Sme Study Modules For Quick Reference PDF

SME STUDY MODULES
FOR
QUICK REFERENCE
For detail instructions please refer to:
i. CP-SME Role Manual (Available at STU Portal)

ii. Manual on Loan and Advances, Part-1 to Part-5 (Available at CPPD Portal)
Page 1 of 180
INDEX
1. KNOW YOUR CUSTOMER

2. LOAN POLICY GUIDELINES
3. INTRODUCTION TO SME CREDIT DELIVERY MODEL
4. PRE SANCTION CREDIT PROCESS
5. ANALYSIS OF FINANCIAL STATEMENT
6. ASSESSMENT OF WORKING CAPITAL FINANCE
7. APPRAISAL OF NON FUND BASED FACILITIES
8. APPRAISAL OF TERM LOAN
9. CREDIT RISK ASSESSMENT
10. PREPARATION OF PROPOSALS
11. VARIOUS PRODUCTS AND SCHEMES OF SMEBU
12. LEGAL ASPECT OF ADVANCES
13. POST SANCTION CREDIT PROCESS: FOLLOWUP, SUPERVISION AND MONITORING
14. OVERVIEW OF IMPORT & EXPORTS
15. SMA, NPA MANAGEMENT AND IRAC NORMS
16. RESTRUCTURING OF ADVANCES
17. RECOVERY ACTIONS
Page 2 of 180
1. KNOW YOUR CUSTOMER
KYC DOCUMENTS - INDIVIDUALS
1. Individuals (i) Passport

(ii) Voter’s Identity Card
(iii) Driving Licence
(iv) Aadhaar Letter/Card - Compulsory
(Documents (v) NREGA Card
acceptable as proof of (vi) PAN Card - Compulsory
identity/address)
Any one document towards proof of identity and proof of

address (either permanent or current )
2. Minors If minor is less than 10 years of age, ID proof of the person who
will operate the account be obtained.
In cases where minor can operate the account independently, KYC

procedure for identification/address verification as in the case of
any other individuals would apply.
3. NRIs Passport and Residence Visa Copies, duly attested by
(i) Foreign offices (ii) Notary Public (iii) Indian Embassy
(iv) officers of correspondent banks whose signatures are

verifiable through an authorized(A/B category Forex handling
branch) branch of the Bank
KYC DOCUMENTS - Non Individuals
1 Accounts of Proprietary (i) Registration certificate (in the case of a registered

concerns concern).
(ii) Certificate/licence issued by the Municipal
authorities under Shop & Establishment Act.·
(iii) GST and income tax returns
Proof of the name, address (iv) GST/VAT certificate
and activity of the concern (v) Certificate /registration document issued by Sales
Tax/Service Tax/Professional Tax authorities.
(vi) Licence issued by the Registering authority
like Certificate of Practice issued by Institute of
Chartered Accountants of India, Institute of Cost
Accountants of India, Institute of Company
Page 3 of 180
Secretaries of India, Indian Medical Council, Food
and Drug Control Authorities, registration
/licensing document issued in the name of the
proprietary concern by the Central Government or
State Government Authority/ Department, etc.
(vii) Banks may also accept IEC (Importer
Exporter Code) issued to the proprietary concern
by the office of DGFT as an identity document for
opening of the bank account etc.
(viii) The complete Income Tax return (not just
the acknowledgement) in the name of the sole
proprietor where the firm's income is reflected,
duly authenticated/ acknowledged by the Income
Tax Authorities.
(ix) Utility bills such as electricity, water, and
landline telephone bills in the name of the
proprietary concern.
Any two of the above documents would suffice.

These documents should be in the name of the
proprietary concern.
PLUS
ID and address proof of the proprietor.
The default rule is that any two documents

mentioned above should be provided as activity
proof by a proprietary concern. However, in cases
where the Branches are satisfied that it is not possible
to furnish two such documents, they would have the
discretion to accept only one of those documents as
activity proof. In such cases, the Branches would,
however, have to undertake contact point verification,
collect such information as would be required to
establish the existence of such firm, confirm, clarify and
satisfy themselves that the business activity has been
verified from the address of the proprietary concern.
2 Accounts of partnership (i) Registration certificate

firms (ii) Partnership deed
(iii) An officially valid document in respect of the
person holding a power of attorney to transact
on its behalf
Page 4 of 180
PLUS
 Proof of identity & address of all the partners /

beneficial owners - natural persons if beneficial
owners are non individuals (owning 15%
capital or entitled for 15% profits)
3 Accounts of companies (i) Certificate of incorporation

(ii) Memorandum & Articles of Association
(iii) A resolution from the Board of Directors
and power of attorney granted to its managers,
officers or employees to transact on its behalf;
and
(iv) An officially valid document in respect of
managers, officers or employees holding an
attorney to transact on its behalf
PLUS
Proof of identity & address of all the beneficial owners

(natural persons if beneficial owners are non
individuals) ( owning 25% share or capital or entitled
for 25% profits in case of company which is not listed
in a Stock Exchange (Submission of Proof of identity &
address by beneficial owners of a company listed in
stock exchange or is a company majority owned one
by such listed company is not warranted)
4 Accounts of trusts & (i) Certificate of registration;

foundations (ii) Trust Deed; and
(iii) An officially valid document in respect of the
person holding a power of attorney to transact
on its behalf
PLUS
Proof of identity and address of persons like trustees,

executors, administrators etc.
( beneficial owners - natural persons)
5 Accounts of (i) Resolution of the managing body of such

association or body of individuals;
Unincorporated (ii) Power of attorney granted to him to transact on
association or body of its behalf;
Page 5 of 180
individuals (iii) An officially valid document in respect of
the person holding an attorney to transact on
its behalf; and
(iv) Such information as may be required by
the bank to collectively establish the legal
existence of such an association or body of
individuals
6 Hindu Undivided Family i. Declaration from the Karta.
(HUF) ii. Proof of Identification of Karta.
iii. Prescribed Joint Hindu FamilyLetter signed by all
the adult coparceners
iv. Identity of the adult coparceners
Risk Categorisation
High Risk Category.
1. Politically Exposed person of foreign origin

2. Bullion Dealers/jewellers
3. Non Resident Customers (NRIs)
4. Trust Charities, NGOs & Organisations receiving donations from India & abroad
5. Non Face-to-Face Customers
6. Customers domiciled in/having transactions with High Risk Countries
7. Firms with Sleeping partners
8. Companies having close family shareholding
9. Multi-Level Marketing Companies
10. Accounts of Mules
11. Customers of dubious reputation
12. High Net worth Individuals - Individuals with total deposits of Rs.1.50 Crores or more
13. Pooled Accounts
14. Individual/entities involved in any fraud/forgery/anti national activity / terrorism / tax
evasion/insider trading may be classified as High Risk
15. Account opened/operated by Power of Attorney Holders
16. Individual Account holder with Credit/debit summations of Rs.2.00 crores & more per
annum
17. Non Individual account holders with credit debit summations of Rs.10.00 crores & more
per annum
18. Customer accounts where STR has already been filed with FIU
Medium Risk Category
1. New customers opened under Low Risk while onboarding, during first 180 days of
opening the account, except those pertaining to Central/State Governments, PSUs and JVs
with Govt., Regulators, FIs, Statutory Bodies, salaried persons/pensioners of these
organizations, “Small Accounts” and any product(s) that are specifically mandated to be
classified under Low Risk.
Page 6 of 180
2. Non-Banking Financial Institutions
3. Stock Brokers
4. Import/Export customers
5. Telemarketers
6. Pawn Shops
7. Auctioneers
8. Venture Capital Companies
9. All In-operative accounts
10. Individual Account holder with Credit/debit summations of Rs.50.00 lacs to below Rs.2.00
Crores per annum
11. Non Individual account holders with credit debit summations of Rs.2.00 crores to below
Rs.10.00 Crores per annum
Low Risk Category
1. Salaried Employees (whose salary are well defined)

2. Customer belonging to lower economic strata, accounts opened under financial inclusion
3. NGOs/NPOs promoted by UN or its agencies.
4. Government owned Companies/ Departments and (State/Central), PSUs, JVs with Govt.,
Regulators, FIs, Statutory bodies etc.
5. All customers not classified either as High/Medium Risk Categories
6. Individual Account holder with Credit/debit summations below Rs.50 lacs per annum
7. Non Individual account holders with credit debit summations below Rs.2 crores per
annum.
Page 7 of 180
2. LOAN POLICY GUIDELINES
Loan Policy - Essential features

1. The loan policy of State Bank of India provides a framework for management of the loan
portfolio of the Bank with emphasis on maintaining asset quality. The Bank recognizes the
risks inherent in lending operations, and believes that the same can be managed by
following sound credit risk management policies and procedures. While formulating the
loan policy, the overall risk appetite of the Bank has been taken into consideration.
2. The policy, at a holistic level, is an embodiment of the Bank’s approach to sanctioning,

managing and monitoring credit risk, and aims at making the systems and controls
effective. It is guided by the highest standards of commercial prudence and ethical
business practices.
 Exposure norms and concentration of Credit Risk :
The Loan Policy recognizes the need for measures aimed at better risk management and
avoidance of concentration of credit risk. With this in view, limits have been prescribed for
Bank’s exposure to single borrower, borrower groups, specific industry / sector etc.
1. Prudential guidelines (issued by RBI): While prudential guidelines for avoiding
concentration of risk serve as broad indicators, continuous evaluation of other elements
such as market conditions, government policies, legal framework, economic indicators,
stock market movements, etc., is made to assess transaction risk intrinsic to a group of
borrowers / segment of industry, as well as to sectoral exposures in order to formulate
short term exposure restrictions where considered necessary. The constitution of an
entity is also a determining factor owing to varying levels of compliance requirements of
legal / statutory / accounting standards, etc, for arriving at exposure limits.
 Introduction of Risk Sensitive Internal Prudential Exposure Limits :
RBI has prescribed Prudential Exposure limits of 15% of the Bank’s Capital Funds for
Single borrowers and 40% for Group Borrowers. Prudential Exposure limits set by RBI,
are “one size fits all” in nature and are not risk sensitive. For example, under Prudential
Exposure Limits, 15% exposure can be taken on low risk SB1 rated borrower and also on
SB15 rated borrower, where risk is high. With a view to making exposure limits risk
sensitive, it has been decided to introduce Internal Prudential Exposure Limit framework
based on Internal Credit Ratings i.e. CRA ratings in the Bank.
2. Substantial Exposure (issued by our Bank): Substantial Exposure Limits are not deemed as
caps on further exposures in the various categories but are intended to serve as triggers to
Business Groups for closer monitoring. Therefore, breach of Substantial Exposure levels (listed
from (i) to (v) would not be construed as deviation. In respect of aggregate substantial
exposures, CRMD would be monitoring Substantial Exposure norms on a quarterly basis. The
aggregate exposure levels indicated [at (vi) and (vii)], however, would be caps.
Page 8 of 180
Types of Substantial Exposure Stipulation (in excess of)
i) Exposure to any Single Borrower 10% of Capital Funds
ii) Exposure to any Single Borrower with additional exposure to 15% of Capital Funds
Infra
iii) Exposure to Oil Companies with oil bonds with non-SLR status 15% of Capital Funds
iv) Exposure to any Borrower Group 25% of Capital Funds
v) Exposure to any Borrower Group with additional exposure to 30% of Capital Funds
Infra
vi) Aggregate of Substantial Exposures to Single Borrowers 300% of Capital Funds
vii) Aggregate of Substantial Exposures to Single Borrowers and 600% of Capital Funds
Borrower Groups
 Credit Appraisal :
The Bank has in place a well-established process of credit appraisal that has developed
and evolved over a period of time. The fundamental purpose of credit appraisal in the
Bank has been two fold. First, to be able to take an informed decision as to the credit
worthiness of any proposal; that is, whether it is prudent, worthwhile and desirable for
the Bank to take a credit exposure on the applicant entity. Thereafter, where a positive
decision is arrived at in this regard, to be able to assess the extent and nature of such
credit exposure, the conditions on which such exposures is acceptable and the pricing at
which it is considered prudent to operationalise such a credit relationship.
A decision as to the credit worthiness of a proposal is arrived at after considering a
combination of several factors.
 Policy on analysis of audited financials :
1. All borrowing units which are in operation need to submit their ABS to the Bank with
in 6 (six) months of close of the Financial Year (F.Y.) i.e. last date for submission of ABS
will be 30th September if F.Y. closes on 31st March.
2. Non submission of Audited financials within the prescribed timelines would attract penal
provisions as per extant instructions.. For sanction of any new credit facilities or
enhancement in existing facilities, the audited financial statements should not be more
than 12 months old. In case the latest audited financials are more than 12months old,
provisional financial statements not more than 6 months old is to be obtained and
analysed with a view to ensuring that the performance and financial indicators are not
deteriorated. In such cases Audited Balance Sheet has to be obtained subsequently and
CRA is to be worked out.
3. Renewal of working capital limit should be carried out every year on the basis of audited
financials. In case working capital limits are not renewed for valid reasons, approval
needs to be sought for continuation of limits for a maximum period of 270 days from the
due date from sanctioning authority. In respect of working capital limits sanctioned by
ECCB, such approval needs to be sought from CCCC.
Page 9 of 180
Security:
 Primary Security : Primary security is the asset created out of the credit facility
extended to the borrower and / or which are directly associated with the business /
project of the borrower for which the credit facility has been extended. For example,
hypothecation of stocks, book debts etc. Stocks include Raw Materials, Stock in process,
Finished Goods, Spares etc. Book debts are based on invoices and delivery challans.
Hypothecation is the established practice whereby a borrower offers to the lender
charge on an asset as security for a loan, while retaining ownership of the asset and
enjoying the benefits therefrom. With hypothecation, the lender has the right to seize the
asset if the borrower cannot service the loan as stipulated by the terms in the loan
agreement.
 Collateral Security: Collateral security is any security, other than Primary Security,
offered to additionally secure the credit facilities sanctioned by the Bank. Collateral
security is normally obtained as a risk mitigating measure and to sustain the promoters’
interest in the venture.
 MSE Sector (both Manufacturing and Services enterprises) no collateral security is
to be obtained for loans upto Rs.10 lacs, and for loans up to Rs.15 lacs the sanctioning
authority may consider waiving collateral security subject to compliance with certain
conditions. For this sector, the Bank has decided to cover all eligible SME advances upto
Rs.200 lacs under CGTMSE scheme. The cost of guarantee cover upto Rs.50 lacs for
working capital limits is borne by the Bank . Working capital limits above Rs.50 lacs and
upto Rs.200 lacs are also to be covered under CGTMSE provided the borrower agrees to
bear the guarantee fee. The guarantee fee for term loans irrespective of loan amount is to
be borne by the borrowers. Other borrowers may be sanctioned credit facilities under
Bank’s regular schemes. The matter of recovery, or absorption, of guarantee fee by the
Bank is reviewed from time to time.
 Quantitative Standards : The basic quantitative parameters underpinning the Bank’s
credit appraisal and the levels that are desired are as under:
i) Applicable to Manufacturing segment:
Financial Ratio (s) Desired Level Acceptable level

Current Ratio ≥ 1.33 ≥ 1.00 (Minimum)
TOL / Adjusted TNW ≤ 4.00 ≤ 5.00 (Maximum)
Long Term Debt / EBITDA ≤ 3.60 ≤ 4.50 (Maximum)
Interest Coverage Ratio ≥2.60 ≥ 2.00 (Minimum)
DSCR ≥1.50 ≥1.20 (Minimum)
FACR 1.25 1.25
ii) Applicable to Trade and Services segment
Page 10 of 180
Financial Ratio (s) Desired Level Minimum acceptable level
Current Ratio ≥ 1.20 ≥ 1.00 (Minimum)
TOL / Adjusted TNW ≤ 5.00 ≤ 7.00 (Maximum)
Long Term Debt / EBITDA ≤ 4.00 ≤ 6.00 (Maximum)
Interest Coverage Ratio ≥2.60 ≥ 2.00 (Minimum)
DSCR ≥1.50 ≥1.20 (Minimum)
FACR 1.25 1.25
iii. While these are indicative levels, there cannot be a definite benchmark, as acceptable
levels are case specific, guided by the nature, size and scope of projects and activities. The
sanctioning authority considers variations from these levels based on the justifications
placed before them; no specific approval is required for divergence between the
acceptable level and the actual
iv. Hurdle rate SB-10 has been prescribed under internal risk rating model for considering
new connection or enhancement in credit limits. In case account is having CRA SB-11 and
worse, then necessary approval is to be obtained from the competent authority. However,
where a unit has not obtained minimum scores in Financial Risk, Business & Industry Risk
and Management Risk under CRA, separate approval is not required to be sought.
 Letter of Credit for working capital (Manufacturing / Trade): Some of the aspects to
be kept sight of while opening Letters of Credit (LC) are:
i) Cash budget should be obtained, where considered necessary, to ensure that the
borrower would be able to retire the bills drawn under the LC on their respective due
dates.
ii) It is also to be ensured that the LC limits sanctioned for regular requirements of the
borrower such as purchase of Raw Materials are not used for CAPEX or other purposes.
iii) The LCs issued/limits sanctioned should be commensurate with the borrower’s
turnover and Cash Credit limits, and should be for genuine trade / manufacturing activity.
iv) The usance period of the LC should ordinarily have relation to the working capital cycle.
v) Level of inventory is to be commensurate with industry norms / past trends.
 Bank guarantees : are required to be issued for various purposes- a few examples being
Bid Bonds for bidding for projects or contracts, advance payment guarantees for
mobilisation money received by contractors, performance and retention money
guarantees, guarantees in favour of government and statutory bodies, courts etc.
There is no difference between due diligence for bank guarantees as compared to other
credit facilities and the instructions in regard to credit rating, proper assessment of
nature and quantum of bank guarantee facility, margins, collateral security, standing and
Page 11 of 180
means of the borrower / promoters / directors / guarantors etc. are applicable. A few
other instructions are as under:
 Bank can issue both financial and performance guarantees.
 BGs will generally be issued / renewed for a period not exceeding 18 months at any one
instance. For longer periods, authority structure for according administrative clearance is
in place. Should a BG originally issued for a lesser period require extension beyond 18
months, administrative clearance therefore will also be necessary.
 No BG should normally have a maturity of more than ten years. Bank may consider
issuing BGs beyond maturity of 10 years only against 100% cash margin and with prior
approval of the competent authority specified in this regard.
 Documentation Standards :
The Bank has in place well established systems and procedures for documentation
covering all types of credit facilities. These have been drawn up, and have evolved, over a
period of time, keeping in view the ultimate objective of documentation - which is to serve
as primary evidence of the debt owed by the borrower, or obligation guaranteed by the
guarantor, to be relied upon in the event of any subsequent dispute between the Bank and
the borrower and / or guarantor. Documents also form the basis for enforcing the Bank’s
right to affect recovery through legal recourse where all other avenues have failed.
 Credit Risk Management
Revised Credit Risk Management Policy approved by the Board is in place since December
2008 our policy and procedures have since been aligned to ‘Standardised Approach’
under Basel II from 1.4.08 & Basel III from 01.04.2013 and the Bank is gearing itself to
adopt ‘Foundation Internal Rating Based Approach’.
 Credit risk management encompasses identification, assessment, measurement,
monitoring and control of the credit exposures.
a) Review / Renewal of Advances / Enhancement / Adhoc Limits: Working capital

facilities are granted by the Bank for a period of one year from the date of sanction.
Regular and ad hoc credit limits need to be reviewed / regularised not later than three
months from the due date / date of ad hoc sanction. In case of constraints such as non-
availability of financial statements and other data from the borrowers, the branch should
furnish evidence to show that renewal / review exercise is in progress. However, where
the regular / ad hoc credit limits have not been reviewed / renewed within 180 days
from the due date / date of ad hoc sanction, it will render the account as NPA. Other
operating guidelines in respect of review / renewals are as under:
i) In respect of exposures to PSUs, Review / Renewal of Limits can be carried out based on
the Audited Financials and there is no need to wait for the completion of Comptroller &
Auditor General Audit, wherever applicable.
ii) While undertaking Review / Renewal, sanction for continuation of limits shall indicate
date of validity of such limits.
Page 12 of 180
iii) In cases where term loans as well as working credit facilities have been sanctioned to a
borrower, review of TL should form a part of the review / renewal of working capital
facilities.
iv) Builder Loans (sanctioned as CCOD limits) and standalone TLs are also to be reviewed
annually based on the audited financials.
 Take Over of Advances
Take over norms have since been revisited. The revised instructions for various Business
Verticals are detailed in Loan manual Part-1 Chapter-1
Take over norms are based upon:
1. Audited Balance Sheet (ABS) should not be older than 12 months. If ABS is older than 9
months, provisional financials not older than 6 months are to be obtained and analysed
so as to be satisfied that the activity level and profitability, liquidity and solvency ratios
are broadly in alignment with the estimates / projections.
2. Ideally, only such accounts should be targeted for Takeover where the unit is in
commercial operations for at least two years (one year in case of Infrastructure projects)
and no major green field / brown field project is under implementation.
3. The unit should have been earning profits for at least 2 preceding years except
Infrastructure projects for which it will be 1 year after COD as per the last audited
balance sheet and should not be incurring losses during the year as per provisional
financials . The outlook for sales and profitability should be positive based on realistic
estimates of capacity utilisation and EBIDTA margins as on the date of assessment.
4. Stock and Receivables Audit is to be conducted prior to disbursement of any credit
facilities above Rs.5.00 crores except for units having ECR of “A-” and better.
5. Increase in exposure should not exceed 30% (where total taken over exposure is upto
Rs.1.00 crore) and 15% or Rs.30 lacs whichever is higher (where total taken over
exposure is above Rs.1.00 crore) of the initial amount taken over from other banks,
within 12 months from the date of initial sanction of take over. This would need to be
discussed and clarified to the prospective borrowers at the time of negotiation for
Takeover itself.
 Delegation of Financial Powers:
All loans and advances in the Bank are to be sanctioned by the designated sanctioning
authority. The delegation of financial powers in regard to sanction of credit facilities as
well as pricing etc. is approved by the Board of the Bank. In exercising the powers, the
authorities concerned are required to ensure compliance with the relevant provisions of
the State Bank of India Act and the State Bank of India General Regulations, regulatory
guidelines of Reserve Bank of India and any rules, regulations, instructions or orders
issued from time to time by the Bank.
Page 13 of 180
 NPA Management
 The Bank’s NPA Management Policy seeks to lay down the Policy on management and
recovery of NPA and proactive initiatives to contain Gross NPAs.
 The Policy lays stress on a system of early identification and reporting of all existing and
potential problem loans as a first step towards management of NPAs. Such an ‘Early Alert
System’ which captures early warning signals, is an integral part of the Bank’s Risk
Management process and is followed by time bound corrective actions comprising
rehabilitation / restructuring or an early exit.
 In line with the RBI guidelines on preventing slippage of NPA accounts, Bank has
introduced a new asset category between ‘standard’ and ‘sub-standard’, i.e. Special
Mention Accounts (SMAs) for internal monitoring and follow - up in line with
international practic
Wilful default :
Wilful default & action there against - Bank will fully comply with RBI guidelines on wilful
defaulters and action there against in terms RBI’s definitions of ‘wilful default’, ‘diversion
& siphoning of funds’ and ‘end-use of funds’. These instructions apply without any
exception to all loan accounts where the outstandings are Rs.25 lacs or more. In terms of
RBI guidelines, a Board approved policy constituting two Committees for classification /
declassification of Wilful Defaulters has been put in place. The classification /
declassification of Wilful Defaulters will be reported to RBI only on approval by the
Review Committee consisting of MD and two Independent Directors as per the policy. At
the end of this process, list of wilful defaulters to be advised to CIBIL and other Credit
Information Companies (List of Wilful Defaulters– suit filed cases and non-suit filed cases)
where a decision has been taken to that effect. RBI has decided that the list of wilful
defaulters has to be sent to Credit Information Companies (CICs) only, on a monthly or a
more frequent basis.
Export Credit
 Export Credit :Export sector is recognised as a thrust area considering the importance
of its contribution to the economy. Therefore, the sector is supported with finance at
concessional rates, with flexibility in financing norms.
 Export finance is by and large regulated through the directives / guidelines issued by the
Reserve Bank of India (RBI), Director General of Foreign Trade (DGFT) and the Foreign
Exchange Dealers’ Association of India (FEDAI). Export finance is broadly classified into
two categories:
1. Pre-shipment finance :
2. Post-shipment finance ;
Page 14 of 180
 Guidelines regarding hedging of FOREX exposure: As mandated by RBI, the Bank has a
separate Board approved ‘Hedging Policy’.
Page 15 of 180
3. INTRODUCTION TO SME DELIVERY MODEL
The SME portfolio of the bank, especially Upto Rs.50 Cr segment has been degrowing in
the last few years. To arrest this falling trend, the Boston Consulting Group (BCG), a
Management Consultancy Firm, was engaged by Bank for carrying out a review and advising
remedial measures. They were mandated to come out with a model that ensures business
ownership for enhanced customer engagement and have quality credit portfolio through risk
mitigation.
In view of the above, the SME delivery model has been revised under three models based on
the location (i.e. BPR/non-BPR) and amount:
Models
Upto Rs.5 Cr BPR Centre Exposure upto Rs.50 Lacs at SME Centre
Exposure upto Rs.50 Lacs at RASMECC
Exposure above Rs.50 Lacs upto Rs.5 Crores at SME Centre places
Exposure above Rs.50 Lacs upto Rs.5 Crores at RASMECC Centre

places
Upto R s . 5 Cr Non- BPR Exposure Upto Rs.50 lacs

Centre
Exposure above Rs.50 lacs upto Rs.5 Cr
Above Rs.5 cr Upto Exposure above Rs.5 crores

Rs.50 cr both at BPR
and Non- BPR centres
The revised SME Delivery Model was rolled out pan India during 2015. The guidelines were also
modified during 2016 and 2017. This model is applicable only to the verticals falling under
National Banking Group viz. Circles and Branches under their control. The updated details on the
SME Delivery Model applicable for various exposure as per above table has been annexed below.
Page 16 of 180
ANNEXURE-1 : EXPOSURE UPTO Rs.50 LACS AT SME CENTRE
The structure of SME Centre for handling SME loans proposal u p t o Rs.50 lacs are as under:
i. Government Sponsored Schemes Asset Management Team (GSSAMT):

ii. Small Loans Asset Management Team (SLAMT):
iii. Risk rating cell: Performing CRA validations for loans between Rs.25 lacs to Rs.5 crores.
Risk Rater will be stationed at SME Centre.
iv. Collateral and Documentation Cell: Preparing, Executing and Verification of

documentation for loans Visit of collateral site, due diligence, scrutiny of collateral papers,
creation of charge on security and creation of charge on the collateral for loans.
v. Collection Team: Collection Team will perform hard recovery for loans below Rs.10 lacs.
NPA accounts of Rs.10 lacs and above will be migrated to SARB.
ANNEXURE-2 : EXPOSURE UPTO Rs.50 LACS AT RASMEC
The structure of RASMEC for handling SME loans proposal u p t o Rs.50 lacs are as under:
i. Asset Management Team (AMT):

ii. CM (Sanction)/Manager (Sanction)/Team Leader:
iii. Risk Rater: Risk Rater presently posted at RASMEC will be shifted to RBO and CRA
validation will be done by the Risk Rater at RBO.
ANNEXURE-3 : EXPOSURE ABOVE Rs.50 LACS UPTO Rs.5 CRORES AT SME CENTRE PLACES
Handled by RMSE
RMSE AMT will handle SME loans above Rs.50 Lacs to Rs. 5 Crores. RMSE AMT will consist
of RMSEs (III/II) with one support officer (Scale-I). RMSE team will handle 50-60 CIFs. The
RMSE team will be stationed at branch under both the models viz. Branch Model and Sales Hub
Model. Branch Model means sitting at a branch and handling accounts of that branch only. Sales Hub
Model means sitting at a branch and handling more than one branch’s accounts.
All RMSE accounts will be migrated to one branch wherein RMSE has maximum number of
accounts. However, for the convenience of the customer, a part of limit may be allocated to
branch of customer’s choice/near to his workplace/office, etc. and no allocation charges will be
levied for the said allocation. The RMSE team will report to AGM/Chief Manager SMEC.
Additional assessment of the proposals will now be done by AGM/Chief Manager SMEC.
Page 17 of 180
Roles Handling Structure
Sourcing & RMSE AMT to handle end to end management for loans above Rs. 50L to
proposal Rs. 5 Crore. Sourcing to be done by the RMSE AMT / AGM SMEC / Chief
writing Manager SMEC / Branches. Appraisal/Assessment to be done by RMSE
AMT but the additional assessment will be done by the concerned
CM/AGM SME Centre.
RCC Secretariat will do Confirmatory Check of the Proposal with regard to

bank’s policy and guidelines related to advances.
CRA validation CRA Validation will be done by Risk Rater posted at SME Centre
Sanction Sanction by RCC but AGM SME Centre will not be a member of RCC
Documentation & Collateral security examination and documentation to be done at

Collateral Security Collateral and Documentation Cell of SME Centre. RMSE would be one
of the authorized signatories for EM creation/recital. Charge creation
(e.g. Mortgage, CERSAI, ROC, etc.) to be completed by the C&D cell.
Document storage and archival will happen in the C&D cell at SME Centre.
C&D Cell will provide a certificate confirming above activities to RMSE.
Disbursement & Disbursement by RMSE AMT on completion of all the formalities including
Maintenance requisite certificates from C&D Cell, SME Centre and approval of AGM/
Chief Manager SME Centre.
Maintenance and all post sanction activity of accounts will be the

responsibility of RMSE AMT including soft recovery. NPA accounts to be
migrated to SARB as per Bank’s extant instructions.
In case of Sales Hub Model, the responsibilities for maintenance would be
shared between the RMSE AMT and linked Branch Manage as detailed
below. Apart from the indicated responsibilities, RMSE will be responsible
for all customer interfacing activities.
Split of duties between linked branch and RMSE AMT under Sales Hub Model
Frequency Activity Person responsible

A/C opening
Loan Disbursal
Signature Scanning
Issue of Cheque Book Linked branch
One-time Commencement of internet
banking
Decision regarding referred
cheques/Temporary Over RMSE & AGM/CM SME Centre
Draft
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Processing of Limit
Enhancement RMSE & AGM/CM SME Centre
Issue of LC/BG, post limit
Day-to-day sanction Linked branch
transactions Invocation of LC BG Linked branch
Any other day-to-day
transactions Linked branch
Unit Inspection RMSE Team
Stock Statement collection,
approval and feeding RMSE Team
Drawing Power updation RMSE Team
Document revival RMSE Team
Limit Renewal RMSE Team
Periodic Irregularity report RMSE to prepare report
(monthly/
quarterly/ RMSE and AGM/CM SME Centre to sign
yearly) Standard asset review RMSE to prepare report
report
RMSE and AGM/CM SME Centre to sign
Collection of No-lien letter
from customer RMSE Team
Issue of Balance
confirmation letter to RMSE Team
customer
ANNEXURE-4 : EXPOSURE ABOVE Rs.50 LACS UPTO Rs.5 CRORES AT RASMEC PLACES
RMSE AMT will handle SME loans above Rs.50 Lacs to Rs. 5 Crores. RMSE AMT will consist of
RMSEs (III/II) with one support officer (Scale-I). RMSE team will handle 50-60 CIFs. The RMSE
team will be stationed at branch under both the models viz. Branch Model and Sales Hub Model.
Branch Model means sitting at a branch and handling accounts of that branch only. Sales Hub Model
means sitting at a branch and handling more than one branch’s accounts. RMSE AMTs to provide end
to end solution i.e. from sourcing, pre-sanction, appraisal, sanction, disbursement and post
sanction activities (including custody of documents).
All RMSE accounts will be migrated to one branch wherein RMSE has maximum number of
accounts. However, for the convenience of the customer, a part of limit may be allocated to
branch of customer’s choice/near to his workplace/office, etc. and no allocation charges will be
levied for the said allocation. The RMSE team will report to Branch Head and other
officials in the AMT will report to RMSE. Additional assessment of the proposals will be by
Branch Head of the branch where the account is parked.
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Sourcing & RMSE AMT to handle end to end management for loans above Rs. 50L to
proposal Rs. 5 Crore. Sourcing to be done by the RMSE AMT / Branches.
writing Appraisal/Assessment to be done by RMSE AMT but the additional
assessment will be done by the concerned Branch Head.
RCC Secretariat will do Confirmatory Check of the Proposal with regard to

bank’s policy and guidelines related to advances.
CRA CRA Validation will be done by Risk Rater posted at RBO.
validation
Sanction Sanction by RCC
Documentation & Collateral security examination and documentation w i l l b e t h e

Collateral Security r e s p o n s i b i l i t y o f R M S E A M T . RMSE AMT will handle EM
creation/recital and Charge creation (e.g. Mortgage, CERSAI, ROC, etc.).
Custody of documents will remain with the respective RMSE AMT.
Post sanction, officials posted at RBO under Chief Manager (Credit) /

LPC will visit the collateral site and perform due diligence on the
collaterals. The officials identified for the said purpose to record their
visit to the collateral in the Digital Inspection Tool. After confirmation
from the concerned official, the documentation will be done by RMSE
team. The said official will visit the branch and verify original collateral
documents (e.g. title deeds) and executed documents before
disbursement and sign on the sign-off sheet.
Disbursement & Disbursement by RMSE AMT on completion of all the formalities and
Maintenance approval of Branch Head. Maintenance and all post sanction activity of
accounts will be the responsibility of RMSE AMT including soft recovery.
NPA accounts to be migrated to SARB as per Bank’s extant instructions.
In case of Sales Hub Model, the responsibilities for maintenance would be
shared between the RMSE AMT and linked Branch Manage as detailed
below. Apart from the indicated responsibilities, RMSE will be responsible
for all customer interfacing activities.
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Split of duties between linked branch and RMSE AMT under Sales Hub Model

A/C opening
Loan Disbursal
One-time Signature Scanning Linked branch
Issue of Cheque Book
Commencement of internet
banking
Decision regarding referred RMSE & Branch Manager
Day-to-day cheques/Temporary Over Draft
transactions Processing of Limit RMSE Team
Enhancement
Issue of LC/BG, post limit Linked branch
sanction
Invocation of LC BG Linked branch
Any other day-to-day Linked branch
transactions
Unit Inspection RMSE Team, of which atleast once in a
quarter by the RMSE
Periodic Stock Statement collection, RMSE Team
(monthly/ approval and feeding
quarterly/ Drawing Power approval RMSE
yearly) Drawing Power updation RMSE Team
Document revival RMSE/Support Officer
Limit Renewal, obtention of data RMSE Team
Irregularity report Officials in the RMSE Team
RMSE and Branch Manager to sign
Standard asset review RMSE Team to prepare report
report RMSE and Branch Manager to sign
Collection of No-lien letter from RMSE Team
customer
Issue of Balance confirmation RMSE Team
letter to customer
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ANNEXURE-5 : EXPOSURE UPTO Rs.50 LACS AT NON BPR CENTRES

Sourcing Accounts to be sourced at the Branches by FO / BM and BC/BF. KYC is
invariably carried out by Branch.
Appraisal / Proposals within the sanctioning power of Branch Manager: Credit

Assessment appraisal, proposal examination and CRA creation (if applicable) to be
done at the Branches
Proposals outside the sanctioning power of Branch Manager: Credit

appraisal, proposal examination and CRA creation (if applicable) at the
LPC.
CRA CRA validation (if applicable) to be done by Risk Rater/ CM (Credit)
validation at RBO.
Sanction Sanction by Branch Head, LPC/CM (Credit) at RBO based on their
financial powers.
AGMs/RMs at non BPR centre will not be exercising financial powers

for sanction of SME loans except AGMs of Directly Controlled Branches
at non-BPR centres, where DBD headed by Chief Manager does not
exist. Such AGMs of Directly Controlled Branches at non- BPR centres
will exercise financial powers of Rs.50 Lac only for sanction of all types
SME advances (except for clean unsecured loans).
Documentation & Document preparation (by Branch), execution and charge creation at
Collateral Security the branches.
Disbursement & Disbursement will be done by the branch after completion of
Maintenance documentation and charge creation.

responsibility of the Branch including soft recovery. NPA accounts to be
migrated to SARB as per Bank’s extant instructions.
ANNEXURE-6 : EXPOSURE ABOVE Rs.50 LACS TO Rs.5 CRORES AT NON BPR CENTRES

RMSE AMT at Non- i. RMSE AMT will consist of RMSE (Scale-III/II) with one support
BPR Centre officer (Scale-I).
ii. RMSE AMT will handle loans > Rs.50 Lac to Rs. 5 Crore (For
Patna and North East Circle cut off limit will be >Rs.25 Lac to Rs.5
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Crore
iii. As the number of RMSE accounts in Non- BPR centres may be

scattered over a wider geography, the non BPR RMSE AMT may
cover a distance of not exceeding 30 km radius, with a
benchmark of 30-40 accounts per AMT and not more than 5
Branches linked to each RMSE AMT.
iv. U n d e r B r a n c h M o d e l , t he RMSE AMT will be based at a

Branch and will work solely for that Branch. In Hub & Spoke Model
the RMSE AMTs will be based at a branch with highest number of
accounts, and report to the Branch Head.
v. RMSE AMTs to provide end to end solution i.e. from sourcing, pre-
sanction, appraisal, sanction, disbursement and post sanction
activities (including custody of documents).
vi. Execution and custody of documents will remain with RMSE AMT
at the Branch to which the AMT is attached.
vii. For linked Branches under Hub & Spoke Model, the split of
responsibilities between the RMSE AMT and the linked Branch has
been enclosed below.
viii. RMSE will report to the Branch Head and the support officer
in the AMT will report to RMSE, as the support officer of RMSE is
intended to be of a lower grade/junior to RMSE. However, in cases
where due to administrative exigencies, the support officer posted
is of the same grade and seniority as the RMSE, then both of them
should report to the Branch Manager.
ix. RMSE AMT budget will be part of Branch/Region budget.
x. One RMSE AMT will not cater to more than one Region.
xi. As far as possible, all RMSE accounts will be migrated to one

branch wherein RMSE AMT has maximum number of accounts.
However, for the convenience of the customer, a part of limit may
be allocated to Branch of customer’s choice/near to his
workplace/office, etc. and no allocation charges will be levied for
the said allocation.
Role RMME AMT at i. RMMEs will handle SME loan proposals above Rs. 5 Cr instead of
Page 23 of 180
Non-BPR Centre Rs. 1 Cr (presently handled). As the number of such accounts
in Non-BPR centres may be less and scattered over a wider
geography, the non BPR RMME may cover a distance of not
exceeding 100 KM radius and with a benchmark of 20 accounts
per RMME, except where such RMMEs are deployed for clusters
offering larger opportunities, the benchmark number of CIFs per
RMME AMT can be 30-45.
ii. RMME AMTs will also handle green field projects involving total
exposure of > Rs. 2 Cr or not covered under CGTMSE, instead of
RMSE AMT at non-BPR Centres.
iii. Wherever the number of CIFs falling within the RMME threshold
of above Rs. 5 Cr is less than 20 per Region, Circle CMC may
maintain the status quo, i.e. continue with existing model. i.e
- Non-BPR RMMEs with threshold limits of above Rs. 1 Cr and

- Branches may handle loans up to Rs. 1 Cr at such centres
iv. Wherever the number of CIFs above Rs. 5 Cr is 20 or above per

Region, non-BPR RMME may be posted at each Region under
Hub & Spoke Model to handle/proposals above Rs. 5 Cr and non-
BPR RMSE may handle proposals above Rs. 50 Lac to Rs. 5 Cr. One
RMME team comprising one RMME and one CSO be posted for
every 20 CIF, or more ensuring that each team has a reasonable
number of branches and area of operation.
v. It is preferred that RMMEs exclusively handle either non-BPR or

BPR locations. In case RMME is handling both non-BPR and BPR
location, transfer the accounts of BPR Branches to another RMME
OR Link non-BPR Branches to an existing SME Centre. The DGM
(B&O) to decide suitably, in consultation with DGM (SME) at
LHO.
Sourcing For proposals > Rs. 50 Lac to Rs. 5 Cr to be sourced by RMSE AMT,
Branches and BC/BF
Appraisal / Appraisal & Assessment of proposal and CRA to be done by RMSE AMT.
Assessment
Additional Assessment of the proposals will be done by the concerned
Branch Head of the branch where the account is parked. In case of
reduction in lower cut off, additional assessment of RMSE AMT proposals
Page 24 of 180
for Rs. 25 Lac to Rs. 50 Lac would not be required, keeping in view the
moderate risk due to the lower ticket size of the loan.
CRA validation Risk Rater / CM Credit & NPA in the RBO

Proposal The secretariat of RCC would to carry out conformity check and sign
Confirmatory Check on the signoff sheet & attach it to the proposal.
Sanction Sanction to be accorded by the RCC
Documentation & Post sanction, the LPC will visit the collateral site and perform due
Collateral Security diligence on the collaterals. After confirmation from LPC, the
documentation will be done by RMSE AMT.
The LPC officials to record their visit to the collateral in the digital
inspection tool, as and when implemented.
The LPC will visit the Branch and verify original collateral documents
(e.g. title deeds) and executed documents before disbursement and sign
on the sign-off sheet (In the case of renewals at same level - within 90
days of renewal).
Charge Creation In addition, the RMSE AMT has to confirm to the Cell once charge
creation has been completed and send scanned copies of the receipts/
proof to the Cell. Any delay beyond 15 days will be escalated to
the concerned Regional Manager by LPC.
Disbursement & Disbursement, maintenance and monitoring by RMSE AMT at Branch.

Maintenance
responsibility of the RMSE AMT including soft recovery. NPA accounts to
be migrated to SARB as per Bank’s extant instructions.
Split of duties between linked branch and RMSE/RMME AMT under Sales Hub Model

A/C opening
Loan Disbursal
Signature Scanning
banking
Page 25 of 180
cheques/Temporary Over Draft RMSE & Branch Manager
Processing of Limit Enhancement RMSE AMT
Issue of LC/BG, post limit sanction Linked Branch
Day-to-day
transactions Invocation of LC BG Linked Branch
Any other day-to-day transactions Linked Branch
Unit Inspection RMSE AMT, of which at least
once in a quarter by the RMSE
approval and feeding RMSE AMT
Drawing Power approval RMSE
Drawing Power updation RMSE AMT
Document revival RMSE/Support Officer
Limit Renewal, obtention of data RMSE AMT
Irregularity report Officials in the RMSE AMT
Periodic
Standard asset review report RMSE AMT to prepare report
(monthly/
quarterly/
yearly)
Collection of No-lien letter from
customer RMSE AMT
Issue of Balance confirmation
letter to customer RMSE AMT
ANNEXURE-7 : EXPOSURE ABOVE Rs.5 CRORES AT BPR AND NON BPR CENTRES
RMME AMT will handle SME loans above Rs. 5 Crores. RMME AMT will consist of RMSMs
(IV/III) with one support officer (Scale-I/II). RMME team will handle 30-35 CIFs. The RMME
team will be stationed at branch under both the models viz. Branch Model and Sales Hub Model.
Branch Model means sitting at a branch and handling accounts of that branch only. Sales Hub Model
means sitting at a branch and handling more than one branch’s accounts. RMME AMTs to provide
end to end solution i.e. from sourcing, pre-sanction, appraisal, sanction, disbursement and post
sanction activities (including custody of documents).
The RMME team will report to Branch Head and other officials in the AMT will report to
RMME. Additional assessment of the proposals will be by Branch Head of the branch where
the account is parked.
Page 26 of 180
Sourcing RMME AMT / Branches
Appraisal / Appraisal & Assessment of proposal and CRA to be done by RMME AMT.
Assessment
Additional Assessment of the proposals will be done by the concerned
Branch Head of the branch where the account is parked.
CRA validation Risk Rating Validation committee at Zonal Office/ LHO Level.
Proposal The secretariat of sanctioning committee would be responsible for
Confirmatory Check performing conformity checkon the proposal to ensure it is meeting
bank’s policies and guidelines.
Sanction RCC / ZCC / CCC-2 / CCC-1 etc. depending on financial power /

constitution / facility of borrower
Documentation & C&D Cell to set up at the RBO/Zonal Office. In cases where the RBO
Collateral Security is far away (more than 100 KMs) from the Zonal office and have more
than 12 eligible units, a separate documentation and collateral cell can be
set up at the RBO with the approval of DGM (B&O). C&D cell at ZO /
RBO will ensure visit to the collateral site and perform due diligence on
collaterals. The C&D cell officials to record their visit to the
collateral in the Digital Inspection Tool.
Post execution of documents by RMME including EM & recital, C&D

Cell Official will visit branch & verify all original collateral papers &
executed documents before disbursement
Cell to coordinate with RMME to complete all processes in shortest

possible time. RMME responsible for creation of all charges viz. ROC,
CERSAI, etc. for all securitized loans post scrutiny of collateral security
papers. RMME has to send scanned copies of receipts/proof of charge
creation to cell post charge created
Disbursement & Disbursement by the RMME after completing all the formalities
Maintenance including requisite certificates from C&D cell.

responsibility of the RMME AMT including soft recovery. NPA accounts to
be migrated to SARB/SAMB as per Bank’s extant instructions.
Page 27 of 180
Split of duties between linked branch and RMME AMT under Sales Hub Model

A/C opening
Loan Disbursal
Signature Scanning
banking
cheques/Temporary Over Draft RMME & Branch Manager
Processing of Limit Enhancement RMME AMT
Issue of LC/BG, post limit sanction Linked Branch
Day-to-day
transactions Invocation of LC BG Linked Branch
Any other day-to-day transactions Linked Branch
Unit Inspection RMME AMT, of which at least
once in a quarter by the RMSE
approval and feeding RMME AMT
Drawing Power approval RMME
Drawing Power updation RMME AMT
Document revival RMME/Support Officer
Limit Renewal, obtention of data RMME AMT
Irregularity report Officials in the RMME AMT
RMME and Branch Manager to
sign
Periodic
Standard asset review report RMME AMT to prepare report
(monthly/
RMME and Branch Manager to
quarterly/
sign
yearly)
Collection of No-lien letter from
customer RMME AMT
Issue of Balance confirmation
letter to customer RMME AMT
Page 28 of 180
MIGRATION OF ACCOUNTS BETWEEN VARIOUS SALES CHANNELS
I. Redistribution/migration of accounts among SME Centre/RASMEC AMTs, RMSEs,

RMMEs and Branches may be necessitated in accordance with the cut-off prescribed
for them, due to changes in exposure of the accounts as a result of
reduction/enhancement in limits. Therefore, in order to ensure smooth
distribution/migration of accounts amongst them and to avoid ambiguity in this regard,
a uniform policy in this respect has been decided, as detailed below:
II. Distribution/migration of accounts will take place once in a year at the beginning of the
Financial Year and cut-off date for exposure will be 31st March of the previous
Financial Year.
III. All eligible accounts will be distributed / migrated at the earliest but not later than 31st
of May of every year. Accordingly, for the financial year 2017-18, the cut-off date will be
31.03.2017 and the exercise has to be completed by 31st May 2017.
IV. Till the time the account is actually migrated to the other team, the ownership will
remain with the respective existing team, where the account is presently being handled
and all the customer requirements, including request for
enhancement/fresh loan, should be addressed by the team till such time the account is
migrated to other team.
V. In case the total exposure requested by the existing borrower on account of

enhancement/additional loan is beyond the threshold for the team handling the account,
the process to be followed, will be as under:
a. The existing team will handle the enhancement / additional loan request upto120% of
their respective maximum threshold for exposure [e.g. if the maximum threshold for
exposure for an AMT to handle the account is Rs.50.00 lac, it will process the
enhancement / additional loan request upto maximum 120% of Rs. 50.00 lac, i.e. upto
Rs.60.00 lac (including the enhanced portion / additional loan)] and the account will be
migrated to appropriate team as per the timelines proposed under para III above.
b. If the exposure on account of enhancement /additional loan requested by the borrower is

beyond 120% of their maximum threshold, the proposal will be processed by the higher
team prescribed to handle the account, as per extant guidelines. In such cases,
i. If the amount sanctioned is more than the threshold level of

exposure applicable to the existing team, the unit will be migrated to the
team which has processed the enhancement / additional loan proposal
Page 29 of 180
immediately and the post sanction process will be done by it.
ii. If the enhancement/additional loan proposal is not sanctioned, the unit
will continue with the existing team, as the exposure to the unit will
remain within the threshold limits prescribed for the existing team.
VI. Renewal of credit limits / processing the customer’s request / dealing with audit
reports / arranging inspection / insurance, maintaining asset quality,etc. till
migration, should continue to be done by the team handling the accounts.
VII. All Group Accounts should preferably be housed with the team having highest
exposure on the group.
VIII. The borrower will be given 15 days advance notice before actual migration, in
case of change in the maintenance branch/office, etc.
IX. Any deviation in this regard will require specific approval from GM of the network.
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4. PRE-SANCTION CREDIT PROCESS
The extant credit process for providing any credit facility offered by the bank, can be bifurcated
into broadly two processing stages i.e., Pre- sanction credit process and Post sanction and Follow
up. As the name envisages the Pre-Sanction credit process means , the process involved up to
sanction. Right from enquiry of the application, to the sanction of the proposal, the entire process
involved is called pre-sanction credit process. The pre-sanction credit process comprises of
following:
1.1 Know Your Customer:
As per KYC guidelines , the detail viz. Customer Information, Photograph, Signature, KYC
Documents in respect of all account based relationships established by the Bank are required to
be obtained. Account based relationship includes all types of loan accounts, non fund based
accounts like Bank Guarantee, Letter of Credit etc. and all type of deposits accounts. The KYC
details of entity as well as persons behind the entity are required to be obtained. PAN Number of
all Borrowers under MSME / C& I is also required to be obtained and verified with Income Tax
Portal. PAN Number of Guarantor / Director / Partner / Proprietor may also be obtained
wherever required and verified with income tax portal for its genuineness. Wherever proof of
address varies from the identification details submitted by the Borrower / Guarantor / Director
/ Partner / Proprietor, separate proof of address should be obtained. Document accepted for
proof of identity and address of individual / Non indiviudal should be verified through internet
on related website wherever such information is available online to ascertain its genuineness.
1.2 Preliminary Appraisal and Due Diligence:
When a branch/AMT/CPC/RMME/RMSE receives a loan proposal, it should find out whether

it is prima facie acceptable. If the original application does not contain all the basic data/
information, the branch/AMT/CPC/RMME/ RMSE concerned may interview the applicant(s)
to elicit necessary data/information with a view to form an overall idea about the general
feasibility of the project/loan proposal.
In order to establish the prima facie acceptability of the proposal, the branch/ AMT/CPC/RMME/
RMSE should examine the following aspects in the light of the instructions in force:
 Bank’s lending policy and other relevant guidelines/RBI guidelines

 Prudential Exposure norms
 Advisories of CRMD in respect of approach towards lending.
 Industry Exposure restrictions
 Group Exposure restrictions
 Industry related risk factors
 Credit risk rating
 Whether the activity being performed by the company is legal and profitable
Page 31 of 180
 Profile of the promoters/senior management personnel of the project,
 List of defaulters, (RBI list of defaulters/wilful defaulters, CIBIL)
1.2.1 list of steps under due diligence of borrower:

i. CICs Defaulters’ List/Wilful Defaulters’ List
ii. CRILC database.
iii. Employees PF Organisation Site for defaulting companies.
iv. ECGC caution list / Specific Approval List etc.
v. Banned List of Promoters of SEBI.
vi. Loan Rejections / CRA Slippages in CPPD site
vii. List of Disqualified Directors available on the website of Ministry of Corporate
Affairs (MCA) i.e.http://www.mca.gov.in.
viii. Credit Information Companies / i-Probe report.
ix. List of Non-Cooperative borrowers.
x. IBG defaulters list.
xi. Audited financials submitted by the companies should be independently verified
with the audited financial statement filed with MCA. For Corporate Borrowers,
independent verification with website of MCA shall be done. Balance Sheet should
be free from any material adverse remarks of the auditors. Verification of Income
Tax, G S T , Sales Tax, Excise Returns, etc. (for the years as applicable) must also be
ensured.
xii. ROC Search
xiii. Obtention of CIR on group companies, provided the due diligence procedure outlined
above to check the credentials/conduct of accounts has been meticulously followed
and recorded in the proposal and there are no accounts appearing in
default/SMA/caution list etc. If any of the accounts of the group company appear in
the above lists, CIR from existing banker(s) must be obtained.
xiv. Scrutiny of bank account statements, covering loan accounts and current accounts.
Obtention of declaration, duly certified by a Chartered Accountant, that (a) about
other credit facilities in any bank/FI/NBFC and credit facilities availed by its
Associates and Subsidiaries
xv. Prescreening reports from M/s Cubictree Technology Solutions Pvt. Ltd (CTSPL) for
all proposals for Rs.5 crores and above.
xvi. Acceptability of the promoter and his ability to bring his margin/promoter’s stake.
xvii. Government regulations/legislation impacting on the industry; e.g., ban on
financing of industries producing/consuming Ozone depleting substances.
1.2.2 Credit Information Company’s (CIC) reports:

i. CICs are providing Consumer Report for individuals and Commercial Reports for Non-
Individual entities. CIBIL and CRIF High Mark have been identified as preferred CICs for
obtaining report for proposal pertaining to MSME / C&I segment and obtaining report
from one or two CICs for these segments will be decided as per following parameters:
Page 32 of 180
Type of Report from one CIC Report from two CICs
Advances
Unsecured Loan Limit upto Rs.3 lacs Limit > Rs.3 lacs
Secured Loan * Limit upto Rs.10 lacs Limit > Rs.10 lacs
ii. No fresh limit / enhancement may be sanctioned to units in the 'Wilful defaulters' list of
RBI/CIBIL and other Credit Information Companies (CICs). However, an authority not
below CCCC may approve renewal/ continuation of earlier sanctioned limits.
iii. Credit facilities (Fresh Limits and renewal / enhancement) to applicant companies
whose directors are in the ‘wilful defaulters’ list of RBI / CIBIL and other Credit
Information Companies (CICs) Fresh limits and renewal/ enhancement of limits may be
considered. However such proposal falling within the power of CCC-II and below is
required to be sanctioned by CCC-I.
1.2.3 i-Probe:
While scrutinizing a new loan application, the processing officers will need to obtain i-Probe
report from the above portal by keying the details of the unit and its key persons. The i-Probe
search facility should also be used by the branches while issuing “No Dues Certificate” to any
current account holder and such certificate should be issued only after ensuring that the person,
in whose favour the NOC is being issued, is not linked to any loan in any branch of the Bank.
1.2.4 Due diligence on guarantors:
Individual as a guarantor:
i. Apart from obtaining proof of identification and address as per KYC norms, the details of
income, assets, liabilities, etc. is also required to be obtained as per following indicative
list:
a. Bank Account Statement – last 6 months
b. Credit Card Statement -- not more than 3 months old
c. Salary Slip (Recent date)
d. Income/Wealth Tax Assessment Order
e. Details of movable and immovable properties
f. Details of liabilities with its terms and conditions
ii. In case of Non-Resident Indian (NRI) Passport and Residence Visa Copies, Copy of
PIO/OCI Card issued by Govt. of India.
iii. Before accepting Third Party Guarantees, branches are advised to exercise more than
ordinary care in view of our experience that several frauds that have been detected are
found to be having links to fake title deeds of property purportedly belonging to third
party guarantors. Some of such Third Party Guarantors have no connection whatsoever
with the borrowing entity / promoters and have merely offered their guarantee /
fraudulent title for consideration.
Page 33 of 180
ii. Corporate as Guarantor:
a. Memorandum and Articles of Association (MAA), Certificate of Incorporation, Certificate
of commencement of business (in case of Public Limited Company), CIN
Number, Copy of PAN of Company, Proof of Current Address, etc. to be obtained.
b. If the guaranteeing corporate has borrowing arrangements, “No Objection”
certificate(s) from the lending banks.
c. Search, as is carried out in RBI Defaulters’ List / ECGC Caution List / MCA Site/ Credit
Information Company etc. for a borrowing entity and its Promoters / Directors is to be
ensured, mutatis mutandis.
d. The provision of the Companies Act, 2013 regarding providing guarantee or security by
companies should be considered before accepting the guarantee and to be ensured that
the same is valid and enforceable under law.
1.2.5 Compilation of Opinion Reports on Borrower / Guarantor:

i. Opinion Reports should invariably be compiled and updated annually for borrowers in
CAG, MCG, NBG and before migration of accounts to SARB / SAMB.
ii. Opinion report formats are divided into two categories viz. i) loans upto Rs.25 lacs ii)
loans above Rs.25 lacs
iii. The estimated means, details of the property, etc. of the party reported on should not be
stated, the information asked for being furnished in general terms as indicated below. For
this purpose, the following code should be adopted by the branches / operating units /
processing cells.
When a party’s means are estimated at He should be reported as having

Upto Rs.1.00 lac Very small means
Above Rs.1.00 lac to Rs.4.00 lacs Small means
Above Rs.4.00 lacs to Rs.10.00 lacs Moderate means
Above Rs.10.00 lacs to Rs.25.00 lacs Fair means
Above Rs.25.00 lacs to Rs.1.00 crore Good means
Above Rs.1.00 crore to Rs.10.00 crores. Very good means
Above Rs.10.00 crore to Rs.25.00 crores Large means
Above Rs.25.00 crores Very large means
iv. Obtaining Separate Assets & Liabilities Statement: For all loans of Rs.25 lacs and above,
branches / operating units / processing cells should obtain statement of assets and
liabilities as per Annexure-4 with following documents:
- Copies of Documentary evidence in respect of assets of Borrowers/ Guarantors
- Bank account statement with all the Banks for the past one year to be obtained.
- Other assets to include cars, jet, yachts etc
- Detail term and conditions of liabilities reported including sanction letter, if any.
v. The statement of assets and liabilities is required to be obtained in the form of notarised
affidavit in case of the following types of loans:
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New loans For all loans rated ( SB-9) and worse.
Existing loans - renewal / enhancement For all loans rated (SB-9) and worse.
Existing loans - rehabilitation / restructuring In all cases
After filling in the affidavit format (Annexure-4) with all particulars and after duly
stamping at the rate in force in each state for affidavit as well as for an agreement and
with additional stamp duty for notarial act, the affidavit may be got sworn before a
notary public. At places where notary public is not available, the affidavit may be sworn
before a Magistrate duly authorised for the purpose.
vi. The Branch Managers / Managers(Division) / RMME / RMSE should scrutinise each
such report before compiling the final opinion sheet to ensure that the statements made
therein are correct.
vii. The estimates of the worth arrived at by the Cash Officer/CSO/Field Officer should be
conservative and lower than the assessment of the outside parties.
viii. All opinion reports should contain a signed summary of the Branch Manager’s /
Manager’s(Division) / RMME’s / RMSE’s own estimate of the borrower’s standing, total
means and the break-up worth of his immovable properties.
1.2.6 Time norms and other guidelines for monitoring disposal of credit proposals:
The detailed guidelines on time norms as applicable to the MSME & C&I are asunder.
Particulars Timeline for Loan
Application Disposal
All loans upto Rs.25 lac 14 days
Loans of Rs.25 lac and above upto Rs.50 lac 14 days
Sanction in case of takeover 14 days
Time norms for RM (SE)
Limits above Rs.50 lac upto Rs.5 Crore 22 days
Time norms for RM (ME)
Limits above Rs.5 Crore 22 days
1.2.7 Standard Operating Procedure under Pre Sanction Credit Process:
Stage-I: Preliminary verification:

Sr. Topic Particulars
No.
1 Lead Generation  Generate own leads / leads given by Corporate Centre
/ LHO / LMS leads, etc.
2 Market Reputation  Do due diligence on market reputation/standing of
borrowing entity.
3 Customer contact  Initiate contact over phone to convene a meeting with the
promoters, directors, partners, proprietor, etc.
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4 Customer meeting  Meet the customer on the appointed day,
 Make a presentation on products / services offered by the
Bank to suit the customer’s needs, Explain the sanction
process and Handover the check list of documents
required at each stage of processing of the loan
5 Application form/  application.
Obtain an application form/request letter from the
KYC Documents customer (if not taken already) alongwith KYC documents.
6 Sanction Letter  Obtain sanction letter of existing bank(s) to know the

(applicable only in terms and conditions particularly to know the details of
case of takeover of primary & collateral security.
loans)
7 External Rating  Obtain ECR letter, if applicable.
letter
8 Statement of  Obtain statement of accounts for past 12 months of
accounts unit’s existing bank(s) for determining the conduct of
account.
9 Securities  Details of securities offered.
The applicant to be advised that the application received will be processed further if prima
facie found in line with the bank's loan policy/ norms and decision in this regard will be
communicated verbally to the applicant within 7 working days.
Activities to be performed by RMSE/RMME/Branch
10 Scrutiny  Scrutinized the application form and enter the
application form in the Loan Application Received and
Disposal Register/IT Tool and to be branded with the
reference number.
11 KYC  Do KYC of the promoters, borrowing entity, group
companies, group, guarantors etc. on the basis of
documents provided by the customer.
12 Address  Verify Address & Locations of the company/unit/ firm,
promoters, and guarantors on the basis of documents
submitted by the applicant.
13 Verification of  Verify CIBIL (CIC), RBI Defaulter list, Wilful defaulter list,
Defaulters lists Caution list, I-probe, CRILIC, Loan rejection / slippage list,
Banned list of promoters of SEBI, ECGC caution list, ROC
site (financials and details of existing charges), etc.
On the basis of above documents, conduct a preliminary assessment of the proposal, take a
view, whether proposal is as per bank’s loan policy and other circular instructions / guidelines
issued by the bank from time to time and if found acceptable move to stage -2.
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Stage-II: Business Verification
No.
Obtain the following documents from the customer
1 Financials  Full set of Audited financials for the last 3 years, CMA
data duly signed by the promoters/directors, partners,
proprietor, etc.
2 Ownership  Memorandum & Article of Association /
documents Partnership deed / Trust deed/ Bye-laws of society,
as the case may be.
3. Profile of the unit  Brief write up on management, key persons, industry

etc.
4 Associate Concerns  Details of associates, brief profile of associates, their
banking arrangements & financials of associates, for the
last year
5 Statutory approvals  MSME registration, License / approval from
regulatory authority, Pollution control certificate, VAT
registration, etc. and confirmation from the customer that
statutory dues are regularly paid.
6 If Term Loan  Project report, sources of promoters contribution with
supporting documents, evidence of investments made so
far, project implementation schedule, etc.
7 Other Borrowing  A declaration from the prospective borrower about the

declaration existing banking/borrowing arrangements, if any.
8 IT return  IT returns for the last 2 years.

9 VAT Return  VAT return for the last year.
10 Rented premises  Copy of Lease agreement(s).
11 A & L Statement  Obtain Assets & Liability statement of the
promoters / guarantors as per bank’s instructions.
12 Capital structure  Details of shareholding pattern.
13 Processing fee  Obtain 25% processing fee as advance.

14 Queries (applicable  Discreet enquiries should be made for cross checking
only in case of the reasons given by the borrower for moving the account.
takeover of loans)
15 Financials  Get independent confirmation of audited financials
verification from the company's auditors.
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16 CIR  Obtain CIR from the existing bankers on the
borrowing entity & its associates, if applicable.
17 Others  Obtain other information, documents, etc., if any, required
to proceed to arrive at the CRA
18 CRA  Do the CRA.
19 Pricing  Negotiate pricing, other concessions, etc. with the
customer
20 Inspection  Inspect the unit, manufacturing activities/
showroom, godown, collaterals, etc., with the help of the
Digital Inspection Tab / Mobile. Make discreet enquiries
with local persons to ascertain the ownership of the
property(ies).
On the basis of documents received so far, CRA, interest rate, securities offered, Banks Loan
policy, CRMD norms, etc., if the proposal is found to be acceptable and a broad agreement has
been reached on pricing & other terms & conditions with the borrower, move to Stage-3;
otherwise advise the customer of our inability to consider the proposal.
Stage-III: Appraisal :
No.
Documents to be obtained from the customer
1 TL with other banks  If term loan has been tied up with any FI or other
lender(s), obtain the details along with a copy of the
sanction letter.
2 Title documents  Obtain original title deeds/certified copies (in case of
 takeover of limits), prior deeds, Land tax receipt, Building
tax receipt, possession certificate, Location sketch and
other relevant papers for TIR of the properties.
3 Investments made  If some portion of expenditure has already been
so far incurred, obtain the necessary proof.
4 Other documents  Obtain letter of allocation of power supply, certificates of
utilities availability, any other documents required to
process the proposal, etc.
5 Term Loan  In respect of suppliers of machinery, obtain opinion
requirement report from their bankers; obtain original copies of
invoices, quotations, arrangement of after sales service etc.
Have reports from D&B/any other accredited agency of
repute on the suppliers.
6 TIR of the securities  Arrange TIRs of the immovable properties as per
bank's extant norms.
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7 Valuation of  Arrange valuation report of the properties as per bank
securities norms.
8 TEV Study, etc.  Arrange for TEV Study & cost verification, in case of term
loan as per the extant instructions / requirements.
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5. ANALYSIS OF FINANCIAL STATEMENTS
INTRODUCTION: Financial Statements (FS) are the backbone for any credit proposal. The
premise of any credit proposal is built upon the financial statements. Financial statements are
formal records of the financial activities of a business / entity / person and provide an overview
of the financial condition in both short and long term. Financial statements give an accurate
picture, to a great extent, about the financial health of the entity in a condensed form and are
used as a tool to assess the overall position and operating results of the business. Ratio analysis
shows whether the business entity is improving or deteriorating in past years. Moreover,
comparison of different aspects of all the entities can be done effectively with the help of
trend/ratio analysis. Analysis and interpretation of the financial indicators does not always
prove to be easy as it requires multiple calculations and combined approaches. The knowledge
and understanding about the business is essential for proper analysis / interpretation. It helps in
determining the liquidity position, long term solvency, financial viability and profitability of the
business entity. It also helps to decide in which entity, the risk is less or in which one should
invest to reap the maximum benefits. Thus, the conclusions of the analysis carried out in a
professional manner will be able to correctly describe about the status of the entity and finally
helps in taking an informed decisions. Financial statements are prepared by the management to
cater to the needs of the various users/stakeholders viz. Shareholders, Government
Departments, Employees, Customers, Lenders/Financial Institutions etc. Each stakeholder has its
own perspective for understanding the financial statement. Analysis of the financial statements
is very crucial for the lenders as their credit decision is broadly based on the financial statement.
Thus, it is necessary for each stakeholder to analyse the financial statements from his own
perspective as per his requirement.
Policy on analysis of Audited financials: All borrowing units which are in operation need to
submit their Audited Balance Sheet to the Bank with in 6 (six) months of close of the Financial
Year (F.Y.) i.e. last date for submission of ABS will be 30th September if F.Y. closes on 31st March.
For sanction of any new credit facilities or enhancement in existing facilities, the audited
financial statements should not be more than 12 months old. In case the latest audited financials
are more than 12 months old, provisional financial statements not more than 6 months old is to
be obtained and analysed with a view to ensure that the performance and financial indicators are
not deteriorated. In such cases Audited Balance Sheet has to be obtained subsequently and CRA
is to be worked out. However for take-over accounts, In case the latest audited financials are
more than 9 months old, provisional financial statements not more than 6 months old is to be
obtained and analysed.
Contents of Financials Statements: The Companies Act, 2013 defines the term “FINANCIAL
STATEMENTS” to include:
i. A Balance sheet as at the end of the financial year,
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ii. A profit and loss account, or in the case of a company carrying on any activity not
for profit, an income and expenditure account for the financial year,
iii. Cash flow statement for the financial year,
iv. A statement of changes in equity, if applicable; and
v. any explanatory note annexed to, or forming part of, any document referred to in
(i) to (iv) above,
Provided that the financial statement, with respect to One Person Company, Small Company and
Dormant Company, may not include the cash flow statement.
One Person Company means a company which has only one person as a Member.
Small Company means a company, other than a public Company, whose

(i) paid-up share capital does not exceed 50 lakh rupees or such higher amount as may be
prescribed which shall not be more than 5 crore rupees; or
(ii) turnover as per its last profit and loss account does not exceed 200 lakh rupees or such
higher amount as may be prescribed which shall not be more than 20 crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Dormant Company: Where a company is formed and registered under the Companies Act for a
future project or to hold an asset or intellectual property and has no significant accounting
transaction, such a company or an inactive company may make an application to the Registrar in
such manner as may be prescribed for obtaining the status of a dormant company.
(i) “inactive company” means a company which has not been carrying on any business or
operation, or has not made any significant accounting transaction during the last two
financial years, or has not filed financial statements and annual returns during the last two
financial years;
(ii) “significant accounting transaction” means any transaction other than,
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfill the requirements of this Act or any other law;
(c) allotment of shares to fulfill the requirements of this Act;
(d) payments for maintenance of its office and records.
The format for preparation of financial statements for the Companies is standard as per
Companies Act 2013. For other type of constituents’ viz. proprietorship/partnership etc., the
format for preparation of financial statements is being used more or less on the similar lines.
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Understanding Financial Statements: On receipt of the Audited Financials, first of all, the
credit officer should check the genuineness of the same and its contents. The users should read
the financial statement carefully and ‘Between the Lines’ with special emphasis to
Independent/Statutory Auditors’ Report along with CARO report. For a true and complete
understanding of financial statements, it is imperative and prerequisite that the financial
statements should not be read in isolation but should be read in conjunction with the Independent
/ Statutory Auditors’ Report along with any explanatory note annexed to or forming part of
Auditors’ Report.
Auditors’ Report: The Auditors’ report is the Auditor’s opinion on the financial statement,
based on their audit. The auditor makes his opinion on the true & fair representation of the
material facts and also opine on the material aspects of the units. There are two type of Auditors’
Report i.e. Clean & Qualified. Clean reports do not contain any adverse remarks / comments of
the Auditors. Qualified reports are those reports where the Auditors qualify their opinion /
furnish adverse comments in case of any non-compliance with any of the law / rules / Acts /
Accounting Standards or material departure from the accounting principles etc. and these non-
compliances are having material impact on the financial statements. The Auditors, may also
furnish the facts / incidences, which could not be ascertained / quantified at the time of audit but
may have an impact on the financial statements in future and needs attention of the users of
financial statements under the head “Matter of Emphasis”. Sometimes, it is difficult for the
Auditors to form any opinion on the financial statement due to lack of maintenance of books of
accounts / non availability of proper records, information etc. In such a scenario, the Auditors’
disclose these facts in their report as disclaimers or give adverse report. Thus, the Auditors’
Report should be examined with extra care and diligence by the users.
Credit Monitoring Arrangement (CMA): In our Bank, we are using the CMA format for
analyzing of financial statements. There were 6 forms in the CMA format. Later on, in 1997, when
the Projected Balance Sheet Method or Assessed Bank Finance Method of Working Capital
Finance were introduced by the Reserve Bank of India (RBI), form-V, which was used to calculate
Maximum Permissible Bank Finance (MPBF) under Tandon Committee norms, was made
optional / discontinued. Thus form-VI became the form-V. Though some banks are still using 6
forms CMA format but in our bank, the CMA format contains 5 forms viz.,
i. Form-I Details of borrower and credit facilities (Ext. & Prop.)

alongwith the details of Associate / subsidiary concern
ii. Form-II Operating Statement
iii. Form-III Analysis of Balance Sheet (Liabilities and Assets)
iv. Form-IV Comparative statement of Current assets & Current Liabilities
v. Form-V Fund Flow Statement
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The CMA is being prepared for 4 years data i.e. last two years actual audited data, current year
estimates and projections for the next year. Generally, we are using excel sheets for preparation
of CMA. For preparation of CMA, the various items of the financial statements are
reclassified/regrouped/rearranged in such a manner, which can provide the desired
information/ratios/results to the lenders according to their requirement. The indicative format
of CMA is given in Annexure-I. The brief details of the CMA forms are as under,
Form-I, details of borrower is to be submitted by the entity. It is simply the request of the
borrower in numerical form.
From-II, Operating Statement is being filled / prepared on the basis of Profit & Loss account or
the Profit and Loss account is to be converted into Operating Statement as lenders’ focus is to
find out the profitability from the operations i.e. the key activity of the unit and also to know
about the cost of production / cost of sales. Each and every item of Profit and Loss account is to
be analysed independently as well as with correlation with other items. Any extra ordinary
change during the relevant financial year over the previous year should be examined in depth to
ascertain the reasons and resultant consequences thereof. The important items under Profit and
Loss accounts are Gross Sales, Net Sales, Raw Material Consumption, Depreciation, Interest on
Working Capital/Term Loans/ Unsecured Loans, cost of production, cost of sales, Non-Operating
Income/Expenditure, Selling and General Expenses and Taxes etc.
Form-III, The various items of the Balance Sheet should be reclassified/regrouped/rearranged as

per the Bank’s internal instructions under various heads to find out the liquidity and solvency of
the entity. The liabilities should be classified into 3 parts i.e. (i) current liabilities (ii) term
liabilities and (iii) net worth. Similarly, the assets should be classified into 4 parts i.e. (i) current
assets (ii) fixed assets (iii) non-current assets and (iv) Intangible assets.
Form-IV, Comparative statement of Current assets & Current Liabilities contains the data for
movement of current assets and current liabilities and also indicates / calculates the holding
level for various items of current liabilities and current assets.
Form-V, Fund Flow Statement is not an integral part of financial statements. The lenders will
have to prepare this statement on their own. The Fund flow Statement is prepared to check the
movement of long term funds between two Balance Sheet dates and the availability of Long Term
Surplus / Deficit, which must be equal to the difference in Net Working Capital (NWC) during
two Balance Sheet dates. Net working Capital (NWC) means the difference between current
assets and current liabilities. More the long term funds available to support short term uses,
more the unit will be comfortable in honoring its short term sources. The Long Term Sources can
be calculated by summing the increases in term liabilities and net worth i.e. other than current
liabilities or decreases in fixed assets, non-current assets and intangibles i.e. other than current
assets. Similarly, the Long Term Usage can be calculated by summing the decreases in term
liabilities and net worth i.e. other than current liabilities or increases in fixed assets, non-current
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assets and intangibles i.e. other than current assets. If the Long Term Sources is more than the
Long Term uses, there will be Long Term Surplus and if the Long Term Sources is Less than the
Long Term uses, there will be Long Term Deficit.
Related Party Transactions: As per Accounting Standard (AS)-18, related party transaction
means ‘A transfer of resources or obligations between related parties, regardless of whether or
not a price is charged’ and Related Party means ‘One party has the ability to control the other
party or exercise significant influence over the other party in making financial and/or operating
decisions’.
Control means (a) ownership, directly or indirectly, of more than one half of the voting
power of an enterprise, (b) control of the composition of the board of directors in the case of a
company or of the composition of the corresponding governing body in case of any other
enterprise, (c) a substantial interest in voting power and the power to direct, by statute or
agreement, the financial and /or operating policies of the enterprise. Control also includes right
to appoint a majority of directors or to control the management or policy decisions including by
virtue of their shareholding or managements or share holder agreement or voting agreement.
Significant influence means Participation in the financial and / or operating policy

decisions of an enterprise, but not control of those policies.
Associate Company: As per Companies Act 2013 Section 2(6), a company in which that
other company has a significant influence, but which is not a subsidiary company of the company
having such influence and includes a joint venture company. For the purposes of this clause,
“significant influence” means control of, at least 20% of total share capital or of business
decisions under an agreement.
Holding Company: As per Companies Act 2013 Section 2 (46), Holding Company in
relation to one or more other companies, means a company of which such companies are
subsidiary companies.
Subsidiary Company: As per companies Act Section 2 (87), subsidiary is defined as a

company in which holding company holds more than 50% of share capital directly or indirectly
or controls composition of the board of directors.
Person/Entity not considered as Related Party: Following are not considered to be

related party:
 Financiers do not become related parties simply by virtue of their dealings with an
entity
 The customers, supplies, distributors etc. with whom unit has normal business dealings
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only
 Government department and agencies, Public utilities, Trade Unions
Related party transactions may be the normal feature of business as some units are having
associate, subsidiaries, joint ventures, sister concerns to carry out various activities either as
backward or forward integration for the main unit. For example, if unit ‘A’ is engaged in
manufacturing of ball pens, it may have another concern i.e. unit ‘B’, which is engaged in
manufacturing of ink and the entire or part of the production of unit ‘B’ is being sold to Unit ‘A’.
Thus unit ‘A’ is fulfilling its requirement of ink by procuring it from unit ‘B’, which may be a
subsidiary, associate, joint venture etc. This type of arrangement may be considered as backward
/ forward integration for the unit ‘A’ / Unit ‘B’ respectively.
Related party transactions are of significant importance for lenders in evaluating a borrower
customer and its dealings. Lenders are required to analyse the related party transactions with
due care. An enterprise is supposed to transact with its related party at arm’s length price.
However, if a company wants to siphon off its profit, it may sell at a lower price or purchase at a
higher price to / from its related parties. Hence the lenders should satisfy themselves about the
transactions carried out with a related party with regard to the genuineness. In other words,
whether these transactions are genuine business needs? If the answer is positive and the pricing
is proper i.e. at Arm’s Length basis, it is OK but if the answer is negative and there are doubts on
the pricing, the reasons and the ultimate objectives for such transactions must be ascertained
and critically examined.
Creative Accounting and Beyond Balance Sheet: Validation of data through CMA is nothing
but analysis of financial statements with lenders’ perspective. Variation, movements, deviation,
trend analysis of figures etc. provides the picture of certain quantitative information like sales
trend, profitability, solvency, liquidity, holding periods, diversion or siphoning of funds, future
plans and seems to be quite helpful while taking credit decisions. That’s why the CMA is
considered to be the soul of any credit proposals. Here, the question arises whether the numbers
only can give us the entire glimpse of the proposal about the bankability or we should need
something else? Certainly, it’s not possible to have a holistic view without analysing the numbers
available in the financial statements but whether these are sufficient to take a well informed
credit decision. Now, the next question comes to mind that how to have a complete & thorough
understanding not only of the financial statements but better understanding of the business
environment, in which the unit is operating or plans to operate.
There are many definitions of Creative Accounting but in a common man’s language, the
technique by which financial statements are made to reveal a better picture than what they
really are is called creative accounting or window dressing. The people involved in such type of
accounting practices are called Creative Accountants. These accountants do not break any rule
but only play with it in a favorable manner. They present the transaction in an imaginative
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manner.
In most of the cases, what is highlighted as current year’s performance was either achieved last
year or would materialize or accrue during the next year or might not happen at all in the
foreseeable future. The notes on Accounting Policies contain the clues to the most of the
creations. Any credit officer, having good knowledge of the accounting principles and relevant
legal frame-work can understand the Creative or Window Dressed financial statements. Clues
may be started with the change of Independent/Statutory Auditors other than any statutory
requirement. There are areas, where scope of creative accounting might not be obviated.
Ratio Analysis: After analyzing the financial statements and classification of items in the CMA
data, next step is to calculate various ratios. Financial statements are prepared by the unit in
compliance of various statutory requirements for the benefit of various stakeholders. However,
analysis of the financial statements is very crucial for the lenders as the financial statements are
the backbone of any credit decision. Therefore proper classification of data, calculation and
interpretation of various ratios is very important for the lenders. The most commonly used
method for analyzing the financial statements is computation of various ratios.
The ratios are classified under 5 groups as under:
1. Profitability Ratios
 RM Consumption to Cost of Production [%]
 PBT / NS [%]
 PAT / NS [%]
 EBIDTA to NS [%]
 Return on Capital Employed (ROCE) [%]
 Operating Profit to Net Sales [%]
2. Liquidity Ratios
 Current Ratio
 Level of Net Working Capital and its movement
3. Leverage Ratios
 TOL / Adjusted TNW
 Debt Equity Ratio
4. Coverage Ratios
 Interest Coverage Ratio i.e. EBIDTA / Interest
 Long Term Debt / EBIDTA
 Debt Service Coverage Ratio (DSCR)
5. Holding Ratios
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 RM holding level
 SIP holding level
 FG holding level
 Trade Receivables holding level
 Trade Payables / Annual Purchases
Ratios are a statistical yardstick to measure the relationship between two items of financial data.
The ratio is the quotient obtained by dividing the value of one variable of the financial
statements by another variable but the selection of variable is the most important. It is therefore
extremely important that the ratios are calculated in respect of variables, which are directly
related, are interdependent and gives meaningful information. Proper interpretation of the ratios
is an important key for decision making. The movement of one ratio should preferably be read
with the movement of another related ratio/financial parameter.
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INSTRUCTIONS FOR FILLING UP THE APPRAISAL FORMS:
Form I
a) Information should be given separately in respect of each of the working capital credit
facilities, viz. Cash Credit/Overdrafts, Export Packing Credit, Working Capital Term Loan, Bills
Purchased and Discounted, both Inland & Exports, etc. Details of quasi-credit facilities viz.,
Letters of Credit, Guarantees, etc. should also be indicated. Data relating to Term Loans, DPGs,
etc. should be shown separately under sub-head ‘B’.
b) In the case of a multi-division company if separate credit limits are sanctioned for the
different divisions, the data should be shown division-wise. Division-wise sub-totals should
also be indicated.
c) Details of credit facilities, if any, availed of by the borrower from non-consortium banks
should be indicated separately. Details of deposit accounts, if any, maintained with other non-
consortium banks should also be indicated.
d) In case ‘the existing sanctioned limits have remained/are largely unutilised, the reasons
therefor should be given.
e) Information on associate companies, if any, should be given separately in Annexure to Form I.

Details of name, line of activity, annual make up of accounts, limits from all banks and
Financial Institutions should be furnished in respect of each of the associate companies
clearly indicating the nature of association.
f) Where borrowers, prospective or existing, have availed of finance from NBFCs or other
lenders by way of leasing or hire-purchase finance, details of such acquisitions e.g.,
description of assets, year of acquisition, value of asset (original as well as depreciated), lease
rental/hire-purchase instalment payment programme, overdue instalment/rental, if any, etc.
should be given in a separate sheet. In case of overdue rentals/instalments, proposed action
plan of the borrower to liquidate the overdues and timeframe for the same should also be
given in the statement.
FORM II, III AND IV
1) In case the audited balance sheet and profit and loss account for the previous accounting year
are not available, estimated/provisional data for that year may be indicated in Column (2) of
Forms II, III and IV.
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2) The assumptions on which the projections viz., sales turnover, profitability, build-up of
inventory and receivables, other current assets, current liabilities, etc. have been based,
should be indicated.
3) In the case of a multi-division Company, division-wise data should be indicated separately for
each division, on Form II and IV. In such cases, Form III (Analysis of Balance sheet) should
encompass data for the company as a whole. Wherever possible, separate data for each
division may also be indicated on Form III.
4) The valuation of sales-projections should be based on the current ruling prices. Similarly, the
valuation of various inputs of cost of sales in the projections should also be based on current
costs.
5) The projected carry of inventory and receivables shown in Form III should normally be in
conformity with the levels prevailing in the trade and/or the past trends/levels usually
maintained by the borrower whichever are lower. In case the level of projected
inventory/receivables is higher than that prevailing in the industry/past levels, the reasons
therefor should be explained; in such cases, a definite programme for conforming to the
stipulated levels should also be indicated. While projecting the levels of
inventory/receivables, the Government/RBI guidelines/directives, selective credit control
provisions, etc. in force in this regard, should be kept in view. In all cases, carry of inventory
on speculative grounds is prohibited.
6) The projected level of current assets other than inventory and receivables, and that of current
liabilities should also compare with the past trends and prevailing market conditions. In case
there are significant/abnormal variations, the position should be explained in respect of each
item of variation.
7) The basis of valuation of current assets should be in accordance with that adopted for
statutory balance sheet. The estimates of current liabilities and recording of income and
expenses should also be on the same basis as that adopted for the statutory financial
statements.
8) The classification of current assets and current liabilities should be done as per the usually
accepted approach of the Bank and not as per definitions in the Companies Act: the guidelines
indicated in this regard by RBI should also be kept in view.
9) Deposits from dealers, selling agents, etc. may be treated, as term liabilities irrespective of
their tenure, if such deposits are accepted to be repayable only when the dealership/agency
is terminated. The deposits, which do not satisfy the above condition, should be classified as
current liabilities.
10)In case specific provisions have not been made for known liabilities like dividend payable, tax
payable, etc. estimates thereof should be made for eventual payment during the year and the
amount, though not provided, should be shown as current liabilities.
Page 49 of 180
11)Details of term liabilities raised during the year (Debentures, Term Loans, Deferred Payment
Credits, Long Term Deposits etc.) should be furnished separately.
12)Bills purchased and discounted (though shown as contingent liability in the balance sheet)
should be included under items 28(i) and (ii) of Form III.
13)Outstanding liabilities in respect of credit purchases under Usance Letter of Credit/Co-

acceptance facility from the banks should be shown under item 3/Form III (sundry creditors
(trade)).
14)In case of borrowers having seasonal activity where the working capital limits are required to
be sanctioned based on peak level requirements (not coinciding with balance-sheet date) the
corresponding data in respect of current assets and current liabilities for the
previous/preceding year(s) should also be indicated separately on Form IV. In such cases, the
corresponding build-up of balance sheet position as on the date of peak requirement should
also be indicated.
15)If the canalised items form a significant part of the raw materials, this may be shown
separately.
16)Income received from and the expenses paid to subsidiary companies/affiliates or sales
to/purchases from them, should be indicated separately by way of footnote(s) to Form II.
17)If the company is a subsidiary, the extent and nature of interest the holding company is
having and also its name should be furnished as a footnote to Form III.
18)If the company is a holding company, the extent and nature of its interest in subsidiary
companies and their names should be furnished as footnote to Form III.
19)Three copies of the last audited balance sheet should be submitted along with the appraisal
data.
Form V
1) Increase in carry of inventory and receivables, which are disproportionate to percentage rise
in sales turnover, should be explained in detail separately.
2) Similarly, a decrease in current liabilities which is not commensurate with percentage rise or
fall in sales turnover should be explained in detail separately.
3) In case the increase in Working Capital Gap is not commensurate with the increase in net
sales, the position should be explained in detail separately.
Page 50 of 180
4) Item 7 (Net surplus/deficit) and item 8 (increase/decrease in bank borrowings) would be
algebraically opposite figures, and these should agree with each other.
Note: In all cases other than sick/weak units, the computation of Assessed Bank Finance (ABF)
should be done as per the PBS method of Assessment of Working Capital.
FORM - I
Particulars of Existing / Proposed Limits from the Banking System
(Limits from all Banks and Financial Institutions as on date of application)
Name of the Unit:
Balance
Name of Extent to
Existin O/s as Limits requested
S Bank / Nature of which Limits
g on
r. Financial Facility were utilised
Limits 31-03-
Institution during last FY 20… - 20….
20….
Max. Min.
A. Working
Capital Limits
1 Fund based Cash Credit
Letter of
2 Non-fund Credit
based Bank
Guarantee
B. Term Loans Term Loan
Total
Information about Associate Companies
(Companies / Firms / Concerns in which Directors / Partners / Proprietor and / or their

family members
or the borrower Company is / are associated with the other Unit as Directors / Partners /
Proprietor
or has / have furnished guarantees).
Name of the unit:
S Name of the Date of Limits from all Banks and financial Overdues, if any
Page 51 of 180
r. Associate Balance institutions
Company & Sheet Name of Working Capital
Activity Bank /
Term
Financi Non-
Fund Loan &
al fund
based DPG
Instituti based
on
-
1
- - -
2
3
-
4
- - -
5
OPERATING STATEMENT FORM II Rs. in ….

Last two years actuals Current Next Year
Name of the unit: Year
AUD AUD EST PROJ
1 2 3 4
1 Gross Sales
(i) Domestic / Export
(ii) Other Operating Income
Gross Sales
2 Less : Excise Duty
3 Net Sales (1-2)
4 Rise (+) or fall (-) in net sales as
compared to PY (%)
5 Cost of Sales
(i) Raw Material Consumption
(including stores & spares and other
items used in the process of
manufacture)
(a) Imported
(b) Indigenous
(ii) Other Consumables
Imported
Indigenous
(iii) Power & Fuel
(iv) Direct Labor (Factory wages &
salary)
v) Repairs & Maintenance
(v) Other Manufacturing expenses
Page 52 of 180
(vi) Depreciation
(vii) SUB TOTAL (i to vi )
(viii) Add: Opening Stock in Process
(ix) Deduct: Closing Stock in Process
(x) COST OF PRODUCTION
(xi) Add: Opening Stock of Finished
Goods
(xii) Less : Closing Stock of Finished
Goods
(xiii) COST OF SALES
6 Selling General & Adm. Expenses
7 SUB TOTAL (5+6)
8 Operating Profit Before Interest (3-
7)
9 Interest
10 Operating Profit After Interest
11(i) Add : Other Non Operating Income
.
.
Sub-total Non operating Income
(ii) Deduct: Other Non Operating
expenses
.
.
Sub-total Non operating expenses
Net of Non-Op. Income/Expenses
12 Profit / (Loss) Before Tax
13 Provision For Taxes
Current Tax
Deferred Tax
14 Net Profit / (Loss) After Tax
15 Dividend Paid including taxes on
Dividend*
16 Retained Profit
17 Retained Profit / Net Profit (%)
* in case of firms, drawings made by the proprietor / partners during the year
ANALYSIS OF BALANCE SHEET FORM - III

Name of the Unit: As per Balance Sheet as at 31.03….
LIABILITIES Last two years actuals Current Next
Year Year
AUD AUD EST PROJ
1 2 3 4
CURRENT LIABILITIES
1 Short-term borrowings from Banks
Page 53 of 180
(including bills purchased /
discounted)
(i) From applicant Bank
(ii) From other Banks
(iii) (of which BP & BD)
Bank Borrowings - Sub Total
2 Short term borrowing from others
3 Sundry creditors (Trade)
4 Advance payments from
customers/dep. from dealer
5 Provision for taxation
6 Dividend payable
7 Other statutory liabilities (due within
one year)
8 Deposits/Installments of TLs / DPGs
/ Debenture (due within 1year)
9 Other current liabilities & provisions
(due in 1 year) (Specify major items)
Other Current Liabilities(OCL)
other than Bank Borrowings Sub-
total
10 Total Current Liabilities [total of 1
to 9 excl. item (1-iii)]
TERM LIABILITIES
11 Debentures (not maturing within 1
year)
12 Preference shares (redeemable after
1 year and having maturity within
less than 12 years)
13 Term loans (excl. installments
payable within 1 year)
14 Deferred Payment Credits (excl.
installments due within 1 year)
15 Term Deposits (repayable after 1
year)
16 Other term liabilities
17 TOTAL TERM LIABILITIES
18 Total Outside Liabilities (item 10 +
17)
NET WORTH
19 Ordinary share capital
20 General Reserve
21 Revaluation Reserve, if any
22 Other Reserves
23 Surplus(+) or deficit(-) in P&L
account
Page 54 of 180
24 NET WORTH (19+20+21+22+23)
25 TOTAL LIABILITIES (18+24)
Page 55 of 180
ANALYSIS OF BALANCE SHEET FORM - III (Continued)
Name of the unit: As per Balance Sheet as at 31.03….
ASSETS Last two years actuals Current Next
Year Year
AUD AUD EST PROJ
CURRENT ASSETS
26 Cash and Bank balances
27 Investments (other than long term
investments)
(i) Fixed Deposits with Banks (LC, BG
Margin for working capital etc.)
(ii) Govt. & other Trustee Securities
28(i) Receivables other than deferred &
export (export including bills
purchased and discounted by Bank)
(ii) Export receivables (including bills
purchased & dis. By Bank)
29 Installments of deferred receivables
(due within 1 year)
30 Inventory:
(i) Raw materials (including stores &
other items used in the process of
manufacture)
a Imported
b Indigenous
(ii) Stock-in-process
(iii) Finished goods
(iv) Other consumable spares
a Imported
b Indigenous
31 Advances to suppliers of raw
materials
32 Advance payment of taxes
33 Other current assets (Specify major
items)
34 TOTAL CURRENT ASSETS (26 to
33)
FIXED ASSETS
35 Gross Block
Add: Capital Work-in-Progress
36 Less: Depreciation to date
37 NET BLOCK (35-36)
OTHER NON-CURRENT ASSETS
38 Investments / book debts / advance
/ deposits which are not Current
Page 56 of 180
Assets
(i) Investments in associate /
a subsidiary Companies
b Others
(ii) Advances to suppliers of capital
goods & contractors
(iii) Deferred Receivables
(iv) Others
-Security deposit
-Any other Non-Current asset
39 Slow Moving / Old / Obsolete stocks
40 Other non-current assets
41 TOTAL OTHER NON-CURRENT
ASSETS
42 a. Intangible assets
b. Deferred Tax Assets [DTA]
43 TOTAL ASSETS (34+37+41+42)
44 TANGIBLE NET WORTH (24-42)
45 NET WORKING CAPITAL =
(17+24) - (37+41+42) or (34-10)
46 Current Ratio
47 TOL/TNW
48 TTL/TNW
Page 57 of 180
FORM - IV
Comparative statement of Current assets & Current Liabilities
Name of the unit: Last two years actuals Current Year Next Year
AUD AUD EST PROJ
I. CURRENT ASSETS 1 2 3 4
1 Raw materials including stores &
other items used in the process of
manufacturing
(a) Imported : Amount
: Month's consumption
(b) Indigenous : Amount
2 Other consumable spares, exc. those
included in (1) above
(a) Imported : Amount
(b) Indigenous : Amount
3 Stock-in-process: Amount
:Month's cost of production
4 Finished goods : Amount
: Month's cost of Sales
5 Receivables other than export &
deferred receivables (Including Bill
purchased & discounted by Bank)
: Month's Domestic Sales( inc.
deferred payment sales)
6 Export receivables (inc. Bills
purchased & disc.)
: Month's export Sales
7 Advance to suppliers of RM / Stores
etc.
8 Other current assets inc. Cash & Bank
balances receivables due within one
year (specify major items)
Cash & Bank balances
Investment except long-term
investment
Others
9 TOTAL CURRENT ASSETS
II. CURRENT LIABILITIES
(Other than Bank borrowing for
working capital)
10 Creditors for purchase of raw
Page 58 of 180
materials, stores, spares &
consumable
Amount
Month's purchase
11 Advance from customers
12 Statutory liabilities & Prov. For Tax.
13 Other current liabilities
a) S T borrowing-others
b) Dividend payable
c) Installments of TL, DPG & public
deposits
d) Other current liabilities & provisions
14 TOTAL CURRENT LIABILITES
FORM - V
FUND FLOW STATEMENT
Name of the unit: Last two years actuals Current Year Next Year
AUD AUD EST PROJ
1 SOURCES
a) Net profit after tax(+)
Loss(-)
b) Depreciation
c) Increase in capital
d) Increase in term
liabilities
e) Decrease in :
(i) Fixed assets
(ii) Other non-current assets
f) Others
g) TOTAL
2 USES
a) Net loss
b) Decrease in term
liabilities
c) Increase in:
(i) Fixed assets
(ii) Depreciation adjustment
(iii) Other non-current assets
d) Dividend payment
e) Others
f) TOTAL
3 Long term surplus /
deficit
4 Increase/Decrease in
Page 59 of 180
current assets as per
details given below)
current liabilities other
than Bank borrowings
working capital gap
7 Net surplus (+) / deficit(-
)
8 Increase / Decrease in
Bank borrowings
INCREASE/DECREASE
IN NET SALES
*Break-up of (4)
(i) Increase/decrease in Raw
materials
(ii) Increase/decrease in
Stock - in - process
(iii) Increase/decrease in
Finished goods
(iv) Increase/decrease in
Receivables
(a) Domestic
(b) Export
(v) Increase/decrease in
Stores & spares
(vi) Increase/decrease in
Other current assets
Page 60 of 180
6. ASSESSMENT OF WORKING CAPITAL FINANCE
Financial needs of modern business enterprise may be classified into two categories
(a) Fixed capital, and

(b)Working capital.
Modern Industries and capital intensive by nature and its Fixed Capital includes lands and
building, Plant and Machinery, and tools and implements. The requirement of finance to
purchase fixed capital is essentially long term in nature. The working capital, short term in
nature, is required to purchase raw materials and meet day to day administrative and other such
expenses.
There are various sources of finance for a modern industrial unit. These sources are of two types
(a) Internal sources and (b) External Sources. Internal sources include paid up capital in the form
of share subscription, ploughing back of profits and reserves. The external sources include
debenture issue, public deposits, loans from Commercial banks and other specialized
institutions. Lending operation of the commercial banks to the Industrial Units and other
Business Enterprises are governed by the guidelines issued by the Reserve bank of India.
Banks finance is largely divided into two categories i.e. Term Credit and Working Capital Loans.
Term Credit refers to the funds required for investment in fixed or permanent assets like land,
building, plants, machineries, other fixed assets etc. Fixed Capital in the nature of Term Credit is
required for the establishment of business. Tem Credit facilities generally are allowed for longer
term in nature. Working Capital refers to the capital which is required to meet day to day
expenses of the unit to complete an operating or working capital cycle smoothly. Working capital
funds are deployed for building up of current assets like raw materials, stock in process, finished
goods, trade receivables, advance payments etc. Working capital plays a very important role in
business. It acts as a lubricant to run the wheels of fixed assets. The effective provision and
efficient utilization of working capital can lead to success of the business.
Working Capital, in banking perspective, is defined as:

 Funds required for acquisition of build up Current Assets generally for a period of one
operating cycle.
 Funds required for financing short term assets or Current Assets such as cash, Debtors
and inventories to enable business/industry to operate at the expected level.
 Funds required for meeting day-to-day operations like purchase of raw materials, spares
& stores, meeting manufacturing expenses like wages, power & fuel and storage & selling
expenses of finished goods etc. These expenses generally form part of Working capital or
that capital of fund which is required for keeping the wheels of production going on.
Page 61 of 180
 Thus working capital represents the total funds required for running the operating cycle
and finance manufacturing, production and sales. Therefore it is called operating Capital
or Short term capital. Total funds required for the continuous operations of the business
on a going basis.
 Financed as Cash Credit, Overdraft, Short Term Working Capital Loan etc,.
 Assessed for one year and renewed annually.
Operating Cycle of Working Capital: The operating cycle concept of working capital envisages
measurement of the average time taken by an enterprise from infusion of funds into system to
realisation of cash by selling the goods so that the funds can be deployed for starting another
cycle. In other words, the operating cycle commences when cash is initially injected into the
system for purchase of the basic raw material components required for production. The system
completes one cycle when cash is realized out of the sale proceeds of finished goods. The process
of manufacturing unit has to pass through the following stages to complete its operating cycle.
(i) Conversion of cash into raw material–
(ii) Conversion of raw material into stock in process and to finished goods
(iii) Conversion of finished goods into receivables or cash
How to Measure Operating Cycle: The operating cycle is measured in terms of days or months
of average inventory need to be held for every major category of working capital components.
The formulas for calculation of holding periods of individual components of operating cycle are
as under,
Holding period (in days) Formula for calculation

1. Raw material Holding Stock of Raw Material X 365
Annual Consumption of Raw material
2 Stock in Process holding Stock in Process X 365
Cost of Production
3 Finished goods Holding Finished Goods X 365
Cost Of Goods sold
4 Receivables Holding level Trade Receivables X 365
Annual Gross Sales
5 Trade Creditors Holding Trade Creditors X 365
period Annual Purchases
6 Advance Paid to RM Suppliers Advances Payments to suppliers X 365
Annual Purchases
7 Advance received against Advances received against supplies X 365
future sales Annual Gross sales
There are various factors that need to be considered while accepting estimated Holding levels
of the various components of Working capital. The Indicative factors are,
Page 62 of 180
Raw Materials : Factors such as Average Consumption/Holding, Lead Time, Economic Order
Quantity, Supplier– Govt. / Local/Foreign, Seasonality, Perishability, Credit available, Cost of
holding, Criticality,Transport cost, Storage capacity etc.
Stock in Process: Important Factors are Process / Processing Time, Technology, Product Range,
Capacity mismatch / Bottlenecks, Production Cycle, No. of shifts worked, etc.
Finished Goods: The various factors are Firm orders or anticipated orders (Order pattern),
Minimum Dispatch Quantity, Buyer profile – Govt. / Local / Foreign, Supply terms,
Availability of Transport, Seasonality, Marketing arrangements - Direct/Dealers, Demand for the
products, Carrying costs and impact of estimated profitability, Estimated turnover, Availability at
short notice,Availability of proper storage arrangements etc.
Receivables: The various factors that need to be taken into account are Trade practices/
Industry practices, Marketing arrangements – Direct / Dealers, Customer profile – Old / New /
Govt. / Local / Foreign, Market conditions / Market positioning, Credit Policy of the Unit, Bulk
orders / sales, Seasonality (E.g. Raincoats, Woolen products), Price advantage, Competition,
schemes offered by competitors, Credit received from suppliers in the market, resources etc.
Sundry Creditors: Critical factors are Reputation of the Unit in the market, Cost, Trade
practices / Market practices, Market positioning, Bulksales, Credit Policy, Liquidity.
Computation of Important Items:
Annual Consumption of Raw Material = Annual Purchases of Raw Material + Opening Stock of
Raw Material- Closing Stock of Raw Material.
Cost of production = Consumption of Raw Material ( Imported & Indigenous) + Consumables

Spares & Stores+ Power& Fuel+ Direct Labor+ Repairs & Maintenance+ Other manufacturing
Expenses + Depreciation+ Opening stock of SIP- Closing Stock of SIP. Cost of production is
treated as the denominator in computing the Holding Period in respect of stock in process, while
assessing working capital requirements of a manufacturing unit.
Cost of Sales (Cost of Goods Sold during an accounting year) = Cost of production + Opening Stock
of Finished Goods- Closing Stock of Finished Goods. This is taken as denominator in the computation
of holding level of the stock of Finished Goods in the course of assessment of working capital
requirement.
Methods of Assessment of Working Capital: Though there are various methods used for assessing
the quantum of Working Capital Requirement for a Business Enterprise.
Page 63 of 180
1. TRADITIONAL METHOD of Assessment of Working Capital Requirement; is applicable for small
loans upto Rs. 25 lakh. As Bankers we provide working capital finance for holding an acceptable
level of current assets, viz. raw materials, stocks-in-process, finished goods and sundry debtors
for achieving a predetermined level of production and sales. Quantification of these funds
required to be blocked in each of these items of current assets at any time will, therefore provide
a measure of the working capital requirement (WCR) of an entrepreneur.
2. PROJECTED TURNOVER METHOD (NAYAK COMMITTEE): PAT Method is suggested by Nayak

committee and is applicable for assessment of Working Capital Requirement for the Limit
amount up to Rs 5 Crores for the units engaged in manufacturing.
3. PROJECTED BALANCE SHEET METHOD: The Tandon Committee has prescribed three
Alternative method of computation of Maximum Permissible Bank Finance (MPBF). All the three
methods recognized that banks would lend only a portion of the working capital Gap (WCG),
which is the value of the acceptable level of current assets after netting off the other sources of
funding WC requirements. We willdiscuss two methods as the third method was never imposed by
the RBI and accepted by the Banks.
FIRST METHOD: The difference between the acceptable level of Current Assets and the projected
quantum of Other Current Liabilities will be computed and designated as Working Capital Gap.
Net Working Capital (NWC) of the Company should be at least equal to 25% of Working Capital Gap
and the bankcould finance upto 75% of the Working CapitalGap.
SECOND METHOD: NWC should be at least equal to 25% of the total value of acceptable Current
Assets. The remaining 75% would be met by Current Liabilities, including BankFinance.
For the Trading enterprises, Bank has suggested the method, which is based on the PAT Method.
Till the year 1996-97, banks in India were following the concept of MPBF for working capital
limits, as enunciated in Tandon Committee. In the Monetary and Credit Policy for the first half of
1997-98, RBI announced withdrawal of their extant prescriptions on the assessment of working
capital (WC) finance based on the MPBF concept. RBI also advised banks to evolve an appropriate
system for assessing WC credit needs of borrowers, and to lay down transparent policy and
guidelines for credit dispensation in respect of each category of economic activities. State Bank of
India felt that many aspects of the CMA followed till then, were based on sound principles of
lending. Hence, while there was a need to continue to adopt these, certain flexibility was required to
be brought into the method to avoid any rigid approach to fixing the quantum of finance. This revised
method of WC assessment, known as projected balance Sheet (PBS) Method, which reflects a fresh
approach has been adopted in lieu of the MPBF method of assessment. As the namesuggests, under
this method, the assessment of working capital is computed on the borrower's projected balance
sheet, the funds flow planned for the current/next year, and examination of the profitability,
Page 64 of 180
financial parameters etc. The limit can be assessed keeping in view the extent of financing support
required by a borrower and the acceptability of the borrower's overall financial position,
especially the projected level of liquidity. The assessment will be carried out in the PBS method on
the lines of the existing CMA assessment but with certain modifications. The modifications are
aimed at ensuring that the specific requirement of each borrower is fully taken care of. The projected
Bank borrowing thus arrived at is termed as 'Assessed Bank Finance' (ABF). This method is
applicable for borrowers who are engaged in manufacturing, services and trading activities and
who require fund based working capital (WC) finance of above Rs. 5 Crores.
4. CASH BUDGET METHOD: Cash budget method is used for assessing WC finance for seasonal
industries like sugar, tea, etc. and for construction activity. The cash budget analysis is also used for
sanction of ad hoc WC limits. In these cases, the required finance is quantified from the projected
cash flows and not from the projected values of current assets and current liabilities. Under this
method of assessment, besides the cash budget other aspects of assessment like examination of
funds flow, profitability, financial parameters, etc. will be carried out as per the PBS method. Cash
Budget is usually forecast of receipts and payments of an enterprise, drawn at small intervals of
time, say monthly, weekly etc. A cash Budget is therefore a projection into future as against cash
flow statement that is usually historical in nature. The Cash budgeting technique helps a decision
maker in situations especially where borrower need short term credit. In a typical cash budgeting
exercise, an adjustment, often surplus or deficit arising out of monthly receipts and payments is
made. The credit limit is settled at the peak level of deficit during the budgeted period.
~~~
Page 65 of 180
7. APPRAISAL OF NON FUND BASED LIMITS
Bank Guarantee
A contract of guarantee is defined as ‘a contract to perform the promise or discharge the liability
of a third person in case of default’. The parties to the contract of guarantee are:
(a) Applicant: The principal debtor – person at whose request the guarantee is executed,
so a customer on whose behalf Bank Guarantee is issued.
(b) Beneficiary: Person to whom the guarantee is given and who can enforce it in case of
default.
(c) Guarantor: The person who undertakes to discharge the obligations of the applicant
in case of his default. So bank is playing the role of guarantor in case of BG is issued by it.
Thus, the Bank guarantee(BG) is a collateral contract or secondary contract between bank &
beneficiary which is based on a primary contract between Beneficiary and applicant. Thus before
opening of a bank guarantee bank must try to understand the nature of the primary contract
between Beneficiary and applicant, by obtaining documents like copy of agreement, Tender
document etc. Bank Guarantee is a part of Non Fund Based limits(NFB limits) where immediate
outlay of fund is not involved, however outlay of fund may be involved subsequently in case of
invocation(demand of payment by the beneficiary) of Guarantee.Thus the limits assessment
should be done proper risk assessment and by taking some risk mitigating measures.
Purpose:
BGs are issued generally for the following purposes:

(a) In lieu of security deposit/earnest money deposits for participating in tenders;
(b) Mobilization of advance or advance money before commencement of the project by
the contractor and for money to be received in various stages like plant layout,
design/drawings in project finance;
(c) In respect of raw material supplies or for advances by the buyers;
(d) In respect of due performance of specific contracts by the borrowers and for obtaining
full payment of the bills;
(e) Performance guarantee for warranty period on completion of contract which would
enable the supplier to realise the proceeds without waiting for warranty period to be
over;
(f) To allow units to draw funds from time to time from the concerned indentors against
part execution of contracts, etc.
(g) Bid bonds on behalf of exporters,
(h) Export performance guarantees on behalf of exporters favouring the Customs
Department under EPCG scheme.
Page 66 of 180
Classification of Bank Guarantees:
All the bank guarantees issued by bank are classified under two categories
a. Financial Guarantee
b. Performance Guarantee
The classification of Bank Guarantees into Financial or Performance is done based on the
purpose for which bank guarantee is being issued. The definition of two types of guarantees and
examples thereof is as under.
(a) Financial guarantees are direct credit substitutes wherein a bank irrevocably undertakes to
guarantee the repayment of a contractual financial obligation. Financial guarantees essentially
carry the same credit risk as a direct extension of credit i.e., the risk of loss is directly linked to
the creditworthiness of the counterparty against whom a potential claim is acquired.
An indicative list of financial guarantees, attracting a CCF( Credit Conversion Factor) of

100 % is as under:
i. Guarantees for credit facilities;
ii. Guarantees in lieu of repayment of financial securities;
iii. Guarantees in lieu of margin requirements of exchanges;
iv. Guarantees for mobilization of advance, advance money before the commencement of a
project and for money to be received in various stages of project implementation;
v. Guarantees towards revenue dues, taxes, duties, levies etc. in favour of Tax/ Customs/ Port /
Excise Authorities and for disputed liabilities for litigation pending at courts;
vi. Credit Enhancements;
vii. Liquidity facilities for securitization transactions;
viii. Acceptances (including endorsements with the character of acceptance);
ix. Deferred payment guarantees.
x. Guarantees in respect of raw material supply or for advances by the buyers.

The most commonly used Financial bank guarantees are Guarantees for mobilization of
advance, Guarantees in respect of raw material supply
(b) Performance guarantees are essentially transaction-related contingencies that involve an

irrevocable undertaking to pay a third party in the event the counterparty fails to fulfill or
Page 67 of 180
perform a contractual non-financial obligation. In such transactions, the risk of loss depends on
the event which need not necessarily be related to the creditworthiness of the counter party
involved
An indicative list of performance guarantees, attracting a CCF of 50 % is as

under:
i. Bid bonds;
ii. Performance bonds and export performance guarantees;
iii. Guarantees in lieu of security deposits / earnest money deposits (EMD) for
participating in tenders;
iv. Retention money guarantees;
v. Warranties, indemnities and standby letters of credit related to particular transaction.
The most commonly used performance guarantees are EMD,Bid Bonds & Retention money
Guarantee.
It is essential that the Bank Guarantees issued are properly categorized. Incorrect classification
would result in incorrect applicability of credit conversion factor(CCF), the factor used to convert
the non fund based limit to funded limit, on which the bank provides applicable capital charge.
Higher the conversion factor, higher is provision of capital charge. Thus capital requirement for a
financial guarantee will be two times that required for performance guarantee. It is therefore
essential that the classification is error free.
PERIOD OF BANK GUARANTEE
No Bank Guarantee should be issued for a validity period more than 18 months without
obtaining prior administrative clearance from the appropriate authority through their respective
controlling authorities.
As per revised guidelines a two-level authority structure for administrative approval is in place
, as under: -
1. For BG with validity period beyond 18 months and upto 60 months
2. For BG with validity period beyond 60 months and upto 120 months
No Bank Guarantee should, normally, have a maturity of more than ten years. Bank Guarantee
beyond maturity of 10 Years may be considered against 100% cash margin with prior
approval of the competent authority specified in this regard.
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Appraisal of Bank Guarantee Limit
The appraisal of the proposals for guarantees should be done with the same diligence as in the
case of fund-based limits. Adequate cover by way of margin and security must be obtained so as
to prevent default on payments when guarantees are invoked
Margins Requirement
Margin is defined as the amount to be kept by the applicant with the issuing bank in liquid form
,which is some defined percentage of the BG amount as per sanction terms and conditions as
mutually decided between bank & applicant. 100% margin should ordinarily be retained in
respect of guarantees issued in connection with disputed customs/central excise duties, unless
otherwise specified in the sanction. As per revised guidelines some of the mutual fund units(SBI
MF only) can also be accepted as cash margin/Collateral security.14 SBI mutual funds have been
identified for this purpose.
The face value of units accepted as the equivalent of cash margin for NFB
exposures should be equal to 125% of the cash margin stipulated.
Further where margin money is tendered by way of MF instruments, the pricing shouldbe
suitably increased by 25 bps.
Security
Apart from the margin, bank guarantees are usually secured by an extension of the charge on
current assets obtained to cover working capital facilities. Adequate collateral security by way of
equitable mortgage/extension of charge on current/fixed assets or third party guarantee should
be taken depending on the merits of each case
Documents
Whenever a guarantee is issued on behalf of a constituent, suitable Counter Guarantee should be

obtained from the constituent. For each ad hoc bank guarantee issued, a separate Counter
Guarantee is necessary. In the case of a regular bank guarantee limit duly sanctioned, a stamped
omnibus Counter Guarantee for the bank guarantee limit will be obtained. An omnibus Counter
Guarantee, can be executed one time by the borrower to whom a limit for issuance of guarantees
up to a specific amount is sanctioned. Where such a limit is sanctioned, guarantees can be issued
within the limit favouring various beneficiaries
FORMAT
Bank guarantees should normally be issued on the format standardised by Indian Banks
Association (IBA). When it is required to be issued on a format different from the IBA format, as
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may be demanded by some of the beneficiary Government departments, it should be ensured
that the bank guarantee is,
(a) for a definite period,
(b) for a definite objective enforceable on the happening of a definite event,
(c) for a specific amount
(d) in respect of bona fide trade /commercial transactions,
(e) contains the Bank’s standard limitation clause
(f) not stipulating any onerous clause, and
(g) not containing any clause for automatic renewal of the bank guarantee on its expiry
In all the guarantees issued by the Bank, the limitation clause suggested by IBA, quoted below,
should invariably be incorporated at the end of the text as concluding paragraph of the bank
guarantee. (This clause should be included in addition to the text appearing on the printed page
one.)
“Notwithstanding anything contained herein:

(a) Our liability under this Bank Guarantee shall not exceed Rs………..(Rupees
……………only);
(b) This Bank Guarantee shall be valid up to …………………; and
(c) We are liable to pay the guaranteed amount or any part thereof under this Bank
Guarantee only and only if you serve upon us a written claim or demand on or before
………………… (date of expiry of Guarantee).”
(d) Notwithstanding anything contrary contained in any law for the time being in force or
banking practice, this guarantee shall not be assignable or transferable by the beneficiary.
Notice or invocation by any person such as assignee, transferee or agent of beneficiary
shall not be entertained by the Bank. Any invocation of guarantee can be made only by the
beneficiary directly.”
Clause (d) is not required to be incorporated ,when beneficiary is Government
Departments/PSUs/ Government Undertakings .
Extension/Renewal of Bank Guarantee
Request from the applicants for extension/renewal of guarantee to be entertained provided

there is no change in the amount and other terms and conditions of the guarantee. The pre-
printed forms prescribed for the purpose (Extension Guarantee) will be used.
Expired bank guarantee may also be renewed with retrospective effect subject to the condition
that the Bank remains indemnified as against the contingent liabilities etc. which may arise
under the said guarantee i.e., the counter guarantee covers such liabilities retrospectively so it
should be amended as per requirement. Normally, requests for extension should emanate from
the applicants only.
Amendment
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Bank Guarantee is a contract whereby the Bank agrees to pay the beneficiary the amount
guaranteed in the Letter of Guarantee, if the guaranteed obligations are not fulfilled by the
applicant. It can be amended as in the case of any other contract, with the consent of all the
parties concerned and there is no restriction under law or guidelines of RBI for such amendment.
Termination/Cancellation of Bank Guarantees
After the expiry of each bank guarantee (including the time limit stipulated for preferring claim,
if any), a registered letter with A.D. should be sent to the beneficiary advising that the guarantee
has expired and requesting the beneficiary to return the original guarantee document. It should
be made clear in the letter that the beneficiary is no longer entitled to invoke the guarantee. After
7 days of expiry, BG should be marked off(removed) in the system.
Invocation of Bank Guarantee
The beneficiary of the bank guarantee can invoke in writing, the guarantee any time before the
expiry of the guarantee period. Invocation can be done by Telex/Telegram/hand delivery also
followed by mail confirmation. It should be ensured that all valid claims received are settled
promptly. In the case of any dispute, such honouring, on invocation, will be done under protest
and the matters of dispute should be pursued separately. Only when the Bank has received an
order of restraint/injunction from a competent/ appropriate court, the Bank can withhold
payment under the bank guarantee. Till the court case is decided, the liability of the Bank under
bank guarantee will continue
Issue of Bank Guarantees in favour of other banks/financial institutions

No Bank Guarantee should be issued favouring financial institutions, other banks and/or other
lending agencies for the loans extended by the latter, as it is intended that the primary lender
should appraise and assume the risk associated with sanction of credit and not pass on the risk
by securing itself with a guarantee ,however some exceptions has been allowed by rbi in some
selected cases.
SPECIAL TYPE OF BANK GUARANTEES:
There are some special types of BGs ,which are issued from time to time on the request of the
customer like Differed payment Guarantee(DPG).Advance Payment Guarantee(APG).Export
Promotion Capital Goods(EPCG),Bid Bond etc. Special care is required to be taken before issuing
such types of guarantees.
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Letter of Credit
Letter of credit is a trade settlement method where LC issuing bank guarantee payment to the
beneficiary (seller of the goods) provided beneficiary submits documents which are complying
presentation. So under LC risk of non-payment is switched from buyer to the LC issuing bank.
Guarantee of payment by LC issuing bank is conditional and it is conditioned by the presentation
of the documents which are complying presentation. The set of documents can be complying
only if it is as per:--
(i) Letter of credit terms,

(ii) UCPDC 600 guidelines issued by ICC Paris
(iii) As per international standard banking practices terms (ISBP compiled by ICC Paris).
Both issuance of LC for importing goods or exporting goods under LC has to be complied FEMA
guidelines and DGFT guidelines as well. Importer is called applicant while seller is called
beneficiary under letter of credit mechanism. LC issuing bank issues LC while advising bank
advise the LC to exporter. Nominated bank receives the presentation of the documents from
seller while negotiating bank can give advance against the export bill. Nominated bank or
negotiating bank can be same or different.
For issuing LC, the creditworthiness of importer/buyer should be ascertained and

importer/buyer must be sanctioned LC limit commensurate with importer’s/buyer’s turnover.
Separate LC limit should be sanctioned for sight and usance bill. While issuing LC on importer
behalf care need to be taken about arrangement of fund for retiring the bills under LC,
importability of goods, insurance (FOB LC importer has to purchase insurance). LC opening
should not be allowed normally for related parties to avoid kite flying. Extra precaution need to
taken while issuing LC for non customers. While issuing LC interest of the bank has to be taken
care and hence LC should not have any onerous clauses. LC normally is required for import of
raw material or finished goods but capex LC also can open for import of machinery where
normally term loan should be sanctioned.
If importer/buyer is not able to pay the bill under LC then it is called devolvement of the letter of
credit. To avoid devolvement of bills under branch has to ensure that separate limit for sight and
usance LC has to be sanctioned, usance period should not exceed the production cycle of the
importer/buyer. Retirement of bills received under LC issued by us cannot be withheld because
of unavailability of funds with buyer/importer (applicant of LC). If payment of bills under LC is
allowed by permitting irregularity in cash credit then irregularity in cash credit should be
regularized within 15days. Persistent devolvement of LC bills may be considered a reason for
cancellation of LC issuance limit.
A proper LC bill discounting limit for the exporter/seller should be sanctioned which is outside
ABF. When export bill (under export LC) or inland bills (under domestic LC) is presented for
negotiation standard operating procedure for bill discounting under letter of credit should be
followed. While taking decision to discount/purchase/negotiate bills under LC we must ensure
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that LC must be issued by Correspondent banks (as Global Market guidelines) and first class
bank (as per Loan manual) only. Discounting/purchase/ negotiation of the bills under LC are
outside ABF as LC issued by first class or correspondent bank is a specified security. LC bill
discounting limit is available only at the specified branches only which are selected by the circle
CGM. If bill is discounted at non specified branches it is treated within ABF only.
Mechanics of Documentary Credit
CONTRACT
GOODS GOODS
BUYER TRANSPORT SELLER
(applicant) DOCS COMPANY DOCS (beneficiary)
OPEN CREDIT
ADVISING/ DOCUMENTS
OPENING NEGOTIATING
DOCUMENTS
BANK
BANK
PAYMENT PAYMENT
12
Appraisal Issues of LC
 LC limits should be commensurate with borrower’s (applicant) turnover and working capital
limits.
 Assess separate limits for usance and sight LC
 LC for genuine trade and manufacturing activity.
 The usance period of LC should ordinarily have relation to the working capital cycle.
 LC for purchase of machinery / capital goods should be backed by borrower’s own funds or a
term loan sanctioned for the purpose.
Illustrations of Assessment of LC Limit
Let us assume as follows: (Rs in lacs)

i) Annual purchase of RM: 3200
ii) RM purchase under LC(50%): 1600
iii) Purchase under demand LC: 800
iv) Purchase under usance LC: 800
Assessment of Demand LC Limit

Time gap from opening till shipment: 1m
Transit period from date of shipment till date of retirement: 0.5 m
Demand LC Limit: 800 x 1.5/12 = Rs 100 lacs
Assessment of Usance LC Limit

Lead Time, i.e from opening LC till shipment: 1 month
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Transit Period, i.e. from date of shipment till date of receipt of documents by importer : 0.5
months
Average usance period : 3 months
Usance LC Limit: 800 x 4.5/12 = Rs 299.99 lacs
The usance period of LC should ordinarily have relation to the working capital cycle.
Precautions for Devolvement of LC Bill

The limits for demand LCs and usance LCs should be assessed separately with ample
justifications.
The usance period should not, generally, exceed the production cycle.
In case of bulk imports, establishment of LCs for longer usance period may be considered
selectively.
When liability under LC is met by creating an irregularity in the Cash Credit account, the
relative LC limit should not be released for opening further LCs till the account is
adjusted.
 Frequent Devolvement: Warning signal!
Fixing of LC Bill Discounting Limit

For Bank’s existing customers :
 The limit should be fixed based on volume of sales,
which is expected to be backed by LCs and terms
thereof.
• Fix the limits, as far as possible, to coincide with
sanction/renewal of Assessed Bank Finance (ABF).
• Whenever the limit is required to be fixed, or
enhanced subsequent to sanction of ABF, assumptions
regarding level of receivables made at the time of
sanction of limits should be reviewed and, if required,
ABF is to be reassessed to ensure that there is no over
financing.
54
Assessment of Limit
( Bills Discounting Limit
Estimated Gross Sales (Domestic) A Rs 120.00 Crores

for next 12 months
Out of above, LC backed sales (@ B Rs 60.00 Crores
x% of A) (Let x is 50%
Average usance period of LC C 3 months
(Months) Let 3 months
Limits eligible, B X C/12 Rs 15 Crores
Limit Recommended Rs 15 Crores
55
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Sanctioning Authority
NBG : Limits to be sanctioned at specified
branches by AGM (Region), or by DGM (B &O) in
case of AGM headed branches.
• In case of DGM headed branches in NBG, limit will
be sanctioned by Branch Head and reported to
GM (Network) for control.
CAG & MCG : Limits to be sanctioned by AGM (IB).
In case IB incumbency is below AGM, limit will be
sanctioned by Branch Head and reported to next
higher authority for control.
57
Precautions in neg bills under LC

Due caution to be exercised regarding bills
covering sales within a city or locality and
between group/associate concerns and those
drawn by front companies of industrial
groups.
The standing and creditworthiness of the
borrower as well as the drawee of the bills to
be carefully looked into.
58
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8. APPRAISAL OF TERM LOANS
A term loan is an advance, usually for purchase of fixed assets, for a fixed period to a business or
an industrial undertaking whether a proprietorship, firm, company or co-operative society and
may be drawn by the borrower either in a lump sum or in installments. A term loan may be
granted for any period in excess of THREE years but normally not exceeding Ten years from the
date of first draw down (exceptions are loans under Housing, Education, Restructuring, SDR,
Flexible Restructuring or any other loan where repayment period is specifically stipulated in the
scheme etc.) for the purpose of acquisition of fixed assets, viz., land, buildings, plant &machinery,
furniture & fixtures etc. for setting up new industrial units or expansion or modernization of
existing units. An element of risk is inherent in any type of loan because of the uncertainty of the
repayment. The longer the duration of the credit, greater is uncertainty of repayment and
consequently higher risk to banks. Thus, risk involved in Term Loans is greater.
Generally, the term loan is granted for the purpose of,
(i) acquisition of fixed assets required for new project or expansion/diversification of
existing project,
(ii) acquisition of balancing equipments,
(iii) replacement of high cost debt (for the residual period only),
(iv) merger and acquisition, etc.
The types of term assistance extended by the Bank can be broadly classified into
(i) Term Loans (including foreign currency loans),
(ii) Deferred Payment Guarantees (DPGs),
(iii) Underwriting of Shares/ Debentures.
Appraisal of Term Loans: While appraising a term loan, its prima facie acceptability
otherwise should be examined extensively on the same lines as applicable for any other
appraisal.
The purpose of term loan appraisal is to ascertain whether the project is sound - Technically,
Economically, Financially, Managerially and is ultimately viable as a Commercial Proposition.
Thus, the appraisal of a project thus, involves the examination of:
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i) Technical Feasibility:
• To determine the suitability of the technology selected and the adequacy of the
technical investigation and design.
• It consists of an assessment of the various requirements of the actual
production process.
• It is in short a study of the availability, cost, quality and accessibility of all the
factors required for production.
• To be vetted by the credit officer. If required, second opinion from the Bank’s
Technical Consultancy Cell / Bank’s empanelled Consultant/ SBI Caps may be
sought.
Factors to be considered in the Technical Feasibility are:
• Location of plant & accessibility to critical inputs
• Size of the plant
• Type of technology
• Production factors (power, water, utilities, transport etc.)
• Availability of Labor (Skilled / Unskilled)
Thus, technical report should consist about feasibility of project, profitability, sufficiency
of machinery, extent of competition, marketability and other factors etc.)
ii) Economic Viability:

• To determine the conduciveness of economic parameters for setting up the
project and their impact on the scale of operations.
• Relates to the earning capacity of the project, which depends on the volume of
sales.
• It is necessary to determine how much output of the unit or additional
production from an established unit the market is likely to absorb at given
prices.
Factors to be considered in Economic Viability are:

• Thorough market analysis
• Future trends in volume and patterns of Supply & Demand
• Demand forecast, Supply position, Gap
• Intermediate product
• Ancillary industry
iii) Financial Feasibility:

• To determine the reasonableness and accuracy of cost estimates, suitability of
the envisaged pattern of financing and general soundness of the capital
structure.
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• This involves analysis of the data received from the borrower to ensure that
the project meets the minimum financial criteria.
• Estimated project cost is reasonable and complete and has a fair chance of
materializing as per anticipations.
• Tie-up of Funds: Financial arrangement is complete, without any gaps, and
ensures cash is available as and when needed (Financial Closure).
• Estimates of earnings and operating costs are as realistic as possible.
• Borrower’s repaying ability as judged from the project operation is
demonstrable with a reasonable margin of safety.
iv) Commercial Viability – To determine the extent of profitability of the project and
its sufficiency in relation to the repayment obligations pertaining to term
assistance. The commercial viability parameters are discussed in details in the
chapter.
Break Even Point (BEP): In a manufacturing unit, if at a particular level of

production, the total manufacturing cost equals to the sales revenue, then there
will not be any profit or loss. This point of ‘No Profit-No Loss’ is known as BEP. BEP
is expressed as a percentage of sales/capacity. A good project should have BEP not
higher than 70% and Cash BEP not higher than 50%.
BEP Calculation = Fixed Cost / Contribution * Total Sales

[Contribution = Net Revenue – Variable Cost]
DSCR: Serves as a guide to determining the period of repayment of a loan. This is

calculated by dividing cash accruals in a year by amount of annual obligations
towards repayment.
Gross Average DSCR = Cash Accruals + Interest on Term Loan
Annual Installments + Interest on Term Loan
SMCR: Security Margin Cover Ratio is computed to verify that the minimum
margin stipulated is maintained.
SMCR = WDV of Fixed Assets - Term Loan outstanding
WDV of Fixed Assets
FACR: Fixed Assets Coverage Ratio shows the availability of assets visa a visa term
loan outstanding.
FACR = WDV of Fixed Assets

Term Loan outstanding
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Cost-Volume Price or Sensitivity Analysis: By this analysis, we want to know the
ability / capacity of the project to absorb various unforeseen shocks, i.e., changes
in critical factors like Cost, Volume & Price.
v) Managerial Competency: In a dynamic environment, the capacity of an

enterprise, to forge ahead of its competitors depends to a large extent, in the
relative strength of its management. Hence, to ascertain that competent men are
behind the project to ensure its successful implementation and efficient
management after commencement of commercial production, credit officer should
critically examine the integrity, track record, credit worthiness, initiative,
competence and experience of the management.
vi) Environmental, statutory and other concerns – To ascertain whether the project is
in compliance with the various environmental statutory and other provisions in force.
Branches should carefully examine the aspects such as clearances required, their
obtention status and compliance to start the project and maintenance over the life of the
loans. To carry out an examination of these aspects, the dealing official should obtain from
the customer a project report along with the relative loan application. The report may
have been compiled in-house or by a firm of consultants/ merchant bankers. While
vetting the technical feasibility and economic viability of the project, the dealing officials
branches may, where considered necessary, seek the benefit of a second opinion either
from the Bank’s Technical Consultancy Cell or from the consultants acceptable to the
Bank.
Disbursement of Term Loan: Term Loans may be drawn / disbursed in lump sum or in
installments depending on the nature of the project. Term Loans are repayable in installments as
per a pre-arranged schedule from the future earnings. The proceeds of a term loan must be
utilised for the purpose approved by the Bank while sanctioning the loan. The funds should be
credited to an account opened in the borrower’s name, withdrawals there from being permitted
for payment of expenses incurred for the specific purpose of the loan. Wherever possible,
payments may be made direct to the suppliers/contractors by debit to the term loan account on
obtaining the borrower’s authority there for. Following points should be kept in mind while
disbursing,
• Only after execution of documents and security creation
• Ensure compliances of pre disbursement conditions and obtain approval from the
competent authority before disbursement.
• Due diligence on suppliers
• Verification of actual expenditure incurred
• Inspection of the site
• Certification by auditors/architects/invoices
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• Ensure Debt Equity Ratio (DER) before each disbursement
• Direct payment to suppliers through RTGS / NEFT / DD / Pay orders
~~~
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9. CREDITRISK ASSESSMENT
RISK ISINHERENT IN BANKING BUSINESS, BUT THE QUESTION BEFORE US IS HOW WE WILL DEFINE
RISK AND TO IDENTIFY WHAT TYPES OF RISK IS BEING FACED BY BANKS.
Risk can be defined is the likelihood of an adverse deviation of the actual

result from an expected result. Banks that run on the principle of avoiding risks
cannot meet the legitimate credit requirements of the economy or the
shareholders’ expectations of reasonable, normal and adequate profits. On the
other hand, a bank that takes excessive risks is likely to run into difficulty .So a
balanced approach is required to be taken , where a calculative risk is required
to be taken by the banks.
Types of Risks faced by B a n k s
Banks face a number of risks in different areas of their operations, some of the
prominent risks faced by them are Credit Risk, market Risk, Operational Risk,
Liquidity Risk etc. One by one ,we will discuss some of the prominent risks faced by
the banks.
Credit Risk has been defined as “The possibility of losses associated with
diminution in the credit quality of borrowers or counterparties. In a bank’s
portfolio, losses stem from outright default due to inability or unwillingness of a
customer or counterparty to meet commitments in relation to lending, trading,
settlement and other financial transactions. Alternatively, losses result from
reduction in portfolio value arising from actual or perceived deterioration in
credit quality.”
Credit risk is the most common & predominant risk in banking and possibly the
most important in terms of potential losses. This risk relates to the possibility
that loans will not be paid or that investments will deteriorate in quality or go
into default resulting into potential loss for the bank. Credit risk is not confined to
the risk that borrowers are unable to pay; it also includes the risk of
payments of the bills being delayed beyond the maturity time, which can also
cause problems for the bank. some of the related risks to credit risk are
Counterparty Default Risk: This refers to the possibility that the other party
in an agreement will default.
Securitization Risk: Securitization is a process of distributing risk by

aggregating debt instruments in a pool and then issuing new securities
backed by the pool. There are two types of securities, viz. traditional and
synthetic securitizations. A traditional securitization is one in which an
originating bank transfers a pool of assets that it owns to an arm’s length
special purpose vehicle. A synthetic securitization is one in which an
originating bank transfers only the credit risk associated with the underlying
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pool of assets through the use of credit-linked notes or credit derivatives
while retaining legal ownership of the pool of assets.
Concentration Risk: A concentration risk is any single exposure or group of

exposures with the potential to produce losses large enough (relative to a
bank’s capital, total assets, or overall risk level) to threaten a bank’s health or
ability to maintain its core operations.
MEASUREMENT OF CREDIT RISK
As we discussed above credit risk is the predominant risk faced by the banks as
the most traditional & widespread work a bank undertake is Lending. Once this
credit risk has been identified the next step involved is to measure the Credit
Risk. Traditionally bank was assessing the Credit Risk through a process which
was subjective in nature and the same was being done by the credit Officials
involved in the process.
However with increased complexity in lending, judging the entire credit

involved in a particular proposal subjectively became more and more difficult. To
overcome this problems some models were designed by the bank to capture the
underlying risk in any proposal. So bank has developed
Credit Risk Assessment (CRA) Model.
The Credit Risk Assessment (CRA) is central to the credit appraisal drill
and pricing of the credit. Assets classified as ‘Standard Assets’ only are
expected to be risk rated. A review of Credit Risk Assessment (CRA) Models for
Non-Trading & Trading Sectors was undertaken with the objective of making
them Basel-II compliant and meeting the requirements of Internal Ratings
Based (IRB) Approach.
It is reiterated that the CRA Model is mandatory for all accounts with Aggregate
Exposure (Fund Based + Non Fund Based) of Rs. 50.00 lacs and above for both Non-
Trading Sector (C&I, SSI and AGL segments), Trading Sector, Services and
Construction Sector, which includes lending under various schemes of the Bank.
Bank has been developing scoring models for all products with exposure of
less than Rs.50 lacs. Wherever scoring models are not in place, CRA has to be
carried out for exposures from Rs.25 lacs and above.
However for measuring of Risk for the proposal which are governed by `Project
Vivek` (Only applicable for exposures up to Rs 50 crores in NBG) apart from CRA ,
Risk will also be captured through `CUE` (Credit underwriting Engine),detail
guidelines of which will be covered subsequently in the chapter.
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Different Models for Risk Rating:
We have developed different risk rating models as under:
(a) Credit Risk Assessment Models for Trade, Non-Trade, Services and
Construction Sectors
(b) CRA Models for NBFCs/HFCs
(c) Rating Model for Infrastructure Projects (RAMIP)
The following risk rating models are used to assess credit risk under
the CRA System, which depends on the total exposure
S. No. Exposure Level (FB + NFB Limits) Model

(i) Over Rs.5.00 crore Regular Model
(ii) Rs.0.25 crore to Rs.5.00 crore Simplified Model
*As per revised instructions ,CRA Model is mandatory for all accounts with
Aggregate Exposure of Rs.50 Lacs and above for both Non-Trading Sector (C&I,
SME and AGL segments) and Trading Sector (including Services), which includes
lending under various schemes of the Bank. Wherever scoring models are not
in place, CRA has to be carried out for exposures from Rs. 25 lacs and above.
(Circular No.: CCO/CPPD-CRA RATING/5/2017 – 18 dated 05.04.2017).
Type of Ratings:
S. No. Model Type of Rating

(i) Regular Model Borrower Rating , Facility Rating
(ii) Simplified Model Borrower Rating
Thus the main difference between Regular Model and Simplified model is
computation of facility rating applicable in Regular rating, where apart
from Borrower rating ,different facilities enjoyed by the borrower like Cash
Credit, Term Loan , LC,BG etc are also being rated separately under facility
rating exercise.
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TYPE OF RISK WHICH IS CAPTURED IN RATING MODELS:
In both the models the main type of risk which is captured are as under
i. Financial Risk: Mostly different type of financial ratio being used to

evaluate financial Risk
ii. Business & Industry Risk: Factors related to Business & Industry(both
Systemic& Non systemic)
iii. Management Risk: Factors related t o Promoters are captured in

management Risk
Different weights have been assigned to the above three factors depending
upon the exposure and activity(Trade, Non Trade, Services & Construction
,however construction model is applicable only in case of Regular model)
On the line of CRA, risk involved in financing to a borrower is also captured by
way of External Credit rating(ECR), which is mandatory in case of exposures of
Rs10 Crores and above(Below cutoff it can also be obtained but not
mandatory as per extant instructions of bank).To give incentive to customers
having better ECR, provision for giving additional scores for better ECRs is also
made in our internal models. The additional scores for better ECR will be
given under Qualitative parameter of our Internal models(CRA).
Qualitative Parameter (External Rating):
Solicited Rating by a recognized External Credit Rating Agency (ECRA) translates

to additional Score (Long Term Bank Loan Ratings given by the External Rating
Agencies would qualify). Following ECRAs recognized by RBI are considered for
this purpose:
S. Type ECRA
1 Domestic (a) CARE Limited

(b) CRISIL imited;
(c) India Ratings and Research Private Limited
(India Ratings)
(d) ICRA Limited.
(e) Brickwork Ratings India Pvt. Ltd.
(Brickwork)
(f) SME Rating Agency of India Limited(SMERA)
(g) Infomerics
2 Internation(a) FITCH (b) Moody’s (c) Standard & Poor’s
al
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External Credit Rating Agencies (ECRAs) assign Bank Loan Ratings (BLRs) on
long-term and short-term rating scales for various credit facilities. Cash
Credit exposures should be reckoned as long term exposures and accordingly
the long term rating awarded by ECRAs will be relevant. The BLR for Cash Credit
facility should be reckoned for borrowers enjoying Cash Credit facility and
other facilities such as Term Loan, Bank Guarantee, Letter of Credit
facilities. If a borrower is enjoying long term facilities (other than Cash Credit)
as well as short term facility, BLR for long term facility be considered.
However, if a borrower has availed only a short term facility which has been
rated by an ECRA, BLR for the same may be considered. The Scoring Bands
for factoring Bank Loan
Ratings of ECRAs (Long term/Short Term) are as under:
Long Short Standardized Additional

Term Term Approach Score
Risk
AAA Ratin
A1+ 20% Under
5 New
AA g
A1 30% CRA
3.5
A A2 50% 2
BBB A3 100% 1
BB & below A4 & D 150% 0
(Further detailed in Circular No.CPP/SGS/Cir/ 133 dated
22/03/2012)
Applicability of Issue Rating:
In circumstances where BLR in respect of a borrower is not available but

a debt-issue of the borrower has been rated by an ECRA, such issue rating
can be considered for awarding score if the Bank’s claim in respect of credit
facilities ranks pari passu or senior to the rated debt issue.
Multiple Ratings:
In case of borrowers having multiple ratings from recognized ECRAs, following

procedure is to be followed:
i)If there is only one ECRA rating for a particular claim, that rating would be
used to determine scoring;
Page 85 of 180
ii)If there are two ratings accorded by ECRAs which map into different risk
weights, the rating corresponding to the higher risk weight would be
taken cognizance of for scoring ;
iii)If there are three or more ratings accorded by ECRAs, with different
risk weights, the ratings corresponding to the two lowest risk weights
should be referred to and the rating corresponding to the higher of the two
risk weights should be taken cognizance of for scoring.
Once score under the above mentioned risk factors (Financial, B& IManagement
& Qualitative parameter) is computed based on the overall score a rating is
assigned to the unit. Depending upon the overall score obtained by the unit ,
one borrower rating is assigned against which can be from SB-1 to SB-15 for
standard accounts(SB-16 is default ratings for all NPA accounts).Similarly facility
rating is assigned to all the facilities enjoyed/proposed for the borrower
which is again rated on a scale of total 16 grades starting from FR-1 to FR-
16.(The scores applicable for each grade both for borrower & facility ratings is
attached as Annexure I)
After assigning the rating the borrowers are again subjected to Country Risk
(Country risk is the risk that a borrower will not be able to service its
obligations to pay because of cross border restrictions on the convertibility or
availability of a given currency) and rating assigned earlier may under go for
change(only downward revision) depending upon the applicability of country
Risk and degree of the same. The related guidelines on Country Risk and
downgrade structure is as under)
Page 86 of 180
Borrower Rating : Simplified Models
Sr. Maximu
Non-Trade Trade
m Services
No. Risk
Existin New Existin New Existin New
g g g
i Financial Risk 55 Com-
25 55 Com-
25 55 Com-
25
(FR) Com- Com- Com-
ii Qualitative (-10) (-10) (-10) (-10) (-10) (-10)

Factors
Business
(-'ve') &
Industry Risk
iii (BR
& IR)/ Business
15 30 15 30 15 30
Risk (for Trading
Management
Sector) 30 45 30 45 30 45
Risk
iv
Qualitative
(MR)
Parameter (+5) (+5) (+5) (+5) (+5) (+5)
Total Score 100 100 100 100 100 100
Borrower SB- SB- SB- SB- SB- SB-
Rating based Ratin Ratin Ratin Ratin Ratin Ratin
vi on the above g g g g g g
score
Country Risk (CR) Country Risk Assessment reworked

Final Borrower SB- SB- SB- SB- SB- SB-
Ratin Ratin Ratin Ratin Ratin Ratin
Rating after g g g g g g
viii Country
FinancialRisk *
Statement Excellent/Good/Satisfactory/Poor
ix Risk
Quality
Score/Rating
x
Transition Comments
* New Unit Risk Factor to be capped at SB-06 ,andon Trend inSupport
Collateral Ratingto be
Matrix
Page 87 of 180
Entry Barriers:
In all CRA models except Regular Non-trade Model (Regular / Simplified and
Trade/Services/ Construction Sectors), all proposals are required to be
rated first under two parameters of ‘Compliance of Environmental
Regulations & Local Laws’ and ‘Integrity’, called Entry Barriers. A new
connection (a unit which at present does not have any credit relationship
with SBI) that does not clear both the entry barriers would not be
processed further and would be declined. No deviation is envisaged in
the Entry Barrier. For existing connections, in case of non-compliance, a
separate treatment of downgrade to below the hurdle rate or actual rating
whichever is lower will be done. For example if a existing unit is assigned as
SB-8 but fails to clear entry barrier then its rating will be downgraded to SB-
11(SB-10 is the hurdle rating, where no fresh or additional exposure is to
be taken without obtaining approval from competent authority), similarly if
rating assigned to the unit is SB-12 and it also fails to clear entry barrier then
rating will be left as SB-12 as it is already below hurdle rate.
ii) Frequency of Assessment under Entry Barrier
Existing Connections:
● Annual Review or Renewal at Existing Level/Renewal with

Enhancement;
● Any Facility being assessed for sanction subsequent to Annual

Review/Renewal e. g., Working Capital / Term Loan / NFB Facilities.
New Connections:
i) First Sanction/subsequent review;
ii) Any Facility being a s s e s s e d for sanction subsequent to

F i r s t Sanction e. g., Working Capital/Term Loan/NFB Facilities;
Further to test the clearance of a unit of the entry barrier, all the units will
be subjected to under noted value statement and accordingly clearance of
entry barrier will be decided.
Value Statements:
i:Entry Barrier: Compliance of Environmental Regulations & Local laws
Page 88 of 180
S. No. Value Statement Conclusion
(i) Full Compliance of Environmental Proposal accepted for
further processing
Regulations and other applicable
(ii) At present partial compliance
but firm steps initiated for full
compliance.
(iii) Utter disregard of Environmental No further processing of
Regulations. Proposal
ii. Entry Barrier: Integrity
A Integrity (Sole Proprietary Concern / Remarks
Partnership
(i) The integrity and character of the

Management is beyond reproach. No
fraudulent deals / transactions. On no
occasion any unsatisfactory feature of the
unit has come to light. No adverse features
revealed in any audit report.
(ii) The management is reportedly reliable,

has good reputation in the market and
there are no adverse reports either
on its integrity. No adverse features
to doubt the integrity of promoters. Proposal
No adverse features revealed in any audit accepted
report. for further
processing
(iii) Reports of adverse features not fully
substantiated and hence may / may not be
reckoned depending upon their seriousness.*
Page 89 of 180
(iv) Reports on conduct of account / stock No further
audit / spot processing
of Proposal
audit / periodic inspection reports
comment against the integrity of the
unit. The unit is a defaulter under RBI’s
willful defaulters’ list. History indicates
involvement in civil / criminal suits /
questionable deals.
B Remarks
Integrity (for Listed Companies) :
Corporate
(i) Governance (CG)
CG systems are in place. The Company is not
a defaulter or willful defaulter. The promoter
Directors on the Board of the Company
irrespective of their capacity, whether executive
or non-executive are not defaulters / willful
defaulters.
(ii)
CG systems need fine tuning. The Company is
aware of this task and is taking required
steps in that direction. No adverse features on
Company’s Management reported in any of the
Audit Reports. The company is not a defaulter /
willful defaulter. The promoter Directors on the
Board of the Company irrespective of their
capacity, whether executive or non-executive
Proposal
are not defaulters / willful defaulters.
accepted
for further
(iii) processing
Some complacency in implementation of CG
Principles. The Company is not a defaulter / willful
defaulter / the promoter Directors on the
Board of the Company irrespective of their
capacity, whether executive or non-executive
are not defaulters / willful defaulters.
Page 90 of 180
Complacency in implementation of CG
(iv) Principles evident. The Company is not a willful
defaulter / the promoter Directors on the Board
of the Company are not willful defaulters.*
(v) No
Disregard of the Corporate Governance systems. further
The company is defaulter/willful defaulter. / The processin
promoter directors of the applicant company g of
are defaulters / willful defaulters or are Proposal
promoter directors of a company which is
defaulter / willful defaulter.
* Note: Separate detailed comments are to be provided if these

value statements are selected in the Integrity entry barrier.
Basis of Risk Assessment:
CRA rating of the unit is always one based on audited/Projected

financials depending upon the activity status, which is as under.
Activity Status Basis of Risk

Assessment
Newly incorporated unit where the Projected

production/commercial production is yet to
begin Financials
Newly incorporated unit where the Projected
audited financials relate to less than 12
months of commercial production. Financials
Newly incorporated unit where the audited

financials r e f l e c t m i n i m u m 12 months of
working after the start of commercial Audited
production.
Financials
For rating purpose, a new unit refers to a newly incorporated

Firm/Company which may continue to be regarded as new for a period of
three years after the start of commercial production. However, in the
case of Companies/Firms promoted by an established Group, a view
regarding their status as new or otherwise would be taken by the CGM
of the Circle/CAG/Mid- Corporate after one year’s performance
Page 91 of 180
Financial Statement
Quality:
The credit analyst is to comment on the quality, adequacy and

reliability of financial statements/information irrespective of the Risk
Rating. This includes consideration of the size and capabilities of the
accounting firm, compared to the complexities of the borrower and its
financial statements. The comments on the quality of financial
statements should include the quality of information provided to the
Bank. The Quality is to be indicated as Excellent/Good/
Satisfactory/Poor. This step is not instrumental in improvement of
rating but is helpful in defining the best possible Borrower Rating.
Risk Score/Rating Transition

Matrix:
A major fluctuation in scores resulting in up gradation or

deterioration in Rating by more than one stage is to be commented
upon. Up gradation in Rating only on account of higher score in
parameters other than Financial Risk, is to be examined and
commented upon. This provides an additional risk awareness tool
for the Credit Ana
B) Collateral Support
The percentage of collateral with respect to the limit would be used as

a capping factor for the rating. The criteria are listed below. This
parameter of collateral support is applicable only under simplified
model.
S. No Internal Rating Collateral Rating Assigned

Amount
1 SB1 to SB4 Less(as

than %
10% of One notch down grade
limit)
2 SB5 to SB7 Less than 25% One notch down grade
3 SB8 to SB10 Less than 50% One notch down grade
4 SB11 and below Less than 100% One notch down grade
Page 92 of 180
For instance, the CRA rating for a trading company that is internally
rated as SB5 and is offering collateral of 20% of limit. Then the internal
rating will be downgraded by one notch to SB 6.
*Collateral support parameter is applicable only in case of SIMPLIFIED

Model.
CRA VALIDATION: SIGNATORIES OF THE PROPOSAL
CRA proposal would be signed by two officials viz

aappraising and recommending official
b. assessing official
While appraising official will prepare the CRA proposal, assessing official
would cross check the inputs and scores awarded.
Page 93 of 180
10. PREPARATIONS OF PROPOSALS INCLUDING
Different types of formats and instructions for using the same are as under:
The format to be used for exposures above Rs 50 crores from the banking system will
be known as “Loan Proposal Due Diligence Format” (or Form DD). Form DD will be a
detailed Appraisal memorandum, which will remain with the Operating Units. The
Loan Proposal Sanction Format (or Form S) will be extracted from Form DD by LLMS. It is
Form S that will be put up to the Sanctioning / Approving Authority
Some Key features of Form DD are:

 More emphasis on Due Diligence (Section A3)
 Comments on Corporate Governance Standards
(Section A9).
 Financial Management of the Company (Section C1).
 Environmental, Social and Governance Practices. (Section E2)
 Capability to execute large projects. (Section E2)
 Early warning signals, if any (as per the list) and Corrective Action Plan in respect of
warning signal(s) observed (Section E2)
 Incorporating Risk Adjusted Return on Capital (RAROC) and hurdle rate of
RAROC. (Section H1).
 Addendum for IBG Proposals ( Annexure 8)
 Additional information in case of Finance to Banking Companies /NBFCs
 Annexure 9).
Some Key features of Form S are:

Form S is to be extracted by LLMS from Form DD without any manual
intervention and will be put up to the Sanctioning / Approving Authority.
Some of the details, given in Form DD are excluded / condensed, as under, in
Form S :
a. Consolidated financials of the group ( para 3.7) (condensed)
b. Consolidated Cash Flow ( Para 4.8) (condensed)
c. Early warning signals ( para 1.14.2) (condensed)
d. Details of Sacrifice and Income from Additional Business (excluded)
e. Details of Due Diligence and Post sanction monitoring (excluded)
Form S is less voluminous compared to Form DD but contains all important

information required for consideration of the sanctioning authority.
5. The format to be used for exposures above Rs 1 crore to Rs 50 crore from the
banking system will be known as “Loan Proposal Due Diligence / Sanction Format” (Form
DDS).Form DDS is a replica of Form S1 ( which is presently in use for exposures
above Rs 1 crore to Rs 5 crores from the banking system), with the following
additions:
Page 94 of 180
a. Incorporating Risk Adjusted Return on Capital (RAROC) and hurdle
rate of RAROC.
b. Separate annexure for SMA-2/Restructuring Proposals.
6. It has also been decided to replace existing Form AS with Form M ( Loan
Proposal Modification Format). Form M is to be used for all exposures wherein
modifications etc,. ( i.e Change in terms and conditions ( Pricing / Security / Margin /
Covenants and other matters ), Sanction of Adhoc limits and Interchangeability of
limits are sought.
7. The revised Form DD, Form S, Form DDS, Form M and guidance note are placed
in annexure as under, for use by operating units.
Form Details Annexure
Form DD Loan Proposal Due Diligence Format, a Annexure -I

(For total exposure of detailed appraisal memorandum, which will
above Rs 50 crore, remain with the recommending offices.
from the banking
system)
Form S Loan Proposal Sanction Format, which will Annexure -II
(For total exposure of be put up to the Sanctioning / Approving
above Rs 50 crore Authority.
from the banking
system) (Extracted
from form DD by
LLMS)
Form DDS Loan Proposal Due Diligence / Sanction Annexure -III
(For total exposure Format, a detailed appraisal memorandum.
above Rs 1 crore up
to Rs 50 crore from
the banking system)
Form Mppppppp------ Loan Proposal Modification Format, is Annexure -IV

-- used for Modifications etc., ( i.e Change in
terms and conditions ( Pricing / Security /
Margin / Covenants and other matters ), Sanction
of Adhoc limits and Interchangeability of
limits).
Guidance Note Guidance Note Annexure -V
For more details on Annexure please refer to the Chapter no 5 of Credit Loan
Manual Part 1.
Page 95 of 180
LIST OF COMMON DISCREPANCIES OBSERVED IN PROPOSALS:
1. Discrepancies in NFB pricing table and Service charges are being observed
regularly. On many occasions, existing rates charged are not given and percentage
of concession is only mentioned. Sometimes the extent percentage of concession
plus any taxes are not mentioned. Such type of mistake is observed in the proposal
very frequently.
2. When FB WC limit is clean, why approvals sought for Sell, assign, mortgage or
otherwise dispose of any other fixed assets charged to the bank.
3. There are mismatch in figures given in table (Performance and financials) and given in
comments.
a. Comments given in para "Performance and financial" is only movement of
figures which are already given in the table itself. (Reasons for
decline/increase of previous two years and strategy for achievement of
estimated and projected figures may be narrated)
4. Justification for waiver of periodical inspection was left blank.
5. Justification for Assessment of BG limit was not given.
6. In the CDR proposal - template for approval for pricing should be
concessionary pricing instead of competitive pricing.
7. Para related to Primary and collateral security has not been filled in.
8. Previous CRA, mentioned in the proposal, was not captured correctly as per CRA
validation report.
9. Template given was not as per prescribed template - in the proposal, template
given was "Approval for yearly inspection" while it should be written as “
Approval for conducting yearly inspection of the unit instead of the stipulated
monthly/quarterly/half yearly frequency"
10. Security deposit received from consumer has been treated as "Capital" in one of the
proposals.
11. Approval for waiver of insurance sought, but there is no mention for obtention
of indemnity.
12. Since the limit to be sanctioned was clean, therefore there was no need for approval of
waiver of obtention of primary and collateral security.
13. Annexure for future plans and business potential related to cross selling and
other business was left blank.
14. Estimated RAROC was not calculated.
15. There was merger of two subsidiaries with the company, but its effects on the
financials of the company were not discussed in the proposal.
16. Conduct of various credit facilities was left blank
17. The company was availing SBLC/LC limit also. But in the renewal of limit the approval
for continuation of the limits was not sought.
18. 25% collateral security charged to the bank was not SARFAESI compliant.
19. Assessed Bank Finance - Holding level of Domestic RM was 61 days as on
31/03/2015, while holding level of Domestic RM was estimated at 200 days
for
FY 2015-16. Sharp hike in holding level was not discussed in the proposal.
20. Comments on consolidated financials of the Group were not discussed in the
proposal.
Page 96 of 180
21. Credit limit of the group was not incorporated.
22. Name of Promoter, Directors and company was not verified in RBI Defaulters
list, RBI Wilful Defaulters list, ECGC Caution list, CIBll.
23. In the SWOT Analysis, mitigating factors was not discussed in "Weakness and
Threats" columns.
24. Date chart for flow of proposal was incomplete.
25. In the funding of total current assets, Sundry creditors/TCA ratio was not given.
26. Non achievement of estimated performance and financial was not commented
upon in the proposal.
27. Shareholding pattern- Shares of promoter reported as Nil.
28. No deviation was sought for name of directors appearing in RBI defaulters list.
29. In one of the proposals, the branch sought approval for LC at 100% margin, while the
branch should seek for sanction of the same.
30. The company was a listed company, but corporate governance was not discussed in
the proposal.
31. Movement of TNW for the previous year was not incorporated in the proposal.
32. ln the assessment of working capital limit, holding level of imported RM was projected
at 2.56 month, while assessing EPC limit, the same was projected at 8.50 months.
33. Ceding of 2nd charge on entire assets of the company should be on pari-passu
basis.
34. The branch sought approval for quarterly inspection of plant but in terms and
condition, inspection was waived.
35. The company is engaged in construction activity. In the appraisal of term loan, cash
budget was not incorporated in the proposal.
36. ln the terms and conditions, insurance was waived, but approval of the same
was not sought in the template.
37. Repayment of term loan was to be made through sales proceeds of residential
flats, wherein there should be an escrow arrangement for deposit of sale
proceeds.
38. Credit limits (Company and group) Group exposure given in the proposal was
lower than total company's exposure.
39. Too many templates given for renewal of FBWC and NFBWC limits.
40. Separate templates given for various sub-limits within FBWC limit. Similarly two
separate templates given for renewal of LC and BG limit within the NFBWC
limit at existing level.
41. Time for creation of charge on current assets is sought in the template, whereas
the hypothecation agreement is obtained while executing the
documents, hence time for perfection of charge should be sought.
42. Early warning signals not observed in spite of CR being below 1 or NWC is negative.
43. While giving details of associate companies in executive summary, credit

facilities availed by one associate shown as zero, whereas in annexure 4
borrowing was mentioned.
44. Complete template seeking concession in NFB pricing not given.
45. ECR carried out for working capital limits only. TL availed from PFC was not
rated.
46. No Assessment for BG Limit carried out. It is mentioned that BG required
Rs.125.00 cr, BG Recommended Rs.125.00 cr.
Page 97 of 180
47. Estimated data for 2014-15 and for 2015-16 were not provided in the
proposal. Similarly interim financials for current year quarters and half year
were also not given in the proposal.
48. ROCC in the performance / financial indicator table is mentioned as 'NA',
however in the recommendation it has been mentioned for 2015-16.
49. Confirmation for company's action for having made investments in
associate concern by way of preference shares by converting earlier loans,
sought by the branch, which is not correct.
50. ROCC mentioned as zero in performance financial table.
51. As per Assessment of Bank Finance table ABF worked out to Rs.23.05 crore
only for 2015-16, whereas the consortium limit recommended at Rs.11
00.00 crore and our share is recommended to Rs.150.00 crore.
52. Column for comments on the ranking of the company within the segment left blank.
53. Total indebtedness as per CRILC data not given I commented upon.
54. Section I security sheet left blank whereas limit are secured by
hypothecation of current assets and collateral security to the extent of 3.140/0.
55. ln the dynamic review of CRA table, it is mentioned that CRA carried out on
28.10.2015 and in the next row it is mentioned that it was subjected to review on
23.03.2015, which is not correct. Dynamic review to be carried out subsequent to
latest CRA.
56. Renewal of FBWC sought at the existing level of Rs.75.00 crore and
subsequently two templates for sanction of WCDL and EPCI FBP limit of RS.75.00
crore each were given.
57. Justifications for Items given in templates are not given.
58. New card rate for performance BG mentioned as 2.100/0 Instead of 2.20% p.a.
59. ln facility column BG -Inland - Performance has been mentioned against different
facilities.
60. Following fields in post sanction monitoring column left blank:
a. Deviation observed, if any, on insurance of security as per sanction terms.
61. Any other unsatisfactory features after sanction/renewal of the account.
62. While discussing Group/Associates: no comments given on the point • any dealing
with the borrowing company' and on 'any adverse features'.
63. Concession in upfront fees was not proposed while submitting the proposal for
sanction of term loan and subsequently steep concession sought after the proposal
sanctioned by ECCB.
64. ln many proposals, entire banking exposure was not covered by External Credit
Rating.
65. ln many proposals, ROCC calculation was not correct and in one of the proposals
different numbers were mentioned at different places for ROCC.
66. ln case of resubmission of any deferred/withdrawn proposal, the same
should be routed through the recommending authority.
67. ln one proposal the branch proposed sanction of Corporate Loan for Capital
Expenditure, the branch should have explored to sanction Term Loan for
Capex .
Page 98 of 180
11.VARIOUS PRODUCTS & SCHEMES OF SMEBU
GUIDELINES ON SME ADVANCES MANUFACTURING SECTOR
The MS-MED Act, 2006 has modified the definition of Micro, Small and Medium enterprises
engaged in manufacturing or production and providing or rendering of services.
Classification Manufacturing Service Since Feb 2018 on

Enterprises Enterprises turnover basis
Micro Up to Rs 25 lakh Up to Rs 10 lakh Turnover up to 5 crores
Small More than Rs 25 lakh & More than Rs 10 More than 5 cores to Rs
up to Rs 5 crs lakh & up to Rs 2 75 crores turnover
crs
Medium More than Rs 5 Crs & up More than Rs 2 Crs More than Rs 75 crores of
to Rs 10 crs & up to Rs 5 crs turnover.
(For detail please refer Loan Manual 5, chapter 1)
Time Norms’ for disposal of MSME applications
Time Norms for Relationship Manager (ME)
Limits above of Rs.5 Cr 22 days
Time Norms for Relationship Manager (SE)
Limits above Rs. 50 lac up to Rs.5 Cr 22 days
Further, all loans to MSEs upto Rs.200 lacs that are otherwise eligible to be covered
under Credit Guarantee Scheme of Credit Guarantee Trust for Micro and Small Enterprises
(CGTMSE) have to be sanctioned as collateral free and to be covered under guarantee cover
of CGTMSE. The details of the CGTMSE guarantee scheme and terms and conditions for such
financing are mentioned in 5.
# For advances above Rs.10 lacs and upto Rs.15 lacs, based on the good track record
and strong financials of such MSE units, sanctioning authority concerned may take a decision
to waive collateral security. It is, however, to be ensured that the issue does not lead to delay
in decision making.
However, in such cases the personal guarantee of the partners/ promoters should invariably
be obtained
Page 99 of 180
VARIOUS SCHEMES OF FINANCING
SCHEME CREDIT GUARANTEE SCHEME (CGS) OF CREDIT GUARANTEE

FUND TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE)
Eligibility Micro and Small Enterprise, including Service Enterprises, with a

maximum credit cap of Rs.2 crore (Rupees two crore only) per
borrower are eligible to be covered.
Purpose a) Working capital needs
b)Acquisition of machinery / factory building for modernization/
Nature of facilities Expansion
Fund basedetc.
and Non Fund Based facilities
Quantum of Finance Maximum up to Rs 2.00 crores
Margin No margin up to Rs 50,000/- (SHISHU MUDRA loan)

Repayment Term Loan : Not to exceed useful life of the machinery/equipment or
7 years. Working Capital: Repayable on demand.
Processing Charges As per card rates applicable from time to time
Interest: Interest rates applicable to various categories of borrowers

/activities will be advised by the Bank from time to time.
Insurance
Primary Security Hypothecation/pledge over assets created out of bank finance.
Collateral Security A ) As per RBI instructions, Banks are mandated not to accept
collateral security in the case of loans up to Rs.10 lacs extended to
units in the MSE sector ( both Manufacturing and Service
enterprises) as defined under MSMED Act,2006. (Refer e-circular
no.102/2010-11 dated 19th May,2010)
B) All loans up to Rs.2.00 Crores sanctioned to MSEs, excluding some

activities like Retail Trade, Educational Institution, Training Institutes
SHGS etc. are to be mandatorily covered under Credit Guarantee
Scheme of CGTMSE if otherwise eligible under the credit guarantee
scheme. No collateral security/ third party guarantee is required for
CGTMSE guaranteed accounts.
C) The entire credit facility has to be given without collateral and/or

third party guarantee.
Page 100 of 180

PRADHAN MANTRI MUDRA YOJANA (PMMY)
The detailed features of the PMMY scheme and guidelines are :
Features of the scheme:
S. ParametersTerms
No.
1. Margin Upto Rs 50000/- - Nil
Above Rs 50000/- to Rs 10.00 Lakhs- 10%
2. Interest Interest Rates are linked with MCLR with one year rests
Rates
Presently MCLR + 275 bps
3. Processing Up to Rs 50000/- Nil

Fees
Above Rs 50000/- to Rs 10.00 Lakhs –0.50% of Loan amount (in addition
GST as per applicable rates to be recovered)
4. Eligibility Micro and Small Enterprise, including small retail traders are eligible to be
covered.
6. Primary TL : Hypothecation of Plant and machinery to be purchased out of Bank

Security finance
CC : Hypothecation of all Stocks and Receivables.
7. Collateral No collateral security to be obtained for all loans upto Rs.10 lacs. To be
covered under Credit Guarantee Fund for Micro Units. Cost of premium to be
borne by the borrower.
9. Repayment WC : Kishore and Tarun loans (for loans above Rs. 50,000 to Rs. 10 lacs,
covered under PMMY) will either be payable on demand (subject to review /
renewal at the periodicity applicable to the product / scheme) or may have a
repayment schedule for 3 – 5 years including a moratorium of upto 6 months.
depending on the activity/ income generation of the borrower. However,
Shishu loans will be sanctioned only on repayment basis for a period of 3-5
years including a moratorium of upto 6 months depending on the activity /
income generation of the borrower.
TL : In 3 - 5 years including a moratorium of upto 6 months depending
on the activity / income generation
Page 101 of 180

STAND UP INDIA (SUI) SCHEME
The Bank’s guidelines of the Stand Up India scheme based on GOI’s guidelines are as under:
S.No. Parameters Proposed Terms
1. Target Group SC/ST and Women entrepreneurs
2. Purpose To meet all kinds of credit requirement for setting up

Greenfield
Projects under manufacturing, services or the trading sector.
3 Type of facilities Composite Loan (Working Capital facilities / Term Loan)
4. Quantum of Finance Minimum – More than Rs. 10 lakhs
Maximum – Rs. 1 crore
5 Repayment for Term Maximum of 7 years
Loans (including moratorium period upto 18 months)
6 Margin Minimum mandatory margin is 10%. Maximum Margin

Money on composite loan would be upto 25% which will be
reduced through convergence with Central / State Schemes.
7 Rate of interest Interest rates will be linked to MCLR with 1 year reset period,
presently 8% p.a.
* As MCLR is based on 1 year reset, Tenor premium is not

applicable.
8 Security Primary : Hypothecation of stocks, machinery, movables etc.
purchased out of Bank’s finance
Credit Guarantee/Collateral : A new scheme for Credit

Guarantee named ‘Credit Guarantee Scheme for Stand Up
India (CGSSI), for loans under SUI, has been notified by GOI
with NCGTC (National Credit Guarantee Trustee Company
Ltd.) on the lines of CGTMSE.
Page 102 of 180

SCHEME SM E CREDIT CARD SME SMART SCORE
1. Target SSI units, tiny units, village Individually managed proprietary

Group industries, retail traders, /partnership firm or closely held
professionals, self employed, etc. public/private limited companies in the
Small and medium industrial and trading
sector under C&I and SIB segments.
2. Eligibility Customers of the following segments The chief promoter /chief executive
with a satisfactory track record for the should be 18 to 65 years of age The
last two years:- applicant must obtain a minimum overall
● Small industrial units score of 60% with a minimum of 50%
● Small retail traders under each sub-head like Personal
● Professionals & self employed details, Business details and collateral
persons details (except in cases where collateral
● Small business enterprises should be asked as per Bank’s norms,
● Transport operators where the minimum marks will be nil).
● Units who do not enjoy credit
limit with us / other banks at
present with excellent performance
and credentials may be considered.
● Term loans can be
sanctioned under SBCC for
acquisition of shop under Small
Business Enterprises.
3. Purpose To meet any kind of credit Working Capital needs & Acquisition of
requirements including purchase of fixed assets
shop
4. Type of Cash Credit and/or Term Loan Cash Credit / Term Loan
facilities
5. Quantum Maximum - Rs.10 lacs MANUFACTURING UNITS: Rs.5 lacs to up
of Finance to Rs.50 lacs
(20% of annual turnover for WC loan

and 67% of project cost for TL) TRADE &
SERVICES: Rs.5lacs to Rs.25lacs
6. Margin Upto Rs.25000/- Nil 25% for working capital component and
Above Rs.25000/- 20% 33% for TL component
7. Rate of Interest rates will be advised by the Limit from Rs. 5 lacs to below Rs. 25 lacs:
Interest bank from time to time.
MCLR + 3.35% for loans with CGTMSE
Coverage. MCLR+3.60. 0%- For loans
without CGTMSE Coverage .
Rs. 25 lacs and above: as per CRA
8. Security: Hypothecation of stock in trade, Hypothecation of stocks and assets
- Primary receivables, machinery,office financed by Bank
- Collateral equipment SSI – No collateral is to be
Page 103 of 180

insisted upon (To be covered under As per Bank's extant norms for WC and
CGTMSE) SBF—For loans more than TLs
Rs.25000/- charge over movable
/immovable property/
third party guarantee. All loans that
are eligible for guarantee cover under
credit
guarantee scheme of CGTMSE should
be invariably covered under the
scheme.
9. Processing As applicable to SSI/SBF units
fees
10. RepaymentCC to be reviewed every year. WC loan to be renewed every two
Term Loan component should be years with annual review of
repayable in a maximum of 5 years in performance.
suitable instalments.
TL not more than 5 years excluding
moratorium not exceeding 6 months
12. Stock To be obtained annually as on 28th Yearly
Statement February
Detail of the procedure is available in Credit Loan Manual Part 5.
ASSET BACK LOAN SCHEMES: ABL , ABL CRE-CP AND ABL -RH
SCHEME ASSET BACK LOAN ASSET BACK LOAN CRE CP ASSET BACK LOAN
RH
Target All Business Units mfg Proprietorship/Partnership/Company

Group and services activities
along with self-employed
and professional
individuals covered by
MSMED Act 2006,
wholesale/retail trade.
Purpose For build-up of current Creation/acquisition of real Creation /
assets and fixed assets estate such as office Acquisition of
needed for business buildings, retail space, Residential Real
industrial or warehouse
purpose, capacity Estate.
space, multiplex, hotels,
expansion, modernization, restaurants, gymnasium,
short term working capital amusement parks, cold
(including shoring up of storage etc. where the
Net Working Capital, etc). prospect for repayment
would generally be lease or
rental payment or sale of
asset.
Page 104 of 180

Nature of Fund Based (FB) and Non Fund based (NFB)
facility
Type of loan Drop-line Overdraft facility
Eligible Existing Customer already availing credit facilities from us.
Customers
• New units with marketable assets to offer as security.
• Takeover o f existing units from other Banks/ FIs with satisfactory

track record.
Take over Takeover of existing units from other Banks/ FIs with satisfactory
Criteria track record. (Credit Information Report to be obtained)
LTV% Immovable property: 50% of the realizable value Immovable property:
60% of the realizable
value
Loan Minimum loan amount: Minimum loan amount: Min. Rs 50 lakhs.
Amount > Rs 10 lacs >Rs.10 lacs
Max : up to Rs 100
• Maximum loan • Maximum loan crores*
amount: Rs. 20 crores amount: Tier I Branch:
Rs.50 Crores, *(Detail in circular)
Tie II, III Branch: Rs.20

Crores
Tier IV,V, VI Branch: Rs.5

Cr.
Repayment 12 Months to 180 Months 12 Months to 72 Months 12 months to 84
months
Renewal / No renewal of limit. No renewal of limit.
• Review has to be carried out annually Review has to be

Restitution of limit is allowed. carried out annually
Review and Restitution /
(Restitution enhancement in limits
not permitted.
)
ECR • ECR not mandatory ECR not mandatory ECR not mandatory up
to 100 crores
Stock Quarterly Operational Cash Flow statement for Cash flow statement
statement/ Data cum status of Builder Finance on on Quarterly basis.
Cash Flow working capital funds Quarterly basis in the (May / Aug / Nov /
Feb).
statement on Quarterly month May/
basis. Aug/Nov/Feb.
(May/Aug/Nov/Feb)
Detail of the procedure is available in Credit Loan Manual Part 5
Page 105 of 180

SIMPLIFIED SMALL BUSINESS LOAN (SSBL) and SIMPLIFIED CASH CREDIT FINANCE (SCCF)
FEATURE SSBL SCCF
Target Group All Business units engaged in All existing and new customers
manufacturing, services activities engaged in manufacturing activities.
along with self-employed and
professional individuals,
wholesale/retail trade.
Purpose Working Capital and Term Loan Working Capital limits
Nature of Fund Based Cash Credit (FB)

facility
Type of loan Drop-line Overdraft facility Normal Cash Credit Account
Eligible i. Existing business for at least 5

 The borrower / unit should be in
Customers years in the same location. existence / operations at least for last
ii. ii. Owner of the premises or valid 3 years (If new connection).
tenant agreement with the owner of
the shop.  CRA: SB-9 and better
Iii iii. Current account holder at any
ECR: BB & better [wherever applicable
bank for at least 2 years and Min. Avg.
as per the Bank’s norms]
Bal more than Rs. 1 lac in last 12
months.
v. Unit is situated within a radius of 5
km from the financing branch.
vi. Not eligible if get No in any
parameter in eligibility criteria.
Loan Amount 10 times of average monthly balance in  Minimum: Above Rs. 5.00 crores
current account in previous 12 months Maximum Rs.20 crores
subject to: In addition, SLC of 15% of the CC Limit
• Minimum: Above Rs. 10 lacs will also be sanctioned
• Maximum: Less than Rs. 25 lacs.
Interest Rate • 3.60% above MCLR one year Interest rate will be linked with CRA
floating and Collateral Coverage as per circular.
Assessment • Financial statement not required. The need based assessment for the
of the credit requirement of credit limits has to be
• 10 times of average monthly balance
limits in current account in last 12 months done.
subject to minimum above Rs. 10 lacs  FBWC limits will be assessed on the
and maximum less than Rs. 25 lacs.
basis of actual peak inventory plus
• The loan may also be sanctioned for receivables levels for the previous 12
acquiring fixed
months.

 Assessment of EPC/FBD will be done,
as hitherto (within FBWC limits).
Page 106 of 180

Scoring Min. 50% of the scores, otherwise unit Not Applicable
Model will not be considered eligible under
the scheme.
Stock & Quarterly. The value of stocks and  The borrowing unit has to submit
Receivable receivables should cover drawing MSOD cum stocks and receivables
Statement power in the account (simplified statement, on a monthly basis by the
format devised and enclosed as
annexure-E). 20th of the succeeding month.
Renewal / • No renewal of limit.  The limits may be renewed at the
Review
• Review has to be carried out existing level or with enhancement or at
annually and to be put up to reduced level subject to satisfactory
sanctioning authority as per delegation conduct of account and satisfying the
of financial powers. eligibility criteria of the scheme.
Repayment Limits can be sanctioned for period Normal Cash Credit
ranging from 12 months to 60 months
(reducing DP) including moratorium of
maximum three month.
DOCTOR PLUS AND MEDICAL EQUIPMENT FINANCE SCHEME
SCHEME MEDICAL EQUIPMENT FINANCE DOCTOR PLUS
Target Nursing Homes Medical practitioners of allopathic

Group • Diagnostic Centers and discipline, promoters of allopathic hospitals
Pathology Laboratories and nursing homes, pathological clinics,
• Eye Centers, ENT Centers, polyclinic, X-Ray labs, any activity of
Small and Medium size specialty allopathic discipline.
clients like skin clinics, dental
clinics, dialysis centers,
endoscopy centers, IVF centers etc.
• Medical Practitioners
Eligibility • Individuals, Partnerships, Individuals/Partnerships/Corporate/Trusts
Criteria Corporate, Trust & Societies (with powers to borrow)
• ITR is mandatory in all cases
• Applicant should have Promoters should be registered
minimum 3 years of operations of practitioners and should possess
the diagnostic center, pathological minimum qualification to practice in
lab, hospital, nursing home, etc. allopathic discipline such as MBBS, BDS, etc.
irrespective of constitution.
• Should h a v e the required
approvals/registrations from the
statutory/regulatory authority.
• Should have tie-up
with/employed qualified doctors
Minimum: Above Rs. 10 lakhs For Corporate/Partnerships/Individuals:
Quantum Maximum: Upto Rs. 20 crores From Rs. 10 lacs to Rs. 5 crores
Page 107 of 180

of loan CCC I or higher committee has the
(Min/Max) power to enhance this limit
Margin Margin @ 15% uniformly. Margin @ 15% uniformly.
(%)
• No tangible collateral No tangible collateral security for loan
security for loan amounts upto amounts up to Rs.2 crore. These are to be
Rs. 2 crores: They are to be covered under CGTMSE scheme
covered under CGTMSE. 50% of For loans above Rs.2 Crore and up to
CGTMSE fees will be borne by the Rs. 5 crore: Minimum 25% tangible
borrower. collateral security and personal guarantee
of promoters.
Collateral • For loans above Rs 2
Security crore and upto Rs. 20 crores: CGM of the Circle will have the discretion to
Minimum 25% tangible collateral reduce collateral security coverage up to
and personal guarantee of 15% on a case to case basis on business
promoters. considerations.
• CGM of the Circle will have

the discretion to reduce collateral
security coverage up to 15% on a
case to case basis on business
considerations.
• Term Loan: Loan is Minimum DSCR 1.5:1
repayable in 3-7 years
(including moratorium period of 6 • Maximum period of 7 years including
months) moratorium period
Repayment • Repayment to commence
Period after 6 months of first • Maximum moratorium 12 months
disbursement. Repayment can be
equated or customized as per the
cash accrual of the unit.
• Interest to be serviced
on a monthly basis during the
moratorium period
CT Scan, MRI Scan, Cathlab, Linear For buying equipment and
Accelerator, B&W Ultra expansion/renovation/modernization of
Sound/Colour existing premises:
Doppler/Ultrasound Scanner ,
X-ray, Ventilator, Monitor and For setting up clinics, nursing homes,
Equipment other ancillary equipment like pathology labs , drug stores and
Covered Operation Theatre Equipment, Air other infrastructure:
Conditioners, Generators,
Refrigerators, Ambulances,
Computers and Accessories,
Software necessary for diagnostic
purpose and UPS systems.
Page 108 of 180

CORPORATE LOAN AND SME OPEN TERM LOAN
SCHEME CORPORATE LOAN SME OPEN TERM LOAN

Target Group
Eligibility • Borrowers with CRA of SB1 to The product will be extended up to CRA
criteria SB 5 if no External Credit Rating is rating of SB-06 or ECR of BBB and
available. above.
• Borrowers with CRA of SB 6
to SB 10, if having ECR of BBB- & However, in respect of customers
better. banking with us for more than 5 years
• Maharatna and Navaratna PSUs and having satisfactory track record i.e.
irrespective of credit rating. the account has not slipped to IRAC 2 in
• ECR mandatory for exposures of the previous 12 months (irregular for
Rs10 crores and above. more than 30 days but less than 60
• If the loan is intended for days) will also be eligible for finance
takeover of loans from other banks, under Open Term Loan subjected to:
the takeover norms should be i) CRA rating of SB8 & above, or ii)
complied with meticulously ECR of BB & above
• Request from Non-
customers can also be considered Non-customers shall not be eligible.
on a selective basis subject to
compliance with take over norms.
Purpose  For shoring up of NWC,  Expansion and modernization
 Ongoing capex such as  Substitution of high cost debts/high
replacement of parts of cost term debts of other banks/FIs
machinery, upgradation,  Design and introduction of new
renovation etc ( to be capped at layouts in the factory to enhance
20 % of Gross Block), productivity
Repayment of high cost debt.  Up gradation of technology & energy
 Research and Development conservation schemes/machinery
expenditure (CL for R & D  Acquisition of software, hardware,
expenses to be capped at consumable tools, jigs, fixtures,
maximum 20% of fixed assets.) vehicles, equipment, furniture
 Implementing Voluntary upholstery, etc.
Retirement Scheme in the  Acquisition of ISO & other similar
company certifications
 CL may be extended for  Visits abroad for acquiring
infusion of equity in wholly technology, finalizing business
owned overseas subsidiary/JV to deals, participating in
those Corporates with min ECR exhibitions/fairs for market
of AA- & better and internal promotion, etc.
rating of SB 9 & better.  R&D activities of the units in overall
business development objective.
Quantum of Minimum Rs 50 lacs and Maximum i) Both manufacturing and service
loan Rs 10 cr for Non-Corporate enterprises: 20% of the total limit
borrowers of C&I (Mfg) & SSI sanctioned with a maximum of Rs. 5
segment. crores
Page 109 of 180

Cap for Corporate borrowers as per ii) For creation of intangible
Substantial Exposure norms under assets 20% of total limit sanctioned
Loan Policy: with a maximum of Rs. 2 crores.
Repayment Maximum repayment period Repayment period generally not to

(including loans for shoring up of exceed 5 years. Sanctioning authority
NWC) will be 10 years or the may selectively consider repayment
useful life of fixed assets under period Upto 7 years where considered
cover, whichever is lesser, including necessary or as permitted under Loan
moratorium period of up to 2 years. Policy.
Disbursement Individual disbursements to be At Borrower’s convenience within the
permitted only by Branch Head validity of the sanction. However the
after ensuring the end use of funds. total amount disbursed will not
exceed the overall limit sanctioned and
multiple withdrawals also can be done
only within 12 months of the original
date of sanction of loan.
Currency of 6 Months 12 months from the date of sanction.

Sanction
Page 110 of 180

12.LEGAL ASPECT OF ADVANCES
Title Investigation Report
TIR for a property is to be obtained before it is accepted as security for credit facilities
sanctioned by the Bank. The purpose of the title investigation report is to ascertain that the
person who is giving the property as a security is having a valid title of the said property.
The TIR should be obtained from Bank’s empanelled advocate. Work of title investigation should
be assigned directly by the Bank to the empanelled advocate. Direct contact of the advocate and
owner of property should be avoided.
Two TIR’s are required for credit facilities aggregating Rs. 1 crore and above and also in cases
where properties offered by third party guarantors whether individual or non-individual,
properties acquired through Gift deed and properties sold by Power of Attorney holders to our
borrower/guarantor.
Special precautions have been suggested by the Bank in respect of title documents executed
through Power of Attorney, Gift deed, laminated original title deeds, mortgage based on certified
copy, etc.
The relevant formats have been prescribed by the bank for the purpose of Title Investigation.
The report should be obtained on the prescribed format and must be scrutinized as per the
checklist provided by the bank.
Further, along with obtaining TIR from the empanelled advocate, independent physical
verification of the property should also be carried out on the lines as suggested in the prescribed
format given in the TIR SOP.
Also, bank has given guidelines regarding safekeeping/ handling of title deeds, which must be
strictly ensured.
Page 111 of 180

SME Documentation
A new set of security documents and operating guidelines has been introduced in the Bank w.e.f.
1st August 2005.
The new set has, in all, 12 documents which are available in a book format grouped under 7
categories:
Initial Documents
SME-1 Letter of Arrangement
The Letter of Arrangement is divided into two parts, i.e. Annexure A, which contains the Terms
and Conditions of sanction of particular facilities / limits to a Borrower, while Annexure B
contains the Bank’s standard Terms and Conditions of sanction.
The modified format in respect of the Letter of arrangement has been given by the bank vide
Circular number CCO/CPPD-ADV/52/2017 – 18 dated 10 Aug 2017.
Further, a clause for Disclosure of nationality of borrower/ guarantor must be added as per
instructions contained in Circular number CCO/CPPD-ADV/75/2016 – 17 dated September
17,2016.
SME-2 Agreement of Loan cum Hypothecation
Under the SME documentation, all the credit facilities (Fund Based & NonFund
Based) granted to the Borrower(s) are to be totalled into an aggregate limit and covered by a
single set of documents. It is clarified that credit facilities like Pre-Shipment / Post-Shipment
Credit, Rupee Term Loans, Foreign Currency Loans and Deferred Payment Guarantees are also
to be included for arriving at the aggregate limit.
Clause number 15 in SME 2 must be modified as per instructions contained in Circular number
NBG/SMEBU-SME ADVANC/67/2015 -16 dated March 02,2016.
SME-2A Letter furnishing the particulars of assets acquired

This letter provides for furnishing the particulars of all types of assets acquired out of the Bank's
finance after the execution of SME-2 for the purpose of covering such assets under the
hypothecation charge created under SME-2 and also to provide for clear identification of such
assets.
SME-3 Guarantee Agreement
The agreement is to be executed by the guarantors. Under the simplified SME Documentation,
Supplemental Guarantee Agreement is not provided.
One additional clause to be incorporated in SME 3 as per instructions contained in Circular

number NBG/SMEBU-SME ADVANC/67/2015 -16 dated March 02,2016.
Page 112 of 180

Supplemental Document
SME-4 Supplemental Agreement of Loan-cum-Hypothecation
This document is supplemental to the Agreement of Loan-cum-Hypothecation

(SME-2).
Documents / Recital for creation of Equitable Mortgage
SME-5 Memorandum for recording creation of mortgage by deposit of title deeds.
This Memorandum provides for creation of Equitable Mortgage by all types of mortgagors,
namely, Borrower(s) or Guarantor(s) or Third Party Mortgagor(s) who have not joined as
Guarantor(s).
SME-6 Letter of confirmation for creation of mortgage by deposit of title deeds
This letter of confirmation is to be sent by the Mortgagor(s) for confirming the

deposit of title deeds and intention to create Equitable Mortgage in favour of the Bank.
Documents / Recital for Extension of Equitable Mortgage
SME-7 Memorandum for recording extension of mortgage by deposit of title deeds
This Memorandum provides for
(a) Extension of the earlier mortgage to cover additional facilities / limits beyond the mortgage
debt.
(b) Creation of mortgage on the additional properties offered for securing the
existing facilities / limits and additional facilities beyond the mortgage debt.
SME-8 Letter of confirmation for extension of mortgage by deposit of title deeds
This letter of confirmation to be sent by the Mortgagor(s) for confirming
(a) The extension of the Equitable Mortgage on the existing property (ies) for securing additional
facilities / limits beyond the mortgage debt.
(b) The creation of Equitable Mortgage on the additional property (ies) for securing the existing
limits within the mortgage debt, and also for additional
The formats of SME 6 & SME 8 stands modified in terms of Circular number NBG/SMEBU-
SMEDOC/88/2016 – 17 dated February 10,2017.
Documents for creation / Extension of Regd. Mortgage
Page 113 of 180

SME-9 Deed of Mortgage
The Deed of Mortgage provides for creation of Registered Mortgage by all types of mortgagors,
namely, Borrower(s) or Guarantor(s) or third party mortgagor(s) who have not joined as
Guarantor(s).
SME-10 Deed of further charge

The Deed of Further Charge provides for extension of the earlier mortgage to cover additional
Complementary Documents
SME-11 Revival Letter
The Revival Letter provides for extending the limitation period under The Limitation Act, 1963,
for a further period of 3 years in respect of Agreement of Loan-cum-Hypothecation (SME-2) and
Supplemental Agreement of Loan cum-Hypothecation (SME-4), if any, executed till that date and
Guarantee Agreement (SME-3).
SME-12 Link Letter
The Link Letter is to be obtained whenever a fresh set of documents is obtained (For example,
SME documents) in addition to the earlier set of documents (For example, SSI / C&I documents).
This letter provides for migration from earlier segmental security documents to SME
Documentation.
Page 114 of 180

Creation of Mortgage
1. Once the TIR is received from the advocate, the same should be scrutinised as per checklist
given vide Annexure-E of TIR SOP dated 25.09.2017.
2. Obtain all the title deeds in original from the borrower in the chain of title. Where all the
originals as aforesaid are not available, minimum previous two transactions/sale/ title
deeds should be obtained from the borrower along with a declaration explaining non
availability of the original title deeds in respect of past transaction to the satisfaction of Bank
authorities.
3. All the original title deeds should be got deposited in the notified area and a memorandum of
entry as per prescribed format should be recorded for the purpose of creation of mortgage.
4. Documents other than partition or family settlement deeds, wherever the documents are
registered in counterparts, all such counterparts available with the mortgagor should be
deposited along with the original documents to avoid misutilisation of such counterparts.
5. For creating Equitable Mortgage of a flat/ independent house by a member of Co- operative
Housing Society, NOC is necessary to ensure that no dues of the society are outstanding
against such member, and a declaration that the society has not created any prior charge
over the property which is subsisting.
6. A Search Report/ encumbrance certificate for the intervening period, i.e. from the date of
TIR to the date of deposit of original Title Deeds/ creation of EM should be obtained and held
on record, as part of equitable mortgage documents.
7. It is to be ensured that the equitable mortgage confirmation letter by the mortgagor is

received and kept on records.
8. Building Plan approved by the Competent Authority should be obtained and perused and
evidence of Independent Site Verification should be recorded.
9 The particulars of the deposit must be recorded in the title deeds register and the entries must
be verified by the Branch Manager/Divisional Manager and signed by him and also signed by the
two witnesses who may be Bank employees.
10 The mortgagor must not initial / sign /attest in the register and/or the Memorandum of
Deposit recorded in the register; as otherwise, the mortgage would be construed as simple
mortgage which may fail for want of stamping and registering.
13 Further, no writing whatsoever must be taken from the mortgagor(s) at the time of deposit of
the title deeds. However, to safeguard the interest of the Bank, a letter (contents printed in an
Inland Letter) confirming the deposit of the title deeds with intent to create the mortgage in
favour of the Bank as security for the advances should be obtained from the mortgagor(s). This
Inland letter should be obtained only subsequent to the deposit of title deeds, say a day or two
after the mortgage is created.
Page 115 of 180

14 In the case of a simple deposit of title deeds to further secure an already existing advance,
Standard Documents prescribed should be obtained.
15 When the mortgagor who has already created an equitable mortgage in favour of the Bank
as security for existing advance, is granted additional/fresh advance sought to be secured by
extension of the existing mortgage, the following procedure should be followed:
i. a supplementary recital on the lines of the Bank’s standard format should be

recorded in the title deeds register; and
ii. supplementary confirmatory letter should be obtained from the mortgagor confirming
the deposit of title deeds pertaining to the properties made earlier which shall continue as
security for the enhanced/ additional/ fresh loan granted to the borrower.
16 Ensure the payment of stamp duty and registration of equitable mortgage wherever
applicable as per the relevant State laws.
17 Ensure the registration of equitable mortgages with the CERSAI under SARFAESI Act as per
the extant instructions in this regard.
Page 116 of 180

Registration of Charge with Registrar of Companies
Types of Charges to be Registered

1. A charge on book Debts of Company
2. A charge not being pledge, on any movable property of the Company

3. A floating charge on the undertaking or any property of the Company
4. A charge on any immovable property

5. A charge on Goodwill, Patent, Trade mark, copy right, License etc
Purpose
1. For Creation of Charge
2. Modification of Charge
3. Satisfaction of Charge
Timelimit
1. All Charges to be registered within 30 days of creation

2. Maximum within 300 days with permission from ROC along with justification
3. Charges created within 30 days are having priority from the date of creation
4. Charges created after 30 days may loose priority and may be reckoned from date of filling
5. Bank can file charge on its own if Company fails to file charge within 30 days.
6. After 300 days condonation of delay can be allowed by central government only
Periodicity of Search
1. Pre Sanction stage
2. At the time of filling Bank`s charge with ROC after documentation /disbursement
3. At every Review/Renewal stage and position should be commented in the proposal
4. For Stressed accounts search should be done at enhanced frequency, as deemed

necessary.
Exemptions
1. Pledge Advances(However advisable under head Others)

2. Corporate Guarantee
3. However if company creates charge on any of its assets for performance of the guarantee
obligation under Corporate Guarantee, then charge is required to be filed.
Page 117 of 180

CERSAI
Central Registry of Securitisation Asset Reconstruction and Security Interest of India is a

Government of India. The object of the company is to maintain and operate a Registration System
for the purpose of registration of transactions of securitisation, asset reconstruction of financial
assets and creation of security interest over property, as contemplated under the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI Act). CERSAI is providing the platform for filing registrations of transactions of
securitisation, asset reconstruction and security interest by the banks and financial institutions.
At present the portal provides facility to file security interest in immovables created through all
types of mortgages and in units under constructions besides filing of Security Interests in
movables, intangibles and factoring transactions is also available on the portal.
More than a statutory obligation CERSAI is a risk mitigation tool for the Banks / Housing Finance
companies, FIs and public at large to prevent multiple financing against the same property.
Verification of the records of Central Registry.
Before creation of any mortgage the branches have to verify the records of the Central Registry
of Securitisation, Asset Reconstruction and Security Interest of India (CERSAI)
(www.cersai.org.in) to see that there is no pre-existing charge registered with Central Registry.
Such exercise is also to be conducted at the time of renewal/ sanction of additional limits.
Registration of charges with CERSAI
Immediately after creation of mortgages, branches have to ensure registration of such charges
with Central Registry within 30 days.
The following types of Security interests are also required to be filed now on the
CERSAI Portal:
a. Particulars of creation, modification or satisfaction of security interest in

immovable property by mortgage other than mortgage by deposit of title deeds.
b. Particulars of creation, modification or satisfaction of security interest in

hypothecation of plant and machinery, stocks, debt including book debt or
receivables, whether existing or future.
c. Particulars of creation, modification or satisfaction of security interest in intangible

assets, being knowhow, patent, copyright, trade mark, licence, franchise or any other
business or commercial right of similar nature.
c. Particulars of creation, modification or satisfaction of security interest in

any under construction residential or commercial building or a part thereof by
an agreement or instrument other than by mortgage.
Page 118 of 180

13.POST SANCTION CREDIT PROCESS: FOLLOW-UP, SUPERVISION AND MONITORING
Credit Administration
The basic objective of any follow up system is to ensure safety of advances granted by the bank. This
is so because the funds lent by banks belong to the depositors and the credit official have a
tremendous responsibility in safeguarding the interests of the millions of depositors.
The real challenge before a credit official after accredit facility is sanctioned and disbursed-the
challenge of maintaining the quality of the loan asset.
This is possible only by ensuring a meaningful supervision and monitoring of the credit facilities in a
planned and structured manner.
A Strong and vibrant Post Sanction Follow up process, when implemented in planned and structured
manner, it results in making a weak proposal a big success.
On the other hand, A weak and Lackluster Post Sanction Follow up process can leads towards a
disaster , as it may leads towards making a strong and good proposal go in a bad way.
The Bank has in place comprehensive post-sanction processes aimed at enabling efficient
and effective credit management. Broadly, the objectives of post-sanction follow up,
supervision and monitoring, and some of the key areas that need to be kept sight of are:
The entire post sanction process comprises of three stages i.e, follow up , supervision and
monitoring of the loan account.
Post Sanction Process is broadly classified into three Stages
1. Follow up Function
2. Supervision
3. Monitoring
All the three stages together facilitates
 Ensuring efficient and effective Credit Management , and ,

 Maintaining High Level of Standard Assets
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FOLLOW UP SYSTEMS COINSISTS OF
 FINANCIAL FOLLOW UP , AND PHYSICAL FOLLOW UP

Financial follow up lays stress on monitoring of the unit's performance based on the level of
production, sales and profitability.
Physical Follow up consists of physical verification of Assets and ensuring End use of funds.
Follow up Function Tools

Ensure end use of Funds Direct disbursement to suppliers. End Use Certificate
Stock Statements, Stock & Receivables Audit, FFRs,
Performance of the unit as reflected in the Financial
statements, Stock Audit/ Inspection of the unit
Obtaining End use certificate
To relate the outstanding to the assets Computation of D.P. On the basis of account statement.
level on a continuous basis. Build up of current assets/Fixed assets.
Account Statements tallying with corresponding assets
created out of bank’s finance.
Reports of Stock Audit & Physical Inspection.
To correlate the activity level to the Analyzing the performance of the unit in terms of
Projections made at the time of the production, sales, profit, and tracking it with FFR I &
sanction /renewal of the credit FFRII and with Balance Sheet at the time of review and
renewal
facilities.
Physical Inspection of the unit/ Stock Audit Report
Ensure that the assets created are Inspection of the unit & Certificate from Chartered
effectively utilized for productive Engineer /LIE Report
purposes and are well maintained.
To detect deviation from terms of Completion of Pre disbursement Compliance Certificate

sanction. before release of funds.
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FOLLOW UP OF TERM LOAN
Scope of post-sanction follow-up
• Term loan is repayable out of cash accruals generated over a period of time,
• Essential that project is monitored, supervised and followed up on an ongoing basis
throughout the currency of the term loan.
• Performance evaluation of the borrowing unit to ensure that the projected sales and profit
are achieved and the loan is repaid as scheduled
In case of term loans Post Sanction Follow up can be divided into two stages .
(i) Follow-up during implementation stage ,and

(ii) Follow-up after commencement of commercial production.
Follow-up during the implementation stage
TL indebtedness of Rs.5.00 Cr and above: Important Guidelines
Follow-up during Post Commercial production
Physical Follow up : Inspection of the Unit
Physical Inspection is an important and crucial tool for ensuring close follow up of the unit.
Operative Guidelines for Inspection and follow up to achieve the objective of Effective Credit
Management
Three important characteristics of the Borrowing Unit , as under, are taken into account for
adapting the styles of inspection:
 The Market Performance,
 The Management Strength,
 Reliability of its Information System.
The rigor of Inspection and follow up may be varied depending on the general health of the
unit and the conduct of advances.
Periodic Inspection and Follow up would afford an opportunity to not merely assess the quantity,
quality and value of stocks, but
 Know the tempo of Activity
 Have a look at the books of the accounts and other relevant records
 Hold discussion with the borrower.
 Satisfy himself that the borrower is alive to his responsibilities.
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 Supplement and constantly update the bank's knowledge about operations of the borrower
in particular and the industry in general.
 Ensure that all the fixed assets charged to the bank are pot only intact and well maintained
but also put to optimum use and that the unit's profitability is maintained, at least, at the
level projected at the time of sanction of advance.
 Ensure that the security coverage is not diluted at any time for any reason., and
 The servicing of the loan does not suffer under any circumstances.
Frequency of Inspection
Important Guidelines in regards to the Inspection of the unit to have meaningful verification of
particulars of items of the Stocks & Debtors
Guidelines for Verification of Book Debts.
The position of book debts should be checked, specially where advances have been granted there
against.
Verification of systems
All borrowers enjoying large value credit need to give to the bank a write up on their inventory
control, verification and valuation systems.
In order to ensure a meaningful follow up and supervision of advances of the bank, branches
should obtain on an ongoing basis, Stock statements, FFR-I, FFR-II etc.
Important Guidelines for Inspection in case of Project Term Loan

In case of term loans, Inspection process can be divided into two categories .
 During implementation stage ,and

 After commencement of commercial production.
Important Guidelines to be kept in mind by the Inspecting officials.

 The Inspecting official must check the correctness of the production and sales information supplied
to him.
 Stocks of raw materials etc, with the unit should be verified with the latest stock statements.
 Inspecting official must assess the level of activity from various sources, such as the order book,
Electricity Bill, the work on the shop floor, number of shifts of working, accumulation of finished
products and the general tempo activity of the plant.
 When there is decline in sales, production and profitability, the reason therefore should be
ascertained and issue should be discussed with the borrower.
 Frequent visits to the same unit will automatically give him enough experience to get a quick feel of
the tempo of activity.
 Inspecting officials must check if the books of accounts e.g., cash book. Sales, purchase and stock
registers are being maintained properly and kept up to date.
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Compilation of Inspection Report
On completion of the inspection, the inspection officials should set out their observations in
inspection reports as per Annexure-FSM-6 commenting, inter alia, about the important issues
taken up with the borrower and the corrective measures proposed to be initiated by the
borrower for rectifying the aberrations.
Various Types of FORMATS need in Post sanction Follow up Process.
Formats Purpose To be required by

FFR-I Financial Follow up report To be submitted by unit having exposure
(Performance in terms of Production, Net of Working capital limit of Rs 10.00
sales, Status of Working capital Crores above , to be submitted Quarterly
funds/Inventory & Receivables details/
Sundry Creditors)
FFR-II Financial Follow up report To be submitted by unit having exposure
(Half yearly operating statements and of Working capital Limit of Rs 10.00
Fund Flow Statements) Crores and above , to be submitted half
yearly
FSM-1 Indicative List of Activities involved in Part of Credit Manual on the topic of Post
Follow up supervision and Monitoring sanction Process , Annexure , page no
311, Chapter -6, Part-1, Credit manual
FSM-2 ---------------- ----------------
FSM-3 Stock statements Format To be submitted monthly by the unit
FSM-4 Follow up Register for monitoring timely To be maintained by branch for recording
receipt of FFRs /statements date of receipt of FFRs /Statements
FSM-5 Monthly Statement of Select Operational To be submitted by the SB-9/unit
data (MSOD) financed under Consortium financed unit
FSM-6 Inspection Report Format Details observations by Inspecting official
FSM-7 Format of Inspection Register ( Filled in after each Inspection of the unit .
Inspection at a glance Register ) Records of inspections dates, unit
wise,month wise.
FSMTL-1 Progress Report of Implementation of the To be submitted by the borrower at
project Quarterly Intervals
FSMTL-2 Progress report during Implementation of Observations recorded by the Inspecting
the project Officials
FSMTL-3 Progress Report after Commencement of Observations to be completed by the
Commercial Operation (Term Loan Inspecting Officials on the basis of visit
Financed unit) and progress reports submitted by the
unit.
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Indicative list of activities involved in follow-up, supervision and Monitoring
 Advising the sanction of advances to the borrower detailing the terms and conditions and
obtaining acceptance thereof. Submission of Control Return of sanction.
 Documentation and maintaining its validity and upkeep in custody.
 Creation of Charge over security, Equitable Mortgage, Registration of charge with ROC with
periodic search.
 Compliance of all pre disbursal formalities as per the Sanction terms & condition.
 Conducting Pre disbursal Inspections and verification of ROC Charges and securities.
 Conducting periodic inspection /visits at stipulated frequencies.
 Computation and recording of Drawing Power for disbursal of the facilities.
 Obtaining and scrutiny/analyzing of financial and Non financial statements
Financial Statements like Stock Statements, FFRs, QRR, Cash Budget,
 Scrutiny of transactions in the various accounts by perusal of registers, vouchers etc.

 Watch for Proper conduct of loan accounts, healthy turnover and end use of funds.
 Verifications of assets charged as security, to ensure availability and safety of the assets
 Maintaining ongoing contact with the borrower and co-lenders and keeping abreast of
developments in the borrower entities and business environment.
 Ensuring Adequate Insurance Coverage/CGTMSE/ECGC cover with validity .
 Timely recognition of unsatisfactory features in the conduct of the advance, such as:
➢ Delay in Project Implementation
➢ Unusual developments/changes in the business or business environments.
➢ Shortfall in achievement of production/sales as compared to the projections.
➢ Defaults in meeting obligations of fun based and Non fund based facilities.
➢ Non fulfillment of financial obligations of bank, co-lenders, creditors /statutory dues.
➢Any other deficiency observed during periodic Inspection visits.
● Advising borrowers to initiate corrective action to remove irregularities.
● Ensuring maintenance of proper records/files covering the advances to a borrower for
scrutiny/inspection by various internal ad external authorities.
● Ensuring Collation/maintenance of data as appropriate for submitting reports/returns etc.
● Obtention of required data/proposal from borrower and completion of review/renewal.
● Processing requests for irregular drawings and reporting these to the controllers.
● Follow up and initiating steps for regularization of the accounts and submitting I. Reports.
● Follow-up of and rectification of irregularities pointed out in the various inspection/audit
reports
➢ RBI Inspection Report
➢ Central Office Inspection & Audit Report /Credit Audit Report.
➢ Verification Audit Report/Concurrent Audit Report /Statutory Audit
➢ Stock Audit Report
➢ Sport Audit Report
● Recovery of applicable charges/fees/penalties etc. as per extant instruction.
● Preparation of reviews of IRAC, identification of deteriorating assets/potential NPAs,
recognizing any early warning signals, SMA review report to appropriate authority.
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● Account-wise follow up of NPAs for recovery/rehabilitation/restructuring, preparation
of related recommendations to appropriate authority for approval.
Stock Statements & FFRs : Important Tools for ensuring end use of Funds
1. Stock Statements received from the Borrower need to be analyzed and scrutinized
properly. The information submitted should be complete in all respects
2. The position of movement of stocks with the information about the level opening of stock,
level of stock in and stock out with the closing stock will have to analyze to arrive to the
facts that there are no slow moving or obsolete stocks against which allowing Drawing
Power can be restricted.
3. The DP is not given against such assets which have not been considered as current assets at
the time of assessment and are accordingly ineligible for DP.For example, where ‘plant
spares` are classified as non-current asset for working capital assessment, this asset should
not be considered eligible for DP though included in the stock statement.
4. While allowing drawings in accounts on the basis of stock statements, it should be ensured
that stocks purchased under Usance LCs are invariably mentioned separately and no DP is
allocated against such stocks. This is necessary to avert any possibility of double financing.
5. Where cash credit limits are granted against book debts, a statement of book debts with
age-wise break-up should be obtained along with the stock statement. Such book debts
should be based on invoices and delivery challans. Drawing power should be allowed only
on such book-debts as are within the norms accepted at the time of sanction.
6. The quarter/year-end stock statements should be compared and reconciled with the
corresponding items in the financial follow-up statements such as FFR-I & II/ and year-end
Balance sheet. If there appears any discrepancies matter need to be taken up with the unit.
7. If the actual level of Sundry Creditors is within the level considered for assessment
of FBWC limit, then Sundry Creditors need not be deducted from the Market Value of
Stocks, if (a) There is no dilution in NWC or deterioration of Current Ratio (CR);, and
(b)Drawings in the account are within sanctioned limits / available DP and the conduct
of the account is satisfactory. Movement in NWC & CR to be scrutinized from FFR-I &
Stock Statements. Irregularities by way of over drawings , if persistent, is an indication that
there are liquidity problems in the account and it can be due to squeezing of NWC.
8. FFRs are meant to be used for financial follow up; to keep a track on the progress of the unit
regarding sales, profitability performance, liquidity position, diversion of funds etc at shorter
intervals as audited financials normally would take six months to reach the bank after closing
of the financial year. Thus, FFRs provide the financial picture of the unit comparatively on
real time basis to take proactive steps by the banker, if needed.
9. Moreover, officials may use it an extra source of information for comparison with
quarter/year-end stock statements and may be reconciled with the corresponding items in
the financial follow-up statements such as FFR-I & II/ and year-end balance sheet.
10. FFR-I ad FFR-II obtained at half year end and at the year end should be reconciled to assess
the position of NWC with the Fund flow Statements and to reconcile various parameters such
as changes in working capital and in Bank borrowing Limit.
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Irregularity: Identification and Reporting
Normally, irregularities in borrower’s accounts should not be permitted as a matter of routine.

Borrowers should be impressed upon that it is not in the ordinary course of banking to permit
irregular drawings and such overdrawing should be resorted to only in exceptional
circumstances.
1. System of allowing excess drawings: Necessary efforts need to be made both at the Branch
level and at the level of the controlling office to ensure that excess drawings are not resorted to
or permitted frequently or easily. To meet contingencies, the units may be sanctioned facilities
like SME Credit Plus or Standby Line of Credit etc. If no such facilities are available, sanction of ad-
hoc limits / temporary overdrawing may be resorted to after taking usual precautions.
2. Objectives of reporting:
- To keep the concerned authority informed of the position of irregular accounts.
- To seek confirmation of the appropriate authority in respect of irregularity in
individual accounts.
- To put forth/ evolve plan of action for regularizing irregularity in loan account.
3. System of reporting of irregularities
It is necessary to report irregularities in working capital limits, Term Loans, nonfund based
limits (included), occurring during a month in the subsequent month and at monthly intervals
thereafter, till the account is regularised. Branches should invariably report irregularities in
Borrowal accounts to the appropriate authorities before 10th day of succeeding month.
4. Authority Structure for reporting/confirmation of irregularities:
a. Irregularities due to application of interest in Working Capital accounts:

Irregularities in accounts arising solely from application of interest need not be
reported, if the account is regularised within 30 days from the date of application of
interest.
b. Irregularity in Term Loan accounts:

Irregularity in Term Loan on account of application of interest/non-payment of installment,
but adjusted within 30 days.
Sanctions by To be submitted to Periodicity
RCC / ZCC DGM (B&O)
CCC – II GM of the Network
NBG All Others CGM of the Circle Monthly
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Branch level Committee in
respect of MCRO branches – DGM of the Branch
SMECC
MCCC / WBCC – II GM (MCRO)
MCG WBCC – I CGM (MCG)
CCCC / ECCB DMD (MCG)
WBCC – I & WBCC – II CGM (CAG) Monthly
CAG CCCC / ECCB DMD (CAG)
c. Irregularities within sanctioned limit but beyond Drawing Power (Working

Capital and Term Loan) in the following scenarios:
i. Irregularities on account of drawings in excess of DP (Working Capital
and Term Loan) but within the sanctioned limit (adjusted within 30 days).
ii. Irregularity due to application of interest in Working Capital account (overdue
between 31 – 90 days).
iii. Irregularity in Term Loan on account of application of interest / non- payment
of installment. (overdue between 31 – 90 days).
iv. Irregularities on account of drawings in excess of DP (Working Capital
and Term Loan) but within the sanctioned limit (overdue between 31 – 90
days).
v. Term Loan account is continuously irregular for more than 90 days.
Sanctions by To be submitted to Periodicity
RCC / ZCC / CCC – II DGM (B&O)

GM of the
CCC – I / WBCC – II Network
NBG WBCC – I CGM of the Circle
CCC / ECCB DMD (COO)
Branch level Committee in respect
of MCRO branches - SMECC DGM of the Branch
MCCC GM (MCRO)
MCG WBCC – II / WBCC – I CGM (MCG)
CCCC / ECCB DMD (MCG) Monthly
WBCC – I & WBCC – II CGM (CAG)
CAG CCCC / ECCB DMD (CAG)
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d. Irregularities in excess of Sanctioned Limit (Working Capital and Term Loan):
Irregularities on account of drawings in excess of sanctioned limit (Working Capital and TL).
(adjusted within 30 days & not adjusted within 30 days)
Sanctions by To be submitted to
Periodicity
RCC DGM (B&O)
ZCC GM of the Network
CCC – II / CCC – I & WBCC
- II CGM of the Circle
NBG WBCC – I / CCCC DMD (COO)
ECCB $ DMD (COO)
Branch level Committee in respect of
MCRO branches – SMECC GM (MCRO)
MCCC & WBCC-II CGM (MCG)

MCG WBCC – I / CCCC DMD (MCG)
ECCB $ DMD (MCG) Monthly
WBCC – I & WBCC – II CGM (CAG)
CCCC DMD (CAG)
CAG ECCB $ DMD (CAG)
Accounts handled by SME Centre/ RASMECCs, the concerned Branch Head / SME Centre /
RASMECC Head is permitted to allow overdrawing on business considerations. Branch not
linked with SME Centre / RASMECC and accounts outside the purview of SME Centre, the
concerned Branch Head is permitted to allow overdrawing on business considerations.
Overdrawing should be allowed only in special circumstances and following terms & conditions
must be observed:
i. Based on a written request of the borrower, the branch should ensure that the
conduct of the account is satisfactory, the account is regular and free of any
adverse features in its conduct before permitting the over drawings.
ii. The overdrawing is permitted only against un-cleared effects and for
payment of statutory dues and utility bills, upto a maximum period of one month.
iii. A proper analysis of the reasons for such over-drawings should be placed on
record.
iv. The Branch head after permitting such over drawings should immediately advise
the concerned SME Centre/ RASMECC regarding the same along with the reasons
for permitting such over drawings, to avoid returning of cheques in clearing in the
mean time.
v. The SME Centre/ RASMECCs should invariably report the overdrawing to the
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appropriate designated authority as per the extant instructions and in accordance
with the ‘Scheme of Delegation of Financial Powers’ in force at the material time.
vi. The prescribed system of reporting of irregularity should be followed.
5. Reporting of Irregularity in NPA Accounts:
i. Irregularity reports in case of NPAs with outstanding upto Rs.100 crore will be
submitted to sanctioning authorities competent to approve such exposure (as per
delegation of financial power for advances) as per following periodicity and guidelines:
Sl. Particulars of Irregularity Periodicity
No.
a. Immediate reporting (i.e. on loan account To be submitted within
being 10th day of subsequent
classified as NPA).
b. Subsequent reporting – Where the variation Quarterly@
month.
in
Irregularity / outstanding is only on account of
accrued but unapplied interest (quantum of
c. unapplied
Subsequentinterest to be–shown
reporting Whereseparately).
there is variation Quarterly@
in
Irregularity / outstanding due to reason other
than clubbing of accrued unapplied interest.
@ Operating units are to base their submission on calendar quarter i.e.
January–March, April–June etc. for submission of irregularity reports. Further,
even in cases where during a quarter the NPA account is regularised and IRAC status
is upgraded, operating units will be required to submit irregularity report to
sanctioning authority competent to approve such exposure within the delegated
authority structure, with the observation “Regularised during the quarter under
report”.
6. Penal interest:
Cash Credit Account: 5.00 % per annum on the irregular portion for the period of irregularity.
Term Loan Account:

i. Non-payment of interest / installment: 5.00 % per annum on the irregular portion for
the period of irregularity.
ii. Cross default (Default in payment of installment/ interest to other Institutions/ Bank):
1.00% p.a. on the entire outstandings with us for the period of non-adherence subject
to a minimum period of 1 year.
- What will be periodicity for reporting irregularity after account turned NPA?
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14.OVERVIEW OF IMPORT AND EXPORT FINANCE
IMPORT FINANCE
Financing of goods and services imported into India has always been an important part of the
credit business of commercial banks in India.
Importers’ banker has to ensure that the payment in respect of the import is settled within a
maximum time period of six months from the date of shipment. Import payments are generally
settled through the LC mechanism where the payment is received by the overseas supplier from
his banker/negotiating banker. Import trade is regulated by various authorities, the most
important being the DGFT under Ministry of commerce & industry of the Government of India.
Import finance is a term used to describe various strategies that are employed to make
international trade easier for both importers and exporters. The basic idea is to provide
assistance in arranging methods to pay for goods and services ordered from an international
location, with neither the importer nor the exporter taking on an unacceptable degree of risk.
With the process of financing imports, there is always the need to make sure the seller is paid in
a timely manner and that the buyer receives the right goods in a mutually agreeable period of
time. Rather than simply using electronic funds transfers to pre-pay for the order, or the seller
billing the buyer for payment at a later date, the basics of import finance allow the financial
institutions representing the two parties to create a strategy that protects both importer and
exporter.
This often includes the use of some sort of letter of credit issued by the buyer's bank and
presented to the seller’s bank as proof that the order will be paid. The seller’s bank in turn may
arrange a loan of some type to the seller, making it possible to use the proceeds from the sale to
manufacture the ordered goods and arrange for the shipment and delivery. Upon receipt of the
goods, the buyer’s bank honors the letter of credit, remits the funds to the seller’s bank, and the
transaction is considered complete.
Import Finance products are

1. Fund-Based
a. Rupee credit
b. Foreign Currency Credit
i. Suppliers Credit
ii. Buyers Credit
2. Non-Fund Based
a. Letters of Credit
b. Guarantees
c. Letter of Credit
A Letter of credit is a financial document provided by a third party (with no direct interest in the
transaction), mostly a bank or a financial institution, that guarantees the payment of funds for goods
and services to the seller once the seller has submitted the required documents. Other financial
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institutions to issue these letters of credit in addition to a bank are mutual funds or insurance
companies but in very few cases. A letter of credit has three important elements – the beneficiary/
seller who is paid the credit, the buyer/ applicant who buys the goods or services and the issuing
bank that issues the letter of credit on the buyer’s request. There might be another bank involved as
an advising bank that advises the beneficiary.
There are various types of letter of credit (LC) used in the trade transactions. Some of them may be
defined by their purpose. They are Commercial, Export / Import, Transferable and Non-Transferable,
Revocable and Irrevocable, Stand-by, Confirmed and Unconfirmed, Revolving, Back to Back, Red
Clause, Green Clause, Sight, Deferred Payment, and Direct Pay LC.
Guarantees
The importer’s bank can issue Guarantees/LoUs/LoCs in favor of the overseas suppliers,
bank/financial institutions, up to $20 million per transaction for a period up to one year for import of
all non-capital goods permissible under Foreign Trade Policy (Except Gold). Similarly for import of
capital goods, such guarantees can be issued up to a maximum period of 3 years. The period of such
guarantees/LoUs/LoCs has to be co-terminus with the period of credit, reckoned from the date of
shipment.
Buyer’s credit
Buyer’s Credit refers to loans for payment of imports into India arranged by the importer from a
bank or financial institutions outside India. Based on letter of undertaking of Importer’s bank,
Overseas bank credits the Nostro of the importer’s bank which in turn uses the funds to make
payment to the Suppliers bank against the import bill.
The benefits of buyer’s credit for the importer are:
 The exporter gets paid on due date; whereas importer gets extended date for making an
import payment as per the cash flows
 The importer can deal with exporter on sight basis, negotiate a better discount and use the
buyers’ credit route to avail financing.
 The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on the choice of
the customer.
 The importer can use this financing for any form of trade viz. open account, collections, or LCs.
 The currency of imports can be different from the funding currency, which enables importers
to take a favorable view of a particular currency
Process
a. Importer imports the goods either under DC / LC, DA / DP or Direct Documents.
b. Importer requests the Buyer’s Credit Consultant before the due date of the bill to
avail buyers credit quote.
c. Consultant approaches overseas bank for indicative pricing, which is further quoted to
Importer.
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d. If pricing is acceptable to importer, overseas bank issue’s offer letter in the name of the
Importer.
e. Importer approaches his existing bank to get letter of undertaking / comfort (LOU / LOC)
issued in favor of overseas bank via swift.
f. On receipt of LOU / LOC, Overseas Bank as per instruction provided in LOU, will either funds
existing bank’s Nostro account or pays the supplier’s bank directly (using only MT202
payment mode).
g. Existing bank to make import bill payment by utilizing the amount credited (if the
borrowing currency is different from the currency of Imports then a cross currency contract
is utilized to effect the import payment)
h. On due date existing bank to recover the principal and Interest amount from the importer
and remit the same to Overseas Bank on due date.
Features of Buyers Credit
i. BC is arranged for customers either through our Foreign Offices by providing LOC and from
other Banks by providing LOU/SLC/BG.
ii. BC is made available to the customers either as part of NFB (LC) or FB WC Limit. There was no
uniformity among the operating units/branches as the accounting treatment leading to
incorrect calculation of capital charge.
iii. To remove aberrations suitable accounting procedures were put in place in March, Instructions
were issued 2012.
iv. Trade Credit for 3 years and above come under the category of External Commercial
Borrowings (ECBs) subject to ECB guidelines.
v. Buyers Credit is a foreign currency credit to importer where there is no LC or LC already due.
vi. Within the overall limits already granted to the customer or Customer will apply to local Bank
branch & Loan processing and sanction done in India.
vii. Local Bank branch will issue a letter of undertaking (LOU)/Letter of Comfort (LOC) to the Bank
abroad.
viii. Bank abroad/FO pays the supplier directly.
ix. Local Bank branch will make recovery and remit to the Bank abroad on due dates.
x. Maximum amount permissible is USD 20 million
xi. All in cost ceilings are 6M LIBOR +350 bps up to 5 years.
Supplier Credit
Supplier credit is an offer of credit that is extended to a buyer by a seller or supplier. This model is
often used in a number of settings, including the importing/exporting business, as well as in supplying
goods and services to businesses of all sizes.
Supplier credit is an offer of credit that is extended to a buyer by a seller or supplier. This model is
often used in a number of settings, including the importing/exporting business, as well as in supplying
goods and services to businesses of all sizes. Credit of this type allows the buyer to receive the
products needed now, paying for them later in accordance with the terms and conditions agreed upon
with the seller.
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One example of supplier credit can be found with the exporting of goods for sale in another country.
With this model, the entity selling the goods extends credit to the entity that is purchasing the goods,
with the plan of offering them for sale at a profit.
The supplier may issue a line of credit to the importer, assuming that the client can demonstrate to the
supplier that the importer is credit worthy
In many cases, this line of supplier credit may be structured in a manner that calls for the importer to
pay a percentage of the total contract price up front, and issue some type of promissory note to the
supplier for the remainder of the outstanding balance. The importer may also arrange a delayed draft
to settle the difference, with the draft set to clear the importer’s bank account at a specified future
date. Often, this date will be at a time after the importer believes that the imported goods will be sold
at a profit, allowing the transaction to take place without the need for the importer to tie up cash
assets in the interim.
This form of self-financing has many benefits for both the supplier and the customer. For the
customer, the establishment of a line of credit means it is possible to order what is needed now and
pay for it incrementally while earning a return from the use of the items ordered. For the supplier,
extending the line of credit means that steady flows of revenue are created, assuming that all
customers who are granted supplier credit make timely payments on their outstanding balances.
Like most type of credit situations, supplier credit usually is provided with the provision that finance
charges will apply to the outstanding balance in the client’s credit account. The amount of interest
charged is normally determined based on governmental regulations that apply in the jurisdictions
involved, thus ensuring that customers are not charged an inordinate amount of interest as part of the
supplier credit option. This rate of interest is usually competitive with the interest rates the customer
would have to pay if some other source of credit were used to manage the purchase.
Main features of Supplier’s Credit
► Bank in India to ascertain from a Bank in the supplier’s country the rate at which the usance
bills for the specific period would be discounted by them.
► The underlying contract between the exporter and the importer should provide for usance
drafts.
► The L/Cs should be opened strictly in accordance with the payment terms of the underlying
contracts and should be restricted for negotiation at concerned Bank abroad.
► The L/Cs should provide for Bank abroad concerned to claim reimbursement only on the due
dates of the bills drawn under the L/Cs.
► The rate of interest should be negotiated with the Bank abroad keeping in view the
competition.
Difference between Supplier’s Credit and Buyer’s Credit

CRITERIA SUPPLIERS’ CREDIT BUYERS’ CREDIT
Mode of Can be used only in case of LC Can be used for payment
Payment transactions mode like LC, LC usance, DA,
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DP, & Direct Doc
LC Clauses At the time of opening LC or No additional clauses or

amending LC clauses given by Amendment is required in LC
Suppliers Credit bank needs to be
changed. Like Negotiation Clause,
Confirmation Clause,
Reimbursement Clause
Arrangement Has to be arranged at the time of Can be arranged after
opening LC or before shipment of documents have reached the
goods bank or documents are
received by importer directly
Costs LC Advising Cost, LC Amendment Interest Cost
Charges, Document Processing
Charges, Courier Charges,
Conformation Cost and Interest
Cost
External Commercial Borrowings (ECB)

External Commercial Borrowings are commercial loans availed from non-resident lenders
comprising the following three tracks:
1. Medium term foreign currency denominated ECB with average minimum maturity of 3/5 years (3
years for ECB up to USD 50 million or its equivalent, and 5 years for ECB beyond USD 50 million
or its equivalent.
2. Long term foreign currency denominated ECB with minimum average maturity of 10 years
(irrespective of the amount).
3. Indian Rupee (INR) denominated ECB with minimum average maturity of 3 /5 years.
Page 134 of 180

Export Finance
Trade involves purchase of merchandise by a purchaser from a seller for his onward selling for a
profit with or without value addition to the goods.
Any trade transaction involves movement of goods, movement of the documents representing
the sale/purchase of goods, and the movement of the funds representing settlement of the
transaction.
In banking parlance, the term ‘Trade Finance’ usually indicates finance against an international
trade transaction involving either import or export of goods from/to a foreign country.
Trade Finance can be divided into two distinct categories: Export Trade Finance, and Import
Trade Finance.
Export Trade Finance may further be split into two:
Pre Shipment Export Credit and Post Shipment Credit.
The Pre-shipment export credit is all about financing the collection /purchase of inventory and
imparting the required value addition to the inventory so that it is now ready for export. This is
the reason why the pre-shipment credit is popularly known as “Packing Credit’.
The pre shipment credit facility is provided for working capital requirements till the shipment
stage viz for purchase of raw materials, manufacturing, processing, packaging, transportation and
warehousing of goods meant for exports.
On the other hand, a commercial bank extends post shipment credit facilities to the exporter after
the goods are shipped.
Post Shipment credit extended by banks takes care of the working capital requirements locked in
the form of export receivables during the period from the shipment of goods to the realization of
export proceeds.
Export finance - Pre shipment finance/ Packing Credit

Pre-shipment finance is also referred to as Export Packing Credit (EPC)
'Pre-shipment / Packing Credit' means any loan or advance granted or any other credit
provided by a bank to an exporter for financing the purchase, processing, manufacturing or
packing of goods prior to shipment / working capital expenses towards rendering of services
on the basis of letter of credit opened in his favor or in favor of some other person, by an
overseas buyer or a confirmed and irrevocable order for the export of goods / services from
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India or any other evidence of an order for export from India having been placed on the
exporter or some other person, unless lodgement of export orders or letter of credit with the
bank has been waived.
Pre-shipment Credit is classified as
(a) Packing Credit,
(b) Advance against Duty Drawback entitlements, and
(c) Pre-shipment Credit in Foreign Currency (PCFC).
Appraisal and Assessment of Export Packing Credit (EPC) - Basic Considerations
Appraisal of working capital requirements in the form of packing credit is done in the usual
manner using the holding level approach.
However as a general rule, the margin against the individual working capital components are set
on a much lower scale ( say 10% to 15%) as against a higher margin range of 20% - 40%
stipulated in case of the usual credit propositions.
In course of appraisal, the financing bank themselves decide the period for which a packing
credit advance may be given after considering the various relevant factors including holding
periods etc. This is to ensure that the period considered for advancing packing credit is sufficient
to enable the exporter to ship the goods.
While appraising and assessing the usual factors like capacity, viability, integrity, past
performance of the exporter, the following factors assume additional significance in an export
credit proposition.
i) The exporter should be registered with the DGFT and obtained an Import Export Code
Number and possess membership of the relevant FIEO/Promotion council or any of its
regional outfits.
ii) The exporter should not figure in the Specific Approval List of ECGC. In case it does,
specific approval of ECGC is required for covering any fresh credit exposure in favor of
the unit.
iii) The name of the Exporters should not figure in the caution List circulated by RBI, if it
does then the lending bank has to take their permission from the competent authority
before a fresh credit exposure is taken in favor of the unit.
iv) The quantum of incentives receivables is a very important aspect of a credit proposal and
very often, the overall viability of the proposal depend on the above.
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v) The quantum of export incentives should be properly factored in the assessment of the
EPC.
vi) The capacity of the exporter to execute the orders as per the agreed time schedule needs
to be properly assessed on the basis of installed capacity, availability of raw material etc.
vii)The country risk aspects have to be born in mind as well. ECGC cover should be available
in respect of the country where the importer is situated.
Illustrations: Assessment of EPC Limit

The process of Assessment of EPC Limits is illustrated below.
Sl NO Particulars
st
As on 31 March Amt (in Rs Crores)
1 Annual Export sales 25.00
2 Less Estimated profit (10%) 2.50
3 Export sales after deduction of profit 22.50
4 Average Export sales per month ( net of profit) 1.88
5 Average Raw Material Holding (in months) 2
6 Average processing period (in months) 3
7 Average period for which EPC runs ( months) 5
8 Total Requirements of EPC { A2 X (A3+A4)} 9.37
9 EPC Limit requested by the Exporter 9.00
10 EPC Limit recommended 9.00
Running Account Facility
Pre-shipment credit to exporters is normally provided on lodgment of LCs or firm export

orders. It is observed that the availability of raw materials is seasonal in some cases. In some
other cases, the time taken for manufacture and shipment of goods is more than the delivery
schedule as per export contracts. In many cases, the exporters have to procure raw material,
manufacture the export product and keep the same ready for shipment, in anticipation of
receipt of letters of credit / firm export orders from the overseas buyers.
Having regard to difficulties being faced by the exporters in availing of adequate Pre-
shipment credit in such cases, branches have been authorized to extend Pre- shipment Credit
‘Running Account’ facility in respect of any commodity, without insisting on prior lodgment
of LCs/ firm export orders, depending on the branch’s judgment regarding the need to extend
such a facility and subject to the following conditions:
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If the advance is given on order to order basis, the amount advanced should be recorded in
the relative order/letter of credit under the signature of authorized official. The particulars
of each order/letter of credit must be entered in the packing credit (orders) register at the
time the advance is granted.
The particulars of each order/letter of credit must be entered in the packing credit (orders)
register at the time the advance is granted.
Branches should maintain a packing credit drawing power register wherein the drawing
power available to each borrower should be recorded under the signature of an authorised
official. Amounts of orders/letters of credit lodged and repayments of the advance granted
there-against should be recorded in this register.
Exporters should be required to insure their stocks against fire and theft for full value.
Goods-in-transit to port towns/Customs house/airline companies should also be insured.
Insurance from port of loading/air freighting to the port of destination should also be
arranged, unless this is the responsibility of the importer.
Period for liquidation of Pre-shipment advances

The period for which a packing credit advance may be given by the Bank depends
upon the circumstances of the individual case, such as the time required for procuring,
manufacturing or processing (where necessary), and shipping the relative goods. It is
primarily for the Bank to decide the period for which the packing credit advance may be
given having regard to the various relevant circumstances, but it should be sufficient to
enable the exporter to ship the goods. Normally, this period should not exceed 180 days.
However, RBI now permitted this period upto 270 days wherever necessary.
Pre-Shipment Credit in Foreign Currency
The Scheme of providing EPC facility in designated foreign currencies is popularly known as
PCFC ( Pre-shipment Credit in Foreign Currency)
The scheme of Pre-shipment Credit in Foreign Currency (PCFC) enables the exporters to
avail packing credit in foreign currencies at the interest rates prevailing in the international
market i.e at internationally competitive interest rates through Authorized Persons.
The Scheme covers the input cost of the items exported , both the domestic procurement cost
as well as the cost of imported inputs of exported goods.
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Exporters normally resort to this mode of finance when they feel that the rupee may not
depreciate much in comparison to the currency in which the credit is dominated during the
life of the credit. It is because, this would mean a higher amount of payment in Rupee terms to
be made by the borrower to the lending bank at the time of liquidation of the PCFC loan, which
leads to a reduced profit.
The Scheme covers the cost of both domestic as well as imported inputs of exported goods
at LIBOR/ EURO LIBOR/ EURI-BOR related rates of interest. This will be applicable only for
Cash exports. (Exports in respect of which payments are received within 180 days (or higher
period as applicable) of goods leaving the port or services being rendered are called cash
exports)
Period of Credit ( PCFC)
PCFC will be available as in the case of rupee credit initially for a maximum period of 180 days
from the date of first disbursement . Any extension of the credit will be subject to the same
terms and conditions as applicable for extension of Rupee Packing Credit and it will entail an
interest cost of 2% plus the original spread (charged initially) above 6 months LIBOR prevailing
at the time of extension for the extended period
If no export takes place within 360 days, the PCFC will be adjusted at T.T. selling rate for the
currency concerned. Interest right from the date of disbursement till the date of payment,
should be recovered at 2% over the interest rate applicable for the cash credit of the exporter
and the interest earlier recovered at LIBOR related rates should be adjusted there from.
PCFC can be availed in US dollar ($), pound sterling (£), EURO and Japanese Yen for the time
being.
The PCFC availed against a particular contract can be liquidated with the proceeds of the bill
relating to another contract for which no packing credit has been availed of or by advance
remittances in respect of export orders for which no PCFC drawal has been granted.
Repayment of PCFC
PCFC is to be necessarily liquidated out of the proceeds of the related Export Bill under Export
Bill Rediscounting Scheme (EBR).
However, the following relaxations have been permitted.
Advance remittances / separate inward remittances received in respect of orders against which
PCFC has been availed can be used to liquidate the PCFC.
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Care should be taken to see that the remittances received are not converted into Indian
Rupees but the relative cover funds should be arranged to be transferred to the respective main
Nostro account (i.e. India Dollar Account in the case of US$ with SBI New York) and full
particulars thereof should be reported to Global Market, Kolkata under the heading “Repayment
of PCFC from sources other than EBR”. This will enable GMU Kolkata to organize the repayment
into its PCFC loan Nostro account.
The proceeds of export bills sent on collection or otherwise against which no PCFC/ Packing
Credit had been availed of can also be applied to liquidate PCFC loan plus interest.
The export bills tendered in respect of export orders against which PCFC has been
availed cannot be sent on collection basis. The bills are to be necessarily discounted under EBR
Scheme.
Hence the availability of adequate non-credit bill discounting limit in the case of non-LC
transactions and the possibility of negotiating the discrepant documents under indemnity etc.
should be taken into account before grant of PCFC to the exporter.
In case discrepant documents / non-LC bills are to be necessarily discounted while the non
credit bill limit is fully utilized, it is suggested that the drawing power in EPC limit of the
customer can be blocked to the extent of value of the documents discounted till the bill is
realized.
Assessment of PCFC in case of exchange rate fluctuations
In the context of quantitative assessment of PCFC , credit officers usually carve out a suitable
limit from the total EPC requirement of the exporter (which is usually done in Rupee terms) ,
and convert the carved out limit in PCFC by applying the prevailing exchange rate .
POST Shipment Finance

Loan or advance granted to an exporter from the time of shipment of goods to the time of
realization including against the security of duty draw back or any receivable from the govt.
Exporters who sell goods abroad have to wait for a long time before payment is received from
overseas buyers. The period of waiting will depend upon the terms of payment. To tide over this
period, exporters need post-shipment finance.
Post-shipment credit means any loan or advance granted or any other credit provided by the
Bank to an exporter of goods/services from India from the date of extending the credit after
shipment of the goods/rendering of services to the date of realization of the sale proceeds, as
per the period of realization prescribed by
Page 140 of 180

Foreign Exchange Department (FED) and includes any loan or advance granted to an exporter,
in consideration of, or on the security of any duty drawback allowed by the Government from
time to time.
As per the current instructions of FED, the period prescribed for realization of export
proceeds is 9 months from the date of shipment.
Post-shipment credit facilities are generally provided in the form of:
 Negotiation/Payment/Acceptance of export documents under Letters of Credit (LC).

 Purchase/Discount of export documents under confirmed orders/export contracts.
 Advances against bills sent on collection basis.
 Advances against exports on consignment basis.
 Advances against Duty Drawback entitlements.
 Advances against undrawn balances/retention money.
 Rediscounting of Export Bills Abroad (EBR).
Appraisal and Assessment of Post Shipment Limit
Post shipment finance can be extended up to 100% of the invoice value of goods. The maximum
period usually allowed for realisation of export is nine months from the date of shipment for
all exporters including Units in SEZs, Status Holder Exporters, EOUs etc.
Post-shipment finance is also available in Rupee and specified foreign currencies. Very often,
export business may take place without the support of documentary letters of credit and we
normally finance the exporters, after due sanction, by purchasing the bills drawn by them on
foreign buyers or granting advance against bills sent on collection basis.
While appraising the arrangement, the Bank takes into consideration the track record of the
exporter, country risk, nature of merchandise, terms of payment, payment record of the
drawee etc. Advances against Duty Drawback receivable are also granted under Post-shipment
Finance.
Illustrations: Assessment of Export Bills Discounted Limit ( non-LC)

The process of Assessment of EPC Limits is illustrated below.
Sl No Particulars
st
As on 31 March (Amt, Rs Crores)
1 Annual Export Sales Estimated/Projected 25.00
2 Average Export sales per month 2.08
3 Estimated % of sales under Non-LC ( say 75%) 1.56
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4 Usance period of bills ( months), say 3 months 3 month
5 Export Bills Discounted ( Non-LC ) required (3X4) 4.68
8 Recommended EBD ( Non-LC) Limit 4.50
Advance against Bills sent on Collection Basis
Branches may also sometimes grant advances against bills sent on collection basis.
The need for resorting to this arrangement normally arises when the accommodation
available under the Foreign Bills Purchased Limit is exhausted or when some export bills drawn
under LC have discrepancies. Such facility may also be granted where it is the customary
practice in the particular line of trade and in the case of exports to countries where there are
problems of externalization.
Under such a situation, branches may send the export bill on collection basis and finance the
exporter after retaining a suitable margin out of the total bill amount and debit such advances to
an account styled “Advances against bills sent on collection basis” (rupee advance). The advance
should be liquidated out of the realization of export proceeds.
Advances against Goods sent on Consignment Basis
When goods are exported on consignment basis at the risk of the exporter for sale and eventual
remittance of sale proceeds to him by the agent / consignee, branches may finance against such
transactions subject to the customer enjoying specific limit for that purpose. However,
branches should ensure that while forwarding shipping documents to the Bank’s overseas
branch/ correspondent, they instruct them to deliver the documents only against Trust Receipt/
Undertaking to deliver the sale proceeds by a specified date, which should be within the time
prescribed for realization of export proceeds. Branches should retain appropriate margin while
granting advance against exports on consignment basis.
Advances against Duty Drawback Entitlements
Government of India has formulated a Duty Drawback Credit Scheme under which banks are
allowed to grant advances to exporters against their entitlements of duty drawback on export
of goods. The period of such advances will be upto a maximum of 90 days beyond which the Bank
may not allow the advances or may charge normal interest applicable to export credit. Advance
against duty drawback at post-shipment stage should be covered under Export Finance
Guarantee of ECGC.
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Rediscounting of Export Bills Abroad (EBR Scheme)
The scheme of `Rediscounting of Export Bills Abroad’ by authorised dealers was formulated by
RBI in order to make available to the exporters post shipment finance at international rates of
interest. Under the scheme, exporter’s bills are discounted at the post-shipment stage and
simultaneously rediscounted abroad by the Bank for raising foreign currency funds which are
applied to liquidate the underlying PCFC loan. Both sight and usance bills are discounted under
EBR scheme.
Page 143 of 180

15.SMA, NPA MANAGEMENT AND IRAC NORMS
SPECIAL MENTION ACCOUNTS
1. SMAs- Definition and Classification:
i. Early Warning System is an integral part of a bank’s Risk Management process as it provides an
opportunity for early identification of potential NPAs, review and reporting of problem loans and
initiation of time-bound corrective action including rehabilitation/restructuring. Keeping the
above in view, RBI has introduced a new asset category viz., Special Mention Accounts (SMAs),
between ‘standard’ and ‘sub-standard’ categories of assets, for the accounts which show
tendencies for possible default or delinquency or ‘signs of incipient stress’.
ii. We have to identify incipient stress in loan accounts, immediately on ‘default’, by

classifying stressed assets as special mention accounts (SMA) as per the following categories.
SMA-0 Principal or interest payment or any other amount wholly or partially overdue between
1-30 days
31-60 days
61-90 days
iii. Default means non-payment of debt when whole or any part or installment of the amount
of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as
the case may be. For revolving facilities like cash credit, default would also mean the
outstanding balance remaining continuously in excess of the sanctioned limit or drawing
power, whichever is lower, for more than 30 days.
2. Management of SMAs:
i. The management of SMAs essentially involves the following critical steps:

- Timely identification of SMAs at initial stage where account is either regular or temporary
irregular but showing the signs of incipient stress or early warning signals.
- Evolving a detailed action plan and preventive measures well in time to prevent slippage
of such SMAs to NPAs.
- Initiating Holding-on operations
- Reporting and monitoring of the progress made
Page 144 of 180

ii. Soon after an account is identified as SMA, the Branch should take immediate steps to analyse
the problems based on facts and circumstances by means of a review at the Branch as per SMA
Report Format and submit the same to the appropriate reviewing authority.
iii. The important parameters of the Branch level review would be the following:
- Diagnose reasons for the account being identified as SMA /deterioration in asset quality.
- Revalidate the assumptions made at the time of credit sanctions particularly with regard
to assessment of credit risk. Verify completeness and correctness of documentation
including revival position, creation / registration of charges, insurance cover etc. and
rectify deficiencies, if any.
- Discuss the unit’s problems with the promoters / guarantors and find out whether they
have a future plan for the unit.
- Identify and study the existing primary and secondary sources of cash flow and determine
whether the unit is intrinsically viable.
- Determine whether the problems faced by the unit are of a temporary nature or whether
any proactive action from the bank is required to sustain its viability.
- Assess whether the promoter(s) / management has genuine intent to rehabilitate the unit.
- Assess the ability of the promoters / management to turnaround the unit.
3. Resolution Plan for SMAs:
The following options for Resolution Plan (RP) are available:
(i) Rectification:
- To obtain a specific commitment from the borrower to regularise the account so that the
account comes out of SMA status or does not slip into the NPA category. Commitment
should be supported with identifiable cash flows within the required time period and
without involving any loss or sacrifice on the part of the existing lenders.
- Need based additional finance may be considered, if proposal is found viable by Bank.
However, it should be strictly ensured that additional financing is not provided with a
view to ever-greening the account.
(ii) Restructuring:
- To consider the possibility of restructuring if the account is prima facie viable and the
borrower is not a wilful defaulter and there is no diversion of funds, fraud or malfeasance,
etc.
- Restructuring cases will be taken up by the Bank only in respect of assets reported as
Standard, SMA, Sub-Standard or doubtful.
- Wilful defaulters will normally not be eligible for restructuring.
Page 145 of 180

(iii) Recovery - If the first two options of rectification and restructuring are considered as not
feasible or accounts fails to perform as per agreed terms under these options, due recovery
process may be resorted to.
4. Holding on Operation:
i. After taking a view on the viability of the unit / feasibility of rectification / restructuring,
the Branch should also decide on the need to implement holding on operations. The
details about of Holding On Operation (HOO) are as under:
a. The holding on operations (HOO) would consist of freezing the bank’s exposure
at the sanctioned limit or average daily exposure during the previous one month
prior to the date of reporting, whichever is higher and allowing operations within
such frozen limit.
b. Holding on operations would commence from the date branch identifies an SMA or a
Sub- standard account as ‘potentially viable’. Such holding on operations (HOO)
would not require any administrative clearance / approval /sanction and would
need only to be reported to the reviewing authority. If holding on operations
continued beyond the initial period of 3 months, the same has to be approved by the
sanctioning authority.
c. In cases where holding on operations are proposed as part of restructuring package,

along with other terms, prior approval should be taken from the authority that
approves the Restructuring package before implementing holding on operations.
5. SMA – Review and Reporting:
i. The authority structure for review of SMAs are as under:
SMA-0: Authority Structure for Review:

Group Aggregate Outstanding (FB+NFB) Authority
NBG O/s above Rs.1 cr & upto Rs.10 cr Regional Manager/AGM of the Branch
O/s above Rs.10 cr & upto Rs.25 cr DGM (B&O)
O/s above Rs.25 cr GM (Network)
MCG O/s above Rs.1 cr & upto Rs.20 cr DGM (Branch)
O/s above Rs.20 cr GM (MCRO)
CAG Irrespective of amount of SMAs GM & RH of CAG Branch
Page 146 of 180

SMA-1 & SMA-2: Authority Structure for Review:
Group Aggregate Authority Minutes to
Outstanding be put up to
(FB+NFB)
NBG O/s above Rs.1 cr & RM of the Region-Chairman , DGM (B&O)

less than Rs.5 cr AGM(RACPC/SMECC)/ CM(Rural/Credit)-
Members, Mgr(NPA)-Co-ordinator
O/s Rs.5 cr & Less DGM(B&O)-Chairman, RM of Region GM(Network)

than Rs.20 cr concerned-Members, CM(Credit)-Co-
ordinator
O/s Rs.20 cr & Less CGM-Chairman, GM-concerned network, DMD (COO)

than Rs.50 cr DGM(SME), DGM & CCO-Members,
AGM (NPA)- Co-ordinator
MCG O/s above Rs.1 cr & SMECCC MD & GE(CB)

upto Rs.20 crore
O/s above Rs.20 cr MCCC MD & GE(CB)

CAG Irrespective of amount CAGSARC Committee, CGM, CAG
of SMAs GM & RH (Branch),
DGM & RM/DGM &CCO (BRANCH),
DGM (SAMB) at the centre.
SMA-1 & SMA-2 : Authority Structure for Review of High Value SMAs at Corporate centre:
Aggregate O/s (FB+NFB) Authorized Committee comprising
O/s above Rs.50 cr & upto Rs.100 crore DMD & GE (SAM) + Members
O/s above Rs.100 cr & upto Rs.500 crore MD & GE (CB) + Members
O/s above Rs.500 cr Chairman + Members
ii. If after the SMA review, the unit is not considered potentially viable, recovery efforts are to
be immediately initiated. Accordingly, keeping in view the 90 day IRAC norm, the following
time norms have been prescribed for review of SMAs and for obtaining sanction for
enhancement/additional loan/rehabilitation package:
Page 147 of 180

Process Time
Frame
Submission of Report(SMA-0 as on last day of calendar month and report by 10

th 10 days
of the following month)
Approval for action plan (by reviewing authority) 5 days
Completion of viability study, if necessary, and submission of 45 days

restructuring/rehabilitation package/appraisal memorandum and obtention of
sanction from sanctioning authority
Total 60 days
iii. The controller of the branch is to monitor the progress in implementation of the approved
action plan. A monthly progress report required to be submitted by the Branch to the
controllers.
iv. As accounts with outstandings below the cut off level of Rs.1 crores are not covered by the
structured reporting norms and NBG would have large numbers of SMA accounts with
outstanding upto Rs.1.00 crore, Circle authorities will need to formulate suitable mechanism
for review of such accounts.
6. Central Repository of Information on Large Credits (CRILC):
CRILC has been set up by RBI with a view to improve credit discipline. All lending institutions
are required to provide following data to CRILC:
- All borrowers having aggregate fund-based and non-fund based exposure of Rs.5.00 crore
and above mentioning classification of an account as Standard/SMA/NPA. Aggregate
Exposure (AE) means total outstanding of fund based and non fund based facilities
pertaining to a borrower as on reporting date.
- Current Accounts/Current Account overdraft with outstanding balance (debit or credit) of
Rs.1.00 crore and above.
- The above details are required to be provided on monthly basis as end of every month.
- However, in case of borrower entities in default (SMAs/NPAs), with aggregate exposure
of Rs.5 crores and above, the details are required to be submitted to CRILC on a weekly
basis at the close of business on every Friday or the preceding working day if Friday
happens to be a holiday.
7. Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises:
Page 148 of 180

RBI have come out with a revised framework in order to provide a simpler and faster mechanism
to address the stress in MSME accounts and to facilitate promotion and development of MSMEs.
This framework is required to be adopted and brought into effect by the Bank. The Main features
of the framework are as under:
 Framework shall be applicable to all stressed MSME accounts having exposure up to Rs.25
crore, including accounts under Consortium or Multiple Banking Arrangement (MBA).
 For resolution, a Committee headed by AGM (SMEC) in respect of accounts handled by SMEC
and the Regional Manager (RBO) in respect of accounts handled by RASMEC and accounts
outside the purview of SMEC will be formed. The other members of the committee are i) an
independent expert in MSME ( to be nominated by the RM (RBO) / AGM (SME), ii) a
representative from the concerned State Government and iii) Member(s) from the
Consortium / MBA, in case of consortium / MBA advances.
 In the absence of State Government nomination, RM (RBO) /AGM (SMEC) can induct an
independent expert in the Committee, namely a retired executive of another bank of the
rank of CM and above.
 While decisions of the committee will be by simple majority of members, the Chairperson shall
have the casting vote, in case of a tie.
 The Committee shall decide on appropriate Resolution Plan (RP). In case of restructuring, TEV
study is to be got conducted mandatorily by the Committee for accounts with aggregate
exposure of Rs.10 crore and above.
 The options under RP by the Committee may include :

(i) Rectification (ii) Restructuring and (iii) Recovery
Page 149 of 180

NPA, IRAC and Provisioning Norms
1. Bank’s Policy on NPA

The Bank’s policy is to ensure containment of NPAs to the least in conformity with international
standards. The ‘Management of NPAs’ which is both preventive and curative in nature, seeks to
achieve the containment of NPAs through a combination of measures such as:
i) Selection of quality assets through proper credit approval process
ii) Maintaining the quality of existing standard assets and initiating effective
measures to upgrade their quality whenever deterioration in their quality is
apprehended or noticed,
iii) Upgradation through rehabilitation or restructuring,
iv) Recovery through legal process involving effective follow up of suit filed cases,
v) Recovery through compromise settlements in appropriate cases and
vi) Writing off the loss assets in cases where prospects of recovery or upgradation are
perceived to be bleak.
2. RBI Guidelines on NPA pertaining to Loans and Advances including IRAC and Provision
Norms:
The primary guiding factor for recognising an NPA will be the Prudential Norms on Income
Recognition and Asset Classification (IRAC) implemented by Reserve Bank of India (RBI).
2.1 ASSET CLASSIFICATIONS:
In terms of Reserve Bank of India guidelines, all advances are required to be reviewed and
classified into two principal categories at regular intervals as under:
(a) Performing Assets or Standard Assets i.e. where the advances are earning interest income
on an actual realization basis.
(c) Non-Performing Assets (NPA) i.e. where advances are not earning interest on an actual
realisation basis. An asset, including a leased asset, is considered as non-performing when
it ceases to generate income for the bank. A loan or an advance accounts will be
considered as NPA where:
i. interest and/ or installment of principal remain overdue for a period of more than
90 days in respect of a term loan.
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ii. the account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC).
iii. the bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
iv. the installment of principal or interest thereon remains overdue for two crop
seasons for short duration crops in respect of agriculture loan and advances,
v. the installment of principal or interest thereon remains overdue for one crop
season for long duration crops in respect of agriculture loan and advances,
vi. in respect of derivative transactions, the overdue receivables representing positive
mark-to-market value of a derivative contract, if these remain unpaid for a period
of 90 days from the specified due date for payment.
vii. In case of interest payments, banks should, classify an account as NPA only if the
interest due and charged during any quarter is not serviced fully within 90 days
from the end of the quarter.
Overdue: Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid
on the due date fixed by the bank.
Out of Order: An account should be treated as 'out of order' if the outstanding balance
remains continuously in excess of the sanctioned limit/drawing power for 90 days. In
cases where the outstanding balance in the principal operating account is less than the
sanctioned limit/drawing power, but there are no credits continuously for 90 days as on
the date of Balance Sheet or credits are not enough to cover the interest debited during
the same period.
Accounts with temporary deficiencies: The classification of an asset as NPA should be

based on the record of recovery. An advance account should not be classified as NPA
merely due to the existence of some deficiencies which are temporary in nature such as
non-availability of adequate drawing power based on the latest available stock statement,
balance outstanding exceeding the limit temporarily, non-submission of stock statements
and non-renewal of the limits on the due date, etc. In the matter of classification of
accounts with such deficiencies, the following guidelines are required to be followed:
- Drawings in the working capital accounts are required to be covered by the adequacy
of current assets, since current assets are first appropriated in times of distress.
Drawing power is required to be arrived at based on the stock statement which is
current. Stock statements relied upon by the banks for determining drawing power
should not be older than three months. The outstanding in the account based on
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drawing power calculated from stock statements older than three months, would be
deemed as irregular. A working capital account will become NPA if drawing power
calculated from stock statements older than 180 days even though the unit may be
working or the borrower's financial position is satisfactory.
- Regular and ad hoc credit limits need to be reviewed/ regularised not later than three
months from the due date/date of ad hoc sanction. In case of constraints such as non-
availability of financial statements and other data from the borrowers, the branch
should furnish evidence to show that renewal/ review of credit limits is already on
and would be completed soon. An account where the regular/ ad hoc credit limits
have not been reviewed/ renewed within 180 days from the due date/ date of ad-hoc
sanction will be treated as NPA.
2.2 Categories of NPAs:
2.2.A: Banks are required to classify non performing assets further into the following three
categories based on the period for which the asset has remained non performing and the
realisability of the dues:
i. Substandard Assets
ii. Doubtful Assets
iii. Loss Assets
i. Substandard Assets: A substandard asset would be one, which has remained NPA for a
period less than or equal to 12 months.
ii. Doubtful Assets: An asset would be classified as doubtful if it has remained in the
substandard category for a period of 12 months.
iii. Loss Assets: A loss asset is one where loss has been identified by the bank or internal or
external auditors or the RBI inspection but the amount has not been written off wholly.
2.2.B: Effect of erosion in security value/frauds on classification of NPAs:

In respect of accounts where there are potential threats for recovery on account of erosion in the
value of security or non-availability of security and existence of other factors such as frauds
committed by borrowers it will not be prudent that such accounts should go through various
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stages of asset classification. In cases of such serious credit impairment, the asset should be
straightaway classified as doubtful or loss asset as under:
- When the realisable value of the security is less than 50 per cent of the value assessed
by the bank or accepted by RBI at the time of last inspection, as the case may be, such
NPAs may be straightaway classified under doubtful category.
- If the realisable value of the security, as assessed by the bank/ approved valuers/ RBI
is less than 10 per cent of the outstanding in the borrowal accounts, the existence of
security should be ignored and the asset should be straightaway classified as loss
asset
2.2.C: Loans with moratorium for payment of interest:

i. In the case of bank finance given for industrial projects or for agricultural plantations etc.
where moratorium is available for payment of interest and payment of interest becomes 'due'
only after the moratorium or gestation period is over. Therefore, such amounts of interest do not
become overdue during moratorium. They become overdue only after due date for payment of
interest, if uncollected, for the purpose of classification of NPA.
ii. In the case of housing loan or similar advances granted to staff members where interest is
payable after recovery of principal, interest need not be considered as overdue from the first
quarter onwards. Such loans/advances should be classified as NPA only when there is a default
in repayment of installments of principal or payment of interest on the respective due dates.
2.3 Other Guidelines related to Asset Classifications:

2.3.A: Accounts regularised near about the balance sheet date:
The asset classification of borrowal accounts where a solitary or a few credits are
recorded before the balance sheet date should be handled with care and without scope for
subjectivity. Where the account indicates inherent weakness on the basis of the data
available, the account should be deemed as a NPA. In other genuine cases, satisfactory
evidence should be furnished to the Statutory Auditors/Inspecting Officers about the
manner of regularisation of the account to eliminate doubts on their performing status.
2.3.B: Asset Classification to be borrower-wise and not facility-wise:

In one facility granted by a bank to a borrower classified as NPA, all the facilities granted
to that borrower and investment in all the securities issued by the borrower will have to
be treated as Non Performing Assets(NPA)/Non Performing Investment(NPI).
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2.3.C: Advances under consortium arrangements:
Asset classification of accounts under consortium should be based on the record of
recovery of the individual member banks and other aspects having a bearing on the
recoverability of the advances.
2.3.D: Advances against Term Deposits, NSCs, KVPs/IVPs, Gold Loan, etc:
i. Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and life policies
need not be treated as NPAs, provided adequate margin is available in the accounts. Term
deposits, NSCs, KVPs/IVPs and Life Insurance policies are considered as cash security as
they are payable on demand to the extent of surrender value. Therefore, when an advance
against these securities becomes overdue, Bank has full authority to encash it and to close
these advances account closed from the proceeds.
ii. Advances against gold ornaments, government securities and all other securities are
not covered by this exemption. A loan granted against the security of the gold ornaments
for non-agricultural purposes will be treated as NPA if the account remains overdue for
more than 90 days. However, if the loan is availed for agricultural activities (Agri Gold
Loans), the account will be treated as NPA if it remains overdue for 2 crop seasons in case
of short duration crops and one crop season in case of long duration crops.
2.3.E: Government guaranteed advances:

The credit facilities backed by guarantee of the Central Government though overdue may
be treated as NPA only when the Government repudiates its guarantee when invoked.
This exemption from classification of Government guaranteed advances as NPA is not for
the purpose of recognition of income. For example, if an amount of interest/installment
has fallen overdue for credit facilities backed by central government guarantee and on
invocation of the guarantee, the Central Government has been refused to pay the dues for
any reason, account will be classified as NPA if it remains unpaid for a period of more than
90 days from the due date of the payment of installment/interest. Further, if on
invocation of Central Government guarantee, it has been accepted by the central
government and payment will be made to the bank in due course, the account need not to
be classified as NPA despite remaining overdue for more than 90 days. However, banks
are not allowed to book any interest and other income on accrual basis in above accounts
and it can be book only when it has actually been paid by the borrower/central
government.
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The credit facilities backed by guarantee of the State Government are not exempted from
asset classification norms as applicable to Central Government guaranteed accounts as
above. State Government guaranteed advances and investments in State Government
guaranteed securities would attract asset classification and provisioning norms if interest
and/or Installment/principal or any other amount due to the bank remains overdue for
more than 90 days.
2.3.F: Restructured Assets:

i. Restructuring of advances could take place in the following stages:
(a) before commencement of commercial production / operation;
(b) after commencement of commercial production / operation but before the asset has
been classified as 'sub-standard';
(c) after commencement of commercial production / operation and the asset has been
classified as 'sub-standard' or 'doubtful'.
ii. Accordingly, the following asset classification norms will be applicable for restructured
accounts:
- The accounts classified as 'standard assets' should be immediately reclassified as
'sub-standard assets' upon restructuring and slip into further lower asset classification
categories as per the extant asset classification norms
- The non-performing assets, upon restructuring, would continue to have the same asset
classification as prior to restructuring and slip into further lower asset classification
categories as per extant asset classification norms with reference to the pre-
restructuring repayment schedule.
- The FITL/WCTL/debt or equity instrument created by conversion of unpaid
interest/principal will be classified in the same asset classification category in which
the restructured advance has been classified.
- Any additional finance may be treated as 'standard asset' during the ‘specified period’
(defined at para 2.4 below) under the approved restructuring package. If the
restructured asset does not qualify for upgradation at the end of the above specified
period, the additional finance shall be placed in the same asset classification category
as the restructured debt.
- If a restructured asset, which is a standard asset on restructuring in terms special
regulatory treatment and is subjected to restructuring on a subsequent occasion, it
should be classified as substandard.
- If the restructured asset is a sub-standard or a doubtful asset and is subjected to
restructuring, on a subsequent occasion, its asset classification will be reckoned from
the date when it became NPA on the first occasion.
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2.4: Upgradation of loan accounts classified as NPAs
2.4.A: If an NPA account which have not been restructured and the arrears of interest and
principal are paid by the borrower, the account may be re-classified as ‘standard’ accounts.
2.4.B: A restructured/ rescheduled NPA account should be upgraded only on demonstration of

‘satisfactory performance’ of the outstanding loan / facilities accounts during the ‘specified
period’.
Specified Period: Specified period’ means the period from the date of implementation of
restructuring up to the date by which at least 20 percent of the outstanding principal debt as
per the restructuring and interest capitalisation sanctioned as part of the restructuring, if any, is
repaid. Provided that the specified period cannot end before one year from the commencement
of the first payment of interest or principal (whichever is later) on the credit facility with longest
period of moratorium under the terms of restructuring.
Satisfactory Performance: Satisfactory performance during the specified period means the
payments in respect of borrower entity are not in ‘Default’ at any point of time during the
‘specified period’. Default means non-payment of debt when whole or any part or installment of
the amount of debt has become due and payable and is not repaid by the debtor or the corporate
debtor, as the case may be. For revolving facilities like cash credit, default would also mean the
outstanding balance remaining continuously in excess of the sanctioned limit or drawing
power, whichever is lower, for more than 30 days.
2.5 INCOME RECOGNISATION:
2.5.1: Income Recognisation Policy:
i. The actual realization concept of accounting convention means that if a loan made by a
bank fails to fetch a return in the form of interest realised from the borrower, the bank
has no right to book that interest chargeable as income in its balance sheet. In that event
it signifies that the asset is not performing i.e., not yielding any income to the bank.
ii. Thus an asset, which ceases to yield income for the bank, should be treated as NPA, and
any income from such loan asset should not be booked as income until it is actually
recovered.
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iii. However, interest on advances against term deposits, NSCs, IVPs, KVPs and surrender
value of life insurance policies may be taken to income account on the due date, provided
adequate margin is available in the accounts.
iv. If any advance, including bills purchased and discounted, becomes NPA, the entire
interest accrued and credited to income account in the past periods, should be reversed if
the same is not realised. Therefore, interest charged to such loan accounts should be
reversed and parked in “Un-Realised Interest (URI)” until recovery. On recovery reverse it
from URI and credit Interest Account. Further application of interest also has to be
stopped in NPA accounts. However, accrued interest for NPA accounts may continued to
be calculated and recorded in the CBS system. The accrued interest calculated for NPA
accounts will not be part of Bank’s gross advances.
v. In respect of NPAs, fees, commission and similar income that have accrued should cease
to accrue in the current period and should be reversed with respect to past periods, if
uncollected.
iv. Fees and commissions earned by the banks as a result of renegotiations or

rescheduling of outstanding debts should be recognised on an accrual basis over the
period of time covered by the renegotiated or rescheduled extension of credit if it is not
paid in cash at the time of restructuring. It is subject to condition that the rescheduled
amounts are being paid as per renegotiated terms & conditions.
2.5.3 Appropriation of recovery in NPAs
i. Interest realised on NPAs may be taken to income account provided the credits in the
accounts towards interest are not out of fresh/ additional credit facilities sanctioned to
the borrower concerned.
ii. In the absence of a clear agreement between the bank and the borrower for the
purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due),
booking of interest on account of partial recovery in NPAs can be made as under:
- First, the unrealised interest (URI) is treated as recovered to the extent of recovery
made.
- When URI is fully recovered, further interest good for the balance amount of recovery
is can be booked as income to the extent of reduction in irregularity between two
Balance Sheet dates.
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2.6 PROVISIONING NORMS
i. In conformity with the prudential norms, the Banks are required to make certain amount of
provision on various kinds of assets on fund based outstanding as under:
Assets Provision to be held

Standard Assets i. Farm credit for Agriculture Activities: 0.25%
ii. Advances to Small and Micro Enterprises: 0.25%
ii. Advances to Commercial Real Estate (CRE) Sector: 1%
iii. Advances to Commercial Real Estate – Residential
Housing Sector (CRE - RH): 0.75
iv. All other loans and advances not included above including
advances to Medium Enterprises: 0.40%
Sub-Standard Assets Secured Advances: 15%
Unsecured Advances: 25%
Infrastructure project with escrow accounts: 20%
Doubtful Assets upto 1 year 25% on secured portion and 100% on unsecured portion
Doubtful Assets more than 40% on secured portion and 100% on unsecured portion
1 year to 3 years
Doubtful Assets more than 100% of the outstandings
3 years
Loss Assets 100% of the outstandings
Unsecured advances: An exposure (FB+NFB) where the realisable value of the security, as
assessed by the bank/approved valuers/Reserve Bank’s inspecting officers, is not more than
10 percent or ab-initio unsecured advances accounts.
Unsecured Portion: Outstanding less the realisable value of the security to which the bank
has a valid recourse and the realisable value is estimated on a realistic basis.
Security: Tangible security properly discharged to the bank and will not include intangible
securities like guarantees, comfort letters etc.
Valuation of Security: For stocks and receivables charged in favour of bank, stock audit at
annual intervals by empanelled Stock Auditor for NPAs with balance of Rs. 5 crore and above.
Immovable properties charged in favour of the bank should be valued once in three years by
empanelled valuers.
ii. Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs, gold ornaments,
government & other securities and life insurance policies would attract provisioning
requirements as applicable to their asset classification status.
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iii. Advance covered by guarantees of CGTMSE/CRGFTLIH: In case CGTMSE or CRGFTLIH
guaranteed accounts becomes non-performing, no provision need be made towards the
guaranteed portion. The amount outstanding in excess of the guaranteed portion should be
provided for as per the extant guidelines on provisioning for non-performing assets.
iv. Restructured Accounts: Provision against the restructured advances will be held as per the
extant provisioning norms. Restructured accounts classified as non-performing assets, when
upgraded to standard category will attract a higher provision of 5% in the first year from the
date of upgradation.
v. Reduction in the rate of interest and / or reschedulement of the repayment of principal

amount, as part of the restructuring, will result in diminution in the fair value of the advance.
Therefore, provision for diminution in fair value should be held in addition to the provisions as
per existing provisioning norms.
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16.Restructuring of Advances
1. Definition of a Restructured Account:
A restructured account is one where the bank, for economic or legal reasons relating to the
borrower's financial difficulty, grants to the borrower concessions that the bank would not
otherwise consider. Restructuring would normally involve modification of terms of the advances
/ securities, which would generally include, among others, alteration of repayment period /
repayable amount/ the amount of instalments / rate of interest (due to reasons other than
competitive reasons) / roll-over of credit facilities / sanction of additional credit facility /
enhancement of existing credit limits. However, extension in repayment tenor of a floating rate
loan on reset of interest rate, so as to keep the EMI unchanged provided it is applied to a class of
accounts uniformly will not render the account to be classified as ‘Restructured account’. In other
words, extension or deferment of EMIs to individual borrowers as against to an entire class,
would render the accounts to be classified as 'restructured accounts’.
2. Eligibility criteria for restructuring of advances:
 Banks may restructure the accounts classified under 'standard', 'sub- standard' and
'doubtful' categories.
 Banks cannot reschedule / restructure / renegotiate borrower’s accounts with
retrospective effect.
 No account will be taken up for restructuring by the banks unless the financial viability is
established and there is a reasonable certainty of repayment from the borrower, as per
the terms of restructuring package.
 While the borrowers indulging in frauds and malfeasance will continue to remain
ineligible for restructuring, banks may review the reasons for classification of the
borrowers as wilful defaulters, specially in old cases where the manner of classification of
a borrower as a wilful defaulter was not transparent, and satisfy itself that the borrower
is in a position to rectify the wilful default.
 BIFR cases are not eligible for restructuring without their express approval.
3. Broad benchmarks for the viability parameters:
 Return on capital employed should be at least equivalent to 5 year Government security

yield plus 2 per cent.
 The debt service coverage ratio should be greater than 1.25 within the 5 years period in
which the unit should become viable and on year to year basis the ratio should be above
1. The normal debt service coverage ratio for 10 years repayment period should be
around 1.33.
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 The benchmark gap between internal rate of return and cost of capital should be at least
1per cent.
 Operating and cash break even points should be worked out and they should be
comparable with the industry norms.
 Trends of the company based on historical data and future projections should be
comparable with the industry. Thus behaviour of past and future EBIDTA should be
studied and compared with industry average.
 Loan life ratio (LLR), as defined below should be 1.4, which would give a cushion of 40%
to the amount of loan to be serviced.
Present value of total available cash flow (ACF) during the loan life period
(including interest and principal)
LLR = -----------------------------------------------------------------------------------------------------
Maximum amount of loan
4. Asset classification norms:
 The accounts classified as 'standard assets' should be immediately reclassified as 'sub-
standard assets' upon restructuring.
 The non-performing assets, upon restructuring, would continue to have the same asset
classification as prior to restructuring and slip into further lower asset classification
categories as per extant asset classification norms with reference to the pre-restructuring
repayment schedule.
 Standard accounts classified as NPA and NPA accounts retained in the same category on
restructuring by the bank should be upgraded only when all the outstanding
loan/facilities in the account perform satisfactorily during the ‘specified period’, i.e.
principal and interest on all facilities in the account are serviced as per terms of payment
during that period.
 The FITL / WCTL created by conversion of unpaid interest / irregular portion will be
classified in the same asset classification category in which the restructured advance has
been classified.
 Any additional finance may be treated as 'standard asset' during the specified period
under the approved restructuring package. If the restructured asset does not qualify for
upgradation at the end of the above specified period, the additional finance shall be
placed in the same asset classification category as the restructured debt.
 If a restructured asset, which is a standard asset on restructuring in terms special
regulatory treatment and is subjected to restructuring on a subsequent occasion, it should
be classified as substandard.
5. Upgradation of Restructured Account:
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i. A restructured/ rescheduled NPA account should be upgraded only on demonstration of
‘satisfactory performance’ of the outstanding loan / facilities accounts during the
‘specified period’.
Specified Period: Specified period’ means the period from the date of implementation of
restructuring up to the date by which at least 20 percent of the outstanding principal
debt as per the restructuring and interest capitalisation sanctioned as part of the
restructuring, if any, is repaid. Provided that the specified period cannot end before one year
from the commencement of the first payment of interest or principal (whichever is later) on
the credit facility with longest period of moratorium under the terms of restructuring.
Satisfactory Performance: Satisfactory performance during the specified period means the
payments in respect of borrower entity are not in ‘Default’ at any point of time during the
‘specified period’. Default means non-payment of debt when whole or any part or
installment of the amount of debt has become due and payable and is not repaid by the
debtor or the corporate debtor, as the case may be. For revolving facilities like cash credit,
default would also mean the outstanding balance remaining continuously in excess of the
sanctioned limit or drawing power, whichever is lower, for more than 30 days.
ii. In case, however, satisfactory performance after the specified period is not evidenced, the
asset classification of the restructured account would be governed as per the applicable
prudential norms with reference to the pre-restructuring payment schedule.
iii. If the restructured asset is a sub-standard or a doubtful asset and is subjected to

restructuring, on a subsequent occasion, its asset classification will be reckoned from the
date when it became NPA on the first occasion.
6. Provision on restructured advances:
Banks will hold provision against the restructured advances as per the extant provisioning
norms.
Restructured accounts, classified as non-performing assets upon restructuring, when upgraded
to standard category will attract a higher provision of 5% in the first year from the date of
upgradation.
7. Provision for diminution in the fair value of restructured advances:
Reduction in the rate of interest and / or reschedulement of the repayment of principal amount,
as part of the restructuring, will result in diminution in the fair value of the advance. Such
diminution in value is an economic loss for the bank and will have impact on the bank's market
value of equity. It is, therefore, necessary for banks to measure such diminution in the fair value
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of the advance and make provisions for it by debit to Profit & Loss Account. Such provision
should be held in addition to the provisions as per existing provisioning norms as indicated in
above, and in an account distinct from that for normal provisions.
8. Broad instructions for grant of reliefs under restructuring:
i. The reliefs and concessions under a restructuring package sanctioned to a potentially

viable and eligible sick unit would normally comprise:
- Restructuring of present dues.
- Sanction of fresh additional credit facilities with reliefs and concessions after taking
into account the profitability projections/ funds flow/ cash flow statement covering
the period of restructuring to ensure that the unit would generate sufficient funds to
service its restructured debts as well as fresh loans.
- Grant of reliefs/assistance from State Government and other Development agencies.
- Framing of time schedule for implementation of the package.
- Special terms/covenants, if any.
ii. Waiver of penal rates of interest and damages: If penal rates of interest or
damages have been charged, such charges should be waived from the accounting
year in which the unit started incurring cash losses continuously.
iii. Unpaid interest: After the penal rates of interest or damages charged are waived,
the unpaid interest of both term loan and cash credit for the period from the first
date of the accounting year in which the unit started incurring cash losses
continuously to the cut off date should be segregated and funded separately by way
of a Funded Interest Term Loan (FITL).
iv. Principal dues: After the penal interest, unpaid interest and damages charged are
reduced from the outstandings in the cash credit accounts, the amount of principal
dues is arrived at. Drawing power of the accounts should be realistically computed
after adjusting for unproductive inventory, unrealisable bills, etc. The irregular portion
of the cash credit account (Principal dues after reducing the Drawing Power), would be
funded as Working Capital Term Loan (WCTL).
v. Existing working capital: After the unpaid interest portion is funded as FITL and
the irregular portion is funded as WCTL, the remaining working capital limit can be
extended concessionary rate of interest.
vi. Existing term loans: After the unpaid interest portion is funded as mentioned in
paragraph above, repayment of the balance dues should be suitably rephased and
repaid within the stipulated period as mentioned above. Additional Finance: Need
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based additional finance for working capital, asset creation, ect. capital may be
provided to sustain further operating requirements of the unit.
vii. Promoters Contribution: Promoters’ contribution should comprise fresh injection of

funds as distinct from internal generation and proceeds from sale of assets already
charged. Promoters’ sacrifice and additional funds brought by them should be
minimum of 20% of bank’s sacrifice or 2 per cent of restructured debt, whichever is
higher.
9. Repeatedly Restructured Accounts:
When a bank restructures an account a second (or more) time(s), the account will be considered as
a 'repeatedly restructured account'. However, if the second restructuring takes place after the
period upto which the concessions were extended under the terms of the first restructuring, that
account shall not be reckoned as a 'repeatedly restructured account'.
10. Banks’ Right of recompense:
- The Bank’s right to exercise recompense should be included in the sanction letter to
the borrower.
- Suitable clause should be added in the sanction letter requiring the unit to show the
recompense amount due to the Bank as a contingent liability in the unit’s balance
sheet every year.
- The amount of recompense due to the Bank should be advised to the company and
their acknowledgement obtained at half-yearly intervals, which should be kept along
with the relative security documents.
- In case a decision is taken to call up the advance due to failure of the package, the loss
sustained by the Bank on account of reliefs/concessions extended should also be
claimed along with other dues.
- Registers for Right of Recompense should be maintained in respect of each unit for
whom a package has been approved; one page should be used for each facility in the
relative Register.
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17.RECOVERY ACTIONS
Sale of properties under SARFAESI Act, 2002

Eligibility Criteria:
Action under SARFAESI Act, 2002 can be initiated in the following cases:
i. The account should be an NPA as per RBI guidelines.

ii. The claim amount (including accrued interest) should be for an amount not less than Rs.1.00
lac.
iii. The amount due (including interest) should be more than 20% of the principal amount and
interest thereon.
Action Required Before Issuing Notice :
i. In NPA accounts identified for SARFAESI action, the loan documents including EM documents
pertaining to securities held should be legally enforceable and within the period of limitation.
ii. Assets charged to the bank should be inspected and identified.
iii. Approval for issuing notice under section 13(2) of SARFAESI Act, 2002 to be obtained from
the Competent Authority.
Also, before initiating action under Section 13(4) of SARFAESI Act, the Branch should invariably
obtain approval of the appropriate authority.
iv. Authorised Officer has the authority to initiate action under the Act and issue notices. As per
the Security Interest (Enforcement) Rules, 2002 (the Rules), ‘Authorised officer’ means an officer
not less than a Chief Manager of a public sector bank or equivalent.
Process and Precautions for Issuance of Notice:
I. Preparation of Notice
i. Postal addresses of all Borrower(s) and Guarantor(s) to be verified and correctly mentioned in
the notice.
ii. Notice should contain full details of the amount payable by the Borrower(s) and the secured
assets to be enforced.
Interest calculation to be done correctly as per contracted rate of interest.
iii. Particulars of loan documents executed by the Borrower(s) should be mentioned in the
notice.
iv. The date on which the account was classified as Non Performing Asset (NPA) should be
correctly mentioned in the 13(2) notice.
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v. The demand notice under Section 13(2) must include a paragraph or clause on borrower’s
right of redemption.
II. Mode of Despatch of Notice
Service of Demand Notice under Sec.13(2) shall be made by by Registered Post with
Acknowledgment Due addressed to the Borrower or his Agent empowered to accept the service
or by Speed Post or by Courier or any means of transmission of documents like fax message or
electronic mail service. Acknowledgment card received should be kept on record carefully to be
used as evidence when required.
III. Return of Notice
i. If Demand Notices could not be served on the Borrower(s)/Guarantor(s), as per the SARFAESI
Rules, the service should be effected by affixing a copy of the demand notice on the outer
door/other conspicuous place where the Borrower(s) /Guarantor(s) reside, photographs of the
same should be taken and kept on record to be used as an evidence in case of need.
ii. Contents of the notice to be published in two leading news papers, one in English and one
vernacular, having sufficient circulation in that locality.
IV. Handling of Objections Raised by the Borrower
If the Borrower makes any representation or raises any objection on receipt of the demand
notice, Authorized Officer shall consider such representation or objection carefully and if he
comes to the conclusion that such representation or objection is not acceptable or tenable, he
shall communicate the reasons for non- acceptance within 15 days of receipt of such
representation or objection.
V. Cases Pending/ to be filed before Courts / DRTs
DRT/Civil Court to be informed suitably in consultation with the Advocate handling the matter
regarding initiation of action u/s 13(2) of the Act, where, suit is pending at DRT/Civil Court.
3. TAKING POSSESSION AFTER EXPIRY OF 60 DAYS OF NOTICE UNDER

SECTION 13(2) OF THE ACT
a. Action Under section 13(4) of the Act:
If the amount mentioned in the demand notice is not paid within the time specified i.e. 60 days
from the date of notice under section 13 (2), the Authorised Officer may take possession of the
secured assets of the borrower including the right to transfer by way of lease, assignment or sale
for realizing the secured asset.
i. Consent in Case of Consortium / Multiple Banking Accounts
Page 166 of 180

When security which is held by more than one Secured Creditor or jointly financed by Secured
Creditors, action under section 13(4) can be taken if exercise of rights under the Act is agreed
upon by the Secured Creditors, representing not less than 60 % in value of the amount
outstanding as on a record date.
ii. Services of Resolution Agents for Initiating Action Under SARFAESI Act, 2002
The branch may avail services of Approved Resolution Agent for taking various recovery actions.
b Filing of Caveat:
When action under Section 13(4) of the Act is taken by the Bank, the Borrower(s)/Guarantor(s)
may file a Securitisation Application before the DRT u/s 17 of the SARFAESI Act within 45 days
challenging such action. Therefore, a Caveat may be filed before the DRT to avoid passing of any
interim order/injunction order restraining further action, without hearing the Bank.
c Possession of Movable/Immovable Properties :
After expiry of 60 days from the date of notice u/s 13(2), action should be initiated for taking
possession of the property:
i. Immovable Properties
a) The Authorised Officer shall take possession of such property in the presence of two
independent witnesses by delivering a possession notice to the Borrower(s) and affixing the
possession notice under section 13(4) of the Act on the outer door or at such conspicuous place
of the property, take photograph thereof and keep the same on record.
b) Notice regarding possession of the immovable property with full details of the property and
name of Borrower(s) / Guarantor(s) should be published within 7 days of taking possession in
two leading news papers, of which one should be in vernacular language having sufficient
circulation in that locality.
ii. Movable Properties
i. Where the possession of the movable property in possession of the Borrower(s) is to be taken
by the Bank, the Authorized Officer shall take possession of such movable property in the
presence of two independent witnesses after Panchnama is drawn and duly signed by the
witnesses.
ii. After taking possession, the Authorised Officer should prepare the inventory of the property
and deliver a copy of such inventory to the Borrower(s)/Guarantor(s) or any person authorised
to receive on their behalf.
iii. Rule 4 has been amended by incorporating Rule 2A to provide that after possession of the
secured movable property is taken by the secured creditor, the borrower shall be intimated by a
notice enclosing the Panchanama drawn in Appendix I to the Rules and the inventory made in
Appendix II to the Rules.
Page 167 of 180

iv. If any problem is foreseen in taking physical possession, the Authorized Officer should
approach CMM/DM for obtaining order u/s 14 of the Act.
4. POST POSSESSION PROCESS AND SALE OF PROPERTY THROUGH E-AUCTION
a Valuation of the Movable and Immovable Assets :
i. The Authorised Officer should arrange for valuation of the assets by an approved valuer
immediately after taking possession and in any case before sale.
ii. The branch should always use services of empanelled SARFAESI valuer for taking Valuation
Report for fixing Reserve Price.
b Fixation of Reserve Price:
Reserve Price of the assets to be sold should be determined on the basis of valuation report
obtained. Sanction for Reserve Price has to be obtained from the appropriate Committee at Zonal
Office/ Local Head Office/Corporate Centre.
c Sale Procedure for Movable/ Immovable Property through e-auction :
i. Property to be sold through e-Auction and Agency for conducting e- Auction to be identified.
ii. The Borrower(s) / Guarantor(s) should be served 30 days notice for sale of movable and
immovable secured assets.
iii. The sale can be conducted only after expiry of 30 days notice given to Borrower(s)/
Guarantor(s)/legal heirs of Borrower(s)/Guarantor(s).
iv. A public sale notice should be published in two leading newspapers, one in vernacular
language having sufficient circulation in the locality.
v. On confirmation of sale by the secured creditor and compliance of the terms of payment, the
Authorized Officer shall issue a Certificate of Sale for the properties in favor of the purchaser for
movable assets and for immovable Assets.
vi. The Authorized Officer shall deliver the property to the purchaser free from encumbrances
known to the secured creditor and the same to be mentioned in the Certificate of Sale. The
Authorized Officer should also obtain receipt of possession and original Title deeds.
vii. The Authorized Officer shall ensure registration of Sale Certificate on making payment as per
stamp Act, and charges as applicable in the respective State, cost of which will be borne by the
purchaser.
Page 168 of 180

viii. In sub-Rule (2), a second proviso has been incorporated after the existing proviso to provide
that if the sale of immovable property by any one of the methods specified under sub-rule (1)
fails and the property is required to be sold again, the authorised officer shall serve, affix and
publish notice of sale not less than 15 days to the borrower for any subsequent sale.
(Important to note that after failure of the first sale of the immovable property, only 15 days’
notice is required to be served for any subsequent sales).
Private Treaty
It is a sale process which is outside public auction and is resorted to only when public auction
fails.
Sub-rule (3) which deals with sale by private treaty has been amended to provide that such sale
shall be on such terms as may be settled between the secured creditors and the proposed
purchaser in writing.
Page 169 of 180

Recovery o f Bank’s Dues Through Civil Courts
1. Steps prior to filing a Civil Suit: Ascertaining facts and arranging

documents
i) The amount of total debt due from the borrowers should be less than Rs.10 lacs.
ii) Documents should not be time barred and should be in order.
iii) A brief history of case after examining files of the borrower should be prepared.
iv) Copies of relevant records/documents have to be kept ready.
v) Latest addresses and details of properties of the Borrowers/Guarantors,

including the legal heirs of the deceased Borrower/ guarantor(s), if any, have to be
ascertained and kept on record.
vi) Permission for filing of suit and transfer of outstandings to Recalled Asset
account from the Competent Authority to be obtained.
2. Issue of Notice
The branch should arrange to issue notices by registered post with AD through
the advocate.
3. Entrusting the Matter to the Advocate
i) Branch should engage an advocate who is in the panel of the Bank and who
practices in the Civil Court.
ii) The Branch has to hand over the case history and copies of documents to the
Advocate for his study.
iii) Time line for filing of suit(s)

• Civil suit is to be filed immediately on approval but in any case within a
maximum period of 3 months from the date of approval.
4. Drafting and Vetting of Plaint: Format, Parties, Claims, Reliefs
Facts contained in the draft plaint are to be verified by the Branch official
concerned. Legal aspects have to be verified by the Bank’s Law Officer.
Page 170 of 180

5. Filing of the Plaint
Plaint is to be signed by the authorized Branch official. Demand Draft for court fees,
process fees and copying fees has to be prepared. Affidavit of Branch official has also
to be filed along with the plaint, in duplicate.
6. Service of Summons
i) Adequate number of copies of the plaint as directed by the Court have to be made
available.
ii) Service of Summons is to be effected to each defendant through Court by the Bank as
per Court’s orders.
7. Action to be taken on the Date of First Hearing
i) Attendance of the Branch official on each date of hearing with the advocate has to
be ensured.
ii) Written statement filed by the Borrower(s)/Guarantor(s) and the documents relied
upon have to be examined.
iii) If any claim for set off or counter claim is made in the written statement, a
counter affidavit has to be filed.
8. Subsequent Steps for pursuing the Case
i) Documents relied upon by the Borrower(s)/Guarantor(s) are required to be

inspected or discovered and steps are to be taken for the same.
ii) Whether any document relied upon by the Borrower(s) needs to be denied.
iii) List of Documents and witnesses to be relied upon by the Branch have to be provided.
iv) Issues have to be framed by the Court in terms of the judgement required.
v) In case of death of defendant Borrower(s)/ Guarantor(s), steps have to be taken

for making legal representatives of the deceased as a party.
vi) Decree has to be obtained after the judgement has been pronounced. In case of any
apparent mistake in judgement/ decree, the matter has to be discussed with the
Advocate, as to whether a rectification petition needs to be filed for correcting the
errors.
9. Filing of Execution Petition
Page 171 of 180

Application for execution of decree has to be filed with the help of the Advocate.
Page 172 of 180

Recovery of Bank’s Dues Through Debt Recovery Tribunals (DRTs)
1. Before filing Original Application (OA)
i) Jurisdiction
a) Pecuniary jurisdiction:
Original Application (O.A.) in DRT is to be filed where the total amount of debt due to the Bank
is Rs. 10.00 lacs & above.
b) Territorial jurisdiction:
Branches should make an application to the Tribunal within whose local limits of jurisdiction, the
cause of action wholly or partly.
ii) Verification of enforceability of documents

Documents should not be time barred.
iii) Physical verification of security

Properties held as Security should be physically verified by the Branch Officials.
iv) Contact details

Branch officials to update the addresses and other contact details of borrowers/guarantors.
v) Death of Borrower(s)/Guarantor(s)
In case of death of Borrower(s) / Guarantor(s), Branch officials to identify the legal heirs of the
deceased.
vi) Service of call up notice
Call up notice is to be served on the Borrower(s)/Guarantor(s) through Bank’s empanelled

Advocate demanding payment of the Bank’s dues within 30 days.
vii) Transfer of outstandings to Recalled Assets Account (RAA)

The outstandings in borrower’s various accounts have to be transferred to Recalled Assets
account after obtaining approval from the Appropriate authority as per the Scheme of Delegation
of Financial Powers in force.
viii) Timeline for filing of OA

i) Original Application (OA) is to be filed in DRT immediately on approval but in any case within
a maximum period of 3 months from the date of approval.
ii) Where documents are getting time barred, Original Application (OA) in DRT is to be filed 2
months before expiry of documents.
2. Procedure for filing of Original Application (OA) in DRT:
i. Preparation of Original Application (OA) :

An Original Application in the prescribed format is to be drafted by the Bank’s empanelled
Advocate based on the facts/figures/documents provided by the branch.
Page 173 of 180

ii. Interim Reliefs which can be prayed in Original Application (OA) :
In the Original Application, following interim reliefs can be prayed, supported by the Affidavit,
incorporating the appropriate reasons for these: -
a) Seeking injunction restraining the defendants from transferring, alienating or dealing with
their movable and immoveable assets in any manner without prior permission of the Hon’ble
Tribunal.
b) Attachment Before Judgment (ABJ) of assets in the name of Borrowers / Guarantors.
c) Sale before judgment in case assets charged are of perishable nature & the value of the assets
is going to diminish.
d) Seeking direction to the defendants for filing statement of assets on oath by them.
e) Impounding of Passports where Branch officials fear that Borrower(s) / Guarantor(s) may
proceed abroad.
f) Issuance of Partial Recovery Certificate based on the admission of debt by the Borrower
(s)/Guarantor (s) on the basis of latest Audited Balance Sheet or any other written
communication to the Bank.
iii. Vetting of Original Application (OA) by the Bank’s Law Officer:
Original Application (OA) prepared by the Bank’s empanelled Advocate is to be vetted by the
Bank’s Law Officer and any suggested modifications are to be carried out.
iv. Enclosures with the Original Application:
The Original Application (OA) is to be filed in DRT alongwith the copy of documents and
requisite court fee.
3. After Filing of Original Application (OA) In DRT:
i. Registration of Original Application in DRT:
a) On receipt of the Original Application (OA) at DRT, Registrar of the DRT will scrutinize and if
found in order, it will be registered and given a Serial Number.
b) If any defect in the Original Application (OA) is brought to the notice of the Branch by the
Registrar of the DRT, it is to be rectified immediately.
ii. Issuance and Service of Summons by DRT:
a) On receipt of the application, the DRT shall issue summons requiring the Defendant (s) to
show cause, within 30 days, of the service of the summons as to why the reliefs prayed for in the
Original Application (OA) should not be granted
Page 174 of 180

b) Registrar of DRT will send Summons by Registered Post and if it is undelivered twice, service
of Summons can also be made by publication in newspaper having wide circulation.
iii. Interim order during first Hearing in DRT:
During the first hearing in DRT, empanelled Advocate should argue for granting the Interim
Relief (s) prayed for and obtain the same.
iv. Filing of Written Statements by the Defendants:
The defendant (s) on service of summons are required to file their reply within one month from
the date of service of Summons.
v. Hearings in DRT:
Bank’s advocate should remain present on the dates of hearing and should arrange for proper
reply to all the issues raised by the Defendant’s counsel.
vi. Issuance of Order by DRT:
a) After giving the Applicant and Defendant (s) an opportunity of being heard, DRT shall pass
such Interim or Final Order directing payment of the amount with interest which is found due
upto the date of realisation or actual payment.
b) The Presiding Officer, DRT shall issue a Recovery Certificate under his Signature to the
Recovery Officer for recovery of the amount of debts specified in the Certificate containing :-
a) No. of Original Application (O.A.)
b) Name & Designation of Parties.
c) Particulars of claim.
d) Terms of payment of Decreed amount.
4. Execution of Recovery Certificate by Recovery Officer, DRT:
The Recovery Officer, DRT shall proceed to recover the amount of debt specified in the Recovery
Certificate by one or more of the following modes: -
• By attachment and sale of movable / immovable properties of the Certificate Debtor (s) /
Borrowers, and / or Guarantors. Recovery Officer will issue sale proclamation notice and will
arrange for e-auction on the scheduled date.
• By arrest / detention of the Judgment Debtor (s) in Civil Prison where they have sufficient
means to repay the Bank’s dues but deliberately avoiding the same.
• Appointing a Receiver for the management of the movable or immovable properties of the
Certificate Debtor (s) / Borrower(s), and / or Guarantors.
Page 175 of 180

The Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (“Code”) seeks to significantly overhaul the existing
state of legal regime in relation to insolvency and bankruptcy processes in India. The Code is
being viewed as one of the most significant legislative reform towards “ease of doing
business in India” – one of the main objectives of legislative and policy reforms by the central
government.
i) Until now the law relating to insolvency and bankruptcy in India has been scattered over
several statutes with each of such statute having its own distinct objects and purpose, as well as
procedures and mechanisms resulting is a dispersed approach of recovery. The Code however,
seeks to bring uniformity in the jurisprudential approach and also standardise the processes for
the treatment of bankrupt or insolvent borrowers. The Code has been formulated with the
broad objective to consolidate all existing laws relating to insolvency and bankruptcy for
companies and individual under one umbrella.
ii) Multiplicity of adjudicating forums, overlapping insolvency and restructuring laws, lower
monetisation of liquidated assets and the absence of a time-bound insolvency process are
some of the key challenges that the Indian economy faces today. The Code has been enacted at
a time when stress in the Indian banking sector has become evident. To ensure stability
and economic efficiency of the Indian credit market, it is critical that these issues be
addressed. It comes with an objective to enhance credit availability, promote entrepreneurship,
balance the interest of all stakeholders in an entity and reduce the time of resolution for
maximizing the value of assets.
iii) The Code brings a paradigm shift from ‘debtors’ in possession to ‘creditors in control’
which creates time bound processes for insolvency resolution of companies and individuals. It
moves from “Erosion of Net-Worth” to “Payment Default”. Insolvency Professional will take over
management and control of the Corporate Debtor (Borrowing Company). Government dues
would rank below the claims of other creditors. It also has provisions to deal with concealment,
fraud and/or manipulation leading to fine and/or imprisonment. It also provides confidence to
lenders and investors in the debt market.
iv) Insolvency- is a situation where liabilities of a person/firm exceed its assets and is
unable to pay debt obligations as assets may be illiquid and cash flows are not sufficient to pay
debts.
v) Bankruptcy- occurs when a court recognises the insolvency which is beyond resolution.
A bankrupt entity is a debtor who has been adjudged as bankrupt by an Adjudicating Authority
by passing a bankruptcy order. The court appoints a trustee who will be responsible for
selling the property and discharge obligations to the creditors. It has primarily to give relief to
the debtor from the harassment by his creditors whose claims are not paid.
The law has been implemented for Corporates w.e.f. 01.12.2016.
Page 176 of 180

The IBC is divided into two stages. In the first stage, revival plan of the corporate is explored and
if not feasible the Company shall go into liquidation.
Page 177 of 180

Compromise settlement policy
Compromise settlement refers to a negotiated settlement where a borrower offers to pay and the
Bank agrees to accept in full and final settlement of its dues an amount less than the total amount
due to the Bank under the relative loan account. Thus, the compromise settlement invariably
involves certain sacrifice by the Bank (by way of write off and/or waiver) of a portion of its dues.
1. Basic principles for Compromise Settlement proposals
i. Bank’s Approach: The compromise will be a negotiated settlement under which the Bank will
endeavour to recover its dues to the maximum extent possible with minimum sacrifice.
ii. Realisable Value of Securities, and NPV of compromise amount & Securities: The
realisable value of security charged to the Bank as also the Bank’s ability to dispose the security
will be the basic factors which would decide the compromise amount. While assessing the
realizable value of security, proper weightage would have to be given to its location, condition
and marketability.
The Net Present Value (NPV) of settlement amount should generally not be less than NPV of the
realizable value of the available securities. In case of lower value, the same has to be justified
with valid and sufficient reasons. For calculation of NPV, the rate of discount should be taken as
the prevailing Base Rate with annual rests and the maximum estimated time to realize the
securities may be taken as 5 years from the date of notice under section 13(2) in case of
SARFAESI action and 7 years from the date of filing suits in case of DRT / Court cases.
iii. Influence of Group Companies: In case the borrower has other group companies, influence
of these companies or the parent company may be used for a better settlement.
iv. Initial Deposit : Normally along with the compromise offer letter, an initial deposit of at least
5% of the offer amount may be taken from the borrower under no lien account as an evidence of
the borrower's bonafide intention to pursue the compromise settlement with the Bank.
v. Terms of Payment : Time Period for Payment & Charging of Interest on Compromise
Settlement amount : It will be the endeavour of the Bank to get the entire compromise amount
paid up in lump sum. In cases where the amount is agreed to be recovered in instalments,
normally at least 15% of the approved settlement amount (inclusive of initial deposit) would be
payable upfront with the balance instalments spread over a maximum period of 12 months. In
case, the compromise amount is not paid as per terms of sanction, the Bank will be entitled to
treat the compromise settlement as cancelled.
vi. Cases of wilful defaulters: In the matter of settling compromise amount, distinction will
need to be made between wilful defaulters and the borrowers defaulting for reasons beyond
their control. In case of the former, a tough stand has to be taken and the proposal should be put
up after obtaining in-principle approval of the GM (NW/MCG/CAG/SAMG) based on a review of
such cases.
vii. Default Clause: Compromise settlement will be arrived at with borrowers / guarantors
subject to the condition that in the event of any failure to honour any of the terms of the
Page 178 of 180

compromise settlement, the Bank will be entitled to exercise against the borrowers / guarantors
all the rights and remedies available prior to the compromise settlement.
viii. Consent Decree: An application for obtaining Consent Decree from the appropriate
Court/DRT should be filed immediately on sanction of the compromise proposal incorporating
therein a clause that in the event, the borrowers / guarantors fail to adhere to the terms of
compromise, the compromise settlement shall stand automatically cancelled and the Bank will
be entitled to recover the entire outstanding amount together with interest at the contractual
rate.
ix. Position of other recovery action: The sanctioning authority must satisfy itself that all
possible steps to recover the dues have been explored and that compromise settlement is in the
larger interest of the Bank.
x. Opportunity cost analysis : While arriving at a negotiated settlement, the advantage available
to the Bank from prompt recycling of funds should be considered in comparison to the likely
recovery by following legal or other protracted course of action i.e. opportunity cost analysis to
be made.
xi. Uncharged assets of the borrowers / guarantors: Before entering into any compromise
settlement, details of uncharged assets of the borrowers and guarantors should be collected by
either engaging the services of investigative agencies or otherwise.
xii. Compromise settlement proposals from Guarantors: Compromise Settlement proposals
from guarantors should be treated on par with proposals from borrowers.
Page 179 of 180

Settlement of Bank’s Dues through LOK ADALAT
Introduction:
Lok Adalat is a forum where the disputes pending in the court of law or at pre-litigation stage are
settled amicably. Lok Adalat has been given statutory status under the Legal Services Authority
Act, 1987. An award made by the Lok Adalat is deemed to be a decree of a civil court and is final
and binding on all parties.
Cases which can be referred to Lok Adalat
i. Cases pending before courts and cases likely to be filed before any court where borrowers are
willing to settle Bank’s dues to avoid lengthy court procedures.
ii. Monetary ceiling of cases to be referred to the Lok Adalat organized by Civil Courts is Rs. 20
lacs. Further, our branches can participate in Lok Adalats to be organised by DRTs/DRATs
irrespective of the amounts involved in the cases.
iii. Where the account is NPA and there is no suit or proceeding initiated but there is a likelihood
of a settlement, then the Bank or the Borrower may make an application to the Lok Adalat for
taking up the matter before the Lok Adalat.
iv. A list of identified accounts, with relevant details, is to be submitted to the Lok Adalat for
sending notices to borrowers for appearing before Lok Adalat.
Page 180 of 180

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SME STUDY MODULES

For detail instructions please refer to:

i. CP-SME Role Manual (Available at STU Portal)

1. KNOW YOUR CUSTOMER

1. Individuals (i) Passport

Any one document towards proof of identity and proof of

In cases where minor can operate the account independently, KYC

3. NRIs Passport and Residence Visa Copies, duly attested by

(i) Foreign offices (ii) Notary Public (iii) Indian Embassy

(iv) officers of correspondent banks whose signatures are

KYC DOCUMENTS - Non Individuals

1 Accounts of Proprietary (i) Registration certificate (in the case of a registered

Any two of the above documents would suffice.

ID and address proof of the proprietor.

The default rule is that any two documents

2 Accounts of partnership (i) Registration certificate

 Proof of identity & address of all the partners /

3 Accounts of companies (i) Certificate of incorporation

Proof of identity & address of all the beneficial owners

4 Accounts of trusts & (i) Certificate of registration;

Proof of identity and address of persons like trustees,

( beneficial owners - natural persons)

5 Accounts of (i) Resolution of the managing body of such

High Risk Category.

1. Politically Exposed person of foreign origin

Medium Risk Category

Low Risk Category

1. Salaried Employees (whose salary are well defined)

Loan Policy - Essential features

2. The policy, at a holistic level, is an embodiment of the Bank’s approach to sanctioning,

 Exposure norms and concentration of Credit Risk :

i) Applicable to Manufacturing segment:

Financial Ratio (s) Desired Level Acceptable level

a) Review / Renewal of Advances / Enhancement / Adhoc Limits: Working capital

 Take Over of Advances

Take over norms are based upon:

 Delegation of Financial Powers:

Exposure upto Rs.50 Lacs at RASMECC

Exposure above Rs.50 Lacs upto Rs.5 Crores at RASMECC Centre

Upto R s . 5 Cr Non- BPR Exposure Upto Rs.50 lacs

Above Rs.5 cr Upto Exposure above Rs.5 crores

i. Government Sponsored Schemes Asset Management Team (GSSAMT):

iv. Collateral and Documentation Cell: Preparing, Executing and Verification of

ANNEXURE-2 : EXPOSURE UPTO Rs.50 LACS AT RASMEC

i. Asset Management Team (AMT):

RCC Secretariat will do Confirmatory Check of the Proposal with regard to

Documentation & Collateral security examination and documentation to be done at

Maintenance and all post sanction activity of accounts will be the

Frequency Activity Person responsible

RCC Secretariat will do Confirmatory Check of the Proposal with regard to

Documentation & Collateral security examination and documentation w i l l b e t h e

Post sanction, officials posted at RBO under Chief Manager (Credit) /

Frequency Activity Person responsible

Roles Handling Structure

Appraisal / Proposals within the sanctioning power of Branch Manager: Credit

Proposals outside the sanctioning power of Branch Manager: Credit

AGMs/RMs at non BPR centre will not be exercising financial powers

Maintenance and all post sanction activity of accounts will be the

Roles Handling Structure

iii. As the number of RMSE accounts in Non- BPR centres may be

iv. U n d e r B r a n c h M o d e l , t he RMSE AMT will be based at a

ix. RMSE AMT budget will be part of Branch/Region budget.

xi. As far as possible, all RMSE accounts will be migrated to one