Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

ADVANCES - DESCRIPTIVE.doc - Light Circle

VIEWS: 0 PAGES: 66

									                     G E N E R A L A D V A N C E S-2013

1.       SALIENT FEATURES AND OPERATIVE GUIDELINES ON OPEN CASH CREDIT (OCC)
         FACILITY.
         Open Cash Credit is a facility of advance allowed against hypothecation of goods.
         Hypothecation is the creation of an equitable charge over the goods without the change of
          ownership or possession of security.
         Drawing is permitted based on the drawing limit eligible, computed with reference to the
          periodical stock statement submitted by the party and the sanction terms.
         As the security i.e. the stocks are in the possession of the party, such limit is granted only
          to credit worthy parties with satisfactory dealings.
         Clean limits are not granted to parties who are enjoying OCC limits since it may defeat the
          margin norms.
         Book-debts are taken as collateral securities, parties should submit book-debts statements
          periodically.
         Parties should maintain proper stock books with up to date entries. It should be made
          available for verification by the bank officials.
         Inspection of stock should be conducted periodically at irregular intervals, to ensure that
          the value of stocks declared in the stock statement is true.
           Wherever stocks are stored in a godown, hypothecation boards are to be displayed in
               a prominent place in the godown.
           Display of godown boards outside the godown may be waived at the discretion of
               sanctioning authority on a case-to-case basis.
           Also waiver of display of hypothecation boards in show rooms, though the sanctioning
               authorities are permitted to waive displaying of such hypothecation boards, they shall
               be selective and it shall be permitted only in the case of S 1 parties and where there
               are no irregularities in the account.
         Stock statement is to be submitted by the party on or before 7th every month.
         Penal interest is to be levied for delayed submission of stock statement and on over
          drawings on account of fall in DP.
         The value of the goods declared in the stock statement shall be the cost price/ invoice
          value/market rate/selling price whichever is lower.
         Whenever the account is brought to credit, stock statements need not be obtained, if a
          letter from the party to the effect that the stock statements will be submitted before the limit
          is re-utilised is obtained.
         Goods received under acceptances, consignment basis, DALC, our Bank Guarantees are
          to be excluded to arrive at the drawing limit.
         Non-moving/obsolete items should also be excluded from stock statement.
         During the periodical inspection the above aspects has to be verified.                  Goods
          hypothecated to us are to be for the full value.
         They have to be stored in strong and safe buildings acceptable to insurance companies.
         Goods are to be properly arranged in rows/ item wise/ size wise to facilitate easy checking.




                                                         1
Special Types of advances:

Some inventory limits require special care depending upon the nature of the goods. Some
guidelines relating to such special category of goods are dealt with hereunder:

Advances against Cardamom:

While entertaining proposals for advances against the security of cardamom, the Cardamom
(Licensing and Registration) Rules 1968 should be borne in mind, the salient features of which
are given below.

All persons who engage themselves in the business of cardamom as dealers are required to
obtain certificate of registration issued by the Cardamom Board.

The term 'dealer' is defined to mean a person who deals in the purchase or sale of cardamom,
but does not include an auctioneer or a broker.

It is further stipulated in the Rules that no dealer shall purchase cardamom from an estate which
has not been registered and from an auctioneer or a broker who has not been licensed by the
Board.

All persons who engage themselves in the business of cardamom as auctioneers or brokers are
required to obtain licenses from the cardamom board. In the event of sale of cardamom by the
Bank, it can be done only through the auctioneers or brokers who have obtained license from
Cardamom Board.

Branch Manager should satisfy himself that the parties dealing in cardamom and having
limits/advances with their branches are having valid certificates of registration issued by the
Cardamom Board and that the said certificates are in force.

Advances against Raw Rubber:
Advances against raw rubber are to be made only to valid license holder, issued by Rubber Board.

Section 14 of Rubber Act 1947 provides that no person shall sell or otherwise dispose of
and no person shall buy or otherwise acquire rubber except under and in accordance with the
terms of general
or Special License issued by the Rubber Board.
Section 16 of Rubber Act 1947 provides that no person not being the owner or occupant of an estate
or a person who has not acquired rubber under a general or Special License issued by the board
under Section 14 shall have any rubber in his possession.

Section 39 of Rubber Act provides that every person other than a processor who wants to deal
in rubber should obtain a dealers license from Rubber Board.

For the Bank as a whole, a dealers license has been obtained by H 0 and the Registration
Number is D.1306677.

Advances against drugs, pharmaceutical goods and chemicals:
    Under any circumstances, drugs and pharmaceutical goods where expiry dates are due to
     expire within 6 months from the date of pledge / hypothecation, should not be accepted /
     held as security as these goods will become unsaleable after the date of expiry.


                                                   2
            Goods having less than 6 months period to run for expiry should be excluded for the
             purpose of calculating the drawing limit.

2.       ADVANCES AGAINST BOOK – DEBTS:

            Granted against receivables due to our parties by their Trade debtors.
            Generally considered to parties of high repute and standing.
            Normally permitted only to Joint stock companies, Small scale industries, Trading and
             commission agencies.
          Trading and commission agents - Terms and conditions
                  The concern should have at least 10 years’ standing.
                  Maximum limit- two months average credit sales.
                  30 to 40% margin.
                  Debts outstanding beyond 3 months are not to be taken into account for arriving at
                  the drawing limit.
                  Parties should confine their dealings to our Bank only.
         This should not be considered to parties dealing in SCC commodities.
         For the purpose of classification in statements and Balance Sheet and for sanctioning
          purpose, this is treated as secured advance.
         Advances should not be made against debts outstanding beyond 90 days. In exceptional
          cases book debts outstanding upto 180 days may be considered after obtaining special
          sanction.
         Book debt statement to be submitted once in a month as per the format. If taken as
          collateral security - Book debts statement submitted once in six months (Mar. & Sept.)
          along with stock statement. If supply bill limit is granted, book debts statement submitted
          monthly. Such statements should be in detail.
         Book debts arisen out of bonafide transaction only included. Loans & advances and non-
          trade debts not to be classified under book debts. Book debts, which are bad or doubtful of
          recovery or for which there is any decree of any court or any dispute, should not be
          included.
         Book debts should be shown at net amount after deducting earlier dues by the borrower to
          his debtor and after deducting discounts, commission etc.
         Our charge is to be registered in case of limited companies.
         In case of corporate borrower where general power of attorney is executed and charge on
          book debts is registered with Registrar of companies, branches need not obtain letter of
          authority. For others (Non corporate borrower) Letter of authority should be obtained in the
          cases of.
          - Where total working capital limits enjoyed by the party is Rs.10 Lacs or more and /or
          - Where total outstanding book debt from any individual debtor is Rs.5 Lacs or more.

            SUBORDINATION AGREEMENT

            It is a tri-partite Agreement between the bank, borrower and the loan creditors, whereby
             the creditors of the borrowers undertake not to withdraw the sum loaned by them to the
             borrower without the express consent of the Bank.
            This condition of obtaining sub-ordination agreement is stipulated mainly wherever the
             capital base is weak / low resulting inadequate Net Working Capital. The subordinated
             loans are treated as a long- term liability so that NWC is improved.


                                                       3
ACCOMMODATION BILL

         Bills not arising out of genuine trade transactions and raised for the sole purpose of
          availing finance are termed as ‘Accommodation Bills’.
         For example, if ‘A’ wants funds urgently, a bill will be raised on ‘B’ without any business
          consideration. The duly accepted bill from ‘B’ is received and discounted with a banker and
          thus ‘A’ gets the money. On due date, ‘A’ pays the required money to ‘B’ to enable ‘B’ to
          meet the acceptance/obligation.
         Banks avoid discounting accommodation bills by verifying invoices, LRs /RRs etc.

3.       MODIFIED GUIDELINES ON INSPECTION OF STOCK BY THE OFFICIALS OF THE
         BRANCH: (CIR 94/2005)
         In respect of fresh OCC accounts, the branches should conduct inspection of Godown
         without fail before release of limits to the party.
         Generally, the officials (Managers/ Officers) in the branch handling Advances portfolio
         should be entrusted with the job of inspection of OCC accounts.
         Manager/ Officer should conduct stock inspection of particular account’s godown 3 times
         consecutively. This would enable the branch officials to develop expertise and conduct stock
         inspection objectively.
         Subsequent inspection should be conducted by other officials in the branch handling
         advances portfolio by rotation as stated above consecutively for 3 times.
         In cases where it is practically difficult for the branch to entrust all the godown inspection to
         the officials handling Advances portfolio ( on account of large number of accounts), the
         same may be entrusted to other officials (other than handling advances) preferably those
         who have reasonable credit background.
         Manager/ Senior Manager/Branch-in-Charge should conduct stock inspection (a) Once in a
         year in the case of Regular accounts (b) Atleast once in 6 months in case of accounts
         classified under Special Watch Category and Non LPD NPA accounts.

4.        IMPORTANT POINTS TO BE TAKEN WHILE TAKING INSURANCE FOR STOCKS
             All securities pledged/hypothecated to the bank for inventory limits must be insured
              adequately for the risks against fire, strike, riot, terrorism, burglary, earth quake, self
              combustion in respect of good which are self combustible like copra.
             All securities have to be insured for the market value or cost price which ever is more.
             If goods are stored in more than one godown, floating policy is to be obtained.
             Insurance to be obtained for both prime and collateral securities.
             All the goods stored in the godown are to be fully insured as otherwise “average
              clause” will operate.
             Insurance policies are to be in the name of ‘Canara Bank A/C….. (Borrower).
             Bank clause should be got incorporated in the policy.
             Cover note initially issued Valid for 15 days only. Branch to ensure that the cover notes
              are replaced        by the regular policy within a fortnight (Applicable in case of
              hypothecation of Vehicles)
             Cover note and policy to be kept by the bank with the loan documents or otherwise in
              separate era files.
             On receipt of the policy the same to be scrutinized for effective date of the policy,
              amount of insurance cover, address of location, goods and nature of risk covered, due
              date of the policy, bank clause etc.

                                                         4
        Details of the policy to be noted in fire insurance register, due date register, godown
         book etc.
        Particulars of insurance to be noted in drawing limit register also. Whenever there is
         any increase in the value of stocks, steps to be taken to obtain cover for the additional
         value also.
        Due dates to be diarized and policies to be renewed without fail.
        As Bank has tied up with United India Insurance, we have to take all the required steps
         to insure banks assets with United India Insurance company Ltd. (Corporate
         commissions to be followed up for the insurance made and get it credited to our
         commission account periodically).

5.   ELECTRONIC EQUIPMENT INSURANCE POLICY FOR COMPUTERS, ELECTRONIC
     EQUIPMENTS AND ELECTRO MEDICAL EQUIPMENTS:

     Banks take new types of securities like computers and its peripherals, audio and video
     equipments, electro-medical equipments for their loans.
     The risk attached to these equipments is different from other securities, General Insurance
     companies brought out a separate scheme called Electronic Equipments Insurance to
     cover these equipments.

     THE SALIENT FEATURES OF THE POLICY:
      It is an all risk policy to cover computers, biomedical equipment, X ray equipment,
       Audio-video equipment, micro –processor equipment and similar electronic gadgets.
      It covers any loss due to machine fault and electronic failure while the machine is at
       work or at rest or being dismantled for overhauling or when shifted within the premises
       or during subsequent re-erection.
      Besides the above, any loss or damage, due to fire, burglary, housebreaking, theft,
       external perils, including flood, earthquake, riot and strike, malicious damage etc which
       are a part of the fire policy are also automatically covered.
      The policy is classified into: Insurance of computers and Insurance of other
       equipments.

     TYPES OF EQUIPMENTS COVERED:

        Computers and allied peripherals like floppy disk drive, Magnetic Tape Drive, Hard
         Disc Drive, Visual Display Unit, Printer etc.
        Medical equipments like whole Body Scanner, ECG Machine, Chemical Biological
         Testing Equipment.
        Tele Printer
        Electronic Typewriter
        Xerox Machine, Photo copier machine
        Photo Typesetting Machine
        Spectro photo Meter
        Voltage Stabilizers, UPS, ROOM Air conditioners etc which are the auxiliary equipment
         are also covered.




                                                  5
6.   PROCEDURE TO BE ADOPTED FOR SUBSEQUENT OR SECOND MORTGAGE/
     CHARGE FOR IMMOVABLE PROPERTY
      Consent of the first mortgagee to be obtained
      Borrower to address a letter as per our format to the first mortgagee
      First mortgagee to give consent as per the format devised by our bank.
      Some of the institutions may give consent as per their format. In such cases if it
       acceptable to our sanctioning authorities the same may be accepted.

     AFTER GETTING THE CONSENT LETTER:

        If the borrower is willing to create a registered mortgage, the same can be done.
        The draft of such second mortgage may be got approved by R&L Section of Circle
         Office.
        If the first mortgage is registered mortgage and the first mortgagee is willing to part with
         the title deeds, EMT can be put through.
        If first mortgage is EMT, then the first mortgagee will not part with the title deeds.
        Hence the second mortgage will be by way of registered mortgage.

     THE ALTERNATE AVAILABLE EVEN IF THE ABOVE IS NOT POSSIBLE

        To create equitable mortgage by way of first mortgagee acting as an agent of the
         second mortgagee to secure deposit of title deeds.
        Consent must be obtained from the first mortgagee to act as an agent of the second
         mortgagee to obtain deposit of title deeds.
        After getting the consent, bank to address a letter as per the manual to the first
         mortgagee requesting them to obtain mortgage acting as an agent of the Bank.
        Then the first mortgagee shall obtain EMT in favour of the bank acting as an agent of
         the bank by following the procedure adopted at their end.
        In company advances, Board Resolution has to be passed to create second mortgage
         in favour of the bank. A certified copy of the resolution to be kept along with the loan
         papers.
        To obtain encumbrance certificate from the date of first mortgage till the date of second
         mortgage to ensure that no encumbrance is created between the first and second
         mortgage.
        Then the first mortgagee shall confirm the date on which the mortgage is created in
         favour of the bank along with the evidence of such mortgage.
        In case of company advance charge has to be modified within 30 days from the date of
         second mortgage.




                                                   6
         THIRD PARTY PROPERTY TAKEN AS COLLATERAL SECURITY - MODIFICATION

         The provisions of Cir.236/2008 (Para 3.41 of Chapter 3) was modified vide Para 4 of HO
         Cir.50/2009, dated 10.2.2009. Now the existing guidelines as per Para 4 of HO
         Cir.50/2009, dated 10.2.09 is further modified as under:

The existing guidelines states that if mortgage of third party property is accepted as security for
lending there against, irrespective of whether such third party mortgagee is a close relative or not,
prior clearance shall be obtained from next higher authority at CO/HO before conveying the
sanction, unless otherwise specified under specific scheme guidelines.

     Existing guidelines as per HO               Modified as per HO Cir 432/2010
     Cir.50/2009, dated 10.2.2009
     1. Renewal without enhancement: By          For new accounts: Prior clearance shall be
     respective sanctioning authority, if on     obtained from next higher authority at CO/HO
     previous instance sanction/ clearance       before conveying the sanction, unless otherwise
     was accorded by next higher authority.      specified under specific scheme guidelines.
                                                 This shall be applicable in respect of sanctioning
     2. Renewal with enhancement in the          powers unto the delegated powers of DGM.
     limit shall be placed to the next higher
     authority for prior clearance.              For proposals falling under the delegated
                                                 powers of GM (CO)/ (HO) & above authorities,
     The above guidelines shall be made          the respective sanctioning authority may permit.
     applicable to borrower accounts falling
     unto the delegated powers of DGM.           For existing accounts (Renewal, additional &
                                                 enhancement): Respective Sanctioning
     For proposal falling under the delegation   Authorities may permit unto their delegated
     powers of GM (CO)/HO & above, the           sanctioning powers where prior clearance from
     respective sanctioning authority may        higher authority was obtained on a
     permit.                                     previous occasion.

                                                 Note: For the above, new accounts means a
                                                 borrower account in which a third party property
                                                 is accepted as security for the first time.

7.       PROCEDURE FOR CREATION OF SECOND CHARGE ON MOVABLES:

            Branches to obtain a letter addressed to the first mortgagee from the borrower in
             duplicate as per manual.
            One letter to be sent to the first mortgagee under a covering letter as per the format
             under Registered Post AD.
            The AD Card and copy of the letters to be preserved along with the loan papers.
            The branch need not wait for consent from the first mortgagee.
            Branch can obtain the agreement from the borrower as per manual.
            For corporate accounts, necessary board resolution to be obtained. A certified copy of
             the resolution to be kept with the loan papers.
            Branch shall file form no 8 or13 in electronic form for Registration of charge with
             registrar of companies. The acknowledged copies of the forms to be kept along with
             loan papers.
                                                       7
8.   LOANS AGAINST TERM DEPOSITS OF OUR BANK

            Margin : Normally: Against own deposits 10 %, Against third party deposits 25%;
            Loan amount is decided based on the ledger balance.

            Margin : For deposits maturing within less than 45 days margin is 5%
            The above margin stipulations are applicable for advances against NRE / FCNR / NRNR
             & NRO deposits also.
            For deposits with maturity less than 45 days, 5 % margin can be permitted by the
             Branch manager.
            No Loans against term deposits of other Banks and our other branch can be permitted.
            In case of Extension Counters, Loans can be permitted at main branch only.
            Rate of Interest is linked to actual rate of interest paid on deposits.
            When the liability in the VSL account (self deposit) is beyond 90% of the deposit amount
             but less than the deposit value, 2 % penal interest to be charged on the irregular portion.
            When the liability goes beyond 100% of the deposit amount in VSL accounts against
             deposit in the name of the borrower ROI is to be charged as applicable to Clean
             OD/DPN on the excess liability over and above the deposit amount.
            ROI for VSL against third party deposit:
             a) BPLR or 2 % over the deposit rate or ROI as applicable to the category of the
                 borrower, whichever is more.( HO cir 133/2012)
             b) BR +3% or 3% above the interest paid on deposit, ( HO Cir 132/2012)
            Cash payment can be made unto Rs. 20,000/- only. In case closure of VSL, if the
             maturity amount exceeds Rs 20000, the surplus amount to be credited to the operative
             account or to be paid as DD irrespective of the balance amount.
            VSL proceeds should not be credited to third parties account, in spite of a request.
            Wherever loan is granted against FDR, the interest payable on deposit should be
             credited to the loan a/c.
            Minimum amount of loan - OD - Rs. 5,000/-


9.   LOANS / ADVANCES AGAINST LIFE INSURANCE POLICIES:
       Since Life Insurance Policies are issued by LIC and Post Offices, they are accepted as
        good securities and loan/advances are granted against them.
             The following should be ensured before granting a loan on LIPs.
              a.    The policy should have acquired a surrender value.
              b.    The age of the insured is admitted.
              c.    The policy is an endowment policy.
              d.    The policy is in force.
              e.    The policy is eligible for loan from LIC - The same can be verified from the
                    contents on the reverse of the policy.
              f.    Some of the policies not eligible for loan are:
                    I.    Policies issued under married woman’s property Act.
                    ii.   Policy issued for the purpose of payment of Estate duty.

                                                        8
                iii.   Children’s endowment policies.



                iv.    Policies under plan No. 73, 74, 75, 76 & 93 can also be accepted as
                       security provided they are properly assigned in our favor and Surrender
                       Value of these policies are obtained from LIC.
                v.     Policies under plan 94 & 95 are not eligible

         It should be ensured that policy is not already assigned/ encumbered. The policy
          should be got assigned in favor of Bank.
         The surrender value of the policy is calculated as per LIC’s booklet by verifying the
          latest premium paid receipt. Normally a policy will acquire Surrender Value only after
          three years from the date of issue. Generally, a margin of 10% is maintained. In the
          case of plan No.28, Surrender Value is to be obtained from LIC only.
         Surrender value means present cash value of the policy which is payable by LIC if the
          contract of Policy is terminated.
         Regular payment of premium is to be verified to ensure that the policy is kept alive. If
          defaults are there or if the depositor dies, the policy should be surrendered as per
          procedure and the advance should be adjusted from the proceeds.
         Advances against Postal Life Insurance Policies are generally granted only to
          employees. The assignment in the format specified is to be got executed by the
          insured and the same should be registered with the Post Master General of the Circle.
         Insurance Policies issued by Private Insurance Companies registered with IRDA can
          be taken as Prime security and loans can be considered.


10.   LOANS AND ADVANCES AGAINST NATIONAL SAVINGS CERTIFICATE
       Loans against NSCs can be granted for productive purpose only.
       Margin - 20% on the original investment – even 10% margin by CM/DM
       No accrued interest will be considered for granting advances.
       Before granting the loan, NSC’s should be got transferred in Bank’s name by executing
        a transfer form prescribed by Government.
       Loans should be sanctioned only to the holder of NSC.
       Repayment is 3 years with a definite repayment period, monthly/quarterly. Repayment
        can be permitted unto 48 months where salary is credited to SB account.

11.   MSME ADVANCES

      Financing for Micro Industries, Small Industries, Tiny Industries, Small Scale Industries,
      Small Scale Service & Business Enterprises (SSSBE- industry related) and Medium
      Enterprises are defined as MSME Advances


                                                    9
        GIST OF MSME POLICY OF THE BANK

           Medium Enterprises defined for the first time
           Relaxations in take over norms, graded Rate of Interest applicable to MSME sector
            extended to Medium Enterprise also.

           Time norms for disposal of Loan applications stipulated
           The policy of the Bank in respect of MSME applications are made applicable to ME
            sector also.

           The following sectors are identified as thrust areas under SME sector:
           Textiles/Garments/Hosiery, Bio-Technology/Drugs and Pharmaceuticals, Food
            Processing, Rice Shelling, General Engineering, Electrical & Electronic Components,
            Auto components/Ancillaries, Sports goods, Leather, Handicrafts, Gems& Jewelry,
            Information Technology& Enabled Services (ITES)

        DEFINITION OF MSME:

                        Industries                                Services
      Micro             The investment in plant and               The investment in equipment
      Enterprises *     machinery (original cost) does not        (original cost) does not exceed
                        exceed Rs.25 lakhs.                       Rs.10 lakhs.
       Small            Investment in plant and machinery         The investment in equipment
       Enterprises      (original cost) is more than Rs.25        (original cost) is more than
                        lakhs but does not exceed Rs.500          Rs.10 lakhs but does not
                        lakhs.                                    exceed Rs.200 lakhs.
       Medium           Investment in plant and machinery         The investment in equipment
       Enterprises      (original cost) is more than Rs.500       (original cost) is more than
                        lakhs but does not exceed Rs.1000         Rs.200 lakhs but does not
                        lakhs.                                    exceed Rs.500 lakhs.
      * Khadi and Village Industries Sector (KVI) - All advances granted to units in the KVI
      sector, irrespective of their size of operations, location and amount of original investment
      in Plant & Machinery / equipments to be considered as advances extended to Micro
      Enterprises sector.

           Credit facilities extended to Micro & Small Industries to be classified as Priority sector.
           Credit facilities extended to Medium Enterprises to be classified as Non-Priority sector
           Lending to NBFCs and other intermediaries for onward lending to ME Sector may be
            classified under ME Sector and such Advances are to be reported under Non-Priority
            Sector.

12.     TIME NORMS FOR DISPOSAL OF SME PROPOSALS:

           Loans upto Rs 25,000/- within 2 weeks from the date of receipt.
           Loans upto Rs 5.00 lakhs within 4 weeks from the date of receipt.
           Loans over Rs 5.00 lakhs, within a maximum period of 8 weeks from the date of
            receipt.
           Provided such applications are complete in all respects.
           Branches to issue Token of Service on receipt of application

                                                       10
      TAKE OVER NORMS FOR MSME ADVANCES

         The respective Sanctioning Authority may permit take over of Borrowal accounts from
          other Banks/ FIs upto his normal delegated powers without obtaining permission/
          clearance from the next Higher Authority. This is applicable for all branches i.e. both
          Specialised and other than Specialised SME branches.. However, in case of accounts
          risk rated as Moderate Risk - to be sanctioned by the circle head as below:
          If circle is headed by DGM - ,Post sanction clearance from GM (HO) to be obtained
          If circle is headed by GM and for HO Power accounts - Respective sanctioning
          authority. ( Ho Cir 270/2012)

           As far as possible, borrowal accounts of enterprises where project undertaken is yet
           to be completed may not be taken over from other banks/ FIs. However, in
          exceptional cases where take over of such project is necessitated, the same can be
          permitted subject to proper and justifiable reasons and duly undertaking a fresh project
          appraisal by PAG, CO/HO.- HO Cir 270/2012

         Current ratio can be relaxed upto 1.
         Debt Equity Ratio may be relaxed upto 3.

13.   SCHEME FOR STANDBY CREDIT FOR CAPITAL EXPENDITURE OF MSME

      Purpose: For meeting unforeseen/ urgent requirement for acquisition of Fixed assets like
      Generator set, balancing equipments, replacement of existing machinery items, tools,
      moulds, jigs, etc to maintain the production and/or to acquire necessary equipments/
      machinery for modernization of unit.
      Eligibility: Our existing MSME borrowers having satisfactory dealings with Asset
      Classification as Standard Asset.
      Nature of facility: will be permitted as Term Loan.
      Quantum of Loan: 25 % of the original value of the existing Plant & Machinery subject to
      maximum of Rs 25 lakhs, at the time of each renewal of Working capital Limits.
      Disbursement: shall be made in one stretch or in stages during the tenability of the limit
      against proforma invoices/ estimates and minimum disbursement shall be Rs 25,000 at a
      time.
      Margin: 15% to 25% of the cost of the fixed asset to be acquired under the loan.
      Security: Prime: Asset created out of the loan Collateral security & Personal Guarantee:
      obtained for the existing credit Facility shall continue.
      Repayment: within a period of over 36 months and within 60 months in monthly/ quarterly
      installments.
      Guarantee Cover: CGTMSE is available in respect of aggregate credit facility permitted to
      MSME units upto Rs 100 lakhs subject to conditions.
14.   SCHEME FOR ENERGY SAVINGS FOR SMEs
      Purpose: For acquiring energy saving equipments and / or adopting energy conservation
      measures.
      Eligibility:
                    Units under Small Scale Sector & Medium Enterprises.
                    Borrowal accounts classified as Standard Asset- ASC S1 or S2.
                    Current account holders having dealings exclusively with us
                      satisfactorily for a period of                      last one year.
                                                       11
                      Cost of energy consumption to constitute not less than 20% of the total
                       production presently.

                Unit should possess energy audit report issued by an approved Energy
                  Consultant/ Auditor.
Quantum of Loan: Upto Rs 100.00 lakhs
Margin:          10% of the Project cost.
ROI:             1 % less than applicable rate.
Security:        Prime: Asset created out of the credit facility.
                 Collateral security: NIL upto Rs 5 lakhs for MSME units.
                 For loans above Rs 5 lakhs for SSIs and MEs as determined by
                 the Bank on merits.
Repayment: In 5-7 years including moratorium of 6 months.
Guarantee Cover: CGTMSE is available in respect of aggregate credit facility permitted to
MSME units upto Rs.100 lakhs subject to conditions.
Grant: Bank provides 25% of the cost of Energy Audit/ Consultancy charges with a maximum of
Rs 25,000 to the first 100 units on a first come first served basis which is in addition to the grant of
Rs 25,000 being provided by IREDA (first 100 units)

15.       LOAN SCHEME FOR REIMBURSEMENT OF INVESTMENT MADE IN FIXED ASSETS
          BY MSMEs : (H.O.CIR 285/06 dt 18. 10.2006)

Eligibility: (only for MSMEs)

         Existing clients with good track record for at least for a period of preceding three years.
         In respect of Risk Rated (CRR) accounts, upto Low Risk LR3 and categorized under
          ASCC S1 or S2.
         If not Risk Rated, ASCC S1 accounts
         Accounts classified as Standard Assets continuously in the previous 3 years in respect
          those which are not subjected to ASCC norms.
Purpose: To reimburse the investment made on Fixed Assets, excluding land & building. Capital
Expenses incurred towards creation/ acquisition of fixed assets during the immediately preceding
6 months may be reimbursed.
Nature of Facility: Term Loan
Quantum of Loan: Upto Rs 50.00 lakhs for new machinery and maximum of Rs 15 lakhs for
second hand machinery which is not more than 2 years old from the original date of purchase. For
arriving the value of machineries WDV or market price whichever is less is reckoned.
Margin: (a) 25% of the investment made in respect of new machinery (b) 50% for second hand
machinery
ROI: As applicable to Term Loan of similar tenure
Security:        Prime: Fixed Asset created/ acquired under the Term Loan.
                 Collateral security: Securities held for Working capital limits and /or for
                 existing Term Loans. Additional security to be obtained taking into account of
                 quantum of loan and aggregate limit enjoyed by the party.
                 Personal Guarantee: to be obtained wherever necessary.
                                                        12
Guarantee Cover: CGMSE is available in respect of eligible accounts.
Upfront fee: As applicable to Term Loans
Repayment: In monthly/ quarterly/ half yearly instalments within a maximum period of 5-7 years.
In deserving cases repayment holiday upto 3 months can be permitted. Documentation,
Sanctioning Authority, Classification & reporting: - as applicable to Term Loan.

Other points:
    SME Sulabh at Circle Office shall maintain a record of sanctions made by the branches/
       offices under the scheme.
    Out of the above record C.O shall identify 10% of the case for random checking.
    Checking of valuation by Chartered Engineers/ Panel Valuers
    Bank shall absorb the fee payable for panel Valuer for undertaking valuation for the second
       time for the purpose of random checking.
    Documents to be verified/ obtained to ascertain the proof of investment made in fixed
       assets: Certificate from Chartered Accountant, Original Bills/ Invoices, Agreement for sale
       if any in case of second machinery, Advance payment/ initial deposit receipt/ Stamped
       receipt.

16.    SOCC EXCLUSIVELY FOR MSMEs
       Purpose: A liberalized credit facility to MSME and Retail Traders who are not in a position
       to maintain detailed stock books for working capital needs.
       Quantum of Finance: Upto Rs 5 lakhs
       Security: Prime Security- Asset created out of the credit facility
       Repayment: Facility is permitted as Running Limit subject to renewal / review every year.
       Guarantee Cover: CGTMSE is available subject to conditions (Except RTs).
       Stock Statement submission: Simplified once in a month. Detailed once in six months for
       industries and once in 12 months for retail traders.
       Book Debts Statement: Detailed book debt statement is submitted once in 6 months.
       Inspection : Monthly.

17.    LOAN SCHEME FOR SECURING ISO CERTIFICATION
       Purpose: For acquiring Testing/ Calibrating equipment and to meet the expenditure on of
       consultancy, documentation, audit, certification fee, etc.
       Eligibility: Existing MSME clients having dealings with us for at least 2 years; Profit
       making; in the preceding 2 years unit should not have defaulted to Bank or FIs for payment
       of dues.
       Project Cost: Not exceeding Rs. 4 Lacs.
       Quantum of Loan: 75 % of the project cost subject to maximum of Rs 3.00 lakhs.
       Margin: 25% on the Project cost.
       ROI: As applicable.
       Repayment: In 3 -5 years
       Security: Prime: Asset created out of loan if any.
                   Collateral security: Approved securities and unencumbered fixed
                   assets of the Unit (for clean portion of the loan).
       Guarantee Cover: CGTMSE is available subject to conditions.
                                                       13
        Debt Equity Ratio: Not less than 2:1.

18.     ARTISAN CREDIT CARD SCHEME (ACC)
Purpose:        To meet the Working Capital and/or Term Loan of Artisans.
Eligibility:    - All artisans involved in production/ manufacturing process
                - Preference would be given to Artisans registered with Development
                  Commissioner (Handicrafts).
                - Beneficiaries of other Government Sponsored Schemes will not be eligible.
                - Thrust in financing would be on clusters of artisans who have joined to form SHG
Quantum of Loan: Upto Rs 2.00 lakhs (aggregate amount)
Margin      :   For limits upto Rs 25,000: NIL
                For limits above Rs 25,000: 15 to 25%
Security:       Asset created out of the finance: No Collateral security.
Guarantee Cover: CGTMSE is available subject to conditions
Validity: 3 Years.
Insurance is waived for accounts upto Rs.50000/-.
Monthly stock statement waived.
Quarterly inspection to be conducted.


19.     COVERAGE OF ARTISANS CREDIT CARD HOLDERS UNDER THE SCHEME OF
        CGTMSE: (H.O.CIR.223/2006)

        Credits qualifying for Guarantee cover:
         Loans granted under the ACC issued by the Bank.
         ACC issued to the individuals are eligible.
         ACC issued to SHGs, Federation SHGs, Co-Operative societies, State Handicrafts
           Corporations are not eligible under the scheme of coverage.
         The guarantee fee is paid by the Development Commissioner Handicrafts only once to
           an artisan. Any subsequent renewal/ enhancement, the concerned party has to bear
           the guarantee fee.
         In order to facilitate increased flow of credit to the artisans in handicrafts sector and to
           obviate the need for seeking reimbursement of Guarantee Fee (GF) / Annual Service
           Fee (ASF) paid by Member Lending Institutions (MLIs) for guaranteed accounts, the
           Office of DC (Handicrafts) has proposed to place advance funds every year with
           CGTMSE for 4 year period so that MLIs need not pay GF / ASF for credit facility
           extended by them to artisans in handicrafts sector.
         The GF / ASF amount would be debited to this corpus by CGTMSE and guarantees
           issued / validated.
         All GF/ASF received for eligible cases from April 01, 2009 will be reimbursed from the
           DC (Handicrafts) corpus.

        Application procedure for artisans: Application through any one of the following:
         Regional Director, Office of the Development Commissioner (Handicrafts)
         State Handicraft Development Corporation
         Directorate of Cottage and Small Scale              Industry of the State Govts.
                                                  14
         Any other appropriate body of the Concerned State Govt. / Union Territory assigned
          with the task of handicraft development.

      Present fee structure:
       Entry fee- 1.50% of the credit facility
       Annual service fee- 0.75% of the credit limit sanctioned.

20.   COMPOSITE LOAN SCHEME FOR MSMEs

      Purpose: Simplified scheme devised under single window concept of RBI for acquiring
      equipments, construction of work sheds and to meet WC needs of tiny and MSME.
      Eligibility: Artisans, Village and Cottage industries engaged and MSME units in tiny sector
      in manufacturing, preservation and servicing by utilizing locally available natural resources
      and/ or human skills.
      Quantum of Loan: Maximum of Rs 100.00 lakhs

      Margin:        Nil upto Rs 2.00 lakhs: 25% for loans above Rs 2.00 lakhs..
      DER :          2:1 to be maintained for loans over Rs.2 Lacs.

      Security:      Prime: Asset created out of the credit facility.
                     Collateral security: NIL upto Rs 5 lakhs:
                     For loans above Rs 5 lakhs as determined by the Bank on merits.
      Repayment: In 3 to 10 years including initial moratorium of 12 to 18 months.
      Guarantee Cover: CGTMSE is available in respect of aggregate credit facility permitted
      upto Rs 100.00 lakhs subject to conditions.

23.   CREDIT LINKED CAPITAL SUBSIDY SCHEME (CLCSS)

         The operation of the scheme has been extended from 01.04.2007 to 31.03.2013
         The Ministry of MSME has renamed the Credit Linked Capital Subsidy Scheme for
          Technology Up-gradation of Small Enterprises “ Credit Linked Capital Subsidy Scheme
          (CLCSS)”
         Nature Of Limit : Term Loan
         Purpose: To enable the Small Enterprises (Manufacturing) units in Specified Industries
          for induction State of Art Technology with a view to improve productivity and to bring
          improvement in the quality of products, and/or to improve environmental conditions etc.

      Eligibility:
       Sole Proprietorships / Partnerships / Co-operative Societies / Private or Public Limited
          Companies in Small Enterprises (Manufacturing) sector.
       Priority to Women Entrepreneurs
       Existing units registered with State Directorate of Industries proposing to upgrade the
          State of Art Technology with or without expansion & new units which are registered
          with the State Directorate of Industries which set up their facilities only with appropriate
          and proven technology duly approved by Governing & Technical Advisory Board.
                                                    15
      Maximum Loan: Rs. 100 Lacs.

      Security: Assets acquired out of loan and collateral/personal guarantee as insisted by
      Bank.

      Repayment: 3-7 years.

      Guarantee Cover: CGTMSE cover available wherever eligible.

      Margin: 25 % on the project cost.

      Upfront Fee : 1% of the term loan sanctioned.

      Insurance Coverage: Assets acquired and security charged is to be insured.

      Capital Subsidy: Upto 15 % subject to a maximum of Rs.15 lacs, only for such projects
      where term loan have been availed from Bank and the same is subject to ceiling specified
      under the scheme.

      Nodal Agency: Since 04.04.2006, Our Bank (TUF Cell, Prime Corporate Credit Wing,
      and HO) is also one of the Nodal Agencies (along with SIDBI and NABARD) for
      implementation / administration of CLCSS independently in respect of loans granted by
      bank under CLCSS.

25.   BE-SE SCHEME

      Purpose: To discount/ negotiate Bills of Exchange (pre accepted bills or Bills drawn under
      LCs) drawn on reputed Joint Stock companies/ Public sector undertakings representing
      genuine trade transactions.
      Eligibility: -   Drawer of the Bills should be an MSME unit.
                   -   Borrower accounts of the units are classified as Standard Assets.
                   -   Drawee of the Bill should be a reputed JSC/ PSU.
                   -   New SME units coming to our fold (taken over accounts) are also eligible.
      Margin: 5% to 10%
      ROI:    - For Bills upto 90 days usance -8.50 %p.a.
              - For Bills above 90 days usance but not exceeding 180 days- 9.25 % p.a.
      Security: Prime: First charge on receivables.
      Collateral security: Aggregate limits upto Rs 5 lakhs : NIL
      Limits of above Rs 5 lakhs First charge on Fixed assets/ inventory or any other Assets
      acceptable to Bank.
      Personal guarantee of partners / directors / corporate, etc. if the limits are over Rs.5 Lacs.
      Incentive: 75% concession in the Bills collection charges. Circle Heads are having
      Powers to completely waive bill collection charges.
      Guarantee Cover: CGMSE is available in respect of aggregate credit facility permitted
                                                     16
      upto Rs.100 lakhs subject to conditions.



26.   LENDING TO MICRO CREDIT GROUPS (CIR. 178/2009):
      Objective : The scheme provides credit to MCG of persons belonging to economically
      disadvantaged sections of the society.
      Group : The loans can be sanctioned for smaller group with 3-5 members in URBAN
      areas and 5-10 members in RURAL & SEMI-URBAN areas. Finance can be extended for
      Agriculture and allied activity.
      Limit: Per member Rs.50000/- (max.) – Rs.500000/- max. for group. Debt swapping
      facility to group members is also permitted upto a maximum of Rs.25000/- (For availing
      debt swap loan facility, the loan availed from money lender should be at least one year old
      and an undertaking letter from the member that he will not avail the loan from the money
      lender again).
      ROI: As applicable to SHGs.
      SB Account: Compulsory for MCG and account in the joint names of member can also be
      opened. Individual members can also open NO FRILL account in individual name.
      Group Meetings: Compulsory.
      Records / Register : Compulsory.


27.   Laghu Udhyami Credit Card (LUCC):
      Objective : To provide hassle free credit to artisans, retail traders and SMEs.
      Eligibility : RT, MME Artisans. Existing parties enjoying credit facilities upto Rs.10 Lacs
      and having satisfactory dealing for 3 years.
      Card validity : 3 years with annual review.
      Purpose : To meet WC requirements.
      Max. Quantum : Rs.10 Lacs.
      Margin : Upto Rs.25000/- – NIL
          Above Rs.25000/- – 15% to 25%.
      Other features:
      Insurance upto Rs.50000/- waived.
      Cheque book marked LUCC.
      Monthly stock statement waived upto Rs.2.00 lakhs,
      For SMEs, the accounts shall be covered under CGTMSE.
      Renewal:
         LUCC is issued for WC requirement and running account facility is permitted as
          OCC/OD.
         Enhancement can be permitted at the time of annual review within the overall ceiling of
          Rs.10 Lacs.
                                                 17
28.    SRTO – SME Services:
       Objective : Loans to transport operators for purchase of HCV/LCV.
       Margin : Under priority – upto Rs.25000/- - NIL.
         Others – 10-15%.
       For used vehicle: 25% of the valuation report / purchase consideration / depreciation value
       of the vehicle whichever is less.
       DSCR: Not less than 1.50.
       DER: Not more than 3:1. Can be relaxed upto 4:1.
       Repayment period : Not exceeding 6 years excluding moratorium period of maximum 3
       months. For used vehicles – Not exceeding 5 years.
Used vehicles:
Vehicles not more than 5 years old and in good running condition.
Disbursement: Directly to the dealer.
Insurance: Compulsory.

29.    Credit Guarantee Fund for Micro & Small Enterprises

     (187/2007, 14/2008, 69/2008, 104/2009, 274/2009, 422/2009, 66/2010 87/2012, 98/2012,
406/2012))

Govt. of India and SIDBI jointly setup CGTMSE.

CGTMSE cover shall be available for eligible collateral free credits upto Rs.100.00 lacs extended
by banks by way of term loan and/or working capital facility to eligible SME borrowers including
information technology and software industries.

CGTMSE coverage is MANDATORY for loans above Rs.10.00 lakhs and upto Rs.100.00 lacs
unless borrower is not ready to bear the fee and offer collaterals acceptable to bank (Coverage
amount enhanced from Rs.50.00 lacs to Rs. 100.00 lacs wef 08.12.2008). For loans / advances
upto Rs.10.00 lacs where collaterals are not to be obtained, CGTMSE coverage is compulsory.
Discretion given to the sanctioning authorities to waive obtention of CGMSE cover stands
withdrawn.

Credit facilities eligible under the scheme:

Fund based and/or Non fund based credit facilities extended by Member Lending Institutions (MLI)
to a single eligible borrower in the Micro and Small Enterprises sector for credit facility not
exceeding Rs.50.00 lacs (RRBs / FIs) and Rs.100.00 lacs (Scheduled Commercial Banks and
select Financial Institutions) by way of term loans and / or working capital facilities on or after
entering into agreement with the Trust, without any collateral security and / or third party
guarantees.

Credit facilities extended by more than one bank and / or financial institution jointly and / or
separately to eligible borrower upto a maximum upto Rs.100 lacs per borrower subject to ceiling
amount of individual MLI or such amount as may be specified by the Trust.
                                                 18
Time limit for lodgment of applications for guarantee cover:

 Loans Sanctioned during the              Lodging of applications prior to the expiry of the
 quarter                                  quarter
 April-June                               July-September
 July-September                           October-December
 October-December                         January-March
 January-March                            April-June

The time limit for lodgment of applications for guarantee cover is linked to the date of sanction of
credit facility and NOT to the date of disbursement/release of credit facility to the borrower.

Percentage of Cover:


    Category               Maximum extent of Guarantee where credit facility is:

                           Upto Rs.5 lakh         Above Rs.5 lakh           Above Rs.50 lakh upto
                                                  upto Rs.50 lakh           Rs.100 lakh
    Micro Enterprises      85% of the amount in   75% of the amount in      Rs.37.50 lakh plus 50%
                           default subject to a   default subject to a      of amount in default
                           maximum of Rs.4.25     maximum of                above Rs.50 lakh
                           lakh                   Rs.37.50 lakh             subject to overall ceiling
                                                                            of Rs.62.50 lakh
    Women                  80% of the amount in default subject to a        Rs.40 lakh plus 50% of
    entrepreneurs/         maximum of Rs.40 lakh                            amount in default above
    Units located in                                                        Rs.50 lakh subject to
    North East                                                              overall ceiling of Rs.65
    Region (incl.                                                           lakh
    Sikkim) (other
    than credit facility
    upto Rs.5 lakh to
    micro
    enterprises)
    All other category     75% of the amount in default subject to a        Rs.37.50 lakh plus 50%
    of borrowers           maximum of Rs.37.50 lakh                         of amount in default
                                                                            above Rs.50 lakh
                                                                            subject to overall ceiling
                                                                            of Rs.62.50 lakh
One time Guarantee Fee: Cir 406/2012
One-time guarantee fee at specified rate ((a)currently 1.00% for limits upto Rs.5.00 lakhs and
1.50% in case of credit facility above Rs.5.00 lakhs (b) 0.75%, in case of credit facilities upto
Rs.50.00 lakhs sanctioned to units situated in North Eastern Region including State of Sikkim) of
the credit facility sanctioned (comprising term loan and / or working capital facility) shall be paid
upfront to the Trust by the institution availing of the guarantee within 30 days from the date of first
disbursement of credit facility (not applicable for Working capital) or 30 days from the date of
Demand Advice (CGDAN) of guarantee fee whichever is later or such date as
                                                        19
specified by the Trust.
However for loans sanctioned on or after 01.01.2013 a composite all in guarantee fee is in place
of one time guarantee fee and annual service fee, which is
 1.00% for limits upto Rs.100.00 lakhs for others and (b) 0.75%, for credit facilities upto Rs.5.00
lakhs and 0.85 % for more than Rs.5.00 lakhs in respect of Micro, women enterprises and units
situated in North Eastern Region including State of Sikkim) of the credit facility sanctioned – Ref
HO Cir 406/2012

Annual Service Fee:

The annual service fee at specified rate (currently 0.50% in the case of credit facility upto Rs. 5
Lakh and 0.75% in the case of credit facility above Rs. 5 Lakh) on pro-rata basis for the first
and last year and in full for the intervening years on the credit facility sanctioned (comprising
term loan and / or working capital facility) shall be paid by the lending institution within 60 days i.e.
on or before May 31, of every year. In the event of non-payment of annual service fee by May 31
of that year or any other specified date, the guarantee under the scheme shall not be available to
the lending institution unless the Trust agrees for continuance of guarantee and the lending
institution pays penal interest on the service fee due and unpaid, with effect from the subsequent
June 01, at four per cent over Bank Rate, per annum, or at such rates specified by the Trust from
time to time, for the period of delay.

For loan sanctioned on or after 1.1.2013 service fee is replaced by composite all in guarantee fee
vide HO Cir 406/2012- as mentioned above.

Mode of payment of Guarantee Fee/Annual Service Fee:

Once the applications are lodged with CGTMSE by SME Section at concerned Circle office,
CGTMSE would be sending Demand Advices for payment of Guarantee Fee.

Lock in period for preferment of claim:

Member Lending Institutions (MLI) is permitted to lodge claims for invocation of guarantee in
respect of accounts which have turned NPA after a Lock-in period of 18 months.

Invocation of Guarantee:

Member Lending Institutions are required to inform the date of which the account was classified as
NPA.

MLIs to indicate the date of NPA in particular calendar quarter, by end of subsequent quarter
through online system.

The MLIs are to lodge the applications for claim within a maximum period of one year from the
date of NPA if NPA is after the lock-in-period or within one year of lock-in-period if the NPA is
within lock-in period, if the following conditions are satisfied: ( two years for loan sanctioned on or
after 1.1.2013)

      The guarantee in respect of that credit facility was in force at the time of account turning
       NPA.
      The lock in period of 24 months from either the date of last disbursement of the loan to the
       borrower of the date of payment of the                 guarantee fee in respect of credit
                                                    20
         facility to the borrower, whichever is later, has elapsed.
        The amount due and payable to the Bank in respect of the credit facility has not been paid
         and the dues have been classified by the bank as NPA. Provided that the bank shall not
         make or be entitled to make any claim on the Trust in respect of the said credit facility if the
         loss in respect of the said credit facility had occurred owing to actions/decisions taken
         contrary to or in contravention of the guidelines issued by the Trust.
        The loan facility has been recalled and the recovery proceedings have been initiated under
         due process of law. For loan granted on or after 01.01.2013, initiation of legal proceeding
         as a pre condition for invoking guarantee shall be waived for credit facilities upto 50000/-
         subject to the condition that the executive committee of MLI headed by an officer not below
         the rank of General Manager should examine and waive the same( Ref 406/2012)

        The claim should be preferred by the Bank in such manner and within such time as may be
         specified by the Trust in this behalf.


Claim:

        The Trust will pay 75% of the guaranteed amount on preferring of eligible claim by the
         lending institution, within 30 days, subject to the claim being otherwise found in order and
         complete in all respects. The Trust will pay to the Bank interest on the eligible claim
         amount at the prevailing Bank Rate for the period of delay beyond 30 days.
        The balance 25% of the guaranteed amount will be paid on conclusion of recovery
         proceedings by the Bank.
        In the event of default, the Bank shall exercise its rights, if any, to takeover the assets of
         the borrowers and the amount realized, if any, from the sale of such assets or otherwise
         shall first be credited in full by the Bank to the Trust before it claims the remaining 25% of
         the guaranteed amount.
        Bank shall be liable to refund the claim released by the Trust together with penal interest at
         the rate of 4% above the prevailing Bank Rate, if such a recall is made by the Trust in the
         event of serious deficiencies having existed in the matter of appraisal/renewal/follow
         up/conduct of the credit facility or where lodgment of the claim was more than once or
         where there existed suppression of any material information on part of the Bank for the
         settlement of claims. The Bank shall pay such penal interest, when demanded by the
         Trust, from the date of the initial release of the claim by the Trust to the date of refund of
         the claim.

Guarantee coverage for credit facilities above Rs. 50 lakhs - Internal guidelines.
(Cir 104/2009)

        All proposals for CGMSE cover above Rs.50 lacs upto Rs.100 lacs will have to be rated
         internally by bank and should be investment grade.
        Credit facilities of above Rs. 50 lakhs under CGMSE scheme may be extended to the
         eligible enterprises, subject to the following;

                                         Viability parameters
                 (Relaxations can be permitted by the next higher authority at RO / CO.)
            Current Ratio                            1.25 % and above.
            Promoter's contribution                  minimum 30% of project cost.
            Debt Equity Ratio                        2:1
                                                       21
          Overall DSCR                             1.50 and above
          Fixed Assets Coverage Ratio(FACR)        1.4 and above
          Internal Rate of Return (IRR)            5% and above from estimated weighted
                                                   average cost of funds.
          Repayment Period in respect of Term      Up to 6 years excluding moratorium
          Loans                                    period
              All proposals above Rs. 50 lakhs will have to be rated internally and accounts
                with Risk Rating of LR 1, 2,3 and Normal Risk (NR) only to be considered for
                financing. ((Relaxations can be permitted by the next higher authority at
                RO / CO.)

      The sanctioning authority to satisfy about the capability of the promoter entrepreneur, to
       implement the project and manage the enterprise successfully, keeping in view the past
       experience, technical knowledge/ availability of professional/ technical & managerial team.
      The sanction to be reviewed and confirmed by the next higher authority at RO / CO before
       disbursement of the loan.

Coverage of loans above Rs. 50 lakhs: Permitting Authority:

      To enable faster Credit decisions, the said guidelines are since modified and respective
       sanctioning authorities are delegated to take decision on coverage of loans above Rs 50
       lakhs upto Rs 100 lakhs provided the stipulated benchmarks are complied with.

Scheme of Reimbursement Of 50% of CGMSE One Time Guarantee Fee for New Accounts:
(Cir. 66/2010)

      Reimbursement of 50% of entry fee to new Micro and Small Enterprises accounts
       sanctioned on or after 01.02.2010.and covered under CGMSE scheme.
      Reimbursement to be done at the time of closure of the loan or on completion of 5 years,
       whichever is earlier by debiting to General Charges Account.
      Guarantee fee to be reimbursed to those accounts who meet their repayment commitment
       and is a Standard account at the time of reimbursement.
      During the intervening period, if the account becomes NPA and thereafter a performing
       asset only by recovery of overdues & not by restructuring, in such cases also guarantee
       fee may be reimbursed.
      In the case of running accounts, there could be some enhancements during the 5 year
       period and in such cases, the details of guarantee fee paid is to be recorded in the Master
       Sheet so that the particulars are easily available at the time of permitting reimbursement.

Appropriation of amount realized by the Bank in respect of a credit facility after receipt of
claim amount

      Subsequent to the Trust having released a sum to the Bank towards the amount in default,
       if Bank recovers money subsequent to the recovery proceedings initiated by it, the same
       shall be deposited by the Bank with the Trust, (after adjusting towards the cost incurred by
       Bank for recovery of the amount).
      The Trust shall appropriate the same first towards pending service fee, penal interest and
       other charges due to the Trust, if any, in respect of the credit facility towards which the
       amount has been recovered by the Bank, and the balance if any, shall be appropriated in
       such a manner so that losses on account of deficit in recovery of the credit facility between
                                                    22
          the Trust and the Bank are in the proportion of 75% and 25% respectively.


Appropriation of the amount recovered after closure of the account

         Where recoveries are effected after writing off the dues and treating the account as closed,
          the recoveries are to be deposited by the Bank with the Trust, (after adjusting towards the
          cost incurred by Bank for recovery of the amount), as mentioned above towards the share
          of CGTMSE.
         However it is to be ensured that remittances made to CGTMSE on account of recovery in
          borrower’s account does not exceed the claim settled amount.
         However, if any amount due to the Trust remains unpaid beyond a period of 30 days from
          the date on which it was first recovered, interest shall be payable to the Trust by the Bank
          at the rate which is 4% above Bank rate for the period for which payment remains
          outstanding after the expiry of the said 30 days.

Appropriation of amount received from the lending institution

         The amount received from the Bank shall be appropriated in order in which the service fee,
          penal interest and other charges have fallen due.
         If the service fee and the penal interest have fallen due on the same date, then the
          appropriation shall be made first towards service fee and then towards the penal interest
          and finally towards any other charges payable in respect of the eligible credit facility.

30.       REHABILATATION OF SICK SME UNITS
           Any of the borrowal accounts of the units remains, sub standard for more than 6
            months
           I.e. principal or interest, in respect of any of its borrowal accounts has remained
            overdue for a period exceeding one year
           The requirement of overdue period exceeding one year will remain unchanged even if
            the present period for classification of an account as sub standard is reduced in due
            course
                                        OR
           There is erosion in the net worth due to accumulated cash losses to the extent of 50%
            of its net worth during the previous accounting year
                                        AND
           The unit has been in commercial production for at least 2 years

31.       When a SME unit considered potentially viable?
           A unit may be regarded as potentially viable if it would be in a position, after
            implementing a relief package spread over a period not exceeding five years from
            the commencement of the package from banks, financial institutions, government
            and other concerned agencies, as may be necessary, to continue to service its
            repayment obligations as agreed upon including those forming part of the package
            without the help of the concessions after the aforesaid period.
           The repayment period of restructured (past) debts should not exceed SEVEN
            years from the date of implementation of the package
           In the case of tiny/decentralised sector units, the period of relief’s / concessions and
            repayment period of restructured debts have been revised so as not to exceed Five
            and Seven years respectively as in the case of other SME units
                                                      23
32.   What are the reliefs & concessions for rehabilitation of potentially viable units?
         Concessions on interest dues on cash credit and term loan. No interest may be
          charged on funded interest
         Concessions on unadjusted interest dues
         Concessions on Term loans
         Concessions on Working capital term loans
         Concessions on Cash losses
         Concessions on working capital
         Concessions on contingency loan assistance
         Funds for start up expenses and margin for working capital
         Promoters contribution

33.   What are the reliefs & concessions for rehabilitation of potentially viable units
      under interest on cash credit and unadjusted interest?
         If penal interest and other changes have been charged, such charges should be
          waived from the accounting year of the unit in which it started incurring cash losses
          continuously
         After the above is done, the unpaid interest on this term loans and cash credit during
          the period should be segregated from the liability and funded.
         No interest may be charged on funded interest and repayment of such funded interest
          should be made within a period not exceeding 3 years from the date of commencement
          of implementation of the rehabilitation programmed
         Unadjusted interest dues such as interest charged between the date upto which
          rehabilitation package was prepared and the date from which actually implemented,
          may also be funded on the same terms as stated above

34.   What are the reliefs & concessions for rehabilitation of potentially       viable units
      under Term Loans and Working capital Term Loan?

         The rate of interest on term loans may be reduced, wherever considered necessary by
          not more than 3 per cent in the case of Tiny / Decentralised Sector units and by not
          more than 2 per cent for other SSI units below the document rate.
         The unadjusted interest portion of the cash credit account after segregation may be
          funded as Working capital Term Loan with a repayment schedule not exceeding 5
          years. The ROI applicable may be 1.5% to 3% below the prevailing fixed rate / BPLR
          wherever applicable to all sick SME units including Micro and Decentralised units.

35.   How cash losses are treated?
         Cash losses excluding interest as may be incurred during the nursing programme may
          also be financed by the Bank or FI, if only of them, is a financier.
         Future cash losses should be worked out before interest on working capital etc due to
          Bank and should be financed by the FI if it is one of the financiers of the unit.
          The financial institutions should not be asked to provide for interest due to the Bank in
          the computation of future cash losses and this should be taken care of by the future
          cash accruals.



                                                   24
36.    How working capital is treated?
          Interest on working capital may be charged at 1.5% below the prevailing fixed / BPLR
           wherever applicable.
          Addl. WC limits may be extended at a rate not exceeding the BPLR

37.    RESTRUCTURING OF ADVANCES: (HO Cir 245/2010)

       It is a process by which bank grants concessions to the borrower for economic or legal
       reasons relating to borrower’s financial difficulty.

       Any of the following actions distinctly or jointly will be termed as restructuring:

          Re-phasing /Rescheduling the repayment in case of an outstanding term loan with or
           without change in balance repayment period/ instalments

          Downward variation of interest payment terms (not under competitive reasons)

          Conversion of irregularities or a portion in outstanding working capital limits into
           WCTL/FITL payable over a period

          Conversion of irregularities or portion in outstanding working capital limits/term loans
           into debentures/equity.

          Rescheduling the payment of interest outstanding/accruing on term loans into FITL /
           deferment or conversion into FITL/debentures/equity.

          Changes in terms of payment of interest/instalment on the prevailing restructured
           facilities.

       Eligible categories -

       Standard, Sub-Standard and Doubtful assets
       Ineligible categories -
       Loss Assets, Non viable entities and not possessing reasonable certainty of repayment of
       accounts on restructuring.
       Wilful defaulters and / or borrowers indulging in fraud and malfeasance.
       BIFR cases without their express approval
       Borrowers affected by natural calamities and the advances were already restructured or
       eligible to be restructured under RBI guidelines.
       Terms of restructuring not agreed by the borrower client.

IDENTIFICATION:

To be done primarily at branch level through evaluation of conduct of the account and based on
the intensity of the irregularities and probable chances of continuing default and eventually
resulting in classification of the asset as non performing in the books of the bank. An impending
default may be considered for an advance being found eligible for restructuring.
                                                      25
The borrowers displaying delinquency deficiencies from the Special Watch List.

Advances slipped to NPA can also be brought under restructuring.

Identification of the borrower will have to be confirmed by the committee at C.O.s formed for this in
case of advances of above Rs.25.00 lacs and wherein action has been initiated under SARFAESI
Act.

GENERAL PRINCIPLES:

Restructuring cannot take place without the formal consent/application of the debtor. However the
process of restructuring can be initiated by the Bank in deserving cases subject to the customer
agreeing to the terms and conditions.

Restructuring should be based on the viability parameters that primarily look into the cash flows of
the borrower. No account will be taken up for restructuring unless financial viability is established
and/or there is reasonable certainty of repayment as per the terms of restructuring package,



Establishment of Viability and Viability Study:

Stages:

Industrial / Manufacturing units - Before / after commencement of commercial
                                   production/operation.

Other than Mfg enterprises       - Before / after commencement of operations

Consumer loans / Housing
Loans / Agri loans / Capital
Market exposures / other

Advances                       - Any time before classification as loss assets.

Basis for Restructuring:

Financial viability of the future operations to be established based on the viability parameters.

Reasonable certainty of repayment by the borrower

Viability Study:

If the proposal is limited to re-phasement / re-schedulement of existing loans, the concerned
branch and/or processing section at administrative offices can undertake the exercise satisfying
themselves about the viability irrespective of amount of loan or category.

In other cases wherein other reliefs are considered with/without re-phasement / re-schedulement:



                                                     26
a) Micro Enterprises:

The viability study shall be based on the cash flow / income generation supported by a viability
report prepared by the branch officials.

b) All other Enterprises:

Outstandings not exceeding Rs. 25.00 lacs - Branch may compile the viability report.

Outstanding more than Rs.25.00 lacs and not exceeding Rs. 2.00 Crore:

The viability may be through Chartered Accountants//PAC/PAG/TFOs/Valuer from the Banks
panel of valuers experienced in conducting such viability study.

Outstanding exceeding Rs. 2.00 Crore:

Limits sanctioned under the sanctioning powers of Circle Authorities, Viability study to be
conducted by the PAC of the C.O.

Sanctioning powers of H O - Project Appraisal Group H O.


In exceptional circumstances reputed consultants under the panel of CDR / IBA or any other
reputed institution can be entrusted with the approval of sanctioning authority or GM HO.

Advances to individuals classified under consumer loans - Branches can undertake the studies.

Advances granted to pursue agricultural. Activities:

In case of agricultural activities beyond Rs.25.00 lacs, assistance of AEOs/Agricultural
consultancy cell at H O can be utilized. The screening committee at CO/HO can decide on it.

Financial Benchmark Parameters:

a) Small Enterprises:

i) DSCR - Overall DSCR may not be lower than 1.25:1. In exceptional cases, it can be
          upto 1.20:1. DSCR in any year may not fall below 1:1

ii) ROCE - A Minimum ROCE equivalent to bank’s BPLR minus 2% may be
           considered adequate.(optimum year)

iii) I R R: I R R in respect of projects under implementation may be at least to 2% above
             the cost of capital. (Cost of funds employed). For computing cost of capital,
             cost of equity may be considered as equal to cost of borrowed funds.

iv) Extent of sacrifice:

Sacrifice on the part of the bank may be in the form of waivers, reduction in interest rates,
conversion of a portion or entire part of the advances into equity / debentures or a combination
thereof. The extent of sacrifice would be estimated on the basis of net present value of the
                                                   27
sacrifice during the period for which the sacrifice is assumed to be operative computed as under:

   The difference between the present value of future cash flows (representing the interest at the
   existing rate charged on the advance before restructuring and principal) discounted at normal
   rate of interest specified to similar rated accounts or card rate as applicable

                          and

    The present value of future cash flows (representing the interest at the rate charged on the
   advance upon restructuring and principal) discounted at normal rate of interest specified to
   similar rated accounts or card rate as applicable.

This procedure will be adopted in respect of TL, WCTL and FITL.

In respect of working capital facilities the sacrifice component may be computed as indicated in
the above para reckoning the limit sanctioned as the principal amount and taking the tenor as one
year.

The extent of Bank’s sacrifice amount computed on present value method would not exceed 15%
of the amount of restructured dues to the Bank.

Large and Medium Enterprises:
   1. DSCR - Overall DSCR minimum – 1.33:1, in exceptional cases, it can be upto 1.25:1. In
       any year it should not fall below 1.
       In case of Medium Enterprises, DSCR covering entire repayment period – 1.25:1 and in
       exceptional cases, it can be upto 1.25:1. In any year it should not fall below 1.

   2. ROCE - Minimum - Bank’s BPLR minus 1% is considered adequate.

   3. Gap between IRR and the Cost of Capital :
      The benchmark gap between IRR and cost of capital may be at least two percentages for
      projects under implementation and one percentage in other cases if computed.

   4. Extent of sacrifice:
      The sacrifice so computed on present value method will not be more than 10% of the
      restructured amount due to the bank.

   5. Gross Profit Margin:
      This has to be compared based on the data available in corporate database and industry
      information available with the Bank.

   6. Loan Life Ratio (LLR):
      LLR = Present value of available cash flow during loan life period
              ------------------------------------------------------------------------
                         Maximum amount of loan

Commercial Real Estate:

PAC (CO) shall carry out viability study. H O power account PAG (HO) to prepare viability study.

Compliance to the viability parameters relating to the loan life ratio of 1.25 shall be the
                                                  28
deciding factor for considering the financial viability.

Micro Enterprises:

The focus will be on the reasonableness of cash flow and overall DSCR,which may not be less
than 1.10.

RELIEFS AND CONCESSIONS:

SMALL ENTERPRISES:

    1. Re-phasement / Re-schedulement of Existing Term loans - Max 10 Years.
    2. WCTL may be carved out based on DP as at the end of the month prior to cut off date
       arrived at for restructuring and unduly overdue bills which is considered unrecoverable
       may also be added and repaid in a period of 5 years.
    3. FITL - Unrecovered interest on WC and TL to be repaid in 3 years.
    4. Deferment of interest - Interest accruing for maximum of 6 months may be deferred to be
       repaid within 3 years.
    5. Fresh finance - can be considered to meet essential capital expenditure and WC by way
       of term loan and WC limits. TL to be repaid within a period of 7 years.
    6. Promoter’s contribution - Not less than 15% of Bank’ sacrifice to be brought.

LARGE AND MEDIUM ENTERPRISES:

    1. Re-phasement / Re-schedulement of Existing Term loans - Max 7 - 10 Years.
    2. WCTL may be carved out based on DP as at the end of the month prior to cut off date
       arrived at for restructuring and unduly overdue bills which is considered unrecoverable
       may also be added and repaid in a period of 7 years.
    3. FITL - Unrecovered interest on WC and TL to be repaid in 3 years and in exceptional
       cases, can be extended for 5 years..
    4. Deferment of interest - Interest accruing for maximum of 6 months may be deferred to be
       repaid within 2-3 years.
    5. Fresh finance - can be considered to meet essential capital expenditure and WC by way
       of term loan and WC limits. TL to be repaid within a period of 7 years.
    6. Promoter’s contribution - Not less than 15% of Bank’ sacrifice to be brought.
    7. Conversion into debentures/equity - Part of the outstanding. Principal and / or unpaid
       interest may be converted as debentures/ equity

MICRO ENTERPRISES:

Existing loans can be rephrased with repayment in convenient instalment payable in next five to
10 years.

WCTL/FITL – As applicable to Small Enterprises.

COMMERICAL REAL ESTATE:

Repayment - Total repayment period after restructuring shall not exceed a period of 7 years
including moratorium and in exceptional circumstances, upto 10 years.

ASSET CLASSIFICATION NORMS:
                                                           29
An existing ‘Standard Asset’ will not be downgraded to the ‘Sub-Standard ‘ category upon
restructuring subject to compliance of the following condition:

   1. The dues to the Bank are “Fully Secured” as defined below:

       The amount due to the Bank (Present value of Principal and interest receivable as per
       restructured loan terms) are fully covered by the value of the security (Tangible Securities
       – Primary as well as collateral) duly charged in Bank’s favour. State Government
       guarantees and Central Government guarantees are treated at par with tangible security.

   2. The unit become viable in 10 years, if it is engaged in infrastructure activities and
       in 7 years in case of others

   3. The repayment period of the restructured advance including moratorium does not exceed
      15 years in the case of infrastructure advances and 10 years in case of others.

   4. Promoter’s sacrifice and additional funds brought by them should be a minimum of 15% of
      the sacrifice. To be brought upfront.


The above is not applicable to the following categories:

Consumer and Personal advances
Advances classified as Capital Market Exposures
Advances classified as Commercial Real Estate Exposures.

If the above condition is not complied, the accounts classified as “Standard Assets” should be
immediately reclassified as “Sub Standard Assets” upon restructuring.

The NPA, upon restructuring would continue to have the same asset classification as prior to
restructuring and slip into further lower asset classification as per extant asset classification norms
with reference to the pre-restructuring repayment schedule.

All restructured account which have been classified as NPA upon restructuring would be eligible
for up-gradation to the “standard’ category after observation of ‘satisfactory performance’ during
the ‘specified period’. Specified period means a period of one year from the date when the first
payment of interest or instalment of principal falls due under the terms of restructuring package.

Satisfactory performance means adherence to the following guidelines:

Non agricultural Cash credit accounts - The amount should not be out of order any time during
the specified period, for duration of more than 90 days. In addition, there should be any overdue
at the end of the specified period.

Non agricultural term loan accounts:

No payment should not remain overdue for a period of more than 90 days. In addition there
should not be any overdue at the end of the specified period.


                                                      30
INCOME RECOGNITION NORMS:

In respect of restructured accounts classified as “Standard Assets’ interest income will be
recognized on accrual basis and in case of NPA, it will be recognized on cash basis.

PROVISIONING NORMS:

Normal provisions will be applicable in respect of restructured advances.

However, wherever ROI and / or re-schedule of the repayment of the principal as part of
restructuring will result in diminution in the fair value of the asset. Banks to measure such
diminution in the fair value and make provision.

TIME NORMS:

NON-CDR – Within 90 days from the date of receipt of application by the Bank.

CDR – Within 120 days from the date of approval under CDR mechanism.

The above norms have to be adhered as maximum for the time limits.


38. Canara Trade and Traders’ Scheme:

                TRADERS SCHEME                            CANARA TRADE
            Loan Quantum:                                 Loan Quantum:
            Maximum - Rs. 50.00 lacs Eligible             Maximum - Rs.500.00 lacs
            Borrowers:
                                                          Eligible borrowers:
            Traders (both Retail and Wholesale)
               - Commission agents                        Traders (Wholesale and Retail)
               - Other Business Enterprises                  - Departmental Stores
               - Wherever the borrowers are                  - Dealers in Groceries
                    assessable under Sales tax, latest       - Consumer Durables
                    sales assessment should be obtained      - Co-op Stores
                    and forwarded to                         - Malls, Super Markets etc.
                    Sanctioning/reviewing authorities.       - Commission Agents
                                                             - Business & Services Sector




                                                     31
For the borrowers coming under priority               -   Transport, Travel & Tourism
sector, obtention of sales tax assessment             -   Hotels, Restaurants
order need not be insisted. However the               -   Entertainment
following requirement are to be satisfied:            -   Health
                                                      -   Education
    a) Whether the borrower is regd as a              -   BPO, ITES etc.
       regd dealer under the relevant sales
       tax laws                                   Prof & Self Employed
    b) Whether the borrower is regularly
       paying tax dues as reqd under the              -   Medical Practitioners
       sales tax laws.                                -   Chartered Accountants
    c) The borrower should furnish                    -   Company Secretaries
       dealership number, copy of the                 -   Engineers
       certificate                                    -   Lawyers
                                                      -   Architects, Surveyors,
                                                      -   Contractors
                                                      -   Management Consultants etc.

Sanctioning Powers:                               Sanctioning Powers:
As applicable to Secured Limit.                   Manager in charge of Small Branch - 10
                                                  Manager in charge of Medium/
                                                  Credit Manager in VLB/ELB           - 20
                                                  Manager in charge of Large Branch/
                                                  Sr. Mgr. In VLB/ELB/Manager of
                                                  Advances Section at R O /C O        - 30
                                                  CM/DM (VLB – RO /CO)                - 50
                                                  AGM (ELB / RO/CO)                   - 100
                                                  DGM (CO)                            - 200
                                                  GM (CO/HO)                          - 500
                                                  (Applicable both in respect of WC & Term
                                                  Loan or combination thereof (FB, NFB or
                                                  combination thereof)

R O I – Upto Rs.2 Lacs – 12%                      R O I – 11.50% as per HO Cir.232/2010.
        Above Rs.2 Lacs – 13.25%

                                                  Security:
Prime –     Stock and Book debts
                                                  Prime – Stock and Book debts to cover the
Margin – Common margin of not less                          limit/liability at any point of time.
         than 30%                                 (Not applicable for Commission Agents)
                                                  Exclusive BDs which are not beyond 90 days
Collateral: Fully secured by Land, building       may be taken as security depending upon the
            in Semi Urban and Urban areas         activity undertaken by the borrower.
            and other approved securities
            like NSC, KVP IVP                     Margin : NIL upto a limit Rs 50.00 lacs
            (excluding shares).                            10% above 50.00 lacs




                                             32
Security:                                          Collateral:

(For limits upto Rs. 10.00 lacs there is no        Upto Rs. 10.00 lacs – EMT of property not
need to compute Drawing Limit though                                     less than 100% of the
stocks/book debts are taken as security)                                  limit

                                                   Beyond Rs. 10 lacs - EMT of property not
                                                                        less than 133% of the
                                                                        limit

                                                   Loans to commission Agents:
                                                   EMT of property not less than 200% of the
                                                   loan/limit to be made available.

                                                   (Any shortfall in the value of security can be
                                                   made good by way of deposits, FV/Purchase
                                                   value of NSC/KVP/IVP less 20%, SV of
                                                   LIC Policies)

                                                   Additional guidelines in respect of EMT
                                                   property:

                                                   Property should be situated in the place of
                                                   business and / or agglomeration

                                                   Vacant sites and agricultural property should
                                                   not be accepted.

                                                   Properties should not be tenanted out.

                                                   Property in the name of Proprietor or family
                                                   members, partnership firm or family
                                                   members of partners and Ltd. Co. or directors
                                                   or family members of directors can be
                                                   accepted.
                                                   Family members: Spouse, Son, daughter,
                                                   father, mother, brother and unmarried sister.

Submission of stock/book debt statement:           Simplified stock/book debt statement:
Upto Rs. 10.00 lacs:Once in six Months             Upto Rs. 50.00 lacs – once in 6 months
Over Rs. 10.00 lacs Monthly                        Over Rs. 50.00 lacs – Once in 3 months
                                                   Loan to commission agents: Income and
                                                   expenditure account to be obtained quarterly
                                                   as a proof of continuing to be engaged in the
                                                   activity/business.
Inspection of stock:
Upto Rs. 10.00 lacs : Once in six months           Inspection of stock: Once in 3 months
Over Rs.10.00 lacs: Once in three months           (irrespective of the limit)



                                              33
            Tenability:                                     Tenability :

            Against EMT         – One Year                  Two Years subject to annual review.
            Against security of
            Deposits/NSC/IVP - Two Years
            Priority Status:                                Priority Status:

            In case of Retail Traders                       In case of Retail Traders
            Limit Upto Rs. 20.00 lacs    - Priority         Limit Upto Rs. 20.00 lacs    - Priority
            Limit Over Rs. 20.00 lacs - Non Priority        Limit Over Rs. 20.00 lacs - Non Priority

            All others (Wholesale traders, commission       In case of business enterprises, prof & self
                          agents etc)                       employed, contractors etc., Priority status as
            Irrespective of the limit - Non priority        applicable to MSME.

                                                            All others (Wholesale traders, commission
                                                                          agents etc)
                                                            Irrespective of the limit - Non priority


39.   BANK GUARANTEES

      Contract of Guarantee:
       A ‘Contract of Guarantee’ is contract to perform the promise or discharge the liability of
        third person in case of his default.
       There are three parties to a Guarantee. The person who gives the guarantee is called
        the ‘Surety’ or ‘Guarantor’ ( Bank), the person on whose behalf the guarantee is given
        is called the ‘Principal Debtor’ (our customer) and the person in whose favour the
        guarantee is given called the ‘Creditor’ or ‘Beneficiary’.
      Types of Bank Guarantees:
      a.   Financial Guarantee
      b.   Performance Guarantee
      c.   Deferred Payment Guarantee
      d.   Advance Payment Guarantee
      Financial Guarantee:
      All Guarantees issued guaranteeing repayment of a loan or a debt is considered as
      Financial Guarantees.
      Performance Guarantee:
      a. These are the guarantees issued in respect of performance of contract or obligation.
      b. In the event of non-performance of the obligations as per the contract, Banks assume
         only monetary liability up to a specified amount and for a specified period.
      c. Banks do not guarantee the due performance of the contracts like construction or
         bridge, supply of material, etc.




                                                       34
Deferred Payment Guarantee:
 a. Issued favoring Suppliers/ Manufacturers for supply of goods/ machinery on credit and
    payment for the same is made by deferred installments.
 b. The manufacturer or seller of the goods/ machinery agrees for deferred installments only if
    the payment of installments is guaranteed by the Bank.
 c. The Principals i.e., suppliers/manufacturers draws drafts on the purchaser which have to be
    accepted and paid on the due dates.
 d. In the event of non-payment of installment by the purchaser on the due date, the Bank will
    have to make the payment.
 e. Deferred payment guarantee/ Bills co-acceptance are akin to Term Loans.

Advance Payment Guarantee:
 a. Issued where the parties (principal borrowers) seek advance payment from their Principals
    of the Contract to meet a part of working expenses.
 b. A principal insists for Guarantee from the Banks against such advance payment and
    guarantees of this type are known as APGs.

Procedures to be adopted for issuing of Advance Payment Guarantee:
1. Prior to issuance of Guarantee:
      a. All the terms and conditions of the Original Contract between the parties should be
          examined in depth especially with reference to the quantum of advance and mode of
          payment.
      b. Capacity of the party to execute the contract both from the physical and financial angle
          should be ensured.
      c. Past experience justifying their capacity to handle the contract to be seen.

2. Information to be obtained:
      a. Name of the beneficiary and amount of the contract.
      b. Location of the contract work and likely time of completion, penalty if any.
      c. Terms of advance payments and their adjustment.
      d. Documents to be submitted to the beneficiary on due performance.

3. Other aspects to be seen:
     a. Total value of the guarantee required for executing the project.
     b. Details of the project and fund requirements for completion.

4.   Goods covering such guarantees are to be pledged/ hypothecated to the Bank and in
     such cases guidelines related to PL/KCC/OCC to be followed.

5.   As the nature of commitment under APG is similar to performance of a contract or an
     agreement APG is to be treated as Performance Guarantee for charging of
     commission and also for our Balance Sheet purpose.




                                                     35
General guidelines to be observed with regard to issue of guarantee:
   1. Guarantees are generally issued by the Bank on behalf of customers only.
   2. Normally refrain from issuing guarantees on behalf of customers who enjoy credit facilities
      with other bank.
   3. Branches should be satisfied that the customer would be in a position to reimburse the
      bank in case of invocation.
   4. In case of Performance guarantee, it should be satisfied that the customer has necessary
      experience, capacity and means to perform the obligation/contract.
   5. Branches should not issue guarantees on behalf of Non-Banking companies for repayment
      of their loans/ deposits secured by them from other companies or from the public in
      general. RBI has imposed specific prohibition on this aspect.
   6. Guideline on Current Ratio is applicable for the sanction of guarantee limit.
   7. Relaxations can be permitted in respect of Current Ratio norms for the contractors
      undertaking large value construction contract, customers enjoy only NFB Limits or
      predominantly NFB limits for the working capital purposes and Term Loans & NFB limits
      for acquisition of fixed assets.
   8. Scale-I Managers/ Managers/ Senior Managers should not issue guarantees in the
      following cases:
      a. For issuing guarantees which may necessitate lodgment of Government Securities by
         the Bank.
      b. For issuing unsecured/ partly secured guarantees in respect of payment of arrears of
         Tax.
      c. For issuing unsecured/ partly secured guarantees in respect of matters under dispute
         pending in the court.
      d. For issuing Unsecured guarantees for more than a period of 2 years.

Precautions to be taken while issuing guarantees:

   1. Guarantees whether secured by 100% margin or otherwise, should not be issued for more
      than 10 years. However DGMs are permitted to issue.
   2. Guarantees must be for specific amount and for specific period, normally not exceeding 2
      years.
   3. Guarantees containing onerous terms should not be issued.
   4. Every guarantee should contain a standard protective clause.
   5. Generally guarantees issued on behalf of building contractors should not cover progress
      payments under contracts for building and / or other constructions
   6. The Bank will not be called upon to grant any loan or an advance to meet the liability
      consequent upon the invocation of guarantee.
   7. Guarantee with interest clause is to be issued with specific approval of the sanctioning
      authority.
   8. Where the guarantees proposed to be issued is not as per the standard drafts given in the
      BG Manual, irrespective of whether it is secured by 100% margin or otherwise, the same
      should be got approved by the Legal section of the Circle Office.
                                                    36
   9. If there is mere renewal of guarantees already approved by Legal section, the same need
      not be taken with Legal section for approval again.
   10. Guarantees issued for Export performance are eligible for ECGC Cover.

Issuance of Guarantee favoring HUDCO in respect of State sponsored bodies:
Branches should not issue any guarantee favoring HUDCO in respect of loans given to State
sponsored bodies. Advances made by HUDCO for any Department/ Institution for construction of
houses to its employees under their staff rental housing scheme are not covered under the
Housing Finance guidelines of RBI.

Issuance of Guarantee for more than 10 years:
Guarantees should not be issued for a period of more than 10 years irrespective of the fact that
such guarantees are backed with 100% cash margin or not. However DGMs are empowered to
permit the branch to issue guarantee for a period beyond 10 years or without expiry period subject
to the conditions:
    a. Should be fully secured by cash/ our own deposits.
    b. At no point of time, our commitment under guarantee should be beyond the secured
        amount.
    c. As deposits can not be accepted beyond 10 years, it should be ensured that the deposits
        held as margin are renewed from time to time.
Issuance of Guarantees for External Commercial Borrowings:
No guarantees shall be issued in favor of overseas lenders on behalf of Resident Borrowers of
ECB either under automatic route or otherwise.


Where do we normally insist 100% margin for guarantees?
100% margin /term deposits of the bank should normally insisted for guarantees issued covering
payment of dues such as:
   a.   Payment of insurance premium.
   b.   Payment of Sales Tax.
   c.   Payment of Income Tax.
   d.   Guarantees issued in favor of Director General of Supplies & Disposal (DGS&D).

Guarantee with automatic renewal clause:
Guarantees containing automatic renewal clause carry an additional risk of being required to be
renewed at the request of the beneficiary with or without specific request from the borrower.
Automatic renewal clause is considered as an onerous clause.

Permitting the guarantees with automatic renewal clause:
   1.   Branches are not empowered to issue guarantee with this clause.
   2. The CM/ AGM of VLB/ ELB can permit issuance guarantees containing automatic renewal
      clause within the sanctioned limit permitted by the competent authority.
   3. Branches while recommending the guarantee limit to the competent authority shall obtain
      specific permission to issue such guarantees.
   4. This relaxation is to be permitted only to      S1/S2 parties.
                                                   37
   5. While issuing such guarantees, the following words are to be incorporated in Counter
      guarantee NF 446 in page 4 Para 2 line4 after the words “Guarantees issued” : “ either
      with or without automatic renewal clause”.
   6. The usual protective clause is to be invariably incorporated in the guarantee.
   7. Before the due date of the guarantee, branch shall also send intimation to the beneficiary
      informing about the expiry date of guarantee.
   8. In case a request is received from the beneficiary to extend the validity period of the
      guarantee before the due date of the guarantee, branch shall extend the guarantee without
      reference to the borrower.
   9. However the borrower is to be informed about the extension of validity period and
      appropriate commission for extended validity period has to be collected.

Claim period for Guarantees:
   a. It is a facility to the beneficiary enabling him to claim, within a specific period, the loss/
      damage caused to him during the validity period of the guarantee.
   b. Normally claim period should not exceed 6 months.
   c. While computing the “guarantee period”, the “claim period” if any permitted should be
      excluded.
   d. Commission up to the expiry of claim period is to be collected.

Documentation for Guarantees:
A. FOR SINGLE TRANSACTION LIMITS:
   a) Request letter of issuing/ extending Guarantee                NF 823
   b) Stamped Counter indemnity                                     NF 446
B. FOR REGULAR LIMITS:
   a)   Request letter of issuing/ extending Guarantee              NF 823
   b)   Stamped Counter indemnity                                   NF 446
   c)   Separate request letter for each guarantee to be obtained
   d)   In case deposits taken as margin, letter of pledge          NF 470
   e)   Wherever third party deposits taken as security             NF 474
   f)   In case of Personal guarantee is stipulated                 NF 370 & 371

Signing of the Bank Guarantees:
   a. Guarantees of less than Rs 1 lac have to be signed by the Senior Manager/ Manager.
   b. Guarantees of Rs 1 lac and above have to be signed by an Officer and Senior Manager/
      Manager.
   c. In branches not having 2 Officers, the guarantees may be got signed by an appropriate
      signatory working in a nearby branches through RO/CO.

Amendments for guarantees:
 a. Whenever an amendment is sought in the bank guarantee, branches should obtain a letter
    from the borrower for the changes to be effected in the guarantee.
 b. The beneficiary should give his/her consent for the proposed change in terms of guarantee.

                                                    38
 c. Acknowledgement is to be obtained from the beneficiary for having received the amendment
    document on the copy of the guarantee.
 d. Suitable documents have to be obtained from the borrower in consultation with R&L Section
    as the original document would not have taken care of the amendments.
 e. For the amendments other than change of amount and period of guarantee, commission to
    be collected @ Rs.100 per amendment.
Protective clause in bank guarantee:
A guarantee issued by the branch should be for a specified amount and for a specified period. A
suitable Clause shall be invariably incorporated in all the guarantees and that is called as
Protective Clause, words as mentioned in BG Manual page 41.
Collection of commission in installments:
Yes, can be permitted in exceptional cases by the appropriate authority for collection of
commission on installment basis.
Refund of commission for unexpired period:
Yes commission can be refunded for unexpired period of the guarantee only, if the guarantee has
not been utilized for the purpose for which it has been issued. If the purpose for which the
guarantee is issued is fulfilled, no refund of commission should be made in respect of unexpired
period.
Procedure for extension of Guarantee:
   a. The period of guarantee may be extended on the same terms and conditions at the
      request of the party on whose behalf the guarantee is issued on or before the expiry date.
   b. If the party insists for renewal of guarantee after expiry date but before the claim period at
      the instance of the beneficiary, branches may issue the guarantee afresh with an additional
      clause stating “ This guarantee is deemed to have come into force and effective from
      …….. ( date )”.
   c. Request should be made in NF 823.
   d. Prior permission from the appropriate authority is required.
Procedure for reversal of liability of Guarantee:
A. In case, before expiry of the guarantee/ claim period, the guarantee bond is received duly
   cancelled, bearing an endorsement of cancellation by the beneficiary or an advice of
   cancellation of the guarantee is received from the beneficiary, concerned parties’ liability may
   be reduced.
B. Procedure In case of normal course and in case of Expired guarantees:
      The expiry period of the guarantee is to be diarised taking into account the claim period if
       any.
      If no claim or demand is received from the beneficiary on or before the validity period,
       intimation is to be sent to the beneficiary by a Registered AD letter to the effect that the
       guarantee has expired and request them to return the original guarantee bond.
      In the letter itself it should be mentioned that the beneficiary is not entitled to invoke the
       guarantee as the guarantee has already expired.
      In spite of the notice, the expired guarantee bond is not returned by the beneficiary within
       a month from the date of notice, the liability under the guarantee may be reversed.
      Non reversal of such liability has an adverse effect on the Capital Adequacy norms of the
       Bank.
                                                    39
40.   Monitoring system for the progress of Performance Guarantee and Advance Payment
      Guarantee:
       Progress of performance/ work should be monitored for which guarantee is issued,
        especially construction work, large machinery manufacturers.
       Applicable to large value and longer period guarantees.
       Cut off limit: Guarantee Amount Rs.5 lacs and above and the period of guarantee is
        more than 6 months.
       Bank should ascertain the status of the contract in relation to the schedule and to what
        extent the work is pending, etc.
       The monitoring shall be done on an ongoing basis at half yearly intervals after
        completion of 6 months from the date of issue of the guarantees.
       Branch should diarise the due dates of the guarantees and due dates on which the
        progress reports to be obtained.
       Progress reports are to be obtained from the borrowers on due dates.

41.   Procedure for settlement of bank guarantee claims in case of invocation:

         Guarantee claims should be settled within 24 hours of receipt of valid claim from the
          beneficiary.

         If, for any reason, it is not possible for a branch to settle a claim in respect of invoked
          guarantee, the branch should take up the matter to R&L Section within 2 hours.

         Soon after the receipt the claim should be inwarded and verified with the check list
          provided in Manual.

         Branch should verify the claim with reference to the original guarantee and scrutinize the
          same immediately.

         If the claim is in accordance with the terms & conditions indicated in the original
          guarantee, the same is to be paid forthwith at branch level.

         It should be ensured that the claim is specific and the claim is received within the validity
          period including the claim period.

         Before settlement of the guarantee, it should be ensured that there is no court order
          restraining the Bank from making payment under the guarantee.

         If the claim is in order, the payment should not be delayed merely because borrower has
          not provided funds to pay the claim.

         Immediately on receipt of the claim, the borrower should be informed that the guarantee
          is invoked, by a registered letter and immediate steps to be taken to recover the amount
          from the borrower.

         The Guarantee, if found to be in order, claim shall be settled by the Branch-in-charge in
          all the cases.

         Immediately after settlement of the claim, branch should forward the information in the
          prescribed format to R&L Section Circle Office for scrutiny.



                                                      40
       After settlement of the claim, the beneficiary should be advised to submit the original
        guarantee bond duly discharged.

       Invoked guarantee is to be debited to “Advances to Customers Account- Invoked
        Guarantees”, if funds are not provided/ made available by the party.

       For invoked guarantee, individual account is to be maintained and party wise liability is to
        be maintained.

       Interest to be debited from time to time till closure.

       Outstanding are to be reported in the related Statements/Returns.

       Limitation period of 3 years begin from the date of payment and AOD is to be obtained
        within 24 months, if not recovered.

42. Procedure for issuing guarantees to third parties:

       Branches can issue Guarantees on behalf of third parties by earmarking the limit
        sanctioned to our borrower after obtaining specific approval from the sanctioning
        authority.

       Such occurrences are frequent, permission should be obtained while sanction of regular
        limits by having a suitable sub limit.

       Since there is no privities of contract between the third party and the Bank, the following
        an additional responsibility is cast on the Bank and at the time of issuing the guarantees
        on behalf of third party the following additional documents are to be obtained:

        a) A request letter to issue guarantee on behalf of the third party from our borrower client
           in the prescribed format.

        b) The details of the contract/ subcontract together with the principal contract to be
           obtained.

        c) A copy of the agreement/ arrangement entered into/ made between our borrower and
           the third party should be sent to R&L Section Circle Office and should duly vetted
           from Legal angle.

        d) The recital portion of the guarantee to be modified suitably on case to case basis on
           consultation with R&L Section.

        e) The Counter Guaranty/ Indemnity with suitable modification should be obtained from
           our Borrower and not from the third party on whose behalf the guarantee is issued.

        The facility to be permitted only to the borrowers whose accounts are standard and ASC
         S1 and S2.




                                                     41
43.   ISSUANCE OF SOLVENCY CERTIFICATE

         Solvency Certificate should be issued only on behalf our customers.

         Branch in charge of Small/ Medium/ Large branch, Credit Manager/ SM/ CM of VLBs
          and AGM of ELB can consider/ issue Solvency Certificate.

         To the extent of declared net worth of the party up to Rs.1 lakh without insisting any
          financial statements.

         To the extent of accepted networth of the party on the basis of unaudited financial
          statements beyond Rs 1 lakh upto Rs 5 lakhs.

         To the extent of accepted networth of the party on the basis of audited financial
          statements beyond Rs 5 lakhs.

         Value of the Solvency Certificate to be restricted to the networth as reflected in financial
          statement i.e., audited or unaudited as per the immediate previous year.

         Issue of Solvency Certificate beyond the net worth of the party, without obtaining
          financial statement to be referred to CO/RO irrespective of the value of the Solvency
          Certificate.

         Solvency Certificate is to be issued in the format as furnished in BG Manual, if any other
          prior approval to be obtained.

         The Solvency Certificate should invariably be addressed to a Specific Government
          Body/ Department or other organization.

         Application in NF 548 or any other appropriate application to be obtained.

         Each certificate should be given a running serial of the year i.e., 1/10,2/10

         Details of Solvency certificate to be recorded in a book NB 66.

         Commission to be collected @ Rs 10 per Rs 1000 with minimum of Rs 500 and
          maximum of Rs 1000 per certificate.

         Three copies are to be prepared, one to the addressee, one for office copy and the third
          copy to be sent to be sent RO/CO with brief details.


44.   ISSUANCE OF CAPABILITY CERTIFICATE
      Capability Certificate is issued to our customers for submission to Government Departments
      or to other Organisations for considering their tender application, for execution of contract or
      for similar other purposes.
         Certificates are insisted to assess the capability in performing the work order/ contract
          entrusted to them.
         These certificates are neither in the form of guarantees nor solvency certificates.
         Should be issued only to the customers of the Bank with proven tack record.


                                                     42
          Certificate is to be issued for the amount of average performance during the last 3
           years. If the performance during the last 3 years shows an increasing trend, the
           certificate may be issued for an amount equal to last 3 years performance plus average
           increase during the last 3 years.
          Managers/ Sr. Managers are authorized to issue upto the extent of eligibility.
          It should issued judiciously and to be issued / addressed to the parties to whom it is to
            be furnished.
          Capability Certificate is to be issued in the format as furnished in BG Manual, if any
           other prior approval to be obtained.
          Application in NF 548 or any other appropriate application to be obtained.
          Each certificate should be given a running serial of the year i.e., 1/10,2/10
          Commission to be collected @ Rs 1 per Rs 1000 with minimum of Rs 100 and maximum
           of Rs 500 per certificate.
          Three copies are to be prepared, one to the addressee, second copy to be filed in a
           separate file serially and third copy to be filed with party’s application.
          No accounting entries are necessary.
          As the Bank incurs no liability, no margin & no security need be insisted.


45.   ISSUANCE OF CAPABILITY CERTIFICATE FOR STUDENTS PURSUING STUDIES
      ABROAD:
      Some of the Foreign Universities require students to submit this Capability certificate from
      the Bankers about the Sponsors financial capability with a view to ensure that the sponsors
      of the students going abroad for higher studies are capable of meeting expenses till
      completion of studies.
         These certificates are neither guarantees nor solvency certificates.
         Should be issued only to the sponsors who are customers of the Bank whose dealings
          are satisfactory.
         Branches should be satisfied about the financial capability of the customer and for this
          purpose, financial and other supporting documents are to be obtained.
         Application in NF 548 or any other appropriate application to be obtained.
         Each certificate should be given a running serial of the year i.e., 1/10, 2/10.
         To be prepared in duplicate, original to the customer against acknowledgement and the
          other as office copy to be kept with application.
         As the Bank incurs no liability, no margin & no security need be insisted.
         Branches can issue Capability certificates to the employees of the bank for the purpose of
          sponsoring their wards for higher studies abroad subject to the usual terms.



                                                       43
          For arriving at the networth of the sponsor, value of movable assets like bank deposits,
           gold ornaments, jewellery, investment in shares, debentures, company deposits, personal
           unencumbered properties, capital investment in business are to be computed. Out of
           these existing borrowings are to be reduced.
          Certificate can be issued in the format provided in BG Manual. However, if the University
           requires in a different form, same can be considered by ensuring there is no engagement/
           commitment on the part of the Bank / onerous clause.
          Commission to be collected @ Rs 1 per Rs 1000 with minimum of Rs 100 and maximum
           of Rs 500 per certificate. For additional Certificate to the same student for applying same
           university/ other university within 12 months Rs 50 per certificate to be collected.


46.   INLAND DOCUMENTARY LETTERS OF CREDIT
      What is a Letter of Credit:
      A Letter of Credit ( LC ) is a written instrument issued by a Banker ( Opening Bank) at the
      request of a buyer ( Applicant ) in favor of a Seller ( Beneficiary) undertaking to honor drafts
      drawn by the seller in accordance with the terms and conditions specified in the letter of
      credit. It is nothing but a set of instructions stipulated to the seller and to the negotiating bank
      by the buyer and issuing bank. Non compliance of terms of the LCs are called discrepant
      document which will be treated as collection document till the buyer accepts the HUNDI/BE.
      Parties to a Letter of Credit.
      (i) Applicant (Opener/ Buyer) -      The party whose behalf the letter of credit is opened
      (ii) Opening Bank/ Branch     -      The Bank/ branch which establishes the
       (Issuing Bank/Branch)               the letter of credit and undertakes to pay on
                                           behalf of the applicant.
      (iii) Beneficiary (Seller )      -   The party in whose favour the letter of Credit is opened
      (iv) Advising Bank /Branch       -   The Bank/ branch whose services are utilized
                                           for advising ( transmitting) the letter of credit to
                                           the beneficiary
      (v) Negotiating Bank/branch -        The Bank/branch which is designated in the
                                           letter of credit, to negotiate the documents
                                           drawn under the letter of credit and to make
                                           payment to beneficiary
      (vi)Reimbursing Bank/branch -        The Bank/ branch from which the Negotiating
                                           Bank/branch has to claim reimbursement as
                                           Per LC
          What is a Clean LC ?
          If the Seller is not required to tender documents of title to goods for obtaining payment
          under the terms of the Letter of Credit, such letter of credit is termed as Clean Letter of
          Credit.

          What is an Irrevocable Letter of Credit?
          An irrevocable Letter of Credit is one which cannot be revoked, cancelled or amended
          without the consent of all parties thereto. The LC opening Bank irrevocably commits itself
          to pay the beneficiary upon presentation of specified documents, provided the terms and
          conditions of the letter of credit are complied with.

                                                       44
       Revolving Letter of credit:

       A revolving letter of credit is one which provides that the amount of drawings made under
       the credit will be reinstated and made available to the beneficiary again for further
       drawings during the currency of the credit, subject to certain conditions specified therein
       and there is no need to establish a fresh LC each time the credit is fully utilized by
       negotiation.

       Some restrictions on Sanction of LC Limits:

       Manager in charge of Small / Medium/ Large/ Specialized Branches and committees of
       Managers in VLBs, Credit managers/ Senior Manager in VLBs/ ELBs, Managers of
       Advances Section at RO/CO shall not exercise their normal delegated powers for sanction
       of loans/ advances for the following purposes:

        (i) LCs on DA basis for acquisition of Capital goods.
        (ii) LCs for purchase of Machinery/ Capital equipment which may necessitate granting of
              loans/advances beyond their delegated powers
        (iii) Clean LCs
        (iv) LCs stipulating drawings by documentary bills accompanied by country craft receipts
        (v) Revolving LCs stipulating drawings by usance bills.
        (vi) LCs with onerous clause

Restriction of delegated powers when devolved liability is outstanding:
Where LCs have devolved on us, no fresh LCs should be opened as long as the liability
crystalised on us and no fresh/ additional or adhoc limits should also be considered pending
clearance of devolved LC liability in full. However, in case of S1 or S2, Government Dept, Public
Sector Undertakings which are classified as Standard assets, branches may examine opening of
further LC to the extent of recovery of the devolved liability within the sanctioned limit.
Protective Clause to be incorporated in Revolving LCs:
“The amount utilized under this credit shall be again available for utilization only on receipt by the
negotiating bank/branch of the advice that the draft already drawn by the beneficiary has been
reimbursed by the buyer.”
Unutilsed or Partially utilized Letters of Credit.
 When a letter of credit expires without being utilized or if it is only partially utilized, the party’s
liability may be reversed after a period of 3 weeks from the date of the LC. But commission and
other charges, if any collected should not be refunded.

47. SPECIAL WATCH & QUICK MORTALITY STATEMENTS:
          The system of Special Watch accounts is applicable for all Standard Assets.
          This aims at prevention of Slippage of Standard Assets to NPA.
          The Special Watch statements has divided in 5 categories as follows:
               Part A – Liability upto Rs1 lac
                    B – Liability above Rs.1 lac upto Rs. 5 lacs
                    C – Liability above Rs.5 lacs upto Rs.25 lacs
                    D – Liability above Rs 25 lacs upto Rs.100 lacs
                    E – Liability above Rs.100 lacs.

                                                      45
         Under Special Watch category the time permitted from the due date for the purpose of
          reckoning is 30 days.
         The Special watch statements are to be submitted by branches as follows:
                on 15th for category C,D,E
                last day of the month for category A,B,C,D,E.
         Quick Mortality accounts are accounts slipping to NPA within 12 months from the first
          disbursement applicable for accounts of aggregate limit of Rs 5 lacs and above.

48. INCOME RECOGNITION (CIR 50/2005) General guidelines on Income Recognition:
        The record of actual recovery determines income recognition
        Existing procedure of non debiting of interest to LPD continues
        Interest should not be debited on accounts classified as Sub standard, Doubtful and
         Loss account
        In respect of accounts where government guarantee is available, the interest to the
         extent of recovery is recognised
        Interest debited on Deemed NPAs can be recognised as Income
        Interest to the extent of recovery can be recognised as income in respect of NPA
         accounts

      Income recognition norms for “PROJECTS UNDER IMPLEMENTATION INVOLVING
      TIME OVER RUN”:

         Income can be recognised on accrual basis where
         Projects where financial closure had been achieved and formally documented, the
          asset may be treated as Standard Asset for a period not exceeding 2 years beyond the
          date of completion of project originally envisaged
         Projects sanctioned before 1997 with original cost of Rs.100 crores or more where
          financial closure was not formally documented – treated as Standard assets for a
          period of 2 years beyond the deemed date of completion of the project as decided by
          the group
         Projects sanctioned before 1997 with original project cost of less than Rs.100 crores
          where financial closure was not formally documented – treated as standard assets only
          for a period not exceeding two years beyond the date of completion of the project as
          originally envisaged at the time of sanction

      Income recognition norms for “FUNDED INTEREST:

         Income recognition in respect of NPAs
         Regardless of whether these are or are not subject to restructuring / rescheduling /
          renegotiation of terms of loan agreement
         Should be done strictly on cash basis
         Only on realization and not if the amount or interest overdue has been funded
         If the amount of funded interest is recognized as income, a provision for equal amount
          should also be made simultaneously




                                                  46
49. PRUDENTIAL NORMS ON ASSETS CLASSIFICATION Performing
      Asset – Standard Asset:

        Assets which do not disclose any problem and do not carry more than normal risk and
         also generates income for the Bank are Performing Assets
        Interest and / or instalment of principal remain overdue for a period of LESS THAN 90
         days in respect of Term Loan
        The account is not out of order in respect of OD/OCC
        Overdue under Bills are less than 90 days whether purchased / discounted
        In case of Agricultural advances, interest / instalment of principal , the overdue are
         within 2 crop seasons in case of short duration crops and one crop season in case of
         long duration crops

     Non Performing Asset:

        Sub standard Assets, Doubtful Asset and Loss Assets are Non performing asset
        Non performing Assets shall be loan or advance where

         -   Interest and/or installment of principal remain overdue for a period of more than 90
             days in respect of term loan
         -   The account remains “out of order” in respect of an OD/COCC
         -   The bill remains overdue for a period of more than 90 days in the case of bills
             purchased and discounted
         -   In case of advance granted for agricultural purposes, interest and/or installment of
             principal remains overdue for two crop seasons (in case of short duration crops)
             and for one crop season (in case of long duration crops)
         -   Any amount to be received remains overdue for a period of more than 90 days in
             respect of other accounts

     Norms for Agricultural Advances:
     In respect of Agricultural advances,

        A loan granted for short duration crops will be treated as NPA, if the instalment of
         principal or interest thereon remains overdue for two crop seasons
        A loan granted for long duration crops will be treated as NPA, if the instalment of
         principal or interest thereon remains overdue for one crop season
        Gold loans granted for agricultural purposes to be classified depending upon the
         purpose and Gold loans generally fall under Standard assets

     Guidelines on running accounts:
      OUT OF ORDER ACCOUNTS
        - Treated as out of order account if the outstanding balance remains continuously in
            excess of the sanctioned limit / drawing power
        - In cases where liability is less than sanctioned limit/drawing power, if there are no
            credits continuously for 90 days as on the date of Balance Sheet
        - Credits are not enough to cover the interest debited during the same period




                                                  47
         NON SUBMISSION / DELAYED SUBMISSION OF STOCK STATEMENTS
          - Stock statements relied upon for determining drawing powers should not be older
            than 3 months
          - The outstanding in the account based on Drawing power calculated from stock
            statements older than 3 months are deemed as irregular
          - The working capital limits will become NPA if irregular drawings are permitted in the
            account for a continuous period of 90 days even though the unit is working or the
            borrower’s financial position is satisfactory

      Other precautions suggested while classifying accounts:
         Sanctioning of additional limits should not be resorted to just to avoid slipping of an
          account into NPA
         Transfer of funds from one account to another with the only intention of avoiding
          slipping into NPA should not be resorted
         Genuine transfer of funds are permitted

      How bills liability are classified:
         The bills liability will become NPA if it remains overdue for a period of more than 90
          days

      How Term loans liability is classified :
         A term loan will become NPA if interest and or instalment of principal remain overdue
          for a period of more than 90 days

      What is a Substandard asset :
         In respect of loan accounts if any amount is overdue for a period of more than 90 days
          from the due date, the account should be classified as Sub standard asset
         With effect from March 31,2005, a sub standard asset would be one, which has
          remained NPA for a period less than or equal to 12 months

What is a doubtful asset:

         An asset would be classified as doubtful if it had remained in the sub standard category
          continuously for 12 months
         If the erosion in the value of securities is more than 50% of the value assessed by the
          bank, and where the value of the securities is more than 10% of the outstanding
          liability, the account is classified as doubtful category

What is Loss Asset:

         A loss asset is one where
         the loss has been identified by the Bank or internal or external auditors
         the amount has not been written off wholly or partly
         the asset is considered uncollectible with little salvage or recovery value




                                                    48
50. REHABILATATION / RESTRUCTURING OF SICK/ WEAK NON-SSI INDUSTRIAL UNITS:
     (H.O.CIR 318/2005 dt. 22.11.2005)

     Definitions of various Categories of Sick Units:
     1. Sick Industrial Company (SIC):
     (Sec 3(1) of the Sick Industrial Companies(Special Provisions) Act 1985 and Amendment
     Acts of 1991 and 1993 defines a SIC as:
     An Industrial Undertaking ( being a Company registered for not less than 5 years) which
     has at the end of financial year its accumulated losses equal to or exceeding its entire net
     worth.

     2. Potentially Sick Industrial Company (PSIC):
     (Sec 23(1) of the Sick Industrial Companies(Special Provisions) Act 1985 and Amendment
     Acts of 1991 and 1993 defines a PSIC as:
     An Industrial Undertaking wherein the accumulated losses as at the end of any financial
     year (referred to as the relevant financial year) have resulted in the erosion by fifty percent
     or more of its peak net worth during the immediately preceding four financial years.

     3. Weak Unit:
     An Industrial Unit wherein it’s accumulated losses as at the end of any accounting year has
     resulted in the erosion of fifty percent or more of its peak net worth in the immediately
     preceding four accounting years.

51. ASSET CLASSIFICATION CODES

     Objective of ASCC norms:
      To ascertain the Health of the borrower account
      To improve the follow up and credit monitoring
      To initiate rectification steps
      To know the risk involved in the account

     Standard Asset is classified as S1:
     If the following norms are satisfied the Standard Asset is classified as S1

        Conduct of the account is satisfactory
        Current ratio is 1.14 and above
        TOL : TNW is not more than 2.50
        No return of cheques
        Dishonour of bills less than 5% and recovered within 15 days
        Compliance of terms and conditions
        Overdue are within 10% of liability and not exceeding 30 days
        Submissions of feed back statements – Stock statements, QOS, ABS prompt
        Renewal papers submitted promptly
        Achievement of projected turnover 80% or more
        Profit making organisation
        Safety of the account is not in doubt
                                                  49
Standard Asset is classified as S2:

   A/c overdrawn beyond limit/DP not more than 6 months
   Current ratio is less than1.14 but above 1
   TOL : TNW is above 2.50 but less than 4
   Few cheque returns – less than 10% of discounted are turned and recovered within
    15 days
   Non compliance of sanction terms and conditions – however securities guarantees,
    charge and documentation are obtained
   Overdue are less than 2 months
   Some day in feed back statements
   Limit expired but extension does not exceed 3 months
   70% of projected turnover achieved
   Profit making
   Operations not satisfactory

Standard Asset is classified as S3:
   Frequent over drawings
   Current ratio below 1
   TOL:TNW above 4
   Frequent cheques / bills return
   Non compliance of sanction terms and conditions
   Overdue outstand beyond 2 months
   Undue delay in submission of statements
   Even after extension of limits, renewal papers not submitted
   Projected turnover achievement less than 70%
   Loss making unit
   Operations not satisfactory

Standard Asset is classified as S4:
   All Standard Assets other than the above categories are classified as S4
Classifications under Sub standard accounts:
   All sub standard accounts during the first year are classified SS1
   All sub standard accounts during the second year are classified SS2
Classifications under Doubtful accounts & Loss a/c:
   All doubtful assets during the first year of doubtful are classified as D1
   All doubtful assets during the second year and onwards are classified as D2
Classification under Loss Assets:
   Loss assets are classified into a single category irrespective of age and provision has
    to be made 100%




                                             50
52. WHAT ARE THE FAIR PRACTICES CODE (FPC) FOR LENDERS ADOPTED BY THE
     BANK?
        In respect of Priority sector advances upto Rs 2 lacs the loan application form should
         contain information about the fees/charges payable for processing, the amount
         repayable in the case of non-acceptance of the application, pre-payment options, etc .
        Bank to give acknowledgement for receipt of all loan applications.
        Bank to indicate the time frame within which loan applications upto Rs 2 lacs
         containing all the required details received by them will be disposed off while giving
         acknowledgement.
        Bank to verity the loan applications within a reasonable period of time and any
         additional details/ documents are required, the borrower to be intimated immediately.
        Bank to ensure that there is proper assessment of credit applications submitted by the
         borrowers.
        Bank to carry out proper due diligence on the credit worthiness of the
         applicant/borrowers notwithstanding the stipulation of any security and margin.
        Bank to make proper assessment of the credit needs of the borrower.
        Bank to convey the applicants the credit limit sanctioned along with the terms and
         conditions and obtain specific acknowledgement.
        Bank to give a set of loan documents to the borrowers if they specifically request for
         the same.
        Bank if rejects the application, have to inform the applicant within the specified time the
         reasons for rejection.
        Bank in the case of consortium arrangement, to appraise the proposal as per the
         procedure and communicate the decision within a reasonable time.
        Bank to ensure timely disbursement of the loans sanctioned in conformity with the
         terms and conditions of sanction.
        Bank to give the notice of any change in terms and conditions to the borrowers
         concerned. In respect of interest rate and service charges etc, notice has to be given
         only in respect of any upward revision. The changes are effected only prospectively.
        Bank to attend promptly to any lender related genuine difficulties that the borrowers
         face in respect of loans upto Rs 2 lacs.
        Bank to give reasonable notice to the borrowers in writing before taking a decision to
         recall/accelerate payment or performance under the agreement or seeking additional
         securities.
        Bank would release all securities on receiving payment of loans or realization of loans
         subject to any legitimate right or lien for any other claim, the bank have against
         borrowers. If such right of set off is to be exercised, the borrower would be given notice
         about the same with full particulars about the remaining claims and the documents
         under which the bank is entitled to retain the security till the relevant claim is settled/
         paid.
        Bank not to interfere in the affairs of its borrowers which are not directly or indirectly
         related to its extending the credit facilities unless new information not earlier disclosed
         by the borrowers concerned has come to the notice of the bank.
        Bank will not discriminate on grounds of sex, caste and religion in the matter of lending.
         However this does not preclude the Bank from participating in credit linked schemes
         framed for weaker sections of the society.
        Bank will not use muscle power in the matter of recovery of loans.


                                                   51
         Bank to convey its consent or otherwise to the borrower or the other bank/FI within 15
          days from the date of receipt of the request for transferring the account if the
          delegation comes under branch power. In other cases bank to take up the matter with
          RO/CO/HO within 7 days from the date of receipt of the request and RO/CO/HO to
          communicate the decision within 15 days from the date of receipt of the request from
          the branch.
         Bank would have a grievance redressal mechanism within the organization to resolve
          disputes if any arising in relation to the FPC.

   What is the Redressal Mechanism with regard to Fair Practices Code for Loans?
      The Grievances redressal mechanism is within the bank.
      All disputes arising in relation to FPC for lenders falling upto the sanctioning powers of
         C&MD
      The disputes are heard and disposed off at least by the next higher authority at
         RO/CO/HO.
      For proposals falling under the powers of the Managing Committee (MC) of the Board,
         grievances would be addressed by the said MC of the Board of the bank.
      Bank to conduct periodical reviews of the compliance to this FPC and functioning of the
         grievance redressal mechanism at various levels.
      A consolidated report of such reviews would be submitted to the Board of Directors of
         the Bank at regular intervals.

53. What are the recent changes in Working Capital Validity period ? (207/2008).

         Working capital : 3 months (no change) :
         Short term loans / Adhoc limits : 30 days (no change ) ;
         Term Loans : 6 months
         In respect of MC power a/cs, request for validation has to be sought
          from MC instead of CMD.

54. Explain the guidelines for lending under Consortium / Multiple Banking
       Arrangements. (Cir 281/2008).

         At the time of granting fresh facilities, obtain declaration from the borrower/s about the
          credit facilities already enjoyed by them from other Bank/s
         In the case of existing borrowers with facilities from multiple banks, obtain a
          declaration from the borrower/s enjoying credit facilities of Rs 5 crores and above at
          the time of renewal of the limits and introduce the system of exchange of information
          with other banks.
         Exchange of information with other banks shall be done on a quarterly basis.
         Obtain a certificate from the Company Secretary or the Chartered Accountant on
          compliance of various statutory/ regulatory guidelines in vogue on half yearly basis
          (one half year to coincide with the date of annual financial statement of the company)
         The system of drawing CIRs from CIBIL is made mandatory and shall be a pre
          sanction exercise. The CIRs shall be obtained at the time of renewal of the limits also.
         Branches/ Offices shall note to include the following clause in the loan agreement after
          the CIBIL clause in future and also at the time of renewal in case of existing accounts
          regarding exchange of credit information to address the confidentiality issues:



                                                   52
55. What are the recent modifications in respect of inspection of stock by CM / AGM /
     DGM heading the branches (Cir 284/2008) ?

     Manager, Senior Manager in charge of VLBs – in-charge of Advance Department :

             Once a year in case of Regular accounts.
             Atleast once in 6 months in case of accounts classified under Special Watch category
              and non-LPD-NPA accounts.

      CMs / AGMs / DGMs heading the branches :

      High Risk accounts
       ASCC S3, S4 and non LPD NPA accounts
       Accounts which are appearing in Special Watch category.

      The following modifications have been effected in the existing guidelines:

      (i)        In branches other than those designated as Prime Corporate Branches (PCBs) but
                 headed by DGM, in respect of borrowal accounts with aggregate exposure of
                 Rs.10 crore and above, Head of the branch i.e. DGM shall conduct stock
                 inspection.

      (ii)       In case of all other borrowal accounts, the stock inspection shall be carried out
                 either by the Head of the branch or any other Executive in Scale-IV or V at the
                 above branches.

      (iii)      In case of Prime Corporate Branches (PCBs), the DGM, heading the branch shall
                 continue to conduct the stock inspection once in a year in respect of the borrowal
                 accounts.

56. What are the Do’s and Don’t s with regard to Pre-Shipment and Post-Shipment Credits
      covered under ECGC cover ? (Cir 268/2008).

      DO’S:

             Comply with all sanction terms and conditions before disbursement.

             Obtain necessary approvals from competent authority for any deviations/dilutions.

             Verify whether exporter or its partners/directors/sister concerns etc are in ECGC’s
              Specific Approval List / RBI Caution List.

             Limits not exceeding Rs. 100 Lacs to any new exporter customer, sanctioned by our
              Bank at our own discretion, but in accordance with our rules and procedures will be
              eligible for cover by the Corporation without any specific application (except a
              notification of such limits in prescribed format to be filed within 30 days of sanction)
              subject to the terms and conditions of the ECIB.

             For any limit beyond Rs. 100 lacs, approval of the ECGC is necessary.


                                                       53
   Accounts of exporters classified as Standard Assets as per RBI norms do not require
    the prior approval of the Corporation. These accounts shall be notified to the
    Corporation’s nearest office within 30 days from the date of sanction/enhancement of
    limit.

   Accounts classified as Substandard, Bad and Doubtful require the prior approval of the
    Corporation irrespective of the limit.

   Notify any change in asset classification subsequent to issue of the cover.

   Notify sanction/change in limits to ECGC before disbursement of advances within the
    prescribed time.

   Ensure payment of premium and submit monthly statement of advances along with
    premium , if any, within the prescribed time.

   Notify any irregularity in the account in time to ECGC.

   In the case of running account facilities, ensure to route all the Bills through PC
    account.

   In case of order to order accounting, ensure availability of stocks for the outstanding
    advances before accepting bills for collection.

   Obtain periodical stock statement, order copies and conduct stock inspection/stock
    audit as per sanction terms.

   Ensure ECGC approval for bill drawn on buyers who happens to be in restricted cover
    countries of ECGC.

   Obtain ECGC prior approval for nursing/re-structuring the accounts.

   Submit claim within the prescribed period along with all the necessary documents
    mentioned in claim form. Seek extension, if required.

   Obtain ECGC approval for One Time Settlement (OTS) for compromise settlement
    whether it is prior to invoking a claim with the Corporation or prior to settlement of
    claim.

   Share the recoveries between the bank and ECGC in the same ratio in which the loss
    was borne immediately on affecting the recovery.

   Consult nearest ECGC office for any assistance.

   DON’T

   Don’t disburse advances without proper approvals/delegation.

   Don’t give further advances without obtaining appropriate approvals/sanctions when
    earlier advances are overdue.

                                             54
         Don’t give advances when firm/proprietor/partner/director/ guarantor/sister concerns
          are in our SAL with out ECGC approval.

         Don’t give PC/PS advances for adjusting other liabilities.

         Don’t discount/purchase/negotiate bills on buyers whose earlier bills are outstanding
          and overdue.

         Don’t enter into OTS/CDR etc without the concurrence of ECGC.


57. What are the recent guidelines on Country Risk Management ( cir 19/2008)

      ECGC has classified countries into three categories for country Risk Management
      1.   Open cover category
      2.   Countries with Restricted Cover – Group I for which Revolving Limits are approved
           by ECGC normally for 1 year
      3.   Countries with Restricted Cover – Group II where Specific Approval will be given on
           a case-to-case basis on merits ( above list is available in HO cir 53/1007)

      It is for the limited purpose of covering the Export packing credit advances under Export
      Credit Insurance for Banks - Whole Turnover Packing Credit [ECIB (WT-PC)] and also for
      obtaining Export Credit Insurance for Banks –Whole Turn over Post shipment Credit
      [ECIB WT-PS] cover for post shipment export advances from ECGC.

58. What are the guidelines on promoters contribution with reference to Project Finance:

      a) Promoters bring their entire contribution upfront before the bank starts disbursing its
          commitment.
      b) Promoters bring certain percentage of their equity (40% – 50%) upfront and balance is
          brought in stages.
      c) Promoters agree, ab initio, that they will bring in equity funds proportionately as the
          banks finance the debt portion.
       d) The Bank has stipulated broad project parameters for both Infrastructure and other
          than infrastructure projects. In terms of the current policy guidelines of the Bank, the
          acceptable DER for Infrastructure projects is in the range of 2.55:1 to 4:1, and in case
          of other than infrastructure the acceptable DER is 2:1.
       e) The acceptable DER shall be arrived at, based on the specific features of the project,
          sector as well as the perceived financial risk in the project. Besides, the funding
          sequences shall also be evaluated taking into account the likelihood of equity funding
          risk. In the absence of identified sources of funds, being part of promoters’
          contributions, it is preferable that substantial parts of such funds are insisted upfront.
          The following procedures shall be followed to ensure that the requisite project margin is
          brought in by the promoter and the DER is maintained at all times:
       f) Monitoring the physical and financial progress of projects by the Project Finance
          Department upto Commercial Operations Date (COD) in respect of eligible categories
          of project funding.




                                                   55
       g) Project Implementation Progress Report (PIPR) (where the credit facility relating to
          acquisition of capital assets is Rs 50 lacs and above) shall be obtained on a quarterly
          basis. The PIPR during the implementation period duly certified by Chartered
          Accountant / Chartered Engineer shall be obtained and reviewed. The PIPR, among
          others, indicates the Long-term sources raised upto the end of the reporting quarter
          and the amount proposed to be raised during the ensuing quarter.
       h) Certificate from Chartered Accountant shall be obtained to ensure that the promoters
          bring in the margin as declared under sources of funds at the time of sanction.

59. Explain salient features of Credit Risk Management Policy of our Bank (Cir 159/2010)
       The Credit Risk Management Policy of the Bank articulates Bank’s approach to identify,
       measure, monitor and control the Credit Risk and, administration and management of
       credit transaction and portfolio.

       The overall objectives of Bank’s Credit Risk Management are:

          Ensure credit growth, both qualitatively and quantitatively that would be sectorwise
           balanced, diversified with optimum dispersal of risk.
          Ensure adherence to regulatory prudential norms on exposures and classification and
           portfolios from time to time.
          Adequately price various risks in the credit exposure.
          Form part of an integrated system of management of all financial risks encompassing
           identification, measurement, monitoring and control of the credit exposures.
          Keeping in mind the above objectives of Credit Risk Management, the policy aims to –

       1. Prescribe methods for Credit Risk identification, risk measurement, risk grading/
          aggregation techniques, reporting, risk control / mitigation techniques and management
          of problem loans / credits.
       2. Define target markets, risk acceptance criteria, credit approval authority, credit
          origination / maintenance procedures and provide guidelines for portfolio
          management.
       3. Provide guidelines on rigorous mechanism to detect early warning signals in respect of
          credit portfolio of the Bank.
          The policy document shall be subjected to an annual revision that would adequately
          address the impact of environmental changes, lessons learnt from practice and any
          regulatory instructions

       CREDIT RISK
       It is defined as the inability or unwillingness of the counterparty to meet commitment in
       relation to lending, trading, hedging, settlement and other financial transactions.

       Also it is defined as the possibility of losses associated with diminution in the credit quality
       of borrowers or counterparties

Credit risk arises out of

i) Fund based exposure
ii) Non fund based exposure
iii) Inter Bank exposure

                                                     56
iv) Treasury Operations and Trading in securities / funds which comprises
of Investment portfolio
v) Cross Border exposure i.e. Country Risk

This policy shall cover management of Credit Risk arising out of the broad components of (i), (ii)
and (iii) above.
The policy on Bank’s Investment portfolio is formulated by T & IO Wing, and that on Country risk
exposure by Integrated Mid office, RM Wing.

Credit risk Management Framework:

The effective management of credit risk is one of the components of comprehensive risk
management framework and the Bank is in its way to effectively adopt the same in its journey
towards BASEL II compliance and envisions making the risk management more methodical and
possibly deterministic.

Credit risk management encompasses identification, measurement, monitoring and control of the
credit risk exposures

Building Blocks of Credit Risk Management:
In the Bank, credit risk management framework would comprise of the following distinct building
blocks:

a. Organisational Structure
b. Policy and Strategy
c. Operational processes and Systems

Organisational structure

The Credit risk management of the Bank is supported by a sound organizational structure to
facilitate successful implementation of Credit risk management systems. The organisational
structure of the Bank has several in built levels of decision making, scrutiny and monitoring to
bring in robustness to the competency levels.

Policy and strategies

The credit policy of the Bank addresses the following aspects:

Define target markets, Risk acceptance criteria, credit approval authority, credit origination /
maintenance procedures and guidelines for portfolio management.

Risk identification, risk measurement, risk grading / aggregation techniques, reporting and risk
control / mitigation techniques, documentation, legal enforceability issued and management of
problem loans.




                                                   57
Target Markets:

Thrust areas:

Bank from time to time would identify the potential and productive sectors for lending, based on
the performance of different segments and demands of the economy.

Thrust area include Agriculture sector, industrial sectors, MSME sector, Export segment, other
segments in priority sectors, which have growth potentials as identified by the bank from time to
time.

Non-thrust areas:

Commercial Real Estate, NBFCs, Capital Market, industries / sectors which do not have growth
potentials based on the Bank’s evaluation of industries / sectors taking into account the prevailing
economic scenario outlook etc.

60. Explain revised definition of NON-SME sick/Weak Units Cir 116/08
       NON-SME SICK UNIT
       A Non-SSI industrial undertaking (regardless of type of incorporation) whose accumulated
       losses, as at the end of the latest financial year, equal or exceed its entire networth (viz.,
       paid up capital and free reserves
       NON- SME WEAK UNIT
        A Non-SSI industrial undertaking (regardless of type of incorporation) if:
       a)Any of its borrowal accounts (principal or interest) has remained overdue for a period
       exceeding one year;
                         Or
       b)   There is erosion in the networth due to accumulated losses to the extent of fifty
       percent of its networth during the previous financial year.
       SME SICK UNIT
       “An SSI unit should be considered “sick” if any of its borrowal accounts (principal or
       interest) has remained overdue for a period exceeding one year
                                                         OR

       there is erosion in networth due to accumulated cash losses to the extent of 50% of its
       networth during the previous accounting year
                                                       and

       the unit has been in commercial production for atleast two years” .


61 . TERM LOAN

     Term Loan is granted for a fixed term of not less than three years intended normally for
     financing fixed assets acquired / to be acquired with a repayment schedule normally not
     exceeding 7 years.


                                                    58
     A Term Loan is a loan granted for the purpose of acquisition of capital assets, such as
     purchase of land, construction of factory building, purchase of machinery, modernization,
     renovation or rationalization of plant and repayable from out of the future earnings of the
     enterprise, in installments as per prearranged schedule.

     Differences between Working Capital Finance and Term Loan:

                      Working Capital                            Term Loan
           The purpose of working capital is for     The purpose of Term Loan is for
           acquisition of current assets and         acquiring Capital/Fixed assets.
           meeting        working        capital
           requirements.
           Working capital advance is repayable     Term Loan is repayable in
           on demand.                               installments ranging over a period of
                                                    years.
           The securities are current assets, i.e., The securities, i.e., fixed assets of
           securities are readily saleable goods. the unit are not readily saleable
                                                    goods.
           The repayment of loan is out of sale The repayment of the loan is out of
           proceeds of the goods and the future earnings of the unit.
           commodities.

Appraisal of Term Loan:

There are four broad aspects of Term Loan appraisal, namely:

           Technical feasibility,
           Economic viability
           Financial and commercial feasibility
           Managerial ability

Technical Feasibility:

Technical feasibility study is conducted to ascertain/assess the various requirements for setting
up of unit such as (a). Location, (b) Availability of raw materials, (c) Availability of infrastructure
facilities like power, water, transportation, manpower etc., (d) Suitability of Machineries to be
purchased and manufacturing process, (f) Availability of statutory approvals.

Economic Viability:

Economic viability study has to be conducted to find out whether the business is in line with the
National policy, the demand supply position, competition, market potential, etc. A thorough
analysis is one of the most essential parts of project appraisal to ascertain the following:

   1. How big is the market?
   2. How much is it likely to grow?
   3. How much of it can the project capture?




                                                      59
Financial Viability:

The basic data required for the financial viability appraisal can be broadly grouped under the
following heads:

   1. Cost of the project including working capital.
   2. Cost of production and estimates of profitability
   3. Cash flow estimates and sources of finance.


The above data obtained from the prospective borrower have to be analysed to ensure that the
project meets the following minimum financial criteria:

   i.     The estimated cost of project is reasonable.
   ii.    The financial arrangement is comprehensive without leaving any gaps.
   iii.   The estimates of earnings and operating costs are realistic.
   iv.    The borrower’s repaying ability as judged from the project operations is certain.

Managerial Ability:

   A study has to be conducted regarding the promoters by whom the unit will be set up to
   ascertain their ability, risk bearing capacity, financial background, past experience, etc. It is
   also essential to ascertain how the promoters are going to manage the unit by deploying
   various persons (technically qualified) and how the organizational set up would be. The
   integrity and credit worthiness of the personnel in charge of the management of the industry as
   well as their experience in management should be examined.

Implementation Schedule:

Proposed Time Schedule on implementation of project has to be obtained from the prospective
borrower intimating the likely date of commencement of construction, expected date of installation
of machinery and estimated date for commencement of commercial operation.                  Project
Implementation Progress Report has to be obtained on quarterly intervals to ensure that the
project is being implemented as originally estimated by the borrower. PIPR is also useful to
monitor the amount spent during each quarter and to ascertain whether the same is in line with the
estimates. It also helps in early detection of cost over run / time over run, if any and to take
remedial steps at an early date.

Cost of Project and Means of Finance:

Cost of project includes the following:
Land and its development,
Construction of building/Plant and Machineries/Miscellaneous Fixed Assets/Contingencies/.Pre-
operative and preliminary Expenses/Interest on Term Loan and Working Capital Margin.

Means of Finance includes the following:
Promoters’      Equity/Internal Accruals/Unsecured Loans from close relatives/Term Loan from
Bank/s


                                                       60
Important Ratios:

   1. Debt Equity Ratio : Long Term Debt / Equity.

   2. Fixed Assets Coverage Ratio : Net Fixed Assets (i.e., after providing for depreciation)
                                    ____________________________________________

                                     Long Term Debts secured by fixed assets.

   3. Debt Service Coverage Ratio : Net Profit before Tax + Depreciation + Interest on TL
                                    _________________________________________

                                       Interest on TL + Term Loan installment

   4. Return on Capital Employed : Net Profit before interest on Term Loan and Taxes
                                    _________________________________________

                                      Capital Employed (Total Liabilities – Current Liabilities)

   5. Overall Interest Coverage Ratio : Aggregate of Profit before interest on Term Loans,
                                        depreciation and Tax
                                        _________________________________________
                                        Aggregate interest on Term Loans.

Broad Project parameters – Commercial Real Estate :

                Project Parameters                         Benchmarks
         Debt Equity Ratio                     Not more than 3:1
         Promoters’ contribution               Minimum of 25% of project cost.
         Fixed Assets Coverage Ratio           2:1 and above for the Term Loan; can
                                               be relaxed upto 1.75 on a very
                                               selective basis by GM (CCW) upto his
                                               delegated powers.
         Repayment Period                      7 to 10 Years including moratorium.

  Broad Project parameters – Other than Infrastructure Projects with project cost of upto
                                      Rs.100 Lacs:

              Project Parameters                               Benchmarks
       Debt Equity Ratio                       Not more than 3:1. In exceptional cases
                                               the sanctioning authority may accept upto
                                               4:1 duly justifying the reasons.
       Promoters’ contribution                 Minimum of 20% of project cost.
       Fixed Assets Coverage Ratio             Not less than 1.33. Exceptions upto 1.20.
       Repayment Period                        Upto 7 Years excluding moratorium, but
                                               not to exceed an overall tenor of 10
                                               years.
       Overall Debt Service Coverage Ratio     Not below 1.50
                                                  61
 Broad Project parameters – Other than Infrastructure Projects with project cost of above
                                     Rs.100 Lacs:

                Project Parameters                   Benchmarks
         Debt Equity Ratio             Not more than 2:1. In exceptional
                                       cases the sanctioning authorities not
                                       less than the Circle Head can accept
                                       upto 4:1 duly justifying the reasons.
         Promoters’ contribution       Minimum of 20% of project cost.
         Fixed Assets Coverage Ratio   Not less than 1.33. In exceptional
                                       cases sanctioning authorities not less
                                       than the Circle Head can accept upto
                                       1.20 duly justifying the reasons.
         Repayment Period              Upto 7 Years and in exceptional cases
                                       upto 10 years, excluding moratorium,
                                       but not to exceed an overall tenor of 12
                                       years.
         Overall Debt Service Coverage Not below 1.50. In exceptional cases
         Ratio                         sanctioning authorities not less than
                                       the circle head can accept upto 1.40
                                       duly justifying the reasons.
         Internal Rate of return       (Applicable to project cost of Rs.25
                                       Crores and above) At least 4% above
                                       estimated weighted average cost of
                                       funds.


Broad Project parameters – Infrastructure Projects:

               Project Parameters                          Benchmarks
        Debt Equity Ratio                  2:1 upto 3:1. In exceptional cases the
                                           sanctioning authorities not less than the
                                           Circle Head can accept upto 4:1 duly
                                           justifying the reasons.
        Promoters’ contribution            Not less than 11% of project cost.
        Fixed Assets Coverage Ratio        Not less than 1.25. Exceptions can be
                                           upto 1.11. In certain cases like road
                                           projects and those where tangible assets
                                           are not available or chargeable, this
                                           parameter will not be applied.
        Repayment Period                   Not exceeding 15 years excluding
                                           moratorium. In exceptional cases where
                                           the project calls for longer repayment
                                           tenure due to inherent nature of project
                                           the appropriate repayment period can be
                                           accepted upto 20 years with prior
                                           permission from MC and further reporting
                                           to the Board.


                                               62
    Overall Debt Service Coverage Not less than 1.50. In exceptional cases
    Ratio                         sanctioning authorities not less than the
                                  circle head can accept upto 1.25.
    Internal Rate of return       4% and above from estimated weighted
                                  average cost of funds.
                                  In case of road projects with annuity cash
                                  flow, IRR can be accepted at 2% and
                                  above estimated weighted average cost
                                  of funds.

                         62. Doctors’ Choice
                           Cir.170/2003, 281/2003, 170/2004
Eligibility:
 Qualified medical practitioners with a well established practice of 3 years.
 Nature of Loan: TL / OD / Composite Loan

Purpose:
 Purchase of equipment, setting up of clinic, X Ray labs, Nursing homes, etc.
   Expansion / Modernization / Renovation of existing premises, Purchase of vehicles,
   Ambulance, Computers etc.
Quantum:
 Maximum 10 lacs. Sub Ceiling for WC loans – Rs.2 lacs.
Assessment of Working Capital: WC will be least of :
 25% Expected turnover
 25% Previous year's turn over
 Two times the annual net income.
 Rs.2 lacs.

Margin:
    Upto Rs.25000/- NIL
    Rs.25000/- to Rs.5.00 lacs – 10%.
    Rs.5 lacs – 10 lacs – 25%.

Security:
    Up to 2 lacs – Existing assets if any
    Beyond 2 lacs – Existing assets and mortgage of property or other approved securities.
    Application & Documentation: As applicable to MSME.
    Classification: MSME – Services.
    Credit Risk Rating as per Small Value Model is to be done. (Cir.186/2007)
    CGMSE cover to be obtained wherever applicable.

Repayment:
    TL – 5y to 7 years in EMIs.
    WC – if sanctioned as DPN Repayable within 24 – 36 months. EMI may be considered.

                                             63
          Rate of Interest:
               ROI: Separate interest for WC and TL (amount / slab wise)

63. INFRASTRUCTURE PROJECT FINANCING:

             Credit proposals relating to infrastructure projects, shall be confined only to select
              VLBs (identified by the circles) besides ELBs/IFBs/CSBs of the Bank. At HO, a
              separate advisory committee headed by DGM, Corporate Credit Wing shall screen
              the infrastructure proposals which are in the powers of HO and to submit its
              recommendations to the Credit Committee. The members of the committee will comprise
              representatives from the respective processing section, Project Finance Department and
              Industrial Advisory Division (However, proposals for renewal/ enhancement relating to
              infrastructure proposals need not be placed before the advisory committee).

             The infrastructure projects are to be financed after ensuring that the project can be run
              on commercial lines and adequate cash would be generated to repay the loan together
              with interest. While considering infrastructure proposals, mechanism like Escrow and
              creation of Debt Service Reserve Account should be explored to ensure recovery of
              loans through cash inflows.

             Powers for sanction of term loans to infrastructure projects vest at HO (GM -HO and
              above authorities upto their respective powers)

             Infrastructure finance includes road, railways, airport, any other public facility of similar
              nature, water supply, irrigation projects etc.

              IR can be financed in many ways in which private participation could be arranged and
              the common one are

              Build, Operate and Transfer (BOT)

              Build, Operate, Lease and Transfer (BOLT)

          Build, Own, Operate and Transfer (BOOT)

         Banks should indentify the party which is able to bear the risk in various stages of projects
          and pass on the risk to that party, by adopting the following procedure:
  1. Construction period - Engineering, Procurement and Construction (EPC) company
     involved.
  2. Operation and Maintenance stage
  3. Market risk



                                                            64
      To protect the lenders, two types of measures are resorted to, One an escrow
       mechanism, where the revenues from an indentified customer of the project is set apart in
       an escrow account every month until the next debt service obligation is met. There after
       the unutilized balance is released to the sponsor and the next escrow take over. Another
       is strict version called Trust and Retention Arrangement (TRA), is stipulated if the lender
       want to have a tight leash on the revenues (cash flow) of the borrowing company

      For the above purpose, A Special purpose Vehicle, i.e. a separate company is to be
       created to operate the project and the cash flows of SPV’s are captured by way of TRA
       agreement. Such arrangement provides for the appropriation of all cash inflows of the
       company by an independent agent (acting on behalf of the security trustee, i.e. lender’s
       agent).

64. Credit Review / Renewal of Borrowal Accounts with limits upto Rs. 1 lakh : (H. O. Cir.
   103/2011)

Simplified format for Credit review / renewal of borrowal accounts or up to a limit of Rs. 1.00 lakh
whichever is less N F 1002 is introduced

To ensure uniformity as also to make the process simple, new format has been introduced

Certain minimum details with critical information like existence of the unit, security, documents in
force and negative features if any in the account only are to be incorporated

Need not prepare separate credit report

Documentation for renewal to be obtained

All running OD / OCC accounts of borrowers which are Standard asset              EXCLUDING staff
accounts are subjected to renewal process in this format

Branches to ensure that all eligible accounts due for renewal in the ensuing quarter are reviewed /
renewed in the month before commencement of quarter e.g., the accounts due for review /
renewal during the April – June shall be reviewed / renewed in the month of March

65. Scheme of Delegation of Powers for Credit Sanctions – Modifications (Cir.113/2011)

Stipulation of linking sanctioning powers to Category of securities is removed

Powers to sanction loans had been aligned to risk rating as well as category of securities

CM /DM and above authorities can permit facilities up to their respective delegated powers to
new borrowers rated Moderate Risk

Officers in scale I, II & III are delegated with powers to sanction secured loans to priority sector
less than Rs. 2 lakhs without reference to risk rating grade


                                                    65
66. Educational loans – Revised guidelines of IBA: (H.O.Cir 83/2011)

Educational loan can be considered to students who have secured admission under
Management Quota only if students have secured 60 % marks in the qualifying examination.
However, student who secured admission under state selection process but opt for Management
Quota for a different Branch / stream can be considered under IBA scheme

License courses like Aircraft Maintenance Engineering / Pre sea training which are neither degree
nor diploma should not be considered for EL


67. Registration of mortgages by deposit of title deeds (EMT) with Central Registry under
SARFAESI Act 2002 (CERSAI) H.O.Cir 126/2011 , 151/2011 & 5/2012

All EMTs enforceable under SARFAESI created in our favour on or after 31/03/2011 are to be
registered with in 30 days with Central Registry

Registration is on line through Web

Agricultural property is exempted

Branch officials have been provided with password




                                                    66

								
To top