Loan Policy July2005 Final

8/6/2019 Loan Policy July2005 Final

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INDEX

1. Preamble & Objectives of the loan policy. 2

2. Strategies to achieve the objectives. 3

3. Thrust / Restricted Areas of Lending And General Industries 4

4. Restrictions on certain type of Loans and Advances 17

5. Concept of Group/ All ied /Sister concern Account and delegated authori ty. 21

6. Policy in regard to Financing of Fresh Borrowers whose group concerns

have been classified as NPA.

22

7. Exposure management measures. 23

8. Credit Delivery system 27

9. Appraisal of Credit Proposals 30

10. Consortium Financing/Syndication & Multiple Banking Arrangements 34

11. Focus on Non-Fund based Income. 36

12. Granting of Adhoc limits/temporary enhancement to borrowers 37

13. Guidelines for Takeover of Borrowal Accounts From Other Banks 39

14. Post-sanction monitoring, control and follow-up-Loan Audit, BCC, Unit

visit, Stock Statements, MO Reports, QIS Returns & Stock Audit.

41

15. Renewal /Review of Accounts 50

16. Prevention and reduction of NPA & Identification of SMA Guidelines 51

17. Policy for Foreign Currency Loans to Residents (New Chapter) 55

18. Policy for Import of Gold (New Chapter) 56

19. Policy for charging of interest on withdrawals against uncleared effects

(New Chapter)

58

20. Policy guidelines on issuance of bank guarantees (New Chapter) 60

21. Type of Non Banking Financial Companies (New Chapter) 63

22. Policy guidelines for opening of Letter of Credit including Standby LCs 68

23. Financing against Gem, Diamonds & Jewellery 70


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Oriental Bank of Commerce, Credit Administration Department, Head office.

24. Credit Risk Management - Implementation of RBI guidelines. 71

25. Sub-BPLR Lending 77

26. Bank Finance to Film Industry 80

27. Loan Review Mechanism 81

28. Bridge Loans 82

29. Flexibi li ty /Deviations/ Exemptions from the Laid down policy guidel ines. 83

30. Introduction of concept of New Business Group (NBG) 84

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CHAPTER: 1

PREAMBLE & OBJECTIVES OF THE LOAN POLICY

Preamble:

The Lending Policy of the Bank exists and is well documented in the form of circulars,

instructions and periodic guidelines issued from time to time. The Lending Policy of the

Bank is aimed at effective and efficient management of the credit portfolio of the Bank and

continuous growth of assets while endeavoring to ensure that these remain performing and

standard. It is also aimed at providing a general guideline for handling new credit proposals

as well as existing credit portfolio so as to reduce new generation of NPA to a minimum

level, to ascertain risk profile of the credit portfolio, to ensure reasonable yield on advance

consistent with safety of funds.

Objectives:

The main objectives of the loan policy would be: -

1. Due compliance of all regulatory requirements, such as capital adequacy, exposure

norms, income recognition and asset classification, asset-liability management

guidelines, etc.

2. To ensure healthy growth of loan portfolio and achieve an optimal CD ratio after meeting

the statutory pre-emptions and avoiding asset-liability mismatches while keeping the

NPA level to the minimum and improving the yield on advances and make it the main

driver of Profit.

3. Wherever required, to review improvement and simplification of systems and procedures,

reduce documentation requirements and decentralize decision-making for ensuringexpeditious decision making at all levels.

4. To have a well-balanced and diversified loan portfolio with dispersed credit risks

covering various sectors of the economy and different industries/ sectors.

5. Special emphasis on flow of credit towards segments of Priority Sector i.e. agriculture,

retail trade, retail credit schemes and the housing finance to Individuals.

6. To increase the non-interest/non-fund based income so as to at-least reach the average

industry levels.

7. To strengthen and improve the reliability / robustness of the Risk Management,

Management Information System (MIS) and Supervisory Reporting System in tune with

the RBI guideline for switching over to a risk-based supervision approach from a

traditional transaction based approach.

8. To ensure that aggregate risk in loan assets in not allowed to increase by stabilizing and

percolating credit risk management system.

9. To enlarge client base of corporate and non-corporate (SME) segments through

aggressive credit marketing.

10. To meet the multi-channel needs of customers through product development and

innovation.

11. Timely and adequate flow of credit to meet the genuine needs of existing and

prospective borrower, to fulfil socio-economic obligations; and also to meet the

genuine credit needs of the existing clients by ensuring quicker and prompt credit

decision. **********

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CHAPTER-2 (FRESH ADDTIONS)

STRATEGIES TO ACHIEVE THE OBJECTIVES

a) Effective supervision and Monitoring

Toning up the existing system for effective supervision and monitoring of the credit

portfolio to maintain highest quality of loan assets.

Preferred attention to loan assets in high-risk category e.g. SMA accounts and re-

structured accounts in order to avoid their slippage into NPA category.

b) Intensive and Focussed Marketing :

Aggressive credit marketing through specialized branches i.e. Industrial Finance

Corporate / Specialized SSI/ Foreign Exchange branches etc. for securing new business

connections and high quality loan assets.

Tapping the potential in Rural & Semi-urban Branches for securing new business

connections and high quality loan assets.

Designing customer-friendly and flexible loan products/ special credit schemes and

offering package of financial services.

c) Diversification of credit Portfolio :

Exploring the possibility of entry into the industries / sectors/ segments/ activities hitherto

not financed or unrelated to the present exposures or where the current exposure level

allows scope for further exposure.

Harnessing core competencies to enter into newer areas such as general purpose

corporate loans, bridge loans and infrastructure financing etc.

d) Cost-effective Pricing :

Competitive approach in pricing with due regard to the nature of risks, cost of funds, cost

of services / operating costs and market forces.

e) Competence Building :

Developing a team of competent officers by imparting necessary training and by

providing exposure to the nuances of credit management / credit administration.

f) Sound Borrower Standards :

Prescribing general norms/ minimum standards for existing as well as new borrowers

and considering exceptions to the laid down norms only on proper justification.

g) Corporate Initiative :

Providing timely support and guidance from the corporate office.

The strategies enumerated above will be fine-tuned to suit the changes in the banking

environment and customer demands.

*** ****

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CHAPTER -3

THRUST / RESTRICTED AREAS OF LENDING AND GENERAL INDUSTRIES

A) THRUST AREA

Priority Sector Lending.

Priority Sector shall continue to be a thrust area of the Banks lending and our endeavor

shall be to be above the overall share of 40% of the net bank credit with sub-sector

achievement as follows:

PRIORITY SECTOR 40% of the Net Bank Credit

Agriculture 18% of Net Bank Credit

Weaker Section 10% of Net Bank Credit

Women Entrepreneurs 5% net Bank Credit

DRI Scheme 1% of previous years Net

Bank Credit

Small Scale Industries 10%

Cottage Industries, Khadi & Village Industry, Artisans& Tiny Industries with investments in Plant & Machinery

upto Rs.5.00 Lac

40% of the total credit to SSI

SSI units with investment in Plant & Machinery between

Rs.5 Lac & Rs.25 Lac

20% of total credit to SSI

Other SSI units with investment exceeding Rs.25 Lac 40% of total credit to SSI

Exports 10% of Net Bank Credit

AGRICULTURE

Within priority sector advances, agriculture shall continue to be our main thrust area and for

improving performance under this sector the focus shall be on the following:

Endeavour to reach 18% lending norms.

In terms of Govt. of India guidelines, bank shall achieve in credit flow to agriculture an

increase of atleast 30% over the last years disbursement.

Each rural and semi urban branch shall add at least 100 new farmer borrowers during

2005-06.

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Each rural and semi urban branch shall direct at least 40% agri-credit for investment

purpose for 2-3 new investment projects in the area of plantation and horticulture,

fisheries, organic farming, agro-processing, live stock, micro-irrigation, sprinkler

irrigation, watershed management, village ponds development and other agricultural

activities

Every rural and selected semi urban branch shall form atleast one Farmers Club each.

Extensive publicity in rural areas shall be given at branch/RO level and would be used as

an effective tool for marketing of agriculture products.

Rural branches will continue to hold credit camp at each Non Public Business Working

Day (NPBWD) and semi urban branches on fortnightly basis.

Reactivate & strengthen Agriculture Credit Cells at all ROs.

A minimum of 40% of fresh credit to small & marginal farmers.

Target for issuing OKGC/OGCs to be completed by July 2005.

During the current year, special focus will be on the following:

Contract farming f inancing

Financing Agri- clinics & Agri business.

Financing under Area Specific Schemes.

Intensified training programmes for rural & semi urban Branch Incumbents & Officers.

Financing of SC/ST borrowers will be given priority.

Scope of Micro Finance / self-help Groups (SHGs) lending shall be enlarged with the

assistance of reputed Non-Governmental Organizations/Micro Finance Institutions.

SSI ADVANCES

Definition of SSI

The definition of SSI has undergone changes over the term of investment limits. At present

original investment in plant & machinery upto Rs.1.00 crore falls under SSI category. In the

following groups of industries investment in plant & machinery has been enhanced to

Rs.5.00 crore.

No. of items Group with effect from

27 Hosiery 9.10.2001

14 Hand tool 9.10.2001

13 Stationery 5.6.2003

10 Drugs & pharmaceuticals 5.6.2003

7 Sports goods 13.10.2004

Further units with investment in plant & machinery upto Rs.25.00 Lac irrespective of locationare treated as tiny enterprise. Industry related service & business enterprises with

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investment in fixed assets excluding land and building upto 10 Lac w.e.f. 19.9.2000 come

under Small Scale Service & Business (Industry related) Enterprises (SSSBEs).

SSI ADVANCES

Periodically reviewing the relaxation to the SSI sector in terms of quantum, rate of

interest, margin requirements etc.

Re-location of the existing SSI branches in cases where such branches are not properly

located to tap the potential.

Activating the SSI cell already formed at all the RO's

Taking up with all the RO's/Branches having substantial exposure in SSI sector for

proper classification of the SSI Advances as per the latest definition of SSI.

Imparting on the job training to the officers posted at Specialized SSI branches and

Regional Offices. The Branch Incumbents of Specialized SSI branches to be given

special focus for training related to SSI.

Providing adequate infrastructure to branches having large exposure to SSI Sector.

Revising policy guidelines for the Riceshellers/Cotton ginning units in tune with their

special requirements based on market trend and to make them client friendly.

SSI clusters identified by Govt. of India/Upcoming Centres having concentration of SSI

units to be identified for opening of Specialized SSI branches.

Those branches, which are not specialized SSI branches but having large SSI advances

and adequate potential, to be focused and targeted.

Each Specialized SSI branch to build up a minimum portfolio of Rs. 20 crore to SSI

sector.

RETAIL CREDIT SCHEMES

Retail Credit segment has been identified as one of thrust areas of lending. Bank has

envisaged a credit target of 13.32% and 5.20% of net bank credit for housing and other retail

credit schemes respectively, assuming net working credit of Rs.34500.00 crore as on

31.3.2006.

As many as 14 Retail Credit products are available with the branches to fulfill credit

requirements of various segments of customers. There shall be special emphasis to

increase Retail Credit portfolio to achieve the envisaged targets for which Regional Offices

will designate focal branches to cater to the credit needs in thrust areas and special targets

shall be entrusted to them. Promotion of newly formulated scheme for financing travel

expenses viz. OBC-BON VOYAGE, scheme for financing medical expenses viz.OBC-

Medfin and scheme for purchase of shops besides the other existing schemes where the

performance is good shall be accorded special focus.

NPA IN RETAIL LOANS

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The level of NPAs in some products have crossed tolerable limit i.e. 2% in case of housing loans and

5% (each) in case of Clean demand loans to Govt./ Other PSU employees and scheme for financing

Defence Personnels. Such schemes shall be reviewed and credit flow through those schemes be

restricted till the recovery of NPA amount, is ensured. Special emphasis shall be laid for

recovery of NPAs

Retail Credit Products of the Bank comprise of the following:

Education Loan Scheme,

Vehicles Loans to individuals / borrowal firms/companies,

Consumer finance to individuals,

Housing Loan Scheme to Individuals,

Scheme for financing small traders,

Scheme for financing defense personnel, Clean Demand Loan Scheme for Central/State Government and other institutions

including School/College Employees.

Oriental Mahila Vikas Yojna

Retail Credit Scheme for Doctors and other Professionals

Retai l Credit Scheme for part f inancing Medical Expenses of Handicapped

Persons/Children.

Retail Scheme for Transport Operators.

Advances Against Govt. Securities.

For Purchase of Shops.

OBC -BON VOYAGE (Scheme for financing travel expenses)

ACTION PLAN:

1. The schemes of the Bank would be reviewed on an ongoing basis and upgraded so

as to offer most competitive terms in the market after comparing with the respective

schemes of other banks;

2. The Bank would participate in various exhibitions directly and indirectly connected

with promotion of the Banks Retail Credit Schemes.

EXPORT CREDIT

In order to achieve the stipulated target, a sustained approach for increasing the export

advances would be required in all regions of the Bank. The strategy for achieving the above

would inter-alia include the following: -

Conducting regular exporter meets at the Regional level to understand the needs of

exporters and sort out the problems, if any.

Tapping new export customers since the growth in export credit from existing customers

is limited.

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Diversifying the industrial sectors/commodities in which the export finance of the bank is

spread. The banks major export finance consists of lending to Basmati Rice, Cotton

yarn & garments, Dyes and Chemicals, metal and metal products, Gems & Jewellery,

Leather and Merchant Exporters. The countrys major exports are in agriculture and

allied products such as cashew, rice, tea, coffee, spices etc. marine products, primaryand semi-finished iron and steel products, dyes and intermediates, Organic, Inorganic

and Agro-chemicals, Petroleum products, gems and Jewellery, cotton yarn,

fabrics/made-ups and computer software. The export advances should be diversified to

the above mentioned sectors in which there is further scope for the bank to increase

exposure.

Lending to units set up in Agri-Export Zones being set up in various states in co-

ordination with the Central Government for export of agricultural products processed

shall also be made a focus area.

Setting up of Offshore Banking Units in Special Economic Zones may also give impetus

to increase export credit.

Increasing flow of foreign currency funding to exporters.

Special priority to disposal of proposals relating to export credit.

Exploring the possibility of increasing the number of authorized branches at untapped

centres having export potential.

Ad hoc Limits to Exporters

At times, exporters require ad hoc limits to take care of large export orders, which were

not foreseen earlier by them. Branches should respond to such situations promptly.

Apart from this, branches should adopt a flexible approach in respect of exporters, who

for genuine reasons are unable to bring in corresponding additional contribution in

respect of higher credit limits sought for specific orders. Keeping in view the above

situation, the discretionary powers for allowing adhoc limits to exporters the extent of

maximum 20% of the fund based / Non-Fund Based limits respectively (as per

discretionary power chart), sanctioned by them under their powers / sanctioned by the

higher authority, shall be exercised only by the Overseas Branches and Exceptionally

large branches. These branches shall process and record on office note while permitting

such adhoc facility and report the same to Regional Office in STM-41.

No additional interest is to be charged in respect of ad hoc limits granted by way of pre-

shipment / post-shipment export credit as already advised vide HO.circular No. ADV /

77 / 2002-03/314 dated 30th November, 2002 (Effective from 1.12.2002, Annexure 5,

Guidelines on charging Penal Interest)

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Gold Card Scheme for Exporters

The Government (Ministry of Commerce and Industry), in consultation with RBI had

indicated in the Exim Policy 2003-04 that a Gold Card Scheme would be worked out by

RBI for creditworthy exporters with good track record for easy availability of export credit

on best terms. Accordingly, in consultation with select banks and exporters, a Gold Card

Scheme has been drawn up. The salient features of the Scheme as already circulated to

the branches are as under:

(i) all creditworthy exporters, including those in small and medium sectors with good

track record would be eligible for issue of Gold Card by individual banks as per the

criteria to be laid down by the latter;

(ii) requests from card holders would be processed quickly by banks within 25 days / 15

days and 7 days for fresh applications / renewal of l imits and adhoc limits,

respectively;

(iii) in-principle' limits would be set for a period of 3 years with a provision for stand-by

limit of 20 per cent to meet urgent credit needs;

(iv) card holders would be given preference in the matter of granting of packing credit in

foreign currency;

(v) Branches would consider waiver o f collaterals and exemption from ECGC

guarantee on the basis of card holder's creditworthiness and track record, and

(vi) The concessive rate of interest on post- shipment rupee export credit applicable upto

90 days may be extended for a maximum period upto 365 days.

FINANCING OF TRADERS

Financing of the Trade Sector also merits the attention of the Bank and will be given due

emphasis. The basic credit parameters will remain same as applicable to other sectors. The

assessment of working capital limits for trade financing will also be on turnover / traditional

method basis for limit upto Rs.5.00 Crore and as such need-based limits be made available

to the borrowers.

INFRASTRUCTURE FINANCING

Definition:

Any credit facility in whatever form extended by lenders (i.e. Banks, Fls 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:

i) a road, including toll road, a bridge or a rail system;

ii) a highway project including other activities being an integral part of the highway Project;

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iii) a port, airport, inland waterway or inland port;

iv) a water supply project, irrigation project, water treatment system, sanitation and

sewerage system or solid waste management system;

v) 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;

vi) An industrial park or special economic zone;

vii) Generation or generation and distribut ion of power

viii) Transmission or distribution of power by laying a network of new transmission or

distribution lines.

IX. Construction relating to projects involving agro-processing and supply of inputs toagriculture.

X. Construction for preservation and storage of processed agro-products, perishable goods

such as fruits, vegetables and flowers including testing facilities for quality; and

XI. Construction of educational institutions and hospitals.

FINANCING OF INFRASTRUCTURE PROJECTS

RBI has since prescribed the operational guideline for financing infrastructure projects

particularly in key areas like road, transport, power & communication. The Bank will follow

the guideline while participating in such projects. However, while participating in such long-

term financing the bank's asset-liability position shall be kept in view to avoid liquidity

mismatch on account of lending to such projects. The exposure in this project will be guided

by the following norms:

a) The amount sanctioned should be within the overall ceiling of the prudential

exposure norms prescribed by Reserve Bank of India

b) The projects must have adequate income generation capacity with an average

DSCR not below 1.5 during the tenure of the loan

c) The loan shall be sanctioned after proper risk mitigation evaluation process by way

of appraisal with regard to technical feasibility, economic viability keeping in view

the asset liability mismatches through cash budgets during the project period.

d) The TOL / FNW shall not exceed 6:I

e) The repayment period shall not exceed 15 years (including moratorium period)

provided it does not create asset-liability mismatch in the long run and there is

financial viability of the project.

f) The credit rating of the borrower shall be atleast "A"

.

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g) The loan should not be in lieu of or to substitute budgetary resources envisaged for

the project. The term loan could supplement the budgetary resources if such

supplementing was contemplated in the project design.

h) All infrastructure and large projects should accompany due dil igence report

including techno-economic viability study by a reputed organization.

i) All proposals of infra structure finance shall be sanctioned at Head Office only

except for advance under the following category of infrastructure finance:

construction of educational institutions and hospitals

construction related to projects involving agro processing and supply of inputs to

agriculture, and

construction for preservation and storage of processed agro products, perishable

goods such as fruits, flowers, vegetables including testing facility for quality

The projects covered under the above three categories of infrastructure activities

may also be sanctioned by the officers at branches/ROs on merit provided it is

within the delegated financial power of such functionaries as approved by the

Board.

j) The credentials of the foreign participants in the project should be obtained from

accredited agencies approved by the Bank, such as Dun & Bradstreet Corp.

k) The total fund and non-fund exposure per borrower should not exceed 6 times of

the net owned fund.

l) The f inancial closure/fund t ie-up for the project should be completed before

release of fund.

m) The moratorium period should not generally exceed 3 years depending on the

gestation period of the project.

n) The Bank may enter into take-out financing arrangement with IDFCl other FIs or

avail of liquidity support from IDFC/other FIs.

SOFTWARE & IT ENTERPRISES

Software and Information technology is one of the upcoming areas and has got a

tremendous potential in our country. Banks policy shall be to continue with financing of

viable projects of the entrepreneurs of proven track record.

SMALL & MEDIUM ENTERPRISES

A major contributor in generation of income and employment to the nation, small and

medium scale enterprises are a major source of deployment of bank credit. Our endeavor,

therefore, shall be not only to retain existing clients but to market fresh accounts in this area.

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FINANCING ACQUISION OF SHARES OF PSUs.

Promoter's contribution towards Equity Capital of a company should come from their own

resources and Bank finance is not granted for this purpose. Further, advance against shares

to enable the borrower to acquire or retain controlling interest in a company is also not

permitted. Reserve bank of India has however made an exception in the case of PSU

divestment.

a. Bank finance for acquisition of shares of PSU under a divestment program approved by

Government of India, Including the secondary stage mandatory open offer, and can be

made available.

b. With the second round of PSU divestment already completed, there is ample scope for

extending finance for acquisition of shares of reputed companies. In view of the above

Acquisition financing is being included in the chosen area.

c. The finance would be available under a divestment program approved by Government of

India, including the secondary stage mandatory open offer.

d. Only Corporates with good financials and excellent track record of servicing loans

availed from the Banking system would be eligible for Acquisition Financing. However,

the same would not be available for subsequent acquisition of shares.

FINANCING AGAINST IMMOVABLE PROPERTY:

Lending to the traders against the security of immovable property has also attracted

attention of the bankers in the recent past because of the safety criteria. These advances

are granted to the extent of 50% of the value of Immovable property and hence considered

safer as compared to other advances. Therefore, Bank shall continue to provide finance

against immovable property at potential centres.

FINANCING AGAINST FUTURE RENTALS / RENT RECEIVABLES

At those centres in the country where the construction of commercial centres/ real estate

business is in full swing, there is immense potential for financing rent receivables. The

Bank shall continue to explore such areas and deploy credit subject, however, to compliance

of regulatory guidelines pertaining to ALM and Risk Management. Therefore, Bank shall

continue to provide finance against rent receivable at potential centres.

FINANCING CONSTRUCTION CONTRACTORS

In view of the top priority being accorded to the Infrastructure structure by our Govt. there is

immense scope for deployment of credit in Construction Industry. More than the fund-based

business, non-fund business is having tremendous potential for banks. We shall therefore,

continue to consider viable proposals for equipment finance as well as letter of credit and

bank guarantees etc.

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FINANCING AGAINST GEMS, DIAMONDS & JEWELLERY

Financing against gem, diamond and Jewellery shall continue to be the thrust area of bank

lending. The cases pertaining of this category shall be considered on similar lines as

applicable to advances under other thrust area of bank lending. However, export cases

under this category shall be dealt on priority.

INDUSTRIES / SECTORS UNDER THRUST AREA OF LENDING:

Pharmaceuticals

Textiles

Biotech

Gems, Diamonds & Jewelry

Automobiles & Auto-ancillaries,

IT & SoftwareElectronics & Electrical Equipment

Infrastructure sector as per definition including Power.

Food Processing

Trading

Service Sector

A) RESTRICTED AREAS OF LENDING / LOW PRIORITY AREAS

Looking to the Bank's present exposure, as also level of NPAs witnessed during the past,

uncertain prospects leading to higher risks, certain areas were identified as low priority

areas. In view of the revival of the economy and in light of the latest developments theposition has been reviewed and the borrowers from the following sectors will have low

priority:

Though the undermentioned sectors are identified as low priority, fresh exposures can be

taken on case to case basis in respect of good rated borrowers having sound financials and

track record.

a) List of restricted Industries : (where cautious approach is to be adopted)

Tea

Cables

Chemicals & Dyes

NBFCs (Leasing & Hire Purchase Finance)

Jute

Cement

The provisions regarding lending to restricted industries shall not apply to the

following: -

Trading activities undertaken in respect of the list of restricted industries.

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Small Scale Industrial (SSI) Units / other activities falling under Priority Sector

undertaken in respect of the list of restricted industries.

All existing accounts covered under the list of restricted industries.

Advances to New Units under the restricted list and enhancements in existing limits shall beconsidered by the respective sanctioning authority on a very selective basis based on merits/

working results / performance of individual unit.

b) Lending to Sensitive Sectors :

Ceilings

Lending to capital market sector including investments

sector

5% of total advances

Real Estate sector 10% of total advances

commodities sector 5% of total advances

C. GENERAL INDUSTRIES :

Industries not specified above either in thrust area or restricted area shall be categorized

as general industries:

The branch Incumbents shall continue to consider advances under these sectors

applicable to general type of advances.

TERM LOANS / PROJECT FINANCING:

Term Loans :

In case of term loans and deferred payment guarantees, the project report should be

obtained from the customer which may have been compiled either in-house or by a firm

of consultants/merchant bankers.

The technical feasibility, economic viability and bankability of projects with particular

reference to risk analysis and sensitivity analysis should be critically appraised by the

Bank and wherever the Bank does not have the requisite expertise, necessary

assistance of the reputed consultants or appraisal made by IDBI or SBICAP or PNBCAP

or ICICI Bank / other Public Sector Banks may be considered for appraisal of a project.

For infrastructural development projects it must be ensured that these are being

implemented without the support of budgetary allocation i.e. projects funded out of

budgetary resources, or where a firm commitment for budgetary support has been made

and is in operation, such projects shall not be entertained.

Promoter's contribution of at least 20% in the total equity is normally expected.

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The other basic parameters would be the net debt service coverage ratio, i.e. exclusive

of interest payable, which shall normally not go below 2. On a gross basis average

DSCR shall not be below 1.5.

As regards margin on security, this will depend on Debt Equity gearing for the project

which should not normally be above 2:I, i.e. Debt should not be more than 2 times the

Equity contribution. However, in case of capital intensive industries the same may be

considered upto a level of 4:1, and in case of infrastructure projects upto 6:1. These

parameters are indicative in nature and shall be applied depending upon the nature of a

particular project.

Exposure in term loan including new term loan proposals beyond Rs.25 crore with

repayment period more than 7 years (Including moratorium period) shall be decided on

the basis of the Bank's overall position of Asset Liability Management. The term lending

per borrower may be restricted to Rs.200crore and maximum tenure of the loan will be

10 years including moratorium or as per the decision of the consort ium. For

infrastructure projects the amount may be larger subject to prudential norm stipulated by

RBI and repayment period may go upto 15 years including moratorium or as per

consortium's decision.

The tenure of housing loans may be even longer depending on the market trend.

Bullet payment repayment shall be avoided as far as possible except in case of short

term loans for one year or less.

In case of Term loans for a period more than 3 years having fixed rate of interest, a reset

clause after at least every 3 years at mutually agreed rate depending on the prevailing

market competition or an exit route is preferred.

In order to avoid liquidity mismatches for long term loans repayable beyond a period over

7 years, effort shall be made to keep term loan of Rs.10 crore and above repayable in

more than 7 years within 25% of the total term loan of the Bank. This norm is subject to

review from time to time depending on Asset Liability Position of the Bank.

Repayment dates shall be made specific

Other parameters governing working capital facilities would also govern Term Loan

facilities to the extent applicable.

Project Financing

Besides the provisions as laid down in the Lending policy with regard to term loan and

working capital read along with various other benchmark parameters, the following

requirements are also to be fulfilled in case of project financing involving a term loan of more

than Rs.10 crore from our Bank:

a) The techno-economic viabi li ty study of the project is required to be vetted by

competent consultants of repute. In case of projects where all-India Financial

Institutes (like IDBI and also ICICI Bank, erstwhile ICICI) are the major lenders, the

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Bank may go by the findings of above institutions/bank. The Bank may also go by the

finding of reputed agencies like CRISIL, ICRA, Price Water House, etc.

b) The Bank may also proceed on the basis of the f inding of the reputed loan

syndicators like SBI Cap.

c) The Bank will also appraise the project independently even if those are appraised by

other FIs / agencies as stated above.

d) As the gestat ion period of large s ize projects in certa in cases is very high,

moratorium upto 3 years may be considered under project finance.

e) Usually large projects warrant long repayment period. Term loan tenure upto 15

years may be considered provided it does not create adverse effect on the Asset

Liability Management of the Bank.

f) In case of fixed rate of interest for project finance (term loan) for more than 5 years it

is preferable to have a reset or exit clause after every 5 years.

g) In case of project finance where borrower is enjoying aggregate term loan limit of

Rs.50 crore and above from more than one bank, consortium arrangement should be

considered.

h) In case of project cost more than Rs.200 crore there should be structured system of

monitoring of the progress of project implementation.

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CHAPTER -4

RESTRICTIONS ON CERTAIN TYPE OF LOANS AND ADVANCES

In terms of RBI circular RBI / 2004-05 / 79 Ref No. DBOD. Dir. BC. 20 /13.03.00/2004-05,

July 30, 2004, the statutory restrictions and regulatory restrictions have been placed on the

following type of credit facilities. The branches/ Regional offices shall continue to comply

with all the statutory and regulatory restrictions on lending as stipulated by RBI from time to

time.

I. STATUTORY RESTRICTIONS:

1.1 Advances against bank's Own Shares

1.2 Advances to bank's Directors.

1.3 Restrictions on Holding Shares in Companies

I.4 Restrictions on Credit to Companies for Buy-back of their Securities2.4. REGULATORY RESTRICTIONS :

2.1 Granting loans and advances to relatives of Directors

2.2 Restrictions on Grant of Loans & Advances to Officers and the Relatives of Senior

Officers of Banks.

2.3 Restrictions on Grant of Financial Assistance to Industries Producing/Consuming

Ozone Depleting Substances (ODS)

2.4 Restrictions on Advances against Sensitive Commodities under Selective Credit

Control (SCC)

3. RESTRICTIONS ON OTHER LOANS AND ADVANCES:3.1 Loans and Advances against Shares, Debentures and Bonds

3.2 Advances against Money Market Mutual Funds

3.3 Advances against Fixed Deposit Receipts (FDRs) Issued by Other Banks

3.4 Advances to Agents/Intermediaries based on Consideration of Deposit

Mobilization

3.5 Loans against Certificate of Deposits (CDs)

3.6 Bank Finance to Non-Banking Financial Companies (NBFCs)

3.7 Bank Finance to Equipment Leasing Companies

3.8 Bank Finance for Purchase/Lease of Existing Assets

3.9 Financing of Infrastructure /Housing Projects

3.10 Issue of Bank Guarantees in favour of Financial Institutions

3.11 Discounting/Rediscounting of Bills by Banks

3.12 Advances against Gold/Silver Bullion

3.13 Loan system for delivery of bank credit.

3.14 Working Capital Finance to Information Technology and software industry.

3.15. Guidelines for Bank Finance to PSU Disinvestment of Govt. of India.

The branches/ Regional Offices shall continue to comply with all the statutory and regulatory restrictions

on lending as stipulated by RBI from time to time.

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Besides the bank shall not lend to the following categories of borrowers unless

otherwise specified: -

1. Borrowers or their associates appearing in the defaulters list / caution list circulated from

time to time by RBI, IBA, ECGC, other Banks / Institutions, Government of India etc . TheManagement Committee of the Board shall be the sole competent authority to allow any

exception / relaxation in case of Fresh borrowers whose name(s) appears in the

defaulters list / caution list etc. circulated from time to time. However, the existing

borrowal account falling under the above categories shall continue to be disposed of by

the respective sanctioning authorities.

2. The Bank should not deny credit facilities to constituents merely on the ground that any

of their directors happens to be the professional director on the board of defaulting

company.

3. Credit facilities for units/product group under the banned list / negative list of All India

Financial Institutions, Government of India, RBI, IBA, other authorities etc.

4. Fresh borrowers who are incurring losses for the past two years unless otherwise

justified with valid reasons for the loss. (Such borrowal accounts shall be disposed of by

the respective sanctioning authority).

5. Granting credit facilities to borrowers classified as NPA with other Banks/ Institutions.

6. Borrowers/Guarantors who have defrauded our bank / other banks / Institutions.

7. Borrowers against whom suit(s) are/were filed by the Bank.

8. Guarantors who have not fulfilled their commitments to the Bank.

9. Any type of facility prohibited by RBI guidelines issued from time to time.

10. Sanction of Fresh Credit facilities to Ex-Clients of our Bank / Clients of other Banks who

had adjusted their accounts under compromise / negotiated settlement /OTS shall be as

per the policy approved by the Board from t ime to time. (For details Branches / Regional

Office may refer to guidelines contained in Recovery Policy of the Bank).

11. No loan proposal shall be considered with the negative lien as the prime or collateral

security. Regional Heads / Branch Incumbents shall review all such cases so that they

could obtain alternate security at the time of renewal / review of account.

12. Sanction of facil it ies to partnership firms having HUF as partner. The existing

borrower(s) shall be advised to take steps for effecting necessary change in the

constitution till next review / renewal.

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CHAPTER - 5

CONCEPT OF GROUP / ALLIED / SISTER CONCERN ACCOUNT

AND DELEGATED AUTHORITY

The definition of Group/Allied/Sister concern to be adopted by the Bank based on RBI

guideline was approved in the May 2001 vide BR No.C-4 dated 18.05.2001. This group

definition shall continue for the purpose of exercise of discretionary powers of the

functionaries at all levels in the Bank for individual and group exposure.

Delegated authority / Discretionary powers for individual / Group exposure

The discretionary powers for loans and advances to be exercised by all functionaries at all

levels shall be strictly governed by the definition/Concept of Group given below and within

the per borrower and per group exposure levels fixed for each functionary as mentioned in

the Discretionary Power Chart.

Group Definition of the Bank:

The following shall be the criteria for determining the group concept based upon RBI

guidelines:

a. In respect of Borrowers covered under MRTP Act, for identifying the group to which a

company registered under section 26(2) of MRTP Act 1969 belongs, a reference may be

made to the Industrial House-wise list of Companies registered under the Act. The

relative list is given in Annexure-2 attached to the Reserve Bank of India Circular. In

respect of borrowers not covered by the MRTP Act.

b. The group affiliation may be decided on the basis of the principle of commonality of

management and effective control as well as on the basis of the relevant information

available with the Bank.

c. In the case of a split in the group if the split is formalized the splinter groups will be

regarded as separate groups. In case of doubts about the bonafides of the split a

reference may be made to Reserve Bank of India (through Head Office) for its final view

in the matter to preclude the possibility of split being engineered in order to prevent

coverage under the group approach.

Besides the above the Group/Allied/Sister Concern shall include the following:

Two concerns having one or more common proprietors/partner(s); or

The proprietor/partner of a firm being director in a Private / Public ltd. company and vice-

versa shall be taken as one for the purpose of group concept.

Any of the directors of the Private Limited Company is the director of another private

limited company; or

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A Limited Company is subsidiary of another limited Company within the meaning of the

companies Act , 1956; or

A limited Company is closely held company with substantial interest i.e. more than 20%

of the equity share capital of the company is owned by the other concern(s); or

Professional Directors of the Board shall be excluded for the purpose of the concept of

the Group.

The member of an HUF is a proprietor/partner of a concern or director of a private limited

company.

The facilities sanctioned to the guarantor(s) shall be taken into account for the purpose

of exposure per group. However the two concerns shall not be termed as

allied/associate/sister concerns merely because of having a common guarantor if the

guarantor is not enjoying any credit facilities as individual or as a

proprietor/partners/directors of a firm/company.

In case the Managing Member of a Samiti / Society or Trustee of a Trust or Managing

person of a Club is a proprietor/ partner/ director / Karta of HUF/ Managing Member or

Managing Person in any other constituent body of similar nature in the firm/ company /

Society/ Trust etc.

In determining the Group Concept the definition of group as advised by Reserve Bank of

India shall be followed and the guiding principle shall be commonality of Management

and effective control

Competent Authority In Case of any Doubt / Clarification as to Group Definition:

Inspite of above broad based definition of Group/allied/associate/sister concerns, if the

sanctioning authority still feels that the two firms/companies are suspected to be connected

but not covered under the above definition, specific instructions from the General Managers'

Committee shall be invariably sought before making own interpretation.

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CHAPTER- 6 (FRESH ADDITIONS)

POLICY IN REGARD TO FINANCING OF FRESH BORROWERS

WHOSE GROUP CONCERNS HAVE BEEN CLASSIFIED AS NPA

Loan Proposals belonging in any way to the willful defaulters of other banks/ financial

institutions shall not be accepted.

An undertaking shall be obtained from all fresh borrowers to the effect that none of their

associate/ group concerns are classified as willful defaulters by other banks/ financial

Institutions.

Branches/Regional Offices shall invariably obtain list of group concerns from all fresh

borrowers alongwith the names of their banks / financial institutions besides

classification of accounts.

All fresh proposals from borrowers whose group concerns have been classified as NPAs

with other Banks/ Financial Institutions shall be placed before the Management

Committee of the Board for consideration and sanction.

However, existing borrowal accounts shall continue to be disposed of within the

respective sanctioning authority.

(Approved vide item No.C-1 dated 14 th June, 2004 by the Board of Directors).

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CHAPTER- 7

EXPOSURE MANAGEMENT MEASURES

Category/ Segment Banks Ceilings

Maximum Exposure -

Individual Borrower/ Group

15% of capital funds of the Bank for individual

borrower (+ 5 % additional exposure i.e. upto20%

for Infrastructure sector) and 40% for Group

exposure (in case of additional exposure of the

bank to infrastructure, group exposure relaxed

upto 50%)

Further, addit ional exposure upto 5% can,

however, be assumed subject to consent by the

Borrower and also approved by the Banks Board

of Directors.

Unsecured exposure

(as defined by RBI for this purpose)

Banks outstanding unsecured guarantees + total

of outstanding unsecured advances shall not

exceed 25% of total outstanding advances as

approved by the Board . Unsecured exposure has

been defined as an exposure where the realizable

value of the security, as assessed by the Bank /

Approved valuers / Reserve Bank InspectingOfficers, is not more than 10% ab-initio (i.e. at the

time to sanction) of the outstanding exposure.

Exposure shall include all funded and non-funded

exposures (including underwriting and similar

commitments). Security will mean tangible

security properly charged to the bank and will not

include intangible securities like guarantees,

comfort letters etc.

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Category/ Segment Banks Ceilings

Overall exposure to Capital market by

way of direct investment by a bank in

equity shares, convertible bonds and

debentures and units of equity oriented

mutual funds; advances against shares to

individuals for investment in equity

shares ( including IPOs / Employee

Stock Option Scheme), bonds and

debentures, units of equity-oriented

mutual funds etc and secured and

unsecured advances to stockbrokers and

guarantees issued on behalf of

stockbrokers and market makers;

The overall exposure to capital market in all

forms (i.e. fund based and non-fund based

including investments/ commercial paper etc.)

made by the bank shall be restricted to 5 per

cent of total outstanding advances as on

March 31 of the previous year.

Within this overall ceiling, banks investment in

shares, convertible bonds and debentures and

units of equity oriented mutual funds should

not exceed 20 percent of banks networth.

The branches / ROs are required to adhere to

the above ceiling of 5 % on an ongoing basis.

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Category / Segment Banks Ceilings

Bank has not defined the Internal

exposure limit to a particular unit

within the overall exposure limitdefined for single / group borrower

by RBI.

The exposure limits proposed to a particular unit / borrower

are as under:

Individuals / Proprietorship / HUF Concerns: Max.aggregate credit facilities to the extent of 2% of bank's

capital funds reckoned for the purpose of calculation of

Prudential Exposure Limits.

Non-Corporate Borrowers i.e. Partnership Firms / Trusts

/ Regd. Societies: Max. aggregate credit facilities to the

extent of 5% of bank's capital funds reckoned for the

purpose of calculation of Prudential Exposure Limits

Corporates / Statutory Bodies: Max. aggregate credit

facilities as per prudential norms prescribed in Bank's Loan

Policy. This will apply to both under sole banking

arrangement or consortium arrangement.

NOTE: Loans and advances granted against the security of

Bank's own term deposits are to be excluded from the purview

of exposure ceilings.

Exposure against shares either

by way of Loans and Advances

against shares or where the

Bank is a pledgee of the shares.

30% of Companys Paid-up capital or 30% of Banks

Paid-up capital + Reserves whichever is less.

To individuals

Loans at all the offices of a bank, against the securityof shares, debentures and PSU bonds to individuals, if

held in physical form should not exceed the limit of Rs.

10 Lac per individual borrower (Rs20 Lac per individual

borrower, if the securities are held in demat form).

The maximum amount of finance that can be granted to

an individual for financing his subscription to an Initial

Public Offering (IPO) is Rs.10 Lac and Employee

Stock Option Scheme (ESOP) is Rs. 20 Lac.

Finance extended by a bank for IPOs / ESOPs is also

reckoned as an exposure to capital market and

reckoned within 5% ceiling indicated in para 3.4.2 of

RBI circular referred above.

Advances against units of mutual funds including units

of Unit-64 scheme would attract the quantum and

margin requirements as applicable to advances against

shares and debentures wherever stipulated

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INDUSTRY-WISE EXPOSURE

Sr. No. Name of the Industry Proposed Cap of

Exposure in %age terms

of Gross Advances

1. Infrastructure (including 15% for Power) 50%

2. Fertilizers Not more than 10%

3. Iron & Steel Not more than 10%

4. Textile Not more than 10%

5. Cement Not more than 5%

6. Ship-breaking Not more than 5%

7. Chemicals, Dyes/Paints Not more than 5%

8. Drugs and Pharmaceuticals Not more than 5%

9. Petrochemicals Not more than 5%

10 Sugar Not more than 5%

11 NBFCs ( HP & Leasing) Not more than 5%

12 NBFCs (others) Not more than 5%

13 IT & Software Not more than 10%

14 Engineering Not more than 5%

15 Food Processing Not more than 10%

16 Hotel Not more than 5%17 Film Industry Not more than 1%

18 Tea Not more than 2%

19 Jute Not more than 2%

20 Coal & Mining Not more than 2%

21 Other Industries not specified above Not more than 2% each

of Industry

22 Sensitive Sectors 20%

Real Estate 10%

Capital Market including investments 5%

Commodity Sector 5%

1% Exposure translates to Rs. 272.48 crore as on 31.3.2005 and is estimated to Rs. 370.00 crore as per

Corporate Budget as on 31.3.2006.

** CMD may be permitted to allow exposure beyond 15% to Power Sector within the overall 50%

Exposure Ceiling meant for infrastructure sector.

* Ceiling was increased from 30% to 35% and 35% to 50% by the Board of Directors in its meetings held

in June and July-2004 respectively.

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Term Loan Exposures

Term Loans are essentially long-term exposures compared to working capital facility. These

would now be governed by Asset Liability Management (ALM) guidelines of RBI. The policy

to be followed by our Bank for term loans (i.e. Loans repayable over a period of 3 years or

more) shall be covered by the following: -

a. Term Loan exposure to a borrower/group shall be within the prudential norms of capital

adequacy and per borrower/group exposure stipulated by RBI.

b. The Term Loan exposures will be taken up in tandem with ALM guidelines.

c. Term Loans for priority sector such as SSI, Agriculture, and Exports shall be

encouraged.

d. The overall Term Loan component of the Banks Credit Portfolio (Excepting Term Loans

covered under Agriculture, SSI & Exports) shall be controlled so as not to normally

exceed 50 % of the Banks total advances.

e. The Bank shall take steps to strengthen in-house term loan appraisal or get the term

loan proposals appraised by ICRA, CRISIL, CARE, SBI Caps etc. etc. and similar

institutions, wherever required, keeping in view the exposure of the bank.

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CHAPTER- 8

CREDIT DELIVERY SYSTEM

1. Specialized branches

The Credit Delivery System of the Bank is operated through the Branch net work spread over

the country and more particularly through the specialized branches, viz. Overseas Branches,

SSI branches, Industrial Finance Branches, Corporate Branches as well as very large and

extra large branches which contribute more than 60% of the banks credit business (both

fund based & non-fund based). The credit delivery on reasonable terms to all sectors and

particularly to agriculture, exports, SSI, micro-credit institutions, housing is proposed to be

achieved by simplification and decentralization of credit delivery mechanisms. The periodic

review of the functioning of the SSI branches and Overseas branches is undertaken by the

bank.

2. Delegation of Discretionary Powers for Advances

The discretionary powers for granting loans & advances are vested with Branch

Incumbents, Regional Heads, and Asstt. General Managers/ Deputy General Managers

posted at Regional Offices, the General Managers Committee at Head Office, the

Executive Management Committee headed by Executive Director, Central Management

Committee headed by the CMD. These were last revised vide Board Note No. C-7 dated

4th May 2004 and made effective from 5th May 2004.

Further, with a view to increase banks advances and to enable the branches to market

good borrowal accounts, the branches were also delegated discretionary powers fortakeover of borrowal accounts vide BR No. C-7 dated 7th July-2004.

Keeping in view the banking scenario and to remain competitive in the industry and for

expeditious dispensation of credit and based on the feed-back received from the

branches/field functionaries and with a view to having an overall control necessary

changes/ modifications would be undertaken from time to time in the discretionary

powers for loans and advances after obtaining necessary approval from the Board

/Competent Authority.

The existing delegation of powers to various functionaries/committees as approved by

the Board of Directors for sanction of various types of credit facilities -fund and non-fund

will continue till next review.

3. Processing / Appraisal of Loan Proposals :

The loan proposals falling within branch powers shall be processed /appraised at the

branch level and decision thereon shall be taken and conveyed to the applicant borrower

at the Branch level itself.

In case of proposals falling within RO/HO powers, they will be duly recommended and

finally sanctioned by the competent authorities.

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The emphasis shall be to avoid duplication of efforts and expedite decision-making

process while at the same time not compromising with the quality of lending. All efforts

shall be made to cut down delays wherever possible and to bring in necessary

improvements in the credit delivery system based on changing and emerging scenario.

It shall be ensured that the Audited Balance Sheet and Profit and Loss Accounts etc. aresubmitted within a period of maximum eight months of the close of its financial year.

4. Time Schedule for Disposal of Loan Applications of Small Borrowers and Other

Categories of Borrowers

a) Loan Applications upto Rs.5.00 Lac

RBI vide their circular RPCD/PLNFS/BC.No.24/06.02.77/2002-03 dated October 4, 2002

had advised that with a view to provide better customer service and to ensure that all loan

applications for loans upto Rs. 5.00 Lac; from all categories of borrowers are disposed off

expeditiously, the following norms are to be adhered to, provided the loan applications

received are complete in all respects and duly accompanied by check list.

Category of Borrower and Size of Limit Time norms for disposal

Loans upto Rs. 25,000/= to Small Borrowers Within two weeks of receipt of loan

application provided it is complete in all

respects and duly accompanied by a

check list

All other cases for loans upto Rs. 5.00 Lac Within four weeks of receipt of duly

completed loan application provided it is

complete in all respects and duly

accompanied by a check list

All such Loan applications which are complete in all respects and accompanied by a

checklist should also be acknowledged by the bank branches on the same day i.e. on the

day the application is received by the branch.

b) Loan Applications other than those covered above :

Proposal for Export Credit Non-Export Credit

Existing Existing

Sanction of fresh/enhancements : 30 days 45 days

Renewal of existing credit limits : 21 days 30 days

(*)Sanction of adhoc credit facilities : 7 days 15 days

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The time frame indicates the maximum number of working days from the date of receipt

of loan application within which the decision has to be conveyed to the customer.

(*) Sanction of adhoc credit facilities shall be subject to prevailing guidelines issued from

time to time.

The Branches and Regional Offices shall adhere to the above time schedule for disposal of

Loan applications and also to the Instructions for acknowledgement of all Loan applications

received.

5. Rejection of Loan Proposals

The loan applications pertaining to SC/ST, SSI and Exports cannot be rejected by the

sanctioning authority under whose powers the same falls. Only the next higher sanctioning

authority can reject the same. Branch Managers may reject applications (except in case of

SC/ST)/ SSI /Exports provided the cases of rejection are verified subsequently by the

Regional Heads.

6. Sanction of Loan Proposals declined by Higher Authorities :

If some higher authority has declined a proposal, the lower sanctioning authority cannot

exercise his discretionary powers in that particular case without the permission of higher

authority in writing.

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CHAPTER- 9

APPRAISAL OF CREDIT PROPOSALS

SYSTEM OF ASSESSMENT OF CREDIT LIMITS

The bank has at present three methods of assessing working capital needs of the borrowers.

i)TurnoverMethod Upto Rs. 5.00Crore:

The working capital limits of the borrowers with working capital limits upto Rs.5.00 Crores in

case of SSI units/other units is computed on the basis of 20% of their realistic projected

turnover subject to the condition that a minimum margin of 5% of turnover shall be brought in

by the promoters/borrowers as their own contribution. The projected turnover submitted by

the borrower is accepted subject to realistic attainment of the turnover, past track record,

orders in hand and all other relevant factors. Where the margin contribution of the borrower

is lesser than the minimum 5% prescribed, the working capital limits shall be assessed

correspondingly lower in proportion to (1:4) the ratio of the margin being brought in by the

borrower. In case, the margin available is higher than the minimum required margin, the

same shall be accordingly taken into consideration (deducted) for arriving at MPBF.

Wherever the nature of business activity so warrants, the branches may also apply

traditional method of lending (based on holding levels of Inventory, receivables and

Creditors) and sanction need-based limits. However, in no case the concept of chargeable

security laid down for calculation of Drawing Power (DP) on monthly basis is diluted.

ii) MPBF System (Above Rs.5.00 Crore):

The MPBF system is proposed to be continued and uniformly followed for all borrowers with

working capital limit above Rs.5.00 Crore. This will be valid where the bank is a sole banker

and under multiple banking arrangements. In cases where the working capital limits are

under consortium arrangement, the lead banks practice for assessment of the same shall be

followed.

In cases where the Bank acts as the Lead Bank, the MPBF system or the system agreed to

by all the Member Banks on the basis of consensus shall be applicable.

iii) Cash Budget System:

The cash budget system is applied to certain seasonal industries such as tea & sugar and to

specific industry such as Information technology and software (for limits upto Rs.2.00 crore).

The cash budget system envisages the providing of working capital by the bank based on

the peak deficit projected as per the cash flow statement.

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Borrower Standards:

Financial strength/ Bench Mark Ratios

The financial strength of the borrower client shall be adequate in relation to the project

size/volume of operations proposed to be undertaken and risks involved therein.

Though it is very difficult to evolve industry-wise bench marks for Current and

Debt Equity Ratio, Profitability Ratios and Debt Service Coverage Ratio or any

other specific ratios, yet, the benchmark Current Ratio in case of working capital

limits upto Rs.5.00crore should be 1.17 and above, for working capital limits

beyond Rs.5.00 crore should be 1.33. And for sugar industry 1:1 during the peak

season.

Debt Equity Ratio (DER) less than 2.00:1 Total outside Liabilities to Net worth Ratio

of less than 4:1. However in respect of SSI and capital intensive industries,

relaxation in DER would be considered.

In case of term loan, minimum Average DSCR of 1.5:1 will be considered as

reasonable requirement for any new connection. Relaxation may however be

considered on merits of the case by the respective sanctioning authority.

Market Enquiries

The activity of the borrower should be within the ambit of the regulatory framework.

Discreet enquiries about the borrowers/promoters/guarantors' background shall be

made through independent sources and from other banks/financial institutions in the

case of clients under consortium/multiple banking arrangement to ensure satisfactory

track record, before granting any credit facility.

Export Receivables/Domestic Receivables against bill negotiated under Usance letter

of credit

As per the existing policy for export oriented units, the amount of export receivables and

the funding thereof are deducted from both current assets and current liabilities. Besides

this, relaxation in current ratio may be permitted by the sanctioning authority in deserving

cases with valid reasons.

Similarly, receivables arising out of domestic/inland sales by drawing bills of exchangeunder usance letter of credit and negotiated strictly in accordance with the terms of letter

of credit are proposed to be shown separately under current assets for arriving at

Maximum Permissible Bank Finance (MBPF). The stipulated minimum level NWC (i.e. 25

% of the current assets) under the second method of lending may be reckoned after

excluding the quantum of such bills. It is therefore, proposed that while calculating

NWC/current ratio, we may deduct amount of receivables under L/C from current assets

and corresponding short term bank borrowings under L/C from current liabilities. This

policy may be continued.

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Treatment of margin under L/C

Margin money provided by the borrower against L/C and bank guarantee is excluded from

the build up of projected current assets while assessing working capital needs of the

borrower. This is with a view to avoid financing against margin, which has been taken as risk

cover for L/C and Bank Guarantee. This policy may be allowed to be continued.

Treatment of advance payment to suppliers of Raw-Materials

Advance payment made by the borrowers to suppliers of Raw Materials is one of the

components of current assets. Such advance payments to suppliers of goods are inevitable

in nature and by not allowing any finance thereagainst the borrowers working capital

requirements remain under financed. It is therefore, proposed that while calculating Drawing

Power against stocks, advance payment made to suppliers of goods may also be considered

till the goods are actually received by the borrowers and declared in the stock statement.

This may be made applicable in case of domestic as well export finance against

hypothecation of stocks.

Loan System for Delivery of Bank Credit - (Working Capital Demand Loan (WCDL)

Based on the RBI guidelines the banks policy for the Loan System for delivery of Bank

Credit i.e. bifurcation of the Cash Credit Limits into WCDL component and the CC

component was formulated and approved by the Board vide C-1 dated 28.11.2001. The

salient features of the policy approved and which is to be continued are as follows:

Fund Based Working Capital Limits of Rs.10.00 Crores and above

In order to provide flexibility and quick decision making at the field level so as to attract good

Corporates, the respective sanctioning authority has been vested with powers to stipulate

the composition of the cash credit component and the loan component after discussion with

the borrower depending on their requirements of working capital finance during the course of

the year. The loan component of the working capital finance shall be priced at 0.50% p.a.

below the rate that would be applicable to cash credit facility of that borrower as an incentive

for better credit off-take.

Fund Based Working Capital Limits less than Rs.10.00 Crores

The Regional Head and the respective sanctioning authority at Head Office have been

vested with powers to stipulate the composition of the cash credit component and the loan

component after discussion with the borrower depending on their requirements of working

capital finance during the course of the year. The loan component of the working capital

finance shall be priced at the same level as that applicable to cash credit facility of that

borrower. In other words the rate of interest on the Cash Credit component and the loan

component shall be same in case of borrowers enjoying fund based working capital limits of

less than Rs.10.00 crore.

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Permitting the borrower to invest Short-term Surplus Funds

The discretionary power has been vested with the Regional Heads (in cases falling under

RO powers) and the respective sanctioning authority at HO (in cases falling under HO

powers) to permit the borrowers to invest their short-term / temporary surplus funds in short-

term money market instruments like Commercial Paper (CP), Certificates of Deposit (CD)and in Term Deposit with banks, etc.

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CHAPTER- 10

CONSORTIUM FINANCING / SYNDICATION & MULTIPLE BANKING

1. Consortium Financing/ Syndication :

The RBI guidelines for mandatory formation of consortium in respect of working capital limits

of Rs.50.00 Crore and above from the Banking system stand withdrawn. However,

considering the risk involved in large exposures, it will be the banks endeavor to ensure that

wherever possible, the large advances are made in consortium or on syndication basis.

Bank will prefer to have, subject to prudential norm, at least 5% share as a member of

consortium for a meaningful participation in the consortium. However, It will be the sole

discretion of the Bank to take up enhanced share on pro rata basis irrespective of its

status in the consortium.

Bank will take its own credit decision on the borrower. Bank may consider opting out ofthe consortium in case it is not satisfied with the performance / financial operations of

the borrower. Interest rate will be as per the consortium's decision.

Bank's own appraisal method of lending as mentioned above will be followed in case of

consortium arrangement where Bank is leader of the consortium. However, in cases

where Bank is not the consortium leader, the appraisal done by Consortium Leader will

be given due importance, but the Bank will also have to carry out its own assessment

and if it shows major variation from that assessed by the leader, necessary clarification

should be obtained from the leader and a need based limit will be sanctioned.

Pending execution of consortium documents, Bank's individual documents should be

executed supported by exchange of pari passu-letter between all members of the

consortium. Bank will file its individual hypothecation charge based on such pari passu

letters. The Bank will follow other operational formalities as agreed in the meeting of all

consortium members, subject to approval from the sanctioning authority.

Bank will always prefer to have non-fund business of the borrowers and pro-rata share of

the non-fund business of the borrowers under consortium finance.

In case of borrowers having multiple divisions or engaged in Equipment Leasing/Hire

Purchase, multiple banking arrangement may be undertaken. Financing under MultipleBanking will be provided if the borrower is inclined to avail finance from the Bank

division-wise subject to Bank's own assessment of the risk rating of the borrower.

For syndication of loan Bank will be free to decide its own terms and conditions rate of

interest. Bank will go for loan syndication in project financing depending on its Asset-

Liability position and risk profile of the portfolio. Bank will prefer such proposals for loan

syndication which will facilitate earning of substantial revenue in the form of Handling

Charge/Syndication Fees. The Bank shall avoid taking undue large share in such

syndication.

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Where our Bank is the lead bank in the consortium, assessment of credit needs as well

as on other related matters, decisions will be taken on the basis of consensus in the

meetings. For exchange of information, review meetings will be held on quarterly basis.

Regional Heads shall appraise, sanction and dispose of such proposals at their end if it

falls within their discretionary powers.

Where our Bank is a participating member in the consortium, the joint decisions taken by

the consortium with regard to various aspects including calculation of drawing power

shall be followed.

2. Multiple Banking Arrangement :

As a matter of policy, the Bank shall not encourage disbanding of an account under an

existing consortium arrangement and switching over to multiple banking arrangement.

However, where there are convincing reasons and business is considered remunerative

by the bank, then the bank may entertain such a request for switch over to multiple

banking arrangement from existing consortium arrangement provided other consortium

members similarly agree to the same.

When a borrower desires to have multiple banking arrangement within the framework of

RBI guidelines, the bank may meet part of its additional requirement through multiple

banking arrangement on compliance of all laid down norms & guidelines to the extent

applicable in this proposed credit policy.

For participating under existing consortium or under multiple banking arrangement ortaking over entire account, the bank shall take into account the following aspects: -

a. A comprehensive appraisal of credit requirement of the borrower shall be

undertaken by the bank alongwith detailed examination of financial parameters.

b. Only i f the borrowers addit ional f inancial requirement are justif ied by the

scale of its business operations and also when overall financial parameters are

satisfactory and as per norms and credit report from the existing bankers is

satisfactory, the bank shall consider allowing facilities to the borrower.

In respect of borrowers enjoying credit facilities of Rs.I0.00 crores and above, underMultiple Banking Arrangement, the avenues to finance the same through a formalized

Consortium arrangement be explored.

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CHAPTER- 11

FOCUS ON NON-FUND BASED INCOME

It will be the endeavor of the Bank to increase the income from Non-Fund Based

business, which at present is relatively less as compared to the leading banks and also

less as a ratio of total income. The spreads on fund based lending have been declining

due to increasing competition from new players as well as surplus funds with the Banks.

Many of the top-rated borrowers are demanding credit below Prime Lending Rate. In

order to maintain banks profitability, the bank bestows added focus on non-fund

business mainly by way of guarantee and L/Cs.

The bank would try to have higher turnover of non-fund based business. In consortium

advances, efforts will be to increase our share of non-fund based business wherever

possible. While considering such facilities, normal safety precautions and necessary

safeguards shall be observed with a view to ensuring that the liability does not devolve

on the bank. Service charges and pricing of non-fund based credit and fee based

business will be reviewed and revised in response to market demands wherever

necessary.

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CHAPTER- 12

GRANTING OF ADHOC LIMITS / TEMPORARY ENHANCEMENTS

A)Where credi t limits have been sanctioned by higher authorit ies :

Following guidelines to be complied with in case of adhoc / temporary limits allowed in

those accounts where credit limits have been sanctioned by higher authorities:

a) In emergent c ircumstances, the functionaries may exceed the sanctioned working

capital limits to the extent delegated by the Head Office. Such discretion shall only be

exercised in a borrowal account classified as Standard within the validity period of the

sanctioned limit, subject to satisfactory conduct of the account.

b) As per the system in vogue, the powers for allowing temporary / adhoc limit is

applicable to cases where the limits have been sanctioned by the higher authority only

(RO/HO). In case of exigencies, the Branch Incumbents of Exceptionally Large Branches

and Overseas Branches may also allow adhoc / temporary limits to exporters having good

track record to the extent of 20% of the discretionary powers vested with them (sanctioned

by Branch Incumbent within their powers) . However, the reasons for allowing limits must be

recorded with justifications.

c) The Branch Incumbent, shall however, report the such adhoc / temporary limits to

appropriate sanctioning authority viz. RO / HO on a case to case basis , for information only.

The same shall be recorded in the Individual file of the borrower at Regional Office/

Head Office respectively.

d) As a matter of pol icy, the sanction of adhoc l imit / temporary enhancement shal l be

kept to the bare minimum and to be allowed only where circumstances / business

considerations warrant.

e) Adhoc facil ity / temporary enhancement must be allowed strictly within the

discretionary powers vested with the functionary. These should be allowed selectively and

not as a matter of routine throughout the year .

f) The purpose of the adhoc facility / temporary enhancement should be clearly

identifiable and the same should be adjusted within the fixed time period normally not

exceeding 90 days . However, in deserving cases need-based limits beyond 90 days

period and upto a maximum period of 180 days may be considered.

g) The temporary enhancement permitted should be wi thin the approved d iscret ionary

powers.

h) The percentage of regular limits specified for allowing the temporary enhancement

shall be computed separately for fund based limits and non-fund based l imits .

i) Temporary enhancement shall not be allowed in respect of Clean Overdraft / Clean

Demand Loan (except clean overdrafts to commission agents) limit approved by higher

authority.

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j) The discretionary powers for temporary enhancement in respect of limits sanctioned

by Head Office shall not be exercised concurrently both by the branch as well as the

Regional Head.

k) The other conditions to be complied will include : -

The Bank shall ensure before allowing the temporary enhancement/adhoc

facility that all the terms and conditions of existing sanction are complied with and

there are no major inspection/audit irregularities pending for rectification.

The conduct and operation of the borrowers account must be satisfactory

with due credit discipline.

Adequate prime security with stipulated margins must be available to cover

the adhoc facility/temporary enhancement and prescribed documentation for the

same should also be obtained.

As far as possible, unit must be visited before allowing the facility and the last

unit visit must not be more than 2 months old.

The reporting routine prescribed as above must be followed.

l) The overaccommodation as above shall be allowed against available DP in cash

credit account or by way of purchase of cheque / discounting of bills arising out of genuine

business transactions.

m) For the purpose of al lowing temporary over-accommodation, the fund based and non-

fund-based limits shall be grouped separately.

n) The Branches/Regional Offices shall allow adhoc/temporary enhancements in

permitted cases only in those accounts where the account has remained as Standard

Account for the last one year.

Review/Renewal /Enhancement and Conversion of Adhoc Limits into Regular Limits:

As per the policy approved by the Board, only the next higher authority is empowered to

review /renew/ enhance adhoc limits and permit conversion of adhoc limits into regular

limits. This is in terms of the implementation of the Narang Committee recommendations.

This condition shall continue to be operative. These provisions, however, shall apply to field

functionaries only i.e. Branches/ Regional Offices.

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Documents

Loan Policy July2005 Final