CREDIT POLICY GUIDELINES

OF
THE UNIGLOBE BANK (TU BANK)

Prepared And Presented By:

Rekha Bhattarai
Bidya N. Yadav
Roshan Budhathoki
Pooja Acharya
Sabita Dahal
Rabindra Rajbhandari
Sujan Marahatta
Rajan Ghimire

CPG-Introduction

The success of a bank depends on its lending program and

successful lending which is only possible through wellformulated credit policy.
A CPG is the written document that provides complete and
uniform guidelines for overall management of credit.
Serve as a guideline covering every major aspect of the
lending procedures.
Main objective of CPG is therefore to assist the
staff/officer involved in credit processing to make quality
decision based on sound credit principles and procedures
Monitor its risk assets to maintain its health and take
recovery action if any early warning signal are observed in
any credit relationship.

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Mission
The Bank provides finance, investments and related
advisory services to viable enterprises and creditworthy
individuals.
Maintaining a high quality of accounts receivable while
selling to all customers that represent prudent credit risks.
Attempt to screen out customers that will result in obvious
bad debts.
Attempt to build relationships with all other customers and
affect collection without jeopardizing a sales relationship.
Intended to help staff and board make loans that meet the
project-related credit needs of community development
organizations in our town while simultaneously meeting our
obligations to investors for safety, liquidity, and social and
financial returns.

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Objectives

The primary objective of this Credit Policy Guideline

is to state the banks credit policy and define the
regulations, procedures and authorities necessary to
approve and monitor credit exposures.
To focus on the various kinds of loans that the bank
provides which are explained further.
To strengthen credit culture and place the long term interest
of the bank ahead than the short term interest of any
particular business unit.
Sound and prudent bank lending practices in use elsewhere in
the world.
Comply with the regulations set by the NRB.

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 Timely and Adequate Delivery of Assistance

Minimum Cost and Efficient Delivery of Services
Price Competitiveness and Service Quality
Monitoring and Control
Profitability
Mitigation of Risk

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Definitions

Act means Bank and financial Institution Act, 2063.

Uniglobe Bank or Bank means The Uniglobe Bank Ltd also called TUBL
established under Companies Act, 2063 and Bank and financial Institution Act, 2063.
Nepal Rastra Bank or NRB means the Central Bank of Nepal established under
Nepal Rastra Bank Act, 2058.
Board means Board of Directors of the Bank.
Chief Executive means the person appointed as Managing Director/Chief
Executive Officer of the Bank and entrusted with overall Management responsibility
of Administration and Operations and accountable to the Board.
Chief Business Officer mean the Head of the Business Department who shall have
the total responsibility of driving the credit, deposit and transaction banking
business of the Bank.
Chief Risk Officer mean the Head of Credit Risk Management Department who
shall have the total responsibility of credit risk assessment and credit management.
Relationship Manager means Assistant Relationship Officer/Relationship
Officer/Assistant Relationship Manager/ Relationship Manager, who is responsible for
selling the credit product and developing and managing the relationship with the
customer.
Branch Manager means Head of the branch of The Public Bank.
Department Head means the Head of a particular Department of the Bank.
Customer or Borrower means the customer availing of credit facilities from the
Bank.
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SME loan mean loans granted to the small firms to meet their financial needs.

Types of Credit and other facilities 7

1. Overdraft:
Shall be operated by cheques on a current account.
The borrower allowed to overdraw his/ her current
account within prescribed limit and stipulated time
period offered by the competent authority.
The borrower can deposit any amount in this account.
Thus the balance will be fluctuating due to withdrawal
and repayment of money by the borrower.
Overdraft will generally be granted to the businessmen
for the fulfillment of their short-term credit needs.

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2. Demand Loan
Provided in lump sum repayable either in fixed installment
or in lump sum.
Once it is granted, it shall not be considered as a running
loan account.
Shall have a debit for the offered amount and only credits
after repayment therefore.
3. Hypothecation Loan
The bank may provide a loan with security of movable
property acceptable to the bank by entrusting the possession
of the security to the borrower on the condition that bank
may take possession of the property.
4.Bills purchase and discounting
The bank shall credit the borrower account with the amount
of bill after deducting the charge as specified by the bank.
There will be two types of such documentary bills:
Demand Bills
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5. Hire purchase
The bank would not finance 100% of the value of goods under this
scheme.
A detailed viability study will be done before granting the loan.
The ownership remains with the person that gives the goods on hire.
6. Term loan
Granted for industry to finance the fixed assets whose gestation
period is high.
The repayment period will generally be more than three years.
The maximum length of term loans should not exceed 15 year in
duration for infrastructure project and 7 year for other activities.
Such loan is repayable an installment over the period of loan.
7. House loan
Tenure of this type of loan will be determined based on borrowers
repayment capacity.
The borrower required to submit his/her income statement and/or
projected income statement along with the loan application request.
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8. Project loan
Based on viability of the project.
Borrower to be asked to invest certain portion of the project from
their equity and the rest will be financed by the bank as project
loan.
The maximum debit equity ratio 70:30.
9. Working capital loan
Divided into fixed working capital and variable working capital.
Normally loan outstanding must not exceed 70% of eligible goods
receivable and stocks.
If at any point of time, the outstanding exceeds the extended
valuation of the stocks and goods receivables after providing the
margin of 30%, the drawing power must be reduced immediately and
the borrower should settle the excess outstanding in cash promptly.
10. Priority/ deprived sector loan
As per the NRB directive, 12% must be extended towards priority
sector including 3% in deprived sector.
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11. Loan against fixed deposit

Extended to the maximum of 90% of the fixed deposit
amount with additional interest rate above the fixed
deposit rate as decided by the management from time to
time.
12. Loan against share
It can be given to the extend 50% of the present market
value or 180 days weight average value of the shares
whichever is lower.
13. Lease financing
Due to the nature and complexity of lease financing,
treated the same as financing under the term loan with
amortized payment and approval is required for
additional conditions.
14. Guarantees
15. Import credit-trust receipt loan (TR loan)
16. Export credit

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17. Education loan

Maximum l5% of the cost of the tuition fee, travel
costs, admission costs and hostel charges against the
mortgage charge over the fixed properties or other
security acceptable to the bank.
Must produce evidence of regular source of income to
meet the repayment of principal and interest.
Tenure of this loan not to exceed 15 years.
The moratorium period for repayment of the loan not
to exceed regular tenure of the course undertaken plus
one year.
18. Retail and SME Financing
Guided by product papers and will be granted to
business as well as individual with one of the thrust
areas of the banks for portfolio diversifications.
The tenure of all retail and/or SME loans will be guided
by separate related lending guideline and product
papers.

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Operating Procedures in Lending

a.
b.
c.
d.
e.
f.

13

Loan application
Interview by loan officer
Presentation of documents
Document verification & analysis
Site visit ( Project, Collateral)
Credit analysis (6 Cs)

Character
Cash
Collateral
Conditions
Control
Capacity

Key financial ratios analysis (liquidity, profitability, solvency, Efficiency)

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g. Risk and mitigation

h. Pricing
i. Preparation of CAR
j. Loan approval
k. Legal procedures
m. Disbursement of loan amount
n. Post disbursement activities

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Organization Structure

15

The Bank's functions and responsibilities relating to credit are

organized on the basis of appropriate segregation in order to assure
objectivity in managing credit.

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Specification of Lending Authority of

Each Loan Officer and Committee

Authority
BOD
CEO
Department
Chief
Branch
Manager

16

Consorti
FDR &
um
Busines Consum Gold
Loan
s Loan er Loan Loan
Overall Overall Overall

<5
< 10
0
million million

<1
<5
0
million million

<1
0
millon Overall
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Documentation

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For Individual:
Citizenship certificate
Photographs
Income sources and related documents
Collateral related documents- blue print and
drawing of the building, title deeds of the
property
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For Private Firms

Title Deed (lalpurja)
Blue print of cadastral map (Napi Naksha)
Recent land revenue payment receipt from malpot office
(Tiro Tireko Rashid)
Wealth tax payment receipt of the borrower.
Copy of property transfer deed.
Nata pramanit certificate issued by local authority.
Tax clearance certificate.
Certificate from municipality stating the name of land
owners of four cornersalong with kitta no. (Char-Killa
Pramanit Gareko)
Citizenship certificate of the landlord.
Approved/Certified building drawing along with the approval
(Naksha Pass Certificate)
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 No Objection Letter (NOC) in case of collateral

owned by third party (Manjurinama).
NOC from legal heires of owner of the
company/institution mortgage of the property/ies.
Copies of proof of rental income
Past transaction record at previous Bank.
Latest statement of stock.
Latest statement of receivables.
Three years audited/projected Financial
Statements/Balance Sheet
Documents related to company/firm:
Registration Certificate
Tax Clearance Certificate/VAT registration certificate
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For Partnership Firm

Title Deed (lalpurja)
Blue print of cadastral map (Napi Naksha)
Recent land revenue payment receipt from malpot office (Tiro
Tireko Rashid)
Wealth tax payment receipt of the borrower.
Copy of property transfer deed.
Nata pramanit certificate issued by local authority.
Certificate from municipality stating the name of land owners
of four cornersalong with kitta no. (Char-Killa Pramanit
Gareko)
Citizenship certificate of the landlord.
Minute of partner meeting for taking loan
Approved/Certified building drawing along with the approval
(Naksha Pass Certificate)
No Objection Letter (NOC) in case of collateral owned by
third party (Manjurinama).
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Copies of proof of rental income.

Past transaction record at previous Bank.
Latest statement of stock.
Latest statement of receivables.
Three years audited/projected Financial Statements/Balance
Sheets
Documents related to company/firm:
Article & Memorandum of Association/Partnership Deed
Registration Certificate
Tax Clearance Certificate/PAN Card/VAT registration certificate
Joint Venture Agreement (wherever applicable)
Resolution of Partners/Board of Directors for availing:
Banking facilities

Authorization for loan operation

Authorization to mortgage
Mortgage companys/Institution assets
Provide undertaking
Provide corporate guarantee

Copy of citizenship certificate of partner.

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For Company:
Title Deed (lalpurja)
Blue print of cadastral map (Napi Naksha)
Recent land revenue payment receipt from malpot office (Tiro
Tireko Rashid)
Wealth tax payment receipt of the borrower.
Copy of property transfer deed.
Certificate from municipality stating the name of land owners
of four corners along with kitta no. (Char-Killa Pramanit
Gareko)
Citizenship certificate of the landlord.
Minute of BOD for taking loan
audit report loan transaction authorization letter
Approved/Certified building drawing along with the approval
(Naksha Pass Certificate)
No Objection Letter (NOC) in case of collateral owned by
third party (Manjurinama).
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Copies of proof of rental income.

Past transaction record at previous Bank.
Latest statement of stock.
Latest statement of receivables.
Three years audited/projected Financial Statements/Balance
Sheets
Documents related to company/firm:
Article & Memorandum of Association/Partnership Deed
Registration Certificate
Tax Clearance Certificate/VAT registration certificate
Joint Venture Agreement (wherever applicable)
Authorization for loan operation
Authorization to mortgage
Mortgage companys/Institution assets
Provide undertaking
Provide corporate guarantee
Copy of citizenship certificate board member.
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Taking and Perfecting Collateral

24

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Acceptance criteria of Collateral

The Bank should ensure that assets accepted as collateral satisfy
the following criteria:
Market value of the asset is readily determinable or can be
reasonably established and verified
The asset is marketable and there exists a readily available
secondary market for disposing of the asset
The Banks right to repossess the asset is legally enforceable
The Bank is able to secure control over the asset if necessary.
In the case of a movable asset, the Bank should either have
physical custody of the asset or have the means of locating its
whereabouts and
The Bank has the expertise and systems to manage the asset
concerned.
The Bank should verify the existence and ownership of the
assets being pledged before acceptance.
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 List of Valuators: (engineers, architecture, other

expert)
Valuation by valuator: (loan more than NRS 1 million)
Valuation by staffs: (loan less than NRS 1 million)
Additional collaterals: (Main collateral, Additional
collateral)
Monitoring of collaterals: (by our employee for review
of collateral)
Insurance & other security for collateral: (either bank
or by clients but charges will be paid by clients
Mortgage procedures (done either by bank or client
itself).

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Insurance
The Bank should, wherever possible, take out insurance for
collateral naming The Bank as the beneficiary.
The cost of insurance, unless borne by the borrower, should be
factored into the pricing of the credit.
The insurer should be under adequate supervision, financially
sound and independent of the borrower concerned. If the
insurer is a related company of the Bank, it should also be
operationally independent of the Bank (i.e. with a separate
management team).
The Bank should consider taking appropriate measures (e.g.
reinsurance) to ensure that the group as a whole is not exposed
to undue risks.

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LOAN REVIEW FUNCTION

28

Periodic review of all credit extensions is

essential to monitoring the risks in any bank's
portfolio.
Provides a secondary benefit by enabling the
bank to pro-actively identify and manage risks
as early indications of problems emerge.

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Credit Risk Management

29

The Bank will rate its individual risk exposures continuously until
these have been discharged through full payment or otherwise
written off.
Superior - Low Risk (AAA)
Good-Satisfactory Risk (AA)
Acceptable - Fair risk (A)
Marginal -Watch list (BBB)
Special mention (BB)
Substandard (B)
Doubtful and Bad (Non-performing)
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If by the 90th day no payment has been received, the Loan

Committee will examine the situation, based upon a
detailed account of the borrowers operational
information and a review of the collateral. The Loan
Committee will develop a strategy for further action,
including:
Loan restructuring
Strategy to liquidate the collateral
Notice of default and the intention to foreclose
A further forbearance of action based upon certainty of
repayment and confidence of operations
Sending the loan to a collection agency (not common)

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LOAN RESTRUCTURING GUIDELINES

31

The borrower should request the restructure in writing.

The request should indicate specific reasons for the
restructure, defining why there is a problem and how it
impacted the original loan recommendation, financial
condition and future projections.
The request should be accompanied with a current balance
sheet, income statement, and accounts receivable and
accounts payable aging.
The request should demonstrate how the restructure would
solve the problem causing the request.
The borrower should be willing to extend additional collateral
to cover the added risk.
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 Terms and conditions should be tightened to reflect the now

riskier lending scenario.
Consideration should also be given to requiring increased
financial reporting to the Bank.
Additional interest on the outstanding balance should be
considered in view of the additional risk. It should be
cautioned, however, that for a borrower in very serious
difficulty, this might only serve to compound the problem and
hasten a failure.
There may be other bank-specific policies that should also be
followed in dealing with restructure modifications. In any
event the approval process for restructuring a loan should
follow the process guidelines mentioned above

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33

Risk
Review
The Loan Review Department, working under the Chief

Credit Officer will

Maintain a continuous review of all loans, facilities and
other credit risks.
Schedule its work so that each individual credit exposure
will be reviewed at least once a year and more often if
needed.
Identify credits that require special handling or expertise
to assure collection, and designate them for transfer to
the NPL Department or Recovery Unit, as appropriate.
Locate and identify deficiencies in documentation and
report these to the responsible parties and monitor
remedial actions.
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 Identify and report any exceptions to the Bank's loan policy.

Oversee the operation of the credit portfolio Risk Rating
system and insure its continuing validity.
Special attention will be given to credits, which are past
due.
All loans and facilities will be examined to assess their
quality and to insure that each loan has been approved,
documented and funded in accordance with the Bank's
policies and procedures as well as instructions from the
NRB.
Risk rate all loans and facilities in accordance with
standards to be established by the Bank. Identify expected
losses in individual credits and classify these credits
appropriately.
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Portfolio Review

35

The quality of the portfolio is the sum of the quality of the

individual loans.
Risk can be increased or reduced for a level of return (yield)
depending on how the portfolio is concentrated or diversified.
Generally, higher risks are compensated by higher rates.
Diversification by customers groups serves to reduce overall
risk.
Diversification by industries.
Geographic diversity. Avoid concentrations in loans from the
same local, national or cross-border geographic region or
economic area.
Diversification by loan maturities.
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Managing Problem Credits

36

NPL Unit will assume primary management of the

problem credit, keeping in mind that the originating
Branch Manager will remain available to coordinate
recovery actions as required.
In cases where there is an imminent risk of loss, the
loan should be followed very carefully by the branch
officials. At that time all interest accrual should
cease and any interest already accrued and taken
into income should be reversed.
The assigned risk rating should be changed to
accurately reflect the loan or facility's current
deteriorated condition.
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The NPL Department will:

Examine and evaluate the problem credit situation including an
assessment of the risk, a review of the adequacy and completeness of
credit documentation, and, if applicable, collateral perfection, as well as
an analysis of the condition, marketability and current market value of
the collateral.
Formulate a future strategy or an action plan to be followed in dealing
with and resolving the problem credit.
Retain outside counsel to provide specialized legal assistance when
required.
Implement a strategy in order to restore the credit to a fully performing
status or get the outstanding balance fully repaid, restructured, or
adequately secured to mitigate against loss.
Estimate the probability of full recovery and the likely costs associated
with succeeding.
If there is a low probability of full recovery coupled with high costs over
an extended period of time, the Bank, through action of its Credit
Committee/NPLMC, might make a business decision to attempt to settle
the debt immediately.
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Loan Recovery

38

There will be a specialized NPL Unit whose principal task is to

maximize recovery and/or minimize losses on non-performing
assets through extra-judicial workouts, or through litigation and the
subsequent sale/lease/operations of physical assets.
The RU's (Recovery Unit's) primary functions :
Determine action plan/recovery strategy;
Pursue all options to maximize recovery, including placing
customers into legal proceedings or liquidation as appropriate;
Ensure adequate and timely loan loss provisions are made
based on actual and expected losses; and
Regular review of accounts classified as sub-standard or worse.
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A problem credit management process

encompasses the following basic elements:

39

Persuasion at initial stage of default

Letters/reminders
Inspections/Site-visits

Negotiation & follow up

Workout remedial strategies
Reviewing collateral and security documents
Status report and review

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Recovery of Non-Performing Loans &

Investments

40

For early problem loan identification, to ensure that credits

are accurately risk rated at least monthly, with formal
classification and provisioning conducted at least quarterly,
Recovery & NPA Management Division will remain responsible
for overall monitoring of the same.
Identification and accounting procedure for nonaccrual loans
are consistent with the requirements established by Nepal
Rastra Bank. No interest against classified loan will be taken
into profit unless recovered in cash or as per Rastra Bank
instructions from time to time.
Provision against the classified loans will be made account for
accordingly on a quarterly basis (by passing necessary
voucher).

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Disposals of Collateral

41

All properties, share capital and debt securities should be

disposed of at the earliest suitable opportunity and not later
than 18 months after its acquisition or within such further
period as may be approved by the NRB.
Disposal of collateral should be at arms length and through a
transparent process (such as a public auction or independent
estate agents for foreclosed properties) to avoid complaints by
the original owner.
The Bank should ensure that the disposal of collateral is in
compliance with relevant laws and regulations.
Where appropriate, legal advice should be sought.
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Recovery Write-off loans

42

Debt Collection Unit of the bank will remain responsible for

collection of written-off loan. Any recovery from written-off
loan will be made account for as per BAFIA Act.
Procedures for recovery and management of write-off loans
will be observed consistent with the requirement established
by Nepal Rastra Bank.
Proper accounting of write-off loan will be strictly followed as
per BAFIA Act. The write-off procedures will be followed as per
the regulations set by the NRB.

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Thank You For Patience!!!

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