy
households, besides its socio-economic obligations in lending, matching
with the maturities of the resource mobilized.
i. For Asset-Liability Management, the maturity period of Term loan
will be defined based on remaining maturity of loan tenure as
under:
Remaining Maturity of Term Loan Loan ClassificationBelow 3 Years Short Term Loan
3 years and above but up to 5 years Medium Term Loan
Above 5 Years Long Term Loan
ii. The Long Term Loan and financing of infrastructure projects may
lead to Asset – Liability Mismatches, particularly when such
financing is not in conformity with the maturity profile of the bank’s
liabilities. Therefore, before financing, asset-liability position of
Bank should be examined so that Bank does not run into liquidity
mismatches on account of lending to such projects.
iii. In this backdrop, the authority to permit/ sanction of the Term loan
at various maturities is as under:
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Aggregate Repayment
(Door to Door)
Authority to permit / sanction of
the Term Loan
Up to 7 years The respective discretionary authority
Above 7 years and up to 10 years HLCC (GM) /FGM LCC
Above 10 yearsHLCC (ED) and above within their
discretionary authority.
iv. Exemptions:
Such permission will not be necessary in case of term loans
extended to Housing Sector (both direct and indirect), Agricultural
Loan, Government Sponsored Schemes, Educational Loan, All
Bank Rent, All Bank Loyalty Reward Scheme, and any other
specific scheme etc., Restructured Loan, Rehabilitation packageundertaken for revival of Sick/Weak units.
v. The moratorium period for infrastructure generally should not
exceed 3 years and in case of loans other than infrastructure
sector, educational loan, housing loan, should not exceed 2 years.
However, the sanctioning authority in deserving cases may
consider a moratorium period of maximum 5 years in case of
infrastructure & 3 years for other than infrastructure, considering
the cash flow position.
vi. In case of financing under consortium/multiple banking, the
sanctioning authority may accept repayment schedule as accepted
by lead bank/ majority lender.
vii. Restructuring of loan will be exempted from the maximum
moratorium period.
viii. CAC/MCBOD may consider moratorium higher than prescribed in
the schematic/ Retail/ Infrastructure etc.
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3. STATUTORY RESTRICTIONS
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A. Statutory Restrict ions
3.1. Prohibitions List
a. The Bank will strictly adhere to the Statutory restrictions imposed on
lending activities through Banking Regulation Act, RBI Act, Companies
Act, SEBI Guidelines and also the directives from RBI/Government etc.
b. The Bank will also draw and maintain a list of sectors/activities to which
no credit will be considered in accordance with section 20 of the Banking
Regulation Act, 1949 and other legal and regulatory guidelines issued
from to time. The list will be termed as ‘Prohibitions List’. The list shall
comprise of following sectors / activities:
3.1.1. Restr ict ions as per Section 20 of the Banking Regulation Act, 1949
a. Advances against bank's own shares: In terms of Banking Regulation Act,
1949, no loans will be granted on the security of bank’s own shares.
b. Advances to Bank’s Directors:
i. RBI has put forth restrictions on Lending to Bank’s Director. The
restriction on financing to Bank’s Directors as detailed in Discretionary
Authority should be complied with.
For the above purpose, the loans and advances shall not include the
loans and advances against Govt. Securities, Surrender value of Life-
insurance policies or fixed deposits, loan as a part of the
compensation/ remuneration policy, to Chief Executive Officer/WholeTime Directors for
i. Purchasing of car
ii. Purchasing of personal computer
iii. Purchasing of furniture
iv. Constructing/acquiring a house for personal use
v. Festival advance
vi. Credit limit under credit card facility
ii. Grant of loans to Directors of any Bank /Grant of loans to relatives of
Directors: Without prior approval of the Board or without the
knowledge of the Board, no loans and advances will be granted to
relatives of Bank’s Chairman and Managing Director or other
Directors, Directors of other Banks and their relatives, Directors of
Scheduled Co-operative Banks and their relatives, Directors of
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Subsidiaries / trusties of mutual funds /venture capital funds set-up by
the bank.
iii. Unless sanctioned by the Board of Directors/Management Committee,
bank will not grant loans and advances aggregating Rs. 25 lakhs 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.
* including directors of Scheduled Co-operative Banks,directors of subsidiaries/trustees of mutual funds/venture
capital funds.
iv. Unless sanctioned by the Board of Directors/Management Committee,
bank will also not grant loans and advances aggregating Rs.25 lakhs
and above to:
• Any relatives of the Chairman & Managing Directors or
other Directors of our Bank;
• Any relatives of the Chairman & Managing Director or other
directors of other banks *;
• Any firm in which any of the relatives is interested as a
partner or guarantor;
• Any company in which any of the relatives hold substantial
interest or is interested as a director or as a guarantor.
* including directors of Scheduled Co-operative Banks,
directors of subsidiaries/trustees of mutual funds/venture
capital funds.
v. The proposals for credit facilities for an amount less than Rs.25 lakhto these borrowers may be sanctioned by the appropriate authority
under powers vested in such authority, but the matter should be
reported to the Board.
vi. The Chairman & Managing Director or other director who is directly or
indirectly concerned or interested in any proposal should disclose the
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nature of his interest to the Board when any such proposal is
discussed. He should not be present in the meeting unless his
presence is required by the other directors for the purpose of eliciting
information and the director so required to be present shall not vote on
any such proposal. The above norms relating to grant of loans andadvances will equally apply to awarding of contracts.
vii. The declaration will give details of the relationship of the borrower to
the director of the bank. If it transpires that the borrower has given a
false declaration the loan facility should be recalled immediately.
viii. Bank may grant loan or advance to or on behalf of spouses of their
Directors in cases where the spouse has his/her own independent
source of income arising out of his/her employment or profession and
the facility so granted is based on standard procedures and norms for
assessing the creditworthiness of the borrower. Such facility should be
extended on commercial terms.
ix. The term ‘loans and advances’ will not include loans or advances
against:
• Government securities
• Surrender value of Life insurance policies
• Fixed or other deposits
• Stocks and shares
•
Temporary overdrafts for small amounts, i.e. up to Rs. 25,000/-• Casual purchase of cheques up to Rs. 5,000 at a time
• Housing loans, car advances, etc. granted to an employee of
the bank under any scheme applicable generally to employees.
x. The term ‘substantial interest’ shall have the same meaning as
assigned to it in Section 5(ne) of the Banking Regulation Act, 1949.
Banks should evolve, inter alia, the following procedure for
ascertaining the interest of a director of a financing bank or of another
bank, or his relatives, in credit proposals/award of contracts placed
before the Board/Committee or other appropriate authority of the
bank.
i. Every borrower should furnish a declaration to the bank to the
effect that –
1. (Where the borrower is an individual) he is not a director or
specified near relation of a director of a banking company;
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2. (Where the borrower is a partnership firm) none of the
partners is a director or specified near relation of a director
of a banking company; and
3. (Where the borrower is a joint stock company) none of its
directors is a director or specified near relation of a directorof a banking company.
ii. The declaration should also give details of the relationship of the
borrower to the director of the bank.
Directors mentioned above mean the promoter directors having more
than 2% share.
xi. Banks should forthwith recall the loan when it transpires that the
borrower has given a false declaration.
xii. Restrictions on Power to Remit Debts
Bank shall not, except with the prior approval of the Reserve Bank,remit in whole or in part any debt due to it by any of its directors, or
any firm or company in which any of its directors is interested as
director, partner, managing agent or guarantor, or any individual, if
any of its directors is his partner or guarantor.
Any remission made in contravention of the provisions stated above
shall be void and have no effect.
xiii. Loans and advances facilities should be extended to the Directors of
Bank and their relatives on “Commercial Terms”.
c. Restriction on Holding Shares in companies:
i. In terms of Section 19(2) of the Banking Regulation Act, 1949, banks
should not hold shares in any company except as provided in sub-
section (1) whether as pledgee, mortgagee or absolute owner, of an
amount exceeding 30 percent of the paid-up share capital of that
company or 30 percent of its own paid-up share capital and reserves,
whichever is less.
ii. Further, in terms of Section 19(3) of the Banking Regulation Act,
1949, the banks should not hold shares whether as pledgee,
mortgagee or absolute owner, in any company in the management of
which any managing director or manager of the bank is in any manner
concerned or interested.
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d. Restriction on Credit to Companies for buy-back of their Securit ies
Bank will not provide loans to companies for buy-back of
shares/securities. However the companies are permitted to purchase their
own shares or other specified securities out of their free reserves, or
securities premium account, or the proceeds of any shares or otherspecified securities, subject to compliance of other conditions specified in
the Company act.
3.2. Regulatory Restrictions
3.2.1. Restrictions on Grant of Loans and advances to officers and relatives of
Senior Officers of Banks
a. RBI has put forth restrictions on Grant of Loans and advances to officers
and relatives of Officers of Banks. The Bank’s discretionary authority
guidelines cover the guidelines for restriction on financing of Bank’sofficers and their relatives which should be complied with.
b. To ascertain the interest of relatives of the officer of the bank in the Credit
Proposals, every borrower should furnish a declaration to the bank to the
effect that:
i. if he is an individual, that he is not a specified, near relation to a
senior officer of a Bank
ii. if it is a partnership or HUF firm, that none of the partners, or none
of the members of the HUF, is a near, specified relation of any
senior officer of the bank, andiii. If it is a joint stock company, that none of its directors, is a relative
of any senior officer of the bank.
iv. The detailed guidelines on advances to the sanctioning authority
and close Relatives of his own and also the employees working
under him are enclosed under the heading “Advances to self /close
Relatives”.
v. The term ‘Senior Officer’ will refer to any officer in senior
management level in Grade IV and above.
vi. No officer or any Committee comprising, inter alia, an officer as
member, shall, while exercising powers of sanction of any credit
facility, sanction any credit facility to his/her relative. Such a facility
shall ordinarily be sanctioned only by the next higher sanctioning
authority. Credit facilities sanctioned to senior officers of the bank
should be reported to the Board.
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3.2.2. Advances to self /close Relatives
a. The delegatee shall not exercise lending powers for sanctioning any loan
to himself and should refer to next higher authority.
b. The delegate/ any Committee comprising an officer as member shall not
exercise lending powers for sanctioning any loan to his close relativesand also the close relatives of employees working under him except
following loans up to a maximum exposure of Rs 5 lacs:
i. Advances against Bank’s own term deposits.
ii. Advances against government securities/postal cash certificates,
NSCs, Kisan Vikas Patras, Indira Vikas Patras, Surrender value of
LIC Policies
iii. Advances against approved shares/debentures quoted on Stock
Exchanges
c. ZLCC & above is empowered to sanction loans to close relatives ofemployees up to their discretionary authority.
d. The scope of the term “relative” as defined by RBI is as under:
1. Spouse 2. Father
3. Mother (including step-mother) 4. Son (including step-son)
5. Son's Wife 6. Daughter (including step-daughter)
7. Daughter's Husband 8. Brother (including step-brother)
9. Brother’s Wife 10.Sister (including step-sister)
11.Sister’s husband 12.Brother (including step-brother) of the spou
13.Sister (including step-sister) of the spouse
3.2.3. Restriction on Advances against Sensitive Commodities under
Selective Credit Contro l:
With a view to preventing speculative holding of essential commodities
with the help of Bank’s credit and the resultant rise in their prices, the
Reserve bank of India stipulates specific restrictions on Bank advances
against specified sensitive commodities. The branches/ Offices shall
continue to comply with the RBI guidelines issued and as circularized by
the bank from time to time in this direction.
Presently, the following commodities are covered under stipulations of
Selective Credit Control:
a) Food grains i.e. cereals & pulses
b) Selected major oil seeds indigenously grown viz groundnut,
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rapeseed /mustard, cottonseed, linseed & caster seed, oils thereof,
vanaspati vegetable oils
c) Raw cotton and kapas
d) Cotton textiles which include cotton yarn, man-made fibres and
partly out of cotton yarn and partly out of man made fibres.e) Sugar :
• Buffer stock of sugar with Sugar Mills
• Unreleased stocks of sugar with Sugar Mills representing
o levy sugar, and
o free sale sugar
• Margin Stipulation:
Commodity Minimum Margin With effect from
(a) Buffer stocks of sugar 0% 01.04.1987
(b) Unreleased stocks of sugar withSugar Mills representing -
-----levy sugar
-----free sale sugar
10%
@
22.10.1997
10.10.2000
@ Margins on credit for free sale sugar, Food Grains, Selected major oil
seeds, raw cotton & kapas and Cotton textiles will be decided by bank from
time to time based on commercial judgment.
a) Valuation of Sugar Stocks:
1. The unreleased stocks of levy sugar charged to Bank as security by sugar
mills shall be valued at levy price fixed by Government
2. Unreleased stock of free sale sugar including buffer stocks of sugar
charged to the bank as security by sugar mills, shall be valued at the
average of the price realized in the preceding three months (moving
average) or the current market price, whichever is lower; the prices for this
purpose shall be exclusive of excise duty
3.2.4. Restr ict ions on other loans and advances
a. No loans to be granted against Certificate of Deposits
b. Loans against Third party deposits
c. No Loan will be granted against security of other Bank’s term deposits.
d. No loans to be granted to partnership / proprietorship concerns against
primary security of shares and debentures.
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e. Bank shall not extend finance to partnership firm, AOP (Association of
Person) where a NBFC/HUF is one of the partners.
f. Bank will not extend the finance for setting up of new units consuming /
producing the Ozone depleting Substances (ODS).
g. Bank will not sanction any loan for acquisition of / investing in smallsavings instruments including Kisan Vikas Patras (KVPs).
h. Bank will not grant any advance for purchase of gold in any form
including primary gold, gold bullion, gold jewellery, gold coins, units of
Gold Exchange Traded Funds (ETF) and units of gold Mutual Funds
specially minted gold sold by the banks may not be in the nature of
bullion/primary gold. However, for advance against gold ornament &
jewellery, the bank’s specific guidelines issued in this regard to be
followed.
i. Bank will desist from granting advances to silver bullion dealers whichare likely to be utilized for speculative purposes.
j. The Bank shall not extend advances for speculative purposes and
activities banned by RBI / Govt. from time to time.
k. Bank shall not extend advances against company shares to promoters
of such companies during lock-in-period
l. Bank Shall not Purchase cheques drawn in favor of borrowers by their
associate / Group concerns, friends or close relatives without genuine
trade transactions / considerations.
m. Bank shall not grant any loan / advance for subscription to IndianDepository Receipts (IDRs) and also not grant any loan / advance
against security / collateral of IDRs issued in India.
n. Restriction on issuance of guarantees for placement of funds with
NBFCs. These instructions would cover all types of deposits/ loans
irrespective of their source, including deposits/loans received by
NBFCs from trusts and other institutions. Guarantees should not be
issued for the purpose of indirectly enabling the placement of deposits
with NBFCs.
o. Bank shall not execute guarantees covering inter-company deposits/
loans and indirectly enabling the placement of deposits with non-
banking institutions. This stipulation will apply to all types of
deposits/loans irrespective of their source, e.g. deposits/ loans
received by non-banking companies from trusts and other institutions.
p. No Loans to be granted against partly paid shares.
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q. Advances to Agents / Intermediaries based on consideration of Deposit
Mobilization: Bank will desist from being party to unethical practices of
raising of resources through agents /intermediaries to meet the credit
needs of the existing/prospective borrowers or from granting loans to
intermediaries, based on the consideration of deposit mobilization, whomay not require the funds for their genuine business requirements.
r. Repayment of Rupee loans availed from domestic banking system
through ECBs extended by overseas branches/ subsidiaries of Indian
Banks is not permitted.
s. Using long term export advance to liquidate rupee loans which are
classified as non-performing assets as per RBI guidelines.
t. Bank finance to Non-Banking Financial Companies (NBFC):The
following activities undertaken by NBFCs, are not eligible for bank
credit:i. Bills discounted/rediscounted by NBFCs, except for
rediscounting of bills discounted by NBFCs arising from the sale
of:
a. commercial vehicles (including light commercial vehicles),
and
b. two-wheeler and three-wheeler vehicles, subject to the
following conditions:
• the bills should have been drawn by the manufacturers
on dealers only
• the bills should represent genuine sale transactions as
may be ascertained from the chassis/engine numbers
and
• Before rediscounting the bills, bank should satisfy about
the bona fides and track record of NBFCs which have
discounted the bills.
ii. Investments of NBFCs both of current and long term nature, in
any company/entity by way of shares, debentures, etc.
However, Stock Broking Companies may be provided need-
based credit against shares and debentures held by them as
stock-in-trade.
iii. Unsecured loans/inter-corporate deposits by NBFCs to/in any
company.
iv. All types of loans/advances by NBFCs to their subsidiaries,
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group companies/entities.
v. Finance to NBFCs for further lending to individuals for
subscribing to Initial Public Offerings (IPOs).
vi. Bridge loans / interim finance: Banks will not grant bridge loans
of any nature, or interim finance against capital/debentureissues and/or in the form of loans of a bridging nature pending
raising of long-term funds from the market by way of capital,
deposits, etc. to all categories of Non-Banking Financial
Companies, i.e. equipment leasing and hire-purchase finance
companies, loan and investment companies, Residuary Non-
Banking Companies (RNBCs) and Venture Capital Funds
(VCFs). Bank to strictly follow these instructions and ensure that
these are not circumvented in any manner whatsoever by
purport and / or intent by sanction of credit under a differentnomenclature like unsecured negotiable notes, floating rate
interest bonds, etc., as also short-term loans, the repayment of
which is proposed / expected to be made out of funds to be or
likely to be mobilized from external / other sources and not out
of the surplus generated by the use of the asset(s).
vii. Advances to NBFCs against collateral security of shares:
Shares and debentures cannot be accepted as collateral
securities for secured loans granted to NBFCs borrowers for
any purpose.viii. Restriction on guarantees for placement of funds with NBFCs:
Banks should not execute guarantees covering inter-company
deposits / loans thereby guaranteeing refund of deposits / loans
accepted by NBFCs / firms from other NBFCs / firms. The
restriction would cover all types of deposits / loans irrespective
of their source, including deposits / loans received by NBFCs
from trusts and other institutions. Guarantees should not be
issued for the purpose of indirectly enabling the placement of
deposits with NBFCs.
3.2.5. Financing Infrastructure/ Housing Projects
a. Bank will not grant finance for construction of buildings meant purely
for Government/Semi-Government offices, including Municipal and
Panchayat offices.
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b. Projects undertaken by public sector entities which are not corporate
bodies (i.e. public sector undertakings which are not registered under
the Companies Act or which are not corporations established under the
relevant statute) may not be financed by bank. Even in respect of
projects undertaken by corporate bodies, as defined above, bank willsatisfy themselves that the project is run on commercial lines and that
bank finance is not in lieu of or to substitute budgetary resources
envisaged for the project. The loan could, however, supplement
budgetary resources if such supplementing was contemplated in the
project design.
c. In case of housing projects, which the government is interested in
promoting, either for weaker sections or otherwise a part of the project
cost may be met by the Government through subsidies made available
and/or contributions to the capital of the institution taking up theproject. In such cases bank finance should be restricted to the project
cost excluding the amount of subsidy/ capital contribution from the
Government. The bank should ensure the commercial viability of the
project.
3.2.6. Issue of Bank Guarantees in favour of Financial Institutions
Bank may issue guarantees on behalf of its borrower constituents favoring
other FIs/ Banks/ other lending agencies up to 20% of Tier-I of total capital
fund. The Bank shall assume a funded exposure of at least 10% of theexposure guaranteed. HLCC GM will accord the permission to have an
exposure favoring other FIs/ Banks/ other lending agencies subject to
compliance nature of security, margin , periodical review etc as per Bank’s
norms as laid down in the Lending Policy and RBI guidelines/ FEMA. For
exceeding the same up to Prudential Ceiling, the specific permission to be
sought from CAC.
3.2.7. Loans and advances to Real Estate Sector
While financing under Real Estate it must be ensured that prior to
disbursement of the loans, the borrowers have obtained requisite
permission from Govt. / Local Govt. / Other statutory Authorities for the
project. Other guidelines on financing as issued by the Bank for financing
to Real Estate Sector will be strictly abided by.
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3.2.8. Bridge Loans against receivables from Government
Banks should not extend bridge loans against amounts receivable from
Central/State Governments by way of subsidies, refunds, reimbursements,
capital contributions, etc. The following exemptions are, however, made:
Banks may continue to finance subsidy receivable under the normal
Retention Price Scheme (RPS) for periods up to 60 days in case of
fertilizer industry. It is clarified that the facility is being allowed as a purely
temporary measure and the fertilizer companies should strengthen their
financial position gradually so that they do not depend on the banks for
finance against subsidy. No other subsidy receivables such as, those in
respect of claims raised by units on the basis of expected revision in
retention price because of escalation in costs of inputs and in respect of
freight, etc. , should be financed by the banks.
Banks may continue to grant finance against receivables from
Government by exporters (viz. Duty Draw Back and IPRS) to the extent
covered by the existing instructions.
3.2.9. Restr ict ion on Guarantee & Co-acceptances:
RBI has advised the Banks to refrain from issuing guarantees on behalf of
customers who do not enjoy credit facilities with them. As non-compliance
of RBI regulations in this regard is likely to vitiate credit discipline, RBImay consider penalizing noncompliant banks. However, BG /LC may be
issued by Banks to clients of co-operative banks against counter
guarantee of the cooperative bank. Further, banks must satisfy
themselves that the concerned co-operative banks have sound credit
appraisal and monitoring systems as well as robust Know Your Customer
(KYC) regime. Before issuing BG/LCs to specific constituents of co-
operative banks, they must satisfy themselves that KYC has been done
properly in these cases.
3.3. Other Restriction (Prohib ited category of borrowers)
a. Borrowers/Directors/Partners/Proprietors/Guarantors who is/ are
included in the Wilful Defaulters list issued by RBI will be debarred
from institutional finance for floating new ventures for a period of five
years from the date of removal of their name from the list of wilful
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defaulters as published/disseminated by RBI/CICs.
b. MCBOD & above can only consider the cases of Promoter Director of
a defaulting company or director of a defaulting company shown under
RBI defaulter List, who resigned from the Board of defaulting company,
to circumvent any obstacle in getting credit.c. Where a letter of comfort and / or the guarantees furnished by the
companies within the Group on behalf of the wilfully defaulting units,
are not honoured when invoked by the banks / FIs, such Group
companies should also be reckoned as wilful defaulters.
d. Borrowers/Guarantors who have defrauded our bank / other banks /
institutions should not be financed.
e. No restructuring or grant of additional facilities shall be made in the
case of Red Flagged Accounts or fraud accounts.
f. Regarding restriction on financing to Non-cooperative borrowers,
please refer page 117 & 118 of the policy.
g. Financing for exports to those countries for which Export Credit
Guarantee Corporation Ltd does not extend Guarantee cover.
h. Borrowers/facilities prohibited under RBI/Govt. guidelines issued from
time to time.
3.4. Hurdle Risk Rating for Financing
MCBOD is empowered to take fresh exposure in the accounts having overall
Risk Rating of AB-7 & AB-8.
3.4.1. Guidelines on Fresh Exposure- Hurdle Rating for Credit Limi ts of Rs
25 Crore & above
I. Normally, fresh exposure for Rs 25 Crore & above will be taken on the
borrower or their flagship company having external rating of “BBB &
above”.
For taking fresh exposure in BB/B/C/unrated borrower with amount of
Rs 25 Crore & above, the proposal will be sanctioned by the next
higher authority provided collateral security coverage is maintained at
least 75%.
II. The condition of obtaining collateral security as mentioned above will
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not be applicable for the sanction made by HLCC ED & above.
III. The above restrictions are not applicable to:
a. Priority Sector Advances including MSME sector especially to
take care of New Entrepreneurs where Government has givenspecial thrust.
b. Retail banking schemes of our Bank.
c. External credit rating is not applicable in case of real estate
projects provided tangible security coverage is equal or more
than 125%.
d. Pledge facilities
e. Greenfield Projects
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4. EXPOSURE MANAGEMENT
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4.1. Capital funds
Capital funds for the exposure purpose will comprise of Tier I and Tier II capital
as per the published accounts as on March 31 of the previous year. The infusion
of capital under Tier I and Tier II, either through domestic or overseas issue,
after the published balance sheet date will also be taken into account fordetermining the exposure ceiling.
4.2. Exposure
Exposure shall include:
a. Credit