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ADVANCES - PRE-SANCTION APPRAISAL PROCEDURES AND TECHNIQUES

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					                                    INDEX

POLICY SECTIONS   SECTION                                             SECTION
                  NUMBERS              PROCEDURE SECTIONS             NUMBERS
                             ADVANCES - PRE-SANCTION APPRAISAL
                                PROCEDURES AND TECHNIQUES
                               ADVANCES - PRE-SANCTION APPRAISAL       720.1
                                   PROCEDURES AND TECHNIQUES
                            ANNEX- 1 TO P.720.1 FORMAT FOR BANKERS’
                                     CONFIDENTIAL OPINION
        DEPARTMENTAL PROCEDURES MANUAL                       SECTION:P.720.1         PAGE      01
SIB
               Advances - Pre-sanction appraisal Procedures and Techniques           September 11
No.   SS CLK AM MGR                                PROCEDURE NARRATIVE
                        Branch Managers/Officer-in-Charge granting or recommending the
                        grant of advances for business, trade, industry, personal, agriculture or
                        for any other purposes must satisfy themselves on the following points:

01                      Character, capacity and creditworthiness of the applicant (and co-
                        obligants/guarantors if any) to be examined by discreet enquiries from
                        outside parties engaged in similar line of business and full records for
                        having done the discreet enquiries should be maintained in the personal
                        file of the borrower.
                        Individual worth statements for all the signatories in the capacity as the
                        borrower, co-obligant/guarantor in Form No.299 should be obtained. The
                        value of assets stated in the form such as cash, goods, investments,
02
                        buildings, landed property, etc. should be ascertained by obtaining
                        documentary proof compulsorily in the case of landed properties and
                        investments and as far as possible in the case of other assets.
                        The nature and extent of the liabilities should be verified by independent
03                      enquiry and wherever possible by examination of existing bank account/s
                        and other books of account.
                        Statements of financial position as furnished by the applicants should be
04                      verified by independent enquiry and wherever possible by examination
                        of the books of accounts.
                        The value of the liquid assets or easily realisable assets such as cash,
                        book debts, stock, out standings considered good, etc. should ordinarily
05
                        exceed, with an ample margin, the total of the short dated liabilities such
                        as sundry creditors, short term borrowings, etc.
                        The applicants should have Personal/commercial integrity and should be
06
                        respectable.
                        The purpose for which the advance is required should be enquired and
                        confirmed. The advance should be granted for genuine trade, business,
07                      industrial, personal or agricultural purposes as stated in the application
                        and not for speculation, hoarding of goods or for speculative investment
                        in real estate.
                        The plan and source of repayment should be enquired and satisfied. The
                        applicant’s undertaking about repayment should not be taken at its face
                        value but must be viewed in the light of all relative circumstances with
                        special reference to the ability of those responsible for management and
08
                        the profit earning capacity, present as well as future of the concern, etc. It
                        must also be ascertained that with the money borrowed the borrower will
                        be able to generate sufficient additional income from which the
                        installments of repayment could be met.




                                             1
        DEPARTMENTAL PROCEDURES MANUAL                     SECTION:P.720.1       PAGE      02
SIB
               Advances - Pre-sanction appraisal Procedures and Techniques       September 11
No.   SS CLK AM MGR                                PROCEDURE NARRATIVE
                        The advance should be proportionate to the applicant’s means:

                            1. The amount of advance should be related to the owned capital
                               /independent means of the borrower.

                            2. It should also be possible by a reference to the past two or three
                               years’ financial statements, to ascertain the quantum of stocks
09                             that would be carried by the business or raw materials required
                               to be stored for the purpose of carrying on the business.

                            3. Projected turnover, inventory levels and credit limits proposed
                               should compare well with past trend.

                            4. Sufficient reasons to justify any large variations in projections,
                              from the past trend should be adduced.
                        Exposure to sister Concerns, Close Relatives:

                            1. While Considering advances, credit facilities enjoyed by allied
                               and associate firms or partners/directors individually should also
                               be put on record, showing the exposure for each
10
                               Individual/firm/Company

                            2. If facilities are enjoyed at other Offices by connected firms or
                                 partners/directors, the fact should be ascertained and details
                                 given in the proposal form.
                        The integrity of the borrower and his capacity to repay:
11                      Branch Managers must make sure that borrowers are men/women of
                        integrity and had the capacity to repay.
                        The borrower’s knowledge of business:
                        A borrower cannot thrive unless he knows all aspects of his business and
12
                        it may also be difficult in such cases to recover the bank’s dues. Due
                        importance should be given to the managerial competency.
                        The applicant should be adequately technically qualified or continued
13
                        technical assistance should be ensured.

14                      Satisfactory marketing arrangements should be ensured.

                                Examine the proposal from the angles of safety, feasibility,
                                national priority, etc.

                                Make a critical study of the financial statements, project report
15
                                and other information submitted by the borrower.

                                Do not enter into propositions which are likely to land the bank
                                even in the slightest loss.


                                            2
         DEPARTMENTAL PROCEDURES MANUAL                         SECTION:P.720.1    PAGE      03
 SIB           Advances - Pre-sanction appraisal Procedures and Techniques
                                                                                   September 11
 No.   SS CLK AM MGR                              PROCEDURE NARRATIVE
                        Govt. policies, licenses and Permissions
                               Gather the Government policies relevant to the industry.
                               Consider the impact of any change in the current Govt. policy for
                               the Industry and the Unit to be financed.

                                 Ensure that all licence/quota/ permission required is obtained and
16
                                 a copy of the same is available on record along with the
                                 proposal.

                                  Ensure that the clearance from the local Government authority,
                                  factories inspector, Local body, electricity board, pollution
                                  control board etc. is obtained.
                        Sources of credit information:
                        A) Confidential Opinion from the existing Bankers
                        If the customer is already banking with another bank, a confidential
                        opinion shall be sought from the bank.
                        Note :1
17
                        It is customary for the banks to exchange information in strict confidence
                        on their clients about the dealings and means of parties in brief code
                        words and such reports should be obtained and carefully read and
                        understood. The format for providing/obtaining the opinion on a
                        Customer is attached as Annex -1.
                        B) Opinion from reliable sources who knew the borrower/s well
18                      Information as to the character and honesty has to be tactfully gathered
                        from reliable sources who knew the borrowers well.
                        C) Opinion based on the existing account
                        In the case of existing customers, the state of account, resume of their
19                      dealings in the light of their past operations in the account, promptness in
                        meeting obligations, business integrity etc have to be gathered and
                        commented upon.
                        D) Financial Statements:
                        Balance Sheet and Trading and Profit and Loss Account, at least for a
20                      period of three years should be studied and a close scrutiny should be
                        made about the increase or the fall in sales profit/or loss during the
                        period and explanations should be satisfactory for the variations.
                        E) Enquiry with Competitors and NBFCs/Money Lenders
21                      Enquiry should also be made with NBFCs/Money Lenders and the
                        business competitors to ascertain the position of the business.

                        F) Independent Assessment by the Branch head
                        Branch Manager has to have an independent assessment of the business
22
                        ability of the concerned persons, before granting/recommending credit
                        facilities.



                                              3
        DEPARTMENTAL PROCEDURES MANUAL                     SECTION:P.720.1      PAGE      04
SIB
               Advances - Pre-sanction appraisal Procedures and Techniques      September 11
No.   SS CLK AM MGR                                PROCEDURE NARRATIVE
                        Appraisal of the Primary security and collateral security offered:
                        A. In the case of advances against goods:
                                The amount advanced to any one borrower should commensurate
                                with the extent of his resources, as margins have to be
                                maintained out of these resources, if prices fall.

                                The commodities should be readily saleable and not subject to
                                rapid deterioration.

                                They should be stored in such a way as to permit
23
                                periodical inspections.

                                Hypothecation of goods as security should be taken only from
                                parties of very good standing and except in very exceptional
                                cases such limits should have additional collateral security.

                                Documents of title to goods may be accepted as security only
                                from borrowers of undoubted integrity.
                                Only approved goods should be considered as security by way of
                                pledge. List of the approved goods are provided in Credit Policy
                                Document A.

                        B. Loans or overdrafts against company shares or debentures:
                            1. Loans or overdrafts against company shares or debentures should
                               be granted to persons who are able to pay up margins without
                               delay in the event of a fall in the market price of scrip.
24

                           2. Shares must be fully paid and should stand registered in the
                               borrower’s name or is held in the Demat account of the
                               borrower.
                        C. Loans or overdrafts against Surrender Value of an Insurance
                            Policy
                           1. When an overdraft or a loan is sought on the surrender value of
                               an insurance policy, the surrender value should be ascertained
25                             from the concerned office of the Insurer.

                            2. The policy should be assignable in the bank’s favour and the
                               assignment can be registered with the Insurer.




                                            4
        DEPARTMENTAL PROCEDURES MANUAL                         SECTION:P.720.1   PAGE      05
SIB           Advances - Pre-sanction appraisal Procedures and Techniques
                                                                                 September 11
No.   SS CLK AM MGR                              PROCEDURE NARRATIVE
                       D. Advance against the deposits

                            1. Deposit with other banks should not be taken as security.
26
                            2. An undertaking should be taken from the depositor agreeing to
                               adjust the deposit on maturity towards adjustment of the
                               loan/overdraft.




                                             5
Annex- 1 to P.720.1             Format for Bankers’ Confidential Opinion

                                        Strictly Private & Confidential




                                        Bank : ____________________

                                                                                Date : ____________________

To
_________________________
_________________________
_________________________

Re : _________________________________________________

Dear Sirs,

With reference to your enquiry _________________________ we attach our report on the party. Please
note that this information is given in strict confidence, and without any responsibility, on the part of the Bank
or any of its officials and on the condition that our name will not be disclosed to any one.




Yours faithfully,

Sd/-

Branch Manager




                                                                                                                1
     Annex- 1 to P.720.1             Format for Bankers’ Confidential Opinion



                                              Strictly Private & Confidential


                                              Credit Information Report
1.   Name       ______________________________________
2.   Address ______________________________________
3.   Constitution (Please Indicate ())
     ( Individual                                              ( Proprietorship
     ( Joint Hindu Family                                      ( Partnership
     ( Public Limited Co.                                      ( Private Limited Co.
     ( Others
4.   Name of Proprietor / Partners / Directors / Karta & Co-owners of Joint Hindu Family
     ______________________                                    ______________________
     ______________________                                    ______________________
     ______________________                                    ______________________
     ______________________                                    ______________________
5.   Nature of Account (Please Indicate ())
     Savings                 (   )                             Cash Credit                 (   )
      Current                (   )                             Others                      (   )
6.   Banking Since Year _________ No. of Years _______
7.   Business / Company Established / Incorporated on ________________(Date to be indicated)
8.   Nature of Business Activity (Main Activity of the Firm)
     __________________________________________________________
     Other Allied Activities (If know to the Bank)
9.
     __________________________________________________________
10. If Limited Company Authorised Capital                      Rs ____________
     Paid-up Capital                                           Rs ____________
11. Means of Proprietor partners.                              Rs ____________
12. Names & Address of Associate concerns of the firm (If the Bank)
     __________________________________________________________
13. Experience as to their Dealings (Brief write up)
     __________________________________________________________




                                                                                                   2
Annex- 1 to P.720.1        Format for Bankers’ Confidential Opinion


Guidelines for filling up the format

    When Party's Means are Estimated at      He should be Reported as having
Rs. 10, 000 or less                       Very small means
Rs.10,000 to Rs.25,000                    Small means
Rs.25,000 to Rs.50,000                    Moderate means
Rs.50,000 to Rs.1 lac                     Moderate to fair means
Rs.1 lac to Rs.2 lacs                     Fair means
Rs.2 lacs to Rs.3 lacs                    Fairly good means
Rs.3 lacs to Rs.5 lacs                    Fairly good to good means
Rs.5 lacs to Rs.10 lacs                   Good means
Rs.10 lacs to Rs.25 lacs                  Very good means
Rs.25 lacs to Rs.50 lacs                  Large mans
Over Rs.50 lacs                           Very large means




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