Académique Documents
Professionnel Documents
Culture Documents
On
Preparation of Credit Policy Manual
Submitted To:
Mr. Narendra Bsta
Submitted By:
Rabindra Rajbhandari
Section-A, Roll-15
Contents
Section-1.......................................................................................................... 1
Preamble, Definitions and Commencements....................................................1
1.1 Credit Policy Guidelines...........................................................................1
1.2 General Guidelines..................................................................................3
1.3 Commencement...................................................................................... 4
1.4 Definitions............................................................................................... 5
Section-2.......................................................................................................... 6
Mission, Vision, Goal, Objectives of Banks Loan Portfolio................................6
2.1 Mission.................................................................................................... 6
2.2 Objectives............................................................................................... 6
Section-3.......................................................................................................... 9
Principal Guidelines.......................................................................................... 9
3.1 Eligibility Criteria:.................................................................................... 9
Section-4........................................................................................................ 12
Operating Procedures..................................................................................... 12
4.1 Loan Application Process:......................................................................12
4.2 Leverage:.............................................................................................. 16
4.3 Security and Protective Requirements:.................................................16
4.4 Types of Acceptable Security:................................................................17
4.5 Documentation:.................................................................................... 18
4.6 Credit disbursement Procedures:..........................................................19
4.7 Implementation of the loan/fund:..........................................................20
4.8 Renewal and Extension of Credit: Credit monitoring:............................20
4.9 Credit Repayment/Credit Recovery:......................................................21
4.10 Maintenance of credit files:.................................................................21
4.11 Maintenance of Collateral and security documents:...........................21
4.12 Account Management Procedures:......................................................21
4.14 Relationship Management:..................................................................21
SECTION-5...................................................................................................... 23
Organization Structure...................................................................................23
Section-6........................................................................................................ 24
Product Manuals............................................................................................. 24
6.15 Lease financing...................................................................................... 28
Section-6........................................................................................................ 33
Credit Risk Management................................................................................33
6.1 Risk Grading & Risk Rating:..................................................................33
6.2 Managing Problem Credits:...................................................................35
6.3 NPL Recovery Unit:................................................................................ 36
6.4 Recovery of Non-Performing Loans & Investments:..............................37
6.5 Recovery Write-off loans:......................................................................38
6.6 Internal Audit & Compliance (IAC):........................................................39
6.7 Review of the Credit Policy:...................................................................39
Section-1
Preamble, Definitions and Commencements
As the time goes on, the market place has grown more competitive in each and every
sector. The banking sector cant also remain an exception. Hence, while we have come to
this point of time, the banks and financial institutes have proven that this sector is the
most growing, advanced and competitive sector. Therefore, these BFIs have always been
focusing their attention on innovating and developing new tools and techniques to
generate income and satisfy and retain their customers to stand on the race of survival.
Even in the least developed country like Nepal, BFIs are the most regulated, advanced
and profit earning sector.
The Nepalese banks too, like banks of any other country, provides various financial
products and services to its customers. The basic principles of lending are for minimizing
risk, maximizing profit and protecting depositors funds to maintain the trust and faith of
customers. Loans are the lifeblood of a bank. All businesses sell products, and a bank's
product is money. Banks make money by taking in funds from depositors and other
sources and then lending money out to customers. The bank spread is the difference
between what the interest a bank must pay to obtain the funds and the rate the bank
charges on the loan. For example, a bank might pay two percent interest to a depositor
and charge a customer six percent interest on a loan. The four percentage points is the
bank's spread, and its profit.
One of the major and the most important activity that a bank provides is building up its
risk assets by providing credit facilities to its customers. The bank under takes the risk
while extending the loan; it is therefore called risk assets. The risk is worth takin because
about two-third of the banks profit comes from extending loan. The investment of the
shareholders and the saving of the depositors could be jeopardize if the credit risk is not
properly assessed prior to providing the loan and managed it prudently post
disbursement.
further define the bank's credit policy and serve as a primary reference source for all
credit-related issues. Any proposed changes must first have the approval of the Bank's
Senior Credit Officer or the higher authority.
The policies outlined herein are intended to be general in nature and will be
supplemented by various procedures, which will contain implementing details.
Furthermore, they are supplementary to requirements outlined in Nepal Rastra Bank and
other internal policy documents.
This is intended to be both a sound and practical manual. It is also instructional.
However, no manual can replace prudent business judgment, sound assessment of the
borrower's ability, capacity, integrity, and wise structuring of a credit facility that is
appropriate to the needs of both a borrower and the Bank.
This manual is also a living document and will be periodically reviewed and up-dated. It
is being presented in loose-leaf form to facilitate a page-by-page update process. Each
page is dated, and the Table of Contents (which will be re-issued with each change) will
indicate the most recently issued version of that page or section. The manual's value lies
in the fact that that it communicates to all staff involved in lending activities the policies
and procedures of the Bank, and insures that all staff has current and consistent guidance.
This Manual is strictly an internal document and intended for guidance in the lending
process by branch managers, lending officers, credit department managers, credit
committee members, other members of bank management and directors. It is not to be
distributed to outside parties such as other Banks, prospects, interested borrowers or any
other institution or individual.
All employees of the Bank, engaged in any activity relating to lending must be
familiar with the contents of this CPG, its periodic amendments, and supplements.
This guideline must be adhered to by everyone at all times except upon written
approval/justification from the Chief Executive Officer. Only the Board of Directors
can amend any content or part
1.3 Commencement
i.
The policy set forth shall be known as Credit Policy Guide 2015 and shall
hereinafter be referred as Credit Policy Guide Credit Policy Manual or CPG
in short.
ii.
It shall be the duty of the all employee/officers of the bank to make themselves
acquainted with all the policies / procedures incorporated in CPG and other
policies/ rules/ regulation/ manual referred by CPG.
iv.
The Board of the Directors (hereinafter called BOD) can suspend or add/ delete
or amend any of the provision of this CPG.
4
v.
Chief Executive of the bank is responsible for implementation of CPG within the
Bank.
vi.
This CPG shall come into force from the date of approval by the BOD of bank.
1.4 Definitions
Unless otherwise specially indicated, the following term used in CPG shall have the
following meaning(s).
i.
ii.
iii.
2063.
Nepal Rastra Bank or NRB means the Central Bank of Nepal established
iv.
v.
vi.
vii.
viii.
management.
Relationship Manager means Assistant Relationship Officer/Relationship
Officer/Assistant
Relationship
Manager/
Relationship
Manager, who
is
responsible for selling the credit product and developing and managing the
ix.
x.
xi.
xii.
SME loan mean loans granted to the small firms to meet their financial needs.
xiii.
xiv.
Section-2
xv.
2.1 Mission
xvi.
The investment and lending operations of The Public Bank Limited are a fundamental
expression of its role in nation building, as expressed by its Charter. Specifically, the
Bank provides finance, investments and related advisory services to viable enterprises
and creditworthy individuals. It undertakes its operations with a trained corps of officers
and staff, who conduct themselves with the highest degree of prudence and
professionalism.
xvii.
xviii.
xix.
2.2 Objectives
xx.
xxi.
with neither too much nor too little capital at each stage of the project or business cycle.
This implies the need to have a thorough knowledge of broad industry requirements, in
general, and of individual customers' operations and financial needs, in particular.
xxii.
xxiii.
xxiv.
xxv.
xxvi.
xxvii.
xxviii.
To ensure the prudent conduct of the Bank's lending and investment affairs, adequate
control measures are to be maintained in critical areas of its lending and investment
operations. For this purpose, the segregation of potentially conflicting functions and
independent assessments of operations and the Bank's portfolio will be institutionalized.
Accounts will be monitored with a view to detecting early deterioration and appropriate
intervention.
xxix.
Profitability:
xxx.
The Bank's future profitability and welfare is dependent on a base of healthy, earning
assets. To this end, the Bank shall manage its credit and investment risks in a manner as
to assure the Bank's stability and the attainment of profitability and growth objectives. In
the context of current socio-economic conditions, lending and investment activities will
invariably encounter the following identified risks:
xxxi.
a. Business risk
xxxii.
xxxiii.
c. Management risk
xxxiv.
xxxv.
xxxvi.
Mitigation of Risk:
xxxvii.
The Bank's credit and investment policies, procedures and best practices are hereby
established in order to:
i.
Develop a proper risk culture under which its activities are undertaken, in order to assure
ii.
iii.
customer (KYC).
Ensure dependability (i.e., timeliness and accuracy) of information related to credit and
iv.
xxxviii.
Loan
xxxix.
Relationship Exposure
xl.
Amount
xli.
<
xlii.
< 50,000,000
xliii.
xlv.
< 100,000,000
xlvi.
>100,000,0 xlviii.
>200,000,000
xlix.
25,000,000
xliv.
>
50,000,000
xlvii.
00
l.
li.
lii.
liii.
liv.
lv.
8
lvi.
lvii.
lviii.
lix.
lx.
lxi.
lxii.
Section-3
Principal Guidelines
The Bank makes loans and facilities available to a wide range of commercially viable
companies generally categorized into six primary sectors where priority will be given to
the projects with national priorities:
lxiii.
lxiv.
Commercial
Manufacturing and Industrial
Agriculture
Building and Construction
Tourism Projects
Services
SME
i.
ii.
iii.
iv.
v.
companies or individuals.
Military equipment/weapons finance.
Highly-leveraged transactions.
Speculative investments.
Logging, mineral extraction/mining or other activity that is ethically or
environmentally sensitive.
Share lending.
Bank will not consider loan facilities to the following parties:
A director of the bank;
A stockholder of the Bank; and
Other related interests (wives, children, parents and relatives) as per Bank
Company Act. However, loan facilities may be granted under such other terms
vi.
lxv.
10
g. The maximum amount of loan to be extended against the security of housing land
and real estate shall not be more than 60 percent of the fair market value of the
collateral security.
h. Sectorial loan limit for real estate credit including residential housing, apartment,
and commercial complex, land purchase, plotting and developing) is fixed up to
25 percent of total loan. Limit for real estate loan only for land purchasing, and
plotting is 10% of total loan. The real estate loan exceeding the limit, the risk
weight of 150 percent shall have to be provisioned while calculating the total risk
weight assets for the amount so exceeded.
lxvi.
Special care shall be taken while allowing non-funded facilities, so that the allowed nonfund facilities do not turn into funded facilities and get classified.
lxvii.
While granting such facilities under the above mentioned exceptions, immense care shall
be taken such that all necessary formalities are accomplished and the exposures remain
within the prudent limit decided by Board.
lxviii.
Exceptions: Public limited companies, where 50% or more of the shareholdings are
public, shall not be considered as a single enterprise/group. Credit facilities provided
against government guarantees, to the extent of the amount guaranteed. For credit
facilities against cash and cashable securities (e.g., FDR), where the actual level of
exposure shall be determined by deducting the amount of such securities from the
outstanding balance.
lxix.
11
lxx.
lxxi.
Section-4
Operating Procedures
lxxii.
lxxiii.
The client completes the Credit Application with the assistance of the Branch Manager or
his/her delegated Loan Officer. A suggested format for the Application is enclosed in
(Appendix-1). This form will help ensure that adequate information about the financial
condition of the borrower is obtained. The application should be filled in completely as
possible to provide sufficient information with which to begin the analytical process,
form the basis for an initial site visit and understand proposed collateral.
a. Collection of data:
lxxiv.
At the time of analyzing a credit proposal the following information are to be collected
from the borrowers/guarantors in the prescribed format which is subject to change as and
when needed:
lxxv.
lxxvi.
lxxvii.
lxxviii.
b. Initial site visit:
12
lxxix.
One of the objectives of thorough initial visits with the client is to determine the client's
character, business condition, prospects, and to gather supplemental financial
information. Identification and appraisal of collateral is also essential during initial visits.
c. Verification of Data :
lxxx.
The above data should be verified and confirmed and documented in regard to the
borrower:
a.
b.
c.
d.
e.
f.
lxxxi.
Identity(KYC)
Physical Address
Place of Business
Nature of Business/Purpose of Loan
Web Address
Invoice and contract between Suppliers & Customers
d. Appraisal Analysis :
Loan proposals will be appraised with updated market price, quality and other
information of the merchandise and product. The appraisal / updates will be checked by
the concerned higher authority to ensure that it was in order & reviewed time to time (at
least annually). A detail analysis is documented to arrive at the following aspects:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
lxxxii.
Credit Worthiness;
Guarantor/Borrower's cash flow;
Debt service coverage ratio;
Benefit cost ratio;
NPV, BCR & IRR;
Break even analysis;
Margin /Liquidity;
Assessment of Working Capital
Cash Flow Analysis
Environmental issues
Ability to penetrate market sectors and comparative factors.
Before appraisal Banks officer will verify the invoice & contract with suppliers &
customer and will ensure genuineness. During implementation period disbursing official
will verity the proper utilization of the loan / fund and ensure utilization for which loan is
sanctioned.
e. Exception in Credit Policy :
lxxxiii.
All exceptions to the credit policy shall be clearly documented on the loan offering sheet,
problem loan report and other MIS; and to be approved by the Public Bank's Board or a
committee thereof before the loan is funded or renewed. Any exceptions in lending policy
will be effective after proper approval by the board within their power/authority.
13
f.
lxxxiv.
Any Renewal or extension of credit is made only after obtaining and documenting the
current valuation of any supporting collateral as per Nepal Rastra Bank circulars,
perfecting and verifying the Bank's lien position, and that reasonable limits are
established on credit advances against collateral, based on a consideration of (but not
limited to) a realistic assessment of the value of collateral, the ratio of loan to value, and
overall debt service requirements. Any renewal and extension of credit is made after
obtaining and validating current credit information about the borrower and the guarantor
sufficient to fully assess and analyze the borrowers and guarantors cash flow, debt service
requirements, contingent liabilities and liquidity condition and only after the credit officer
prepares a documented credit analysis.
lxxxv.
At the time of any loan renewal accrued interest will not be capitalized with the principal
amount under any circumstances;
lxxxvi.
Excess over the credit limit must be adjusted before forwarding the proposal for renewal
and enhancement. Fresh Charge documents must be obtained before effecting any
renewal as per law. For enhancement of loan additional collateral to be obtained to cover
the loan.
The purpose of loan will always be mentioned in the loan application and loan sanction
memorandum.
Loan proposals will be appraised with updated market price, quality and other
information of the merchandise and product. The appraisal / updates will be checked by
the concerned higher authority to ensure that it was in order & reviewed time to time (at
least annually).
All exceptions to the credit policy shall be clearly documented on the loan offering sheet,
problem loan report and other MIS; and to be approved by The Publics Bank's Board or
lxxxvii.
Any exceptions in lending policy will be effective after proper approval by the board.
14
lxxxviii.
The Bank will complete the analysis and approval process within the following time
frame on complete submission of the papers/documents by the borrower;
xci.
lxxxix.
xc.
Steps
xcv.
xciii.
xciv.
Branch
xcix.
xcvii.
xcviii.
Head Office
Renew xcii.
al
10
days
xcvi.
10
days
c.
New
Proposal
25 days
15 days
ci.
a) Viability:
cii.
Financial assistance shall be granted only to those entities whose operations have been
evaluated as technically, commercially and financially viable and environmentally
feasible. For this purpose, the Bank uses the screening processes with strict pass-fail
criteria, as well as a scoring system to determine relative risks for the purpose of pricing
and subsequent guidance in the management of loan accounts (Appendix-3).
ciii.
b) Credit worthiness:
civ.
Applications for financial assistance may be granted only when the entities and their
principal proponents/management teams are deemed credit-worthy (demonstrated by past
repayment performance with the Bank or other financial institutions, capability to absorb
debt repayments from sources external to the main business being applied for, and
general credit consciousness and responsibility).
cv.
cvi.
c) Sufficiency:
cvii.
cviii.
4.2 Leverage:
cix.
The debt-to-equity ratio for organized business entities assisted by the Bank
should NOT exceed 60-40 (or 1.5:1) computed after the assistance.
cx.
cxi.
cxii.
cxiii.
All landed property offered as security shall have an official search conducted by, and a
clean report. The purpose of this verification process is to ascertain the existence or
otherwise of encumbrances and/or breaks in the chain of title. The title deeds of the
proposed property should be verified by our legal Advisor/ Lawyer and a certificate
should be obtained mentioning that the title to the property is alright and bank can take
this property as security. The branch manager/branch official will confirm that the
proposed property is under possession of the mortgagor.
b. Consent Requirements:
cxiv.
All liens on offered security shall be premised on the written consent of the owners or
primary lessors of private property as well as the concerned government ministries in the
case of public property.
cxv.
cxvi.
Machinery and Equipment, provided that the economic life thereof shall be equal
Vehicles (Industrial, Commercial, and Private), provided that the economic life
value of the securities at the appropriate rate prescribed by the Treasury Unit of the Bank.
Fixed deposits, provided these are covered by lien or assignment as per approved
procedures.
d. Approval Procedures:
cxviii.
All loans or facilities strictly require the approval of designated authorities. A chart of
authorization for credit approval is enclosed in (Appendix-5). No officer of the Bank,
shall approve or otherwise commit the Bank to any credit, guarantee, or investment
without prior written authorization. Furthermore, no officer or staff may make or enter
17
into any unauthorized arrangement/s that would result in the rescheduling, restructuring
of existing loan schedules or the postponement of the recovery of the Bank's loans or
investments without similar authorization. Any breach of this policy shall be treated as a
fraudulent and criminal act, and shall be dealt with accordingly.
cxix.
cxx.
4.5 Documentation:
It is the responsibility of credit administration to ensure completeness of documentation
(loan agreements, guarantees, transfer of title of collaterals etc.) in accordance with
approved terms and conditions. Outstanding documents should be tracked and followed
up to ensure execution and receipt.
cxxi.
All forms of credit, investments or variations thereof, and the security to cover these,
require proper documentation in accordance with approved legal forms and formats.
Communications with customers concerning their approved facilities should incorporate
all standard as well as special conditions that may be imposed from time to time and, in
line with best practice, the customers should signify their written conformity thereto. No
modifications or deletions of approved terms and conditions will be allowed without
specific authorization from the Board of Directors or the appropriate committees.
cxxii.
For monitoring and verification purposes, loan files for each borrower should incorporate
a duly-accomplished checklist of credit documents. This checklist should always be
available for inspection by management and auditors. It is the duty of the credit
Administration Department to renew charges and mortgages which expire during the life
of the loans. Custodial responsibilities for all original copies of documents evidencing
transactions is specified below:
cxxiii.
cxxiv.
cxxv.
18
cxxvi.
Said checklist must be incorporated as an integral part of the credit folders, and should be
available for inspection at all times. Since the original documents are to be held in
safekeeping, copies thereof should be appended to the checklist.
cxxvii.
cxxviii.
The credit administration ensure that the credit application has proper approval before
entering facility limits into ledger/computer systems. Disbursement will be effected only
after completion of covenants, and receipt of mortgage deed of collateral holdings. In
case of exceptions necessary approval shall be obtained from competent authorities.
cxxix.
It is the strict policy to ensure that all documentation and formalities, and in particular
those related to large loans and loans to Directors/Officers/Shareholders/ Related
Interests should be executed in compliance with Nepal Rastra Bank guidelines and the
BAFIA Act. If any fund is released without proper documentation, the concerned
manager and officer will be held responsible for punishment.
cxxx.
Moreover, all financial transactions should without exception be properly recorded for
accounting and monitoring purposes. Non-funded loan cannot be converted in to funded
loan until all necessary approval have been obtained from the competent authority and
before completion of documentation formalities. Same underwriting standards to be
followed consistently for same category of loans.
cxxxi.
Releases of funds, and the issuance of instruments (e.g. LCs, Letters of Guarantee) that
bind the Bank to potential financial and legal obligations, are the final and critical control
stage of the credit and investment process. Accordingly, these may not be undertaken
unless and until the following are accomplished:
cxxxii.
maintain a centralized accounting record of all funded and non-funded exposures relating
to Import & Export of the Bank for administration and monitoring purposes.
cxxxiii.
cxxxiv.
cxxxv.
cxxxvi.
After the credit is approved and draw down allowed, the credit shall be continuously
monitored by branch managers/ branch officials.
cxxxvii.
These include keeping track of borrowers' compliance with credit terms, identifying early
signs of irregularity such as loan proceeds being used other than for the intended purpose,
conducting periodic physical verification valuation of collateral and monitoring timely
repayments.
cxxxviii.
Branch Managers/Branch Officers bear the primary responsibility for monitoring and
recovering the Bank's credit exposures, in accordance with the Operating Rules and
Procedures. Monitoring and follow-up activities should be intensified when the perceived
credit risk of borrowers deteriorate, based on the latest quarterly risk grade/classification.
cxxxix.
Credit Divisions at Head Office, on the other hand, will monitor the performance of the
various credit portfolios by analyzing the data base which it shall establish and maintain
on a current basis. Individual exposures in the Bank's portfolio will likewise be classified
by the branch in accordance with Nepal Rastra Bank Bank guidelines.
cxl.
The Credit Risk Management unit will develop risk guidelines and procedures in line
with good practice. Together with the CRM, the Internal Control and Compliance unit of
the Bank, will put their comments on the basis of experience gathered from the branch
inspection as to whether or not these guidelines and procedures are working effectively
and reflect the actual positions indicated above.
20
cxli.
cxlii.
cxliii.
cxliv.
cxlv.
cxlvi.
Branch Manager will maintain title deed register and safe in safe out register to ensure
that all security documents are kept in a fireproof custody under dual control. Proper
records for security documents will be maintained to track their movement. Physical
checks on security documents shall be conducted on a regular basis.
cxlvii.
cxlviii.
This stage in the credit process has the longest duration, and key components of the
Bank's credit risk infrastructure have responsibilities to ensure that risk assets are
properly monitored and handled.
cxlix.
cl.
cli.
clii.
cliii.
cliv.
22
clv.
clvi.
clvii.
SECTION-5
Organization Structure
The Bank's functions and responsibilities relating to credit are organized on the basis of
appropriate segregation in order to assure objectivity in managing credit. Accordingly the
responsibilities is divided as follows:
Front Office
Middle Office
clviii.
Back Office
Details functions and responsibilities is shown in (Appendix-8).
clix.
23
clx.
clxi.
Section-6
Product Manuals
clxii.
6.1 Overdraft:
clxiii.
clxiv.
clxv.
clxvi.
It is a similar to that of overdraft limit in nature but unlike OD, a separate loan
accounts will be maintained for loan limit implementation and is regulated by the
drawing power within the offered limit. The debt balance of account on any point
of time should not exceed the stipulated limit. Revolving cash credit shall be
provided against the pledge or hypothecation stock in trade, goods, machinery,
land, building etc.
clxvii.
clxviii.
It is basically a substitute to trust receipt loan for financing the import of capital
goods such as plant and machinery. As per the general banking norms, TR loans
are provided only for date the credit request for importing the capital goods, we
provided the non-revolving cash credit for short term period.
clxix.
clxx.
borrower requests for further accommodation, the bank should treat the same as
separate transaction.
clxxi.
clxxii.
The bank may provide a loan with security of movable property acceptable to the
bank by entrusting the possession of the security to the borrower on the condition
that bank may take possession of the property.
clxxiii.
clxxiv.
A) Demand bills:
clxxv.
Demand bills shall have no maturity and is repayable on demand. The bank is
entitled to demand their payment immediately on presentation before drawer. If a
bill is accompanied by documents of the good (railway receipt, truck receipt,
airway bill, bills of lading) is called documentary bill. In the absence of such
documents, it is called clean bill.
B) Usance bills:
clxxvi.
It has a maturity period. The bank shall retain the bill for that period and should
realize the amount of the bill from the drawer on its due date. This practice is
called discounting of bills.
clxxvii.
clxxviii.
This financing is a type of installment credit under which the hire purchaser,
called the hirer, agrees to take the goods on hire at a stated rental, which is
inclusive of repayment of principal as well as interest with an option to purchase.
The ownership remains with the person that gives the goods on hire. The bank
may grant hire purchase loan to eligible applicants to purchase goods having
definite source to offer collateral generally for personal use. Such loan may be
extended to firm, company, or institutions to acquire moveable fixed assets. It is
clxxx.
Generally, the term loan will be granted for industry to finance the fixed assets
whose gestation period is high. The repayment period will generally be more than
three year. The maximum length of term loans should not exceed 15 year in
duration for infrastructure project and 7 year for other activities. Such loan is
repayable an installment over the period of loan.
clxxxi.
clxxxii.
It is provided to build or buy residential buildings only. The tenure of this type of
loan will be determined based on borrowers repayment capacity. The borrower is
required to submit his/ her income statement and / or projected income statement
along with the loan application request.
clxxxiii.
clxxxiv.
Project loan will be generated on the basis of viability of the project. The bank
will ask the borrower to invest certain portion of the project from their equity and
the rest will be financed by the bank as project loan. The maximum debit equity
ratio, in case of project loan, will be 70:30. The project loan includes the term
loan and working capital loan required by the project. Project loan is basically
considered for the capital expenditure oriented companies/ project like industrial,
commercial complex, departmental stores etc, with relatively long tenure.
clxxxv.
clxxxvi.
includes non-capital goods which is in the books of the borrower for a period not
exceeding the credit period specified in the sales management. If at any point of
time, the outstanding exceeds the extended valuation of the stocks and goods
receivables after providing the margin of 30%, the drawing power must be
reduced immediately and the borrower should settle the excess outstanding in
cash promptly. This should be made clear to the Clint on the offer letter itself.
clxxxvii.
clxxxviii.
Pledge loan is provided basically for maintaining the stock of the trading items/
goods under the speculation that the price of the commodity will increase in due
course of time. Generally, the goods having seasonal nature like food-grains,
sugars etc are considered for the pledge loan. Under the pledge loan, goods are
kept under lock and keys of the bank in the borrower go down for security of the
loan. The good will be released partially or fully as and when the sales deal is
made and corresponding amount of loan outstanding is settled. A part from other
considerations, the price history and market tendency of the commodity are the
most important factors to be taken into account while providing pledge loan will
be 70% of the cost price of the commodity/goods under pledge.
clxxxix.
cxc.
cxci.
cxcii.
Bridge financing can be given if there is ample evidence that the borrower is
receiving financial from some other sources and the fund is required for a short
period of time. This form of financing can be done to the extent of the full value
of collateral to the maximum 100% of the documented amount from the primary
lenders/ sources this type of loans shall not be made for more than 12 month.
cxciii.
cxciv.
It can be extended to the maximum of 90% of the fixed deposit amount with
additional interest rate above the fixed deposit rate as decided by the management
from time to time. Any deviation from the above normal should be well
documented and a written exception require from the chief executive officer.
cxcv.
cxcvi.
cxcvii.
It can be given to the extend 50% of the present market value or 180 days weight
average value of the shares whichever is lower. No financing against stockholders
is a director of the company in which she/ he holds the shares. Eligible limit shall
be monitored.
cxcviii.
cxcix.
cc.
6.16 Guarantees:
cci.
ccii.
cciii.
cciv.
ccv.
ccvi.
6.18
Export credit:
ccvii.
ccviii.
Pre-shipment credits are usually required by exports to purchase and procure raw
material, process and manufacture export goods, pack the goods for export, pay
for transporting goods to the sea ports/ airports for export, pay the freight,
insurance and export duty, if any pre-shipment credit are usually liquidate by
negotiating bills or buy the post shipment credit. Pre-shipment credit will be
granted to the exporter on the basis of a confirmed letter of credit against a firm
export order. Like any other credit, the bank shall consider a number of safeguard
measures before extending the credit, such as t exporters credit worthiness, their
past performance method of payment agreed upon period for which the finance is
required, their integrity and financial standing. The pre-shipment credit, which
will not normally exceed the FOB value of the goods whichever is less, shall be
liquidate form the proceeds of the relevant export bill when purchase negotiated
or discounted as the case may be pre-shipment advances hall be normally granted
on a secure basis. Exporters are require to insure their stock against fire and theft
for the full value. Goods in transit within the country and from port of loading to
port of destination also need to be covered by insurance by the exporter, unless it
is the responsibility of the importer.
ccix.
Pre-shipment credit will be given by way of an overall overdraft offered for one
year. In such case, loan assessment will be made not with reference to a particular
export order, but with reference to the overall credit requirement. Generally the
credit limit operates on a revolving basis and can be used for financing a series of
export transactions. In fixing the limit, however, the bank will look into the credit
worthiness of the exporter, his past performance, the security made available to
the bank.
ccx.
ccxi.
The bank will extend post-shipment credit through purchase/ discount of export
bills or buy way of advance against such bills. The nature of the bill as well as the
term of payment as agreed to by the exporter with the buyer shall be two
important considerations for the bank to provide post-shipment finance. The loan
period will not usually exceed 6 month. Post- shipment creates will be generally
applied to liquidate pre-shipment credit. The following are the types of bills
against which post shipment credit is normally extended to exporters.
ccxii.
ccxiii.
ccxiv.
ccxv.
In the normal course of business a financial institution may want to off load a part of its
risk assets. The
requirement, concentration and so on. The bank can purchase or sell loans from/to other
banks or financial institutions which may be with recourse or without recourse to the
selling bank. However, any type of loan to be purchased must be a "good category" loan,
with 1% provisioning, at the selling bank / financial institution at the time of sale. The
bank or financial institution, with which the Loan Sale / Purchase agreement is being
entered into for the purpose of purchasing /selling its part of the risk asset portfolio,
should be acceptable to the bank. The acceptability shall be assessed in terms of its
capability of analyzing the underlying risk, capability of assessing the terms and
conditions of the underlying participation agreement, satisfactory financial performance,
level of nonperforming assets being less than 5o/o of the total portfolio and quality of the
overall management. Minimum size of the transaction shall not be less than NPR 50
million. The validity of the agreement shall not be open ended and the agreement shall
have a specific expiry period not exceeding two years. Minimum authority for the
decision to participate in such agreement shall be Board Credit Committee of the bank.
Loan Purchase or repurchase or Sale from / to other banks / financial institutions shall be
governed by NRB directives in effect from time to time.
ccxvi.
ccxvii.
Basically, Retail and / or SME loan will be guided by product papers and the will
be granted to business as well as individual with one of the thrust areas of the
banks for portfolio diversifications. Major identified retail lending products are
HP loan, Education loan, foreign Employment Loan, personal I mortgage loan,
Lease financing, FD loan, loan against NSB, Loan against Bank Guarantee, loan
against shares and bonds, loan against gold & silver, and any other scheme based
loans, which may be re-designed / added from time to time depending upon the
need of the market. The tenure of all retail and / or SME loans will be guided by
separate related lending guideline and product papers.
ccxviii.
ccxix.
Service charge:
Service charge on loan accounts will be levied as per the schedule of charges
decided/ implemented from time to time by the management. Any exception to
this must be approved by the CE in writing and properly documented in the field.
ccxx.
Management fees:
ccxxi.
Management fees on loan accounts will be levied as per the schedule of charges
decided/ implemented from time to time by the management. Any exception to
this must be approved by the CEO in writing and properly documented in the file.
ccxxii.
ccxxiii.
With the written approval from the CEO, interest moratorium period up to 12
months can be allowed to project loans, consortium loans, and industrial loans. A
moratorium may be allowed for a period beyond 12 months but until the
commercial operation of the venture in case of start-up project being financed.
This, however, need to be approved by the CEO or above authority as exception
to the rule. No interest moratorium shall be given to individuals or for trading
purpose. Interest on these types of loans shall be capitalized on quarterly
moratorium period and interest capitalization terms will be set as per the facility
agreement or as decided by the consortium meeting.
ccxxiv.
ccxxv.
ccxxvi.
Credit facilities of revolving nature like OD, demand loan, TR, etc, will be
renewed on annual basis from the date of disbarment and thus no repayment
schedule will be applicable. Such revolving loans will be fully settled only when
the credit facility is called back. However interest on such revolving loans shall be
paid on quarterly basis as per Nepalese fiscal calendar. In case of schedule loan,
repayment can be made in any one of the following manners as determined by the
credit analyst and approved by the lending officer. Payments can be made either
monthly or quarterly. If payment cannot be made at least quarterly on such
schedule loans, then approval is required from the CEO.
ccxxvii.
Before disbursement of the loan all necessary papers and documents shall have to be
completed accordingly as per loan documents checklist. Importantly the instrument must
be duly discharged by the owner and marked "lien" before allowing withdrawal.
ccxxviii.
ccxxix.
ccxxx.
ccxxxi.
ccxxxii.
ccxxxiii.
ccxxxiv.
ccxxxv.
ccxxxvi.
ccxxxvii.
ccxxxviii.
ccxxxix.
ccxl.
ccxli.
ccxlii.
ccxliii.
ccxliv.
Section-6
ccxlv.
ccxlvi.
The Bank will rate its individual risk exposures continuously until these have been
discharged through full payment or otherwise written off. The process is similar to that
undertaken during the screening stage. However, actual account performance will be an
additional consideration in classifying the exposures into one of the following eight
categories:
ccxlvii.
ccxlviii.
ccxlix.
business.
Security: Facilities are fully secured by cash deposits, government bonds or an
ccl.
ccli.
strong earnings within a vibrant industry, good liquidity and low leverage.
Account Performance: Account is cooperative, pays on time and provides non-loan
cclii.
business.
Security: Security is sub-prime but solid real estate. Aggregate score would be 95 or
ccliii.
above.
Acceptable - Fair risk (A):
Industry/Business & Financials: Financial condition is currently strong but may be unable
to sustain any major or continued setbacks. This classification indicates strengths below
ccliv.
that of the previous category, but shows consistent earnings and positive cash flow.
Account Performance: Account is paying, but may be delayed by less than one month
cclv.
cclvi.
cclvii.
from time to time. Security: Security position could be less than satisfactory if default
cclviii.
cclix.
cclx.
cclxi.
cclxiii.
months.
An aggregate score would be 55-64.
Substandard (B):
Financial condition is weak, and capacity or inclination to repay is in doubt. These
cclxiv.
weaknesses jeopardize the full settlement of loans. An aggregate score would be 45-54.
Doubtful and Bad (Non-performing):
Full repayment of principal and interest is unlikely, and the possibility of loss is
cclxii.
extremely high. The adequacy of provisions must be reviewed at least quarterly and the
Bank should pursue a loan workout arrangement (e.g., restructuring), failing which legal
cclxv.
cclxvi.
The prospect of recovery is poor after exploring all options. Legal procedures have been
initiated. In accordance with Nepal Rastra Bank guidelines, these accounts should be
cclxvii.
written off.
An aggregate score would be 35 or less.
cclxviii.
The deterioration of any loan account is regarded as a serious development that requires
the attention of the Credit Committee. For this purpose, any account which is
downgraded to "Substandard" should be the subject of a Classified Loan Report, the
format for which is attached as (Appendix-9).
cclxix.
Any loan limit of NRs .1 (one) crore and above will be rated by External Rating Agency.
The Public Bank Limited will not disburse any fund to the client having credit rating less
than BBB or equivalent or unrated.
cclxx.
cclxxi.
In cases where the risk of credit loss is significant and/or the underlying problems require
special expertise, NPL Unit will assume primary management of the problem credit,
keeping in mind that the originating Branch Manager will remain available to coordinate
recovery actions as required. In cases where there is an imminent risk of loss, the loan
should be followed very carefully by the branch officials. At that time all interest accrual
should cease and any interest already accrued and taken into income should be reversed.
The assigned risk rating should be changed to accurately reflect the loan or facility's
current deteriorated condition.
cclxxii.
Bank, through action of its Credit Committee/NPLMC, might make a business decision
to attempt to settle the debt immediately. Prompt and effective resolution of problem
loans can reduce losses for the bank. Problem loans are costly to the bank in terms of
time and effort as well as, frequently, foregone interest income and additional expenses.
Ultimately problem loans reduce profits and can erode capital.
cclxxiii.
cclxxiv.
cclxxv.
cclxxvi.
MD & CEO
Credit
Committee
cclxxvii.
cclxxviii.
cclxxix.
GM or DGM
Head of Recovery
Unit
cclxxx.
cclxxxi.
cclxxxii.
cclxxxiii.
Assets
Management
Unit
Account
Workover Unit
cclxxxiv.
cclxxxv.
cclxxxvi.
Government
cclxxxvii.
Account
cclxxxviii.
Private Sector
Account
Assets
Administration
Commercial
Operations
cclxxxix.
ccxc.
The
RU's
(Recovery
Branch Offices
be to:
a. Determine action plan/recovery strategy;
b. Pursue all options to maximize recovery, including placing customers into legal proceedings
or liquidation as appropriate;
c. Ensure adequate and timely loan loss provisions are made based on actual and expected
losses; and
d. Regular review of accounts classified as sub-standard or worse.
ccxci.
ccxcii.
ccxciii.
ccxciv.
ccxcv.
ccxcvi.
ccxcvii.
ccxcviii.
Banks have to ascertain the credit recoverable amount by updating the values of available
collateral with formal valuation. Security documents should also be reviewed to ensure
the completeness as well as enforceability of contracts and collateral/guarantee; and
ccxcix.
ccc.
ccci.
cccii.
For early problem loan identification, to ensure that credits are accurately risk rated at
least monthly, with formal classification and provisioning conducted at least quarterly.
Recovery & NPA Management Division will remain responsible for overall monitoring of
the same.
ccciii.
Identification and accounting procedure for nonaccrual loans are consistent with the
requirements established by Nepal Rastra Bank. No interest against classified loan will be
taken into profit unless recovered in cash or as per Rastra Bank instructions from time to
time.
ccciv.
Provision against the classified loans will be made account for accordingly on a quarterly
basis (by passing necessary voucher).
cccv.
cccvi.
Review the accounts thoroughly and use a decision matrix to: a) diagnose business
prospects; and b) determine the best way to recover the Bank's exposure with the least
possible losses.
Restructure those accounts which are deemed to be cooperative and in temporary distress,
and monitor their performance closely until they have substantially complied with the
revised terms including payment of at least six months' installments; rehabilitated
accounts may be returned to the originating front offices for regular monitoring and
supervision after this prescriptive period.
Prepare accounts with security, whose operations are active but the owners are
uncooperative, for legal action; coordinate with the Bank's legal counsel and/or external
lawyers in the filing and prosecution stage; execute final judgment as may be determined
by the courts. For these types of accounts, the NPL Unit may recommend further
accounting treatments (such as additional loan loss provisions) depending on the
perceptions concerning the Bank's security position. Blacklist the borrowers to ensure
they are not entertained for future accommodations in the future (the blacklist should be
updated).
cccvii.
(Note: The Bank may also consider taking over the properties with potential
commercial value with the help of the Court. The Bank would be able to amortize its
booked exposure through re-book it as an asset of the bank by passing necessary
vouchers).
Prepare accounts without any security, whose operations are either active or inactive and
the owners are uncooperative, for attachment of personal assets through legal means; as
above, coordinate with the legal agents of the Bank until the cases are resolved.
Recommend write-off for accounts with no hope of recovery, and blacklist the borrowers
to ensure they are never entertained in the future. The Board shall have the sole authority
to approve write-offs as per Rastra Bank guidelines issued time to time.
cccviii.
cccix.
cccx.
Procedures for recovery and management of write-off loans will be observed consistent
with the requirement established by Nepal Rastra Bank. Proper accounting of write-off
loan will be strictly followed as per BAFIA Act. The write-off procedures will be
followed as per the regulations set by the NRB.
cccxi.
cccxii.
All front office lending outlets must be audited regularly (at least bi-annually) as an
independent check on their activities. However, more frequent inspections and audits may
be conducted as situations may demand. Particular attention should be paid to the
corporate and Authorized Dealer (AD) branches which are expected to originate and
maintain the bulk of the credit and investment portfolios.
cccxiii.
IAC should review the efficacy of credit risk controls and validate the effectiveness of
screening tools in predicting borrower performance through back-testing techniques.
cccxiv.
cccxv.
cccxvi.