Roopam Bank

8/3/2019 Roopam Bank

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OBJECTIVES OF THE STUDY

To study broad outline of management of credit, market and operationalrisks associated with banking sector.

To understand the importance of banking sector.

To study the Indian bank scenario and its problem.

Long Term and Short Term Finances.

To study the role of bank in Indian Market.

Different types of services provided by the banks.

To study various bank, Corporate and Commercial.

To study the Indian bank scenario and its problem.

Though the Indian Banking System is very wide and elaborated, still theproject covers whole subject in concise manner.

The study aims at learning the techniques involved to manage the varioustypes of Banks, various methodologies undertaken.

To offer suggestions based upon the findings.


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SCOPE OF THE STUDY

A healthy banking system is essential for any economy striving to achievegood growth and yet remain stable in an increasingly global businessenvironment. The Indian banking system, with one of the largest bankingnetworks in the world, has witnessed a series of reforms over the past few

years like the deregulation of interest rates, dilution of the government stakein public sector banks (PSBs), and the increased participation of privatesector banks. The growth of the retail financial services sector has been a keydevelopment on the market front. Indian banks (both public and private)have not only been keen to tap the domestic market but also to compete inthe global market place.

Studying the increasing business scope of the bank.

Market segmentation to find the potential customers for the bank.

Customers perception on the various products of the bank.

The corporate sector has stepped up its demand for credit to fund itsexpansion plans; there has also been a growth in retail banking.

The report seeks to present a comprehensive picture of the various typesof bank. The banks can be broadly classified into two categories:-

Nationalise Bank

Private Bank

Within each of these broad groups, an attempt has been made to cover as

comprehensively as possible, under the various sub-groups.


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LIMITATION OF THE STUDY

Every work has its own limitation. Limitations are extent to which the processshould not exceed. Limitations of this project are:-

The project was constrained by time limit of two months.

The major limitation of this study shall be data availability as the datais proprietary and not readily shared for dissemination.

Due to the ongoing process of globalization and increasing competition, no onemodel or method will suffice over a long period of time and constant up

gradation will be required. As such the project can be considered as an overviewof the various banks prevailing in Punjab National Bank and in the BankingIndustry.

Each bank, in conforming to the RBI guidelines, may develop its own methodsfor measuring and managing risk.

The project study is restricted to banking sector used in India only.

The conclusion made is based on a sample study and does not apply to all theIndividuals.

In India the banks are being segregated in different groups. Each group has

their own benefits and limitations in operating in India.

All banks are not included.


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PROBLEMS: --The corporate sector has stepped up its demand for credit to fund its expansion

plans, there has also been a growth in retail banking. However, even as the

opportunities increase, there are some issues and challenges that Indian banks willhave to contend with if they are to emerge successful in the medium to long term.

RESEARCH METHODOLOGY:-The first stage included the introduction of Indian Banks and how they work in

India. I choose five criteria Growth, Credit quality, Strength, Profitability,Efficiency /Profitability. The next stage involved determining the objectives of thestudy, drafting questionnaire will be designed keeping in mind the target audienceand objectives of the study. It will non-disguised in nature and will include a fewopen-ended questions.

DATA COLLECTIONSThe data from such organization has also been collected.

Primary Data

The primary data will be collected through the questionnaire designed. In theprocess of data collection we went to the respective bank to get the questionnairefilled. The preparation of the project report required me to visit the various othercompanies like Punjab National Bank, ICICI bank, and State Bank of India,Central Bank, IDBI bank etc. in order to collect data.


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Secondary Data

The Preparation of the project report also required data from various journals,

newspapers ( like The Economic Times, Times of India etc.) books ( like WorkingCapital Management written by Sarbesh Mishra and Financial Service written byM Y Khan etc.)

SCOPE OF BANKING SECTOR

Banking business has a history of over 200 years. From the times of the Bank ofBengal (1806) the sector has been witnessing qualitative and quantitative changes.Main players during the pre-independence period were Credit Lyonnais, AllahabadBank, Punjab National Bank and Bank of India. With 1935 regulation theReserve Bank of India was proclaimed the Central Bank of India and was vestedwith controlling powers over the commercial banks.

The drastic development taken place during the first 25 years since independence

was Nationalization of many private banks. With this, the central governmentbecame major policy maker for these nationalized banks.

With economic liberalization measures many private and foreign bankingcompanies were allowed to operate in the country. Favorable economic climate andvariety of other factors such as demand for wide range of financial products fromvarious sections of the society led to mutually beneficial growth to the bankingsector and economic growth process. This was coincided by technology development

in the banking operations. Today most of the Indian cities have networked bankingfacility as well as Internet banking facility. A customer is empowered to operatehis account from any part of the country. UTI Bank, ICICI, HDFC Bank andBank of Punjab are the main winners of the race.


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RESERVE BANK OF INDIA

Central Bank & Supreme

Monetary

Scheduled Banks

Commercial Banks Co-operative Banks

Foreign

Banks

(40)

Regional

Rural

Bank

(196)

Urban Co-

Operatives

(52)

State Co-

operatives

(16)

Public Sector Banks

(27)

Private Sector Banks

(30)

Old

(22)

New

(8)

Other Nationalised Banks

(19)

State Bank of India &

Associate Banks (8)


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INTRODUCTION

Definition of the Bank: - Financial institution whose primaryactivity is to act as a payment agent for customers and to borrow and lend money.Banks are important players of the market and offer services as loans and funds.

Banking was originated in 18th century.

First bank were General Bank of India and Bank of Hindustan, nowdefunct.

Punjab National Bank and Bank of India was the only private bank in

1906. Allahabad bank first fully India owned bank in 1865.

Bank of

Bengal

Bank of

Bombay

Bank of

Madras

Imperial

Bank of

India

State

Bank of

India


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Types of banking

Commercial bank has two meanings:

Commercial bank is the term used for a normal bank to distinguish it from aninvestment bank. (After the great depression, the U.S. Congress required thatbanks only engage in banking activities, whereas investment banks were limitedto capital markets activities. This separation are no longer mandatory.)

Commercial bank can also refer to a bank or a division of a bank that mostly dealswith deposits and loans from corporations or large businesses, as opposed tonormal individual members of the public (retail banking). It is the most successfuldepartment of banking.

Community development bankare regulated banks that provide financial

services and credit to underserved markets or populations.

Private banksmanage the assets of high net worth individuals.

Offshore banksare banks located in jurisdictions with low taxation andregulation. Many offshore banks are essentially private banks.

Savings banksacceptsavingsdeposits.

Postal savings banksare savings banks associated with national postalsystems.

There are some examples of banks in India:-

Private sector bank

HDFC, ICICI, Axis bank, Yes bank, Kodak Mahindra bank, Bank of Rajasthan

Rural bank

United bank of India, Syndicate bank, National bank for agriculture and ruraldevelopment (NABARD)

Commercial bank

State Bank, Central Bank, Punjab National Bank, HSBC, ICICI,HDFC etc.


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Services provided by the bank

Banks provide two types of services

1. Fund Based2. Non-Fund Based

FUND BASED AND NON-FUND BASEDFUNCTIONS

The difference between fund-based and non-fund based credit assistance lies mainlyin the cash outflow. While the former involves all immediate cash outflow, thelatter may or may not involve cash outflow from a banker. In other words, a fundbased credit facility to a borrower would result in depletion of actual liquidity of abanker immediately whereas grant of non-fund based credit facilities to a borrowermay or may not affect the bankers liquidity.

Banking Services

Fund Based

Services

Non Fund Based

Services


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FUND BASED SERVICES

FUND BASED FACILITY

Fund based functions of a bank are those in which banks make deployment of theirfunds either by granting advances or by making investments for meeting gaps infunds requirements of their customers/ borrowers. Fund-based functions of a bankmay be classified into two parts:-

Granting of Loans and Advances

Making Investments in shares/ debentures/ bonds.

Fund Based Services

Loans & Advances Leasing & Hire Purchase Investment

Commercial Loans Personal LoansCapital Market

Investment

Debt Market

Investment


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FUND BASED SREVICES

I. LOANS AND ADVANCES1. Commercial Loans Segment

A. Working Capital: -Working Capital is Currentassetsminuscurrent liabilities. Workingcapital measureshow much inliquid assetsacompanyhasavailable to build itsbusiness. The number can be positive or negative,

depending on how muchdebtthe company is carrying. In general, companiesthathave alotof working capital will be more successful since they can expandandimprove theiroperations. Companies with negative working capital may lackthe

funds necessaryforgrowth, also callednet current assetsorcurrent capital. A loanwhose purpose is to finance everyday operation of a company. A working capitalloan is not used to buy long term assets or investments. Instead it's used to clear upaccounts payable, wages, etc.

I. Cash Credit: -This facility is given by the banker to the customer by way

of a certain amount of credit facility. Its limit is fixed on the basis of security ofthe company`s current assets.

II. Overdraft: -Banks allow selected customers to write cheques in excess ofthe balance in their current account, ie, to overdraw. Overdrafts are arranged up tolimits which depend on the customer's credit standing and the bank manager'shumor. The arrangements allow flexibility in the amount spent and, equally, allow

flexibility in repayments (although technically a bank can demand repayment of anoverdraft within 24 hours). In that respect overdrafts are unlike personal loans,

which are structured with regular repayments. Interest on overdrafts is charged onthe fluctuating daily balance.

III. Bills Finance

IV. Bills Purchase


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V. Bills Discounting:-This is the most important form in which a bank lendswithout any collateral security. The seller draws bills of exchange on the buyer of

goods on credit. Such a bill may either be a clean bill or documentary bill which isaccompanied by documents of title to goods, viz railway receipts. The bank

purchase bills payable on demand and credit the customer`s account with theamount of bills less the discount. On maturity of the bills, the bank presents themto its acceptor for payment. In case the discounted bill is dishonored by thenonpayment, the bank can recover the full amount from the customer along withthe expense in that connection.

B. Tem Loans: -Abank loanto acompany, with afixed maturityandoften featuringamortizationofprincipal. If this loan is in theformof aline ofcredit, thefundsare drawn down shortly after theagreementis signed. Otherwise,theborrowerusuallyusesthe funds from the loan soon after they become available.Bankterm loansare very a common kind oflending.

I. Capital Expenditure: -Moneyspent to acquire orupgradephysicalassetssuch asbuildingsand machinery, also calledcapital spendingorcapital expense.

II. Fixed Assets Finance

III. Project Finance: -Financing arrangements where the funds are madeavailable for a specific purpose (the project), with the loan repayments geared to the

project's cash flow. Project finance is used in connection with raising large amountsof money for big-ticket, energy-related facilities. The term has come to be looselyapplied to various forms of financing. 'A financing of a particular economic unit inwhich a lender is satisfied to look initially to the cash flows and earnings of thateconomic unit as the source of funds from which a loan will be repaid and to theassets of the economic unit as collateral for the loan.'

IV. Consumer Loans Advance against SharesV. Housing Loans

VI. Education Loans


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3. Personal Loans Segment: -Loan granted for personal, family, orhousehold use, as distinguished from a loan financing a business. Though in somesituations the lender may require a co-signer or guarantor. If unsecured, the loan ismade on the basis of the borrower's integrity and ability to Pay. Generally, these

loans are used for debt consolidation, or to pay for vacations, education expenses,or medical bills, and are amortized over a fixed term with regular payments of

principal and interest.

Non-Fund based servicesIt is generally perceived that the non-fund based business is very remunerative tobank and the borrowers. The banks, besides getting handsome commission or feeand some other service charges, also get the low cost deposits in the shape of marginand ancillary business. The funds of the borrower are not blocked in the advancesto be given to the suppliers or beneficiaries and this keeps his liquidity positioncomfortable, production smooth and costs low.

PURPOSE FOR NON-FUND BASED FACILITIES:-

Non-Fund Based Services

Funds remittance

/Transfer Facilities

Letter Of Credit/Bank

GuaranteeAgency Functions

Merchant

Banking

Functions


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The borrowers need such facilities not only for purchases of current assets orfinancing there of or take benefit of certain services with the help of non-fundbased facilities. They also need the facilities for acquisition of fixed assets includingtheir financing.

RBI NORMS:Prudential exposure norms as per extant guidelines of Reserve Bank of India

provides that the maximum exposure of a bank for all itsFund based andNon-fund based credit facilities, investments, underwriting, investments in Bonds andcommercial paper and any other commitment should not exceed 25 percent of its(bank's) net worth to an individual borrower and 50 percent of its, net worth to a'group'. It may however, be rioted that while calculating exposure, theNon-fundbasedfacilities are to be taken at50 percent of the sanctioned limit. To illustratethe point let us consider the following example:-

Example 1.

Particulars Rs. Rs inCrores

Net worth of the bank 700

Maximum exposure permitted for an individual 175borrower (25% of net worth of the bank) WorkingCapital Control and Banking Policy

Maximum exposure permitted for all borrowers 657

under the same group (50% of net worth of the 350Bank)


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FUNDS REMITTANCE/ TRANSFER

FACILITIES


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Issue of demand draft Collection of bills and cheques.

ESTABLISHMENT OF LC/ BG

Letter of credit:-A Letter of Credit (L/C) is a written document issued bythe Buys Banker (BBK), at a request of the Buyer (B), in favour of the Seller(S),

whereby the Buyer's Banker (BBK) gives an undertaking to the Seller(S) that, in

the event of the Seller tendering the bill of exchange to the Seller's Banker (SBK),

along with all the Required documents, in strict compliance of all the terms and

conditions stipulated In The L/C, the entire amount of the bill will be paid to

the Seller (S) by the Seller's Bank (SBK), on behalf of the Buyer's Banker (BBK)immediately, as has been, in turn, Undertaken by the buyer to his own Banker

(Bib).

Bank guarantee: - It is customary for the Bank, in normal course ofbusiness, to issue and execute guarantees in favor of third parties on behalf of thecustomers. The Bank Guarantees are governed by various provisions as contained inthe Indian Contract Act, 1872. The commercial transactions, banks customers are

sometimes required to give third party who seeks the guarantee; not being aware ofthe customers financial Standing prefers a bank guarantee. In turn the Bank,which very well understands the Financial standing of the customer, undertakesthe guarantee of the customers financial Commitments or performance of contractsby him. The bank charges commission for this service, which depends on the securityavailable and the financial stability of the customer.

AGENCY FUNCTION

Collecting of B/E, P-notes, cheques & securities Selling of products of insurance co./ MF Granting & issuing LC, traveler's cheque Agent for any govt., local authority, etc.


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MERCHANT BANKING

Syndication of loans Venture capital finance

Public issue management Corporate counseling Mergers & acquisitions Portfolio management services Investment counseling

E-BANKING

Electronic payment system

ATM Tele-banking Credit card and debit card Online banking

MOBILE BANKING

Account services

Credit card services DEMAT account Loan account services Bill services Other services

DEPOSIT SCHEMES FOR NRI's

Foreign Currency Nonresident (FCNR-B) Deposits: Tax Exemption Choice of Currency Remit in any Currency Minimum& Maximum Amount


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Joint account Power of Attorney (P/A) Nomination

Resident Foreign Currency (RFC):-Deposits Returning Indians forpermanent Settlement, after staying abroad for not less than one year, can-

Retain their savings in foreign currency in a RFC account.Get the proceeds of FCNR (B)/NRE Deposits credited to this account

Non Resident Ordinary (NRO) Deposits:-WhereanIndiancitizen having a resident account leaves India and becomes non-resident; his

resident account should be Designated as NRO account. Where non-residentIndian receives income in India, he can open a NRO a/c with such Funds.

Reserve Banks of India:-

Establishment

The Reserve Bank of India was established on April 1, 1935 in accordance with

the Provisions of theReserve Bank of India Act, 1934.The Central Office of the Reserve Bank was initially established in Calcutta butwas permanently moved to Mumbai in 1937.Though originally privately owned, since nationalization in 1949, the ReserveBank is fully owned by the Government of India.

Guidelines on Ownership and

Governance in PrivateSector Banks

Banks are "special" as they not only accept and deploy large amount ofuncollateralized public funds in fiduciary capacity, but they also leverage such


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funds through credit creation. The banks are also important for smooth functioningof the payment system. In view of the above, legal prescriptions for ownership and

governance of banks laid down in Banking Regulation Act, 1949 have beensupplemented by regulatory prescriptions issued by RBI from time to time. The

existing legal framework and significant current practices in particular cover thefollowing aspects:

The composition of Board of Directors comprising members withdemonstrable professional and other experience in specific sectors likeagriculture, rural economy, co-operation, SSI, law, etc., approval of ReserveBank of India for appointment of CEO as well as terms and conditionsthereof, and powers for removal of managerial personnel, CEO and directors,etc. in the interest of depositors are governed by various sections of the B.R.

Act, 1949. Guidelines on corporate governance covering criteria for appointment of

directors, role and responsibilities of directors and the Board, signing ofdeclaration and undertaking by directors, etc., were issued by RBI on June20, 2002 and June 25, 2004, based on the recommendations of GangulyCommittee and a review by the BFS.

Guidelines for acknowledgement of transfer/allotment of shares in privatesector banks were issued in the interest of transparency by RBI on February3, 2004.

Foreign investment in the banking sector is governed by Press Note datedMarch 5, 2004 issued by the Government of India, Ministry of Commerceand Industries.

The earlier practice of RBI nominating directors on the Boards of all privatesector banks has yielded place to such nomination in select private sectorbanks.

Against this background, it is considered necessary to lay down acomprehensive framework of policy in a transparent manner relating toownership and governance in the Indian private sector banks as describedbelow.

The broad principles underlying the framework of policy relating toownership and governance of private sector banks would have to ensure that


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The ultimate ownership and control of private sector banks is welldiversified. While diversified ownership minimizes the risk of misuse orimprudent use of leveraged funds, it is no substitute for effective regulation.Further, the fit and proper criterion, on a continuing basis, has to be the

over-riding consideration in the path of ensuring adequate investments,appropriate restructuring and consolidation in the banking sector. The

pursuit of the goal of diversified ownership will take account of these basicobjectives, in a systematic manner and the process will be spread over time asappropriate.

Important Shareholders (i.e., shareholding of 5 per cent and above) are fitandproper, as laid down in the guidelines dated February 3, 2004 onacknowledgement for allotment and transfer of shares.

The directors and the CEO who manage the affairs of the bank are fit andproper as indicated in circular dated June 25, 2004 and observe soundcorporate governance principles.

Private sector banks have minimum capital/net worth for optimal operationsand systemic stability.

The policy and the processes are transparent and fair.

4. Minimum capital

The capital requirement of existing private sector banks should be on par with theentry capital requirement for new private sector banks prescribed in RBI guidelinesof January 3, 2001, which is initially Rs.200 crore, with a commitment to increaseto Rs.300 crore within three years. In order to meet with this requirement, allbanks in private sector should have a net worth of Rs.300 crore at all times. Thebanks which are yet to achieve the required level of net worth will have to submit atime bound programme for capital augmentation to RBI. Where the net worthdeclines to a level below Rs.300 crore, it should be restored to Rs. 300 crore withina reasonable time.

5. Shareholding The RBI guidelines on acknowledgement for acquisition or transfer of shares

issued on February 3, 2004 will be applicable for any acquisition of shares of5 per cent and above of the paid up capital of the private sector bank.


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In the interest of diversified ownership of banks, the objective will be toensure that no single entity or group of related entities has shareholding orcontrol, directly or indirectly, in any bank in excess of 10 per cent of the paidup capital of the private sector bank. Any higher level of acquisition will be

with the prior approval of RBI and in accordance with the guidelines ofFebruary 3, 2004 for grant of acknowledgement for acquisition of shares.

Where ownership is that of a corporate entity, the objective will be to ensurethat no single individual/entity has ownership and control in excess of 10

per cent of that entity. Where the ownership is that of a financial entity theobjective will be to ensure that it is a well established regulated entity,widely held, publicly listed and enjoys good standing in the financialcommunity.

Banks (including foreign banks having branch presence in India)/FIs shouldnotacquire any fresh stake in a banks equity shares, if by such acquisition,theinvesting banks/FIs holding exceeds 5 per cent of the investee banksequity capital as indicated in RBI circular dated July 6, 2004.

As per existing policy, large industrial houses will be allowed to acquire, byway of strategic investment, shares not exceeding 10 per cent of the paid upcapital ofthe bank subject to RBIs prior approval. Furthermore, such alimitation will also be considered if appropriate, in regard to important

shareholders with other commercial affiliations. In case of restructuring of problem/weak banks or in the interest of

consolidation in the banking sector, RBI may permit a higher level ofshareholding, including by a bank.

6. Directors and Corporate Governance The recommendations of the Ganguly Committee on corporate governance in

banks have highlighted the role envisaged for the Board of Directors. TheBoard of Directors should ensure that the responsibilities of directors are

well defined and the banks should arrange need-based training for thedirectors in this regard. While the respective entities should perform the rolesenvisaged for them, private sector banks will be required to ensure that thedirectors on their Boards representing specific sectors as provided under theB.R. Act, are indeed representatives of those sectors in a demonstrable

fashion, they fulfill the criteria under corporate governance norms provided


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by the Ganguly Committee and they also fulfill the criteria applicable fordetermining fit and proper status of Important Shareholders (i.e.,shareholding of 5 per cent and above) as laid down in RBI Circular datedJune 25, 2004.

As a matter of desirable practice, not more than one member of a family or aclose relative (as defined under Section 6 of the Companies Act, 1956) or anassociate (partner, employee, director, etc.) should be on the Board of a bank.

Guidelines have been provided in respect of 'Fit and Proper' criteria fordirectors of banks by RBI circular dated June 25, 2004 in accordance withthe recommendations of the Ganguly Committee on Corporate Governance.For this purpose a declaration and undertaking is required to be obtained

from the proposed / existing directors

Being a Director, the CEO should satisfy the requirements of the fit andpropercriteria applicable for directors. In addition, RBI may apply anyadditional requirements for the Chairman and CEO. The banks will berequired to provide all information that may be required while making anapplication to RBI for approval of appointment of Chairman/CEO.

7. Foreign investment in private sector banksIn terms of the Government of India press note the aggregate foreign investment in

private banks from all sources (FDI, FII, and NRI) cannot exceed 74 per cent. At

all times, at least 26 per cent of the paid up capital of the private sector banks willhave to be held by resident Indians.

7.1 Foreign Direct Investment (FDI) (other than by foreign banks or foreignbank group)

The policy already articulated in guidelines for determining fit and properstatus of shareholding of 5 per cent and above will be equally applicable forFDI. Hence any FDI in private banks where shareholding reaches andexceeds 5 per cent either individually or as a group will have to comply withthe criteria indicated in the aforesaid guidelines and get RBIacknowledgement for transfer of shares.

To enable assessment of fit and proper the information onownership/beneficial ownership as well as other relevant aspects will be

extensive.


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7.2 Foreign Institutional Investors (FIIs)

Currently there is a limit of 10 per cent for individual FII investment withthe aggregate limit for all FIIs restricted to 24 per cent which can be raisedto 49 per cent with the approval of Board/General Body. This dispensation

will continue. The present policy requires RBIs acknowledgement for acquisition/transfer

of shares of 5 per cent and more of a private sector bank by FIIs based uponthe policy guidelines on acknowledgement of acquisition/transfer of sharesissued. For this purpose RBI may seek certification from the concerned FIIof all beneficial interest.

7.3 Non-Resident Indians (NRIs)Currently there is a limit of 5 per cent for individual NRI portfolio investmentwith the aggregate limit for all NRIs restricted to 10 per cent which can be raisedto 24 per cent with the approval of Board/General Body. Further, the policy

guidelines on acknowledgement for acquisition/transfer will be applied.

8. Due diligence processThe process of due diligence in all cases of shareholders and directors as above, willinvolve reference to the relevant regulator, revenue authorities, investigation

agencies and independent credit reference agencies as considered appropriate.

9. Transition arrangements The current minimum capital requirements for entry of new banks is Rs.200

crore to be increased to Rs.300 crore within three years of commencement ofbusiness. A few private sector banks which have been in existence beforethese capital requirements were prescribed have less than Rs.200 crore networth. In the interest of having sufficient minimum size for financialstability, all the existing private banks should also be able to fulfill theminimum net worth requirement of Rs.300 crore required for a new entry.

Hence any bank with net worth below this level will be required to submit atime bound programme for capital augmentation to RBI for approval.

Where any existing shareholding of any individual entity/group of entities is5 per cent and above, due diligence outlined in the guidelines will beundertaken toensure fulfillment of fit and proper criteria.


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Where any existing shareholding by any individual entity/group of relatedentities is in excess of 10 per cent, the bank will be required to indicate atime table for reduction of holding to the permissible level. While consideringsuch cases, RBI will also take into account the terms and conditions of the

banking licenses. Any bank having shareholding in excess of 5 per cent in any other bank in

India will be required to indicate a time bound plan for reduction in suchinvestments to the permissible limit. The parent of any foreign bank having

presence in India, having shareholding directly or indirectly through anyother entity in the banking group in excess of 5 per cent in any other bank inIndia will be similarly required to indicate a time bound plan for reductionof such holding to 5 per cent.

Banks will be required to undertake due diligence before appointment ofdirectors and Chairman/CEO on the basis of criteria that will be separatelyindicated and provide all the necessary certifications/information to RBI.

Banks having more than one member of a family, or close relatives orassociates on the Board will be required to ensure compliance with theserequirements at the time of considering any induction or renewal of terms ofsuch directors.

Action plans submitted by private sector banks outlining the milestones for

compliance with the various requirements for ownership and governance willbe examined by RBI for consideration and approval.

10. Continuous monitoring arrangements Where RBI acknowledgement has already been obtained for transfer of

shares of5 per cent and above, it will be the banks responsibility to ensurecontinuingcompliance of the fit and proper criteria and provide an annualcertificate to the RBI of having undertaken such continuing due diligence.

Similar continuing due diligence on compliance with the fit and propercriteria for directors/CEO of the bank will have to be undertaken by thebank and certified to RBI annually.

RBI may, when considered necessary, undertake independent verification offitand proper test conducted by banks through a process of due diligence asdescribed in paragraph 8.


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11. On the basis of such continuous monitoring, RBI will consider appropriatemeasures to enforce compliance.

Guidelines on Fair Practices Code

Loan application forms shall be comprehensive to include information aboutrate of interest (fixed/floating) and manner of charging(monthly/quarterly/half yearly/ rest), process fees and other charges, penalinterest rates, pre-payment options and any other matter which affects theinterest of the borrower, so that a meaningful comparison with that of other

banks can be made and informed decision can be taken by the borrower.Banks and Financial Institution should devise a system of giving

acknowledgement for receipt of all loans application. Banks/ FinancialInstitutions should verify the loan application within a reasonable period oftime. If additional details / documents are required, they should intimate theborrowers immediately. If all the requirements are complied with theborrowers, banks/ Financial Institution should acknowledge for the sameand state the specific time period from the date of acknowledgement withinwhich a decision on the specific loan request will be conveyed to theborrowers.

Acknowledgement should also state the amount of process fees paid or to bepaid and the extent to which such fees shall be refunded in the event ofrejection of any application for loan.

In the case of rejection of any loan application, lenders should convey inwriting the specific reasons thereof.

Lenders should ensure that there is proper assessment of credit requirementof borrowers. The credit limit, which may be sanctioned, should be mutually

settled.Terms and conditions and other caveats governing credit facilities given by

banks / Financial Institution arrived at after negotiation by the lendinginstitution and the borrower should be reduced in writing duly witnessedand certified by the authorized sanctioning authority; in respect of advancessanctioned by the Board of Directors or its committee the documents of


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understanding should be certified by the authorized signatory preferably atcompany secretary level. A copy of such agreement should be made availableto the borrowers for their record.

Lenders should ensure timely disbursement of loans sanctioned.

Stipulation of margin and security should be based on due diligence andcredit worthiness of borrowers.

Lenders should keep the borrowers apprised of the state of their accountsfrom time to time and shall give notice of any change in the terms andconditions including interest rates and charges are affected only

prospectively. To ensure the above, Banks / Financial Institution shouldcreate appropriate information dissemination mechanism.

The loan agreement should clearly specify the liability of lenders to borrowers

in regard to allowing drawings beyond the sanctioned limits, honoring thecheques issued for the purpose other than agreed, disallowing large cashwithdrawals and obligation to meet further requirements of the borrowers onaccount of growth in business etc. without proper revision and sanction incredit limits, and disallowing drawings on a borrower account on itsclassification as a nonperforming assets or on account of non-compliancewith the terms of sanction.

Lenders should give reasonable notice to borrowers before taking decision torecall / accelerate payment or performance under the agreement or seeking

additional securities.Lenders should release all securities onreceiving payment of loan or

realization of loan subject to any legitimate right of lien for any other claimlenders may have against borrowers. If such right of set off is to be exercised,borrowers shall be given notice about the same with full particulars aboutthe remaining claims and the documents under which lenders are entitled toretain the securities till the relevant claims are settled / paid.

Documents

Roopam Bank