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BCC:BR:104:404 20.11.2012

CIRCULAR TO ALL BRANCHES AND OFFICES IN INDIA

SUB FILE: ADV- 2

ISSUED BY RETAIL BANKING DEPARTMENT

Dear Sir,

Re: Retail Asset Product “Baroda Traders Loan” – Master Circular

We request a reference to our circular no. BCC: BR: 99:268 dated 6th September
2007 informing about the product features of retail asset product “Baroda Traders
Loan”.

You are aware that ‘Baroda Traders Loan’ is one of the important key products of
retail loan basket available against the security of immovable property/ies with a
maximum limit of Rs.200 lacs for small Borrowers engaged in the trading activities of
goods in physical form. The assessment of working capital requirement under BTL is
done on the line of Nayak Committee recommendations. Therefore Zone/Regions
generally should not recommend for considering deviation for sanction of BTL limit
beyond Rs.500 lacs. All cases above Rs.500 lacs need therefore to be preferably
considered out side the scope of “Retail Banking” with a view to have better credit
supervision and control.

During the last five years various modifications in product features have taken place.
With a view to provide updated features of the product to our operating units and
aggressive marketing of the product, we are enclosing the revised product profile of
“Baroda Traders Loan”.

We request you to create awareness amongst the staff members of the Branch as
well as amongst the target Trader’s Community operating in your area of operation
for aggressive marketing of the product.

We wish you all the very best in the endeavours.

Yours faithfully

(S.Kalyanaraman)
General Manager
(Retail Banking,CSOs,Mktg.,PUB.,PR & OL)

Encl: As above
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Enclosure-I to circular No.BCC:BR:104:404 Dated 20.11.2012

PRODUCT PROFILE OF ‘BARODA TRADERS LOAN’

1 Nature of Facility Overdraft OR Loan

2 Purpose • Working capital requirements.

• Development of shop (e.g. purchase of equipment,


P.C., air-conditioner, furniture etc. but not for
purchase of shop), for need based requirements
subject to a maximum of 25% of the working
capital limit sanctioned.

• Non-fund based facilities within the limits


assessed based on value of securities (i.e. Bank
Guarantee and Letter of Credit).

3 Eligibility • Individuals, Proprietorship & Partnership Firms,


Private Limited Companies and Registered Co-
operative societies engaged in trade of any
commodity/goods in physical form required by the
community and trading in them is not prohibited
by law or opposed to public interest.
(HUF & Public Limited Companies are not
eligible).

• Dealers in Silver / Gold jewelers against the


jewellery, but not against bullion/ raw gold.
(Borrowers to comply with the Licensing
requirement for the business).

• The business units should have been established


in the line of business for a minimum period of- 2-
years.

• Trading units established by our existing


customers with satisfactory dealings or their
close relatives, even if these are established for
less than -2- years.

• Trading units of non-customers having less than -


2- years establishment with the prior approval
of Regional Head.
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4 Limit Minimum: Rs. 25,000/-


Maximum: Rs.200 lacs

Assessment of working capital limit:


The credit limit is to be considered as under:

20% of the projected sales subject to verification of


sales tax returns of previous years/quarters
OR
Advance value of collateral assets to be charged,
whichever is lower.

Assessment of loan for Shop Development:

Need based finance to be considered as per


requirements subject to a maximum of 25% of the
working capital limit sanctioned (within overall limit
assessed based on value of security).

However, Working Capital Advance & Shop


Development Loan together should not exceed
Advance Value of collateral security or Rs. 200/-
lacs, whichever is less.

5 Margin • 40% on realizable market value as per recent


valuation report of immovable property.

• If the property is purchased within last five


years, the registered value to be accepted as the
market value.

• 10% on Bank’s own FDRs.

• 15% on the surrender value of Life Insurance


Policies, NSCs, Government Bonds etc.

6 Rate of Interest Base Rate + 3% i.e. 13.50% at present.

In case of Overdraft, if the credit turnover in the


account in the proceeding month is not adequate to
cover the interest debited, then interest debited
needs to be recovered separately.

Zonal Heads have been delegated powers for


considering concession in interest rate upto 1.00%
on card rate with the condition that effective
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minimum interest rate shall be Base Rate + 2%.


w.e.f 10.09.2012.

7 Period 12 months subject to annual review.

8 Repayment Loan - Maximum 60 EMI (depending on repayment


capacity).

9 Commitment 0.50% p.a. for utilization of limits below 75% (on


Charges quarterly average Basis) of sanctioned limit in case
the Limit sanctioned is Rs.500 lacs and above

(Ref Cir BCC:BR:100:154 dated 06.06.2008)

10 Security I) Tangible collateral securities in the form of


mortgage of land (not agricultural land) and
building.

 Property to be mortgaged to be ONLY in the


name of either Borrower, Proprietor, Partner,
Director or their close relatives.

 Property standing in the name of third party


can also be accepted, provided:

a) Owner of property offers personal


guarantee, and
b) The credit facility is for Rs. 1 lac and
above.

 Only two retail loans can be considered against


property charged to the Bank exclusively for
Retail Loans, subject to availability of
adequate residual value as advised vide
Circular No. BCC: RM: 97/75 dated 14.11.2005.
However, powers for allowing second loan
rests with the Regional Manager.

Valuation:

• Branch to obtain a valuation report on the


property to be mortgaged from Bank /
Government Approved Valuer. Further the
valuation is to be done once in -3- years. Valuation
fee is to be borne by the Applicant / Borrower. If
the property is purchased within last -5- years,
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the registered value to be accepted as the market


value.

Age of Property

a.) In case of loans:

• Age of property should not be more than -25-


years old. However, for properties, which are
older than -20- years but not more than -25-
years, Branch to ascertain structural soundness
of the property by obtaining an Approved
Engineer’s certificate, certifying structural
soundness and expected residual life of the
building, which should be at least -5- years more
than the repayment period of the loan.

• For dwelling units which are older than -25- years,


Regional Head may authorize such cases on
selective basis, subject to ascertaining structural
soundness of the building by obtaining an
Approved Engineer’s certificate, certifying
structural soundness and residual life of the
building, which should be at least -5- years more
than the repayment period of the loan.

b.) In case of overdrafts:

• Building less than 25 years old – Guidelines as


applicable to general advances to be followed.

• Older than 25 years - The branch will be required


to carry out inspection of the property every year
at the time of review of facility and obtain
structural soundness report from Architect every
3rd year along with valuation of property.

• In case any defect is observed during inspection


of the security or in Architect’s Report, Branch
will be required to ensure substitution of the
security having requisite value immediately or
ensure liquidation of the facility at the earliest
but not later than 12 months period in any case.

II) National Savings Certificates, Government Bonds,


our Bank’s Term Deposits, Assignment of Life
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Insurance Policies, Govt. bonds standing in the


name of the Borrower /Proprietor/
Partner/Director only.

11 Sanctioning As per discretionary lending powers, within the


Authority overall limit of Rs. 200 lacs

However, Officers in G/S IV and above can


consider and sanction loans to dealers in silver /
gold jewellery up to their delegated powers.

12 Documents • D.P. Note (as per constitution of Borrower).

• Letter of continuing security (in case of


overdraft) / Letter of installment (in case of
loan).

• Hypothecation of Goods covering Stocks,


Equipment / other items as the case may be,
purchased out of bank finance (wherever
applicable).

• Pledge / Assignment / Mortgage of collateral


securities (as per terms & conditions of the
sanction).

• General form of Guarantee in case the immovable


property charged to Bank is in the name of other
than Borrower/s.

• Undertaking from the Borrower to exclusively


deal with our Bank.

• Undertaking from the Borrower declaring that he


does not owe any overdue statutory dues like
Sales Tax, Income Tax, Corporation Tax,
Professional Tax etc. and has obtained /renewed
licenses from concerned authorities required for
trading in the merchandise/goods every year.

• Other documents as per constitution of the


Borrower and terms and conditions of the
sanction.

• For Non-Fund based facilities, as per extant


guidelines.
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13 Insurance Property mortgaged should be insured as per Bank’s


norms. Obtaining insurance against the stocks cover
may not be a condition for sanction of the facility.
However, Branches may counsel their Borrowers to
have the stock insured in their own interest at their
cost.

14 Processing / Fund based limits (Unified service charges):


Service charges
0.35% Minimum- Rs.1000/- + Service tax. ( but no
maximum limit ). Chargeable at the time of fresh
sanction as well as at the time of each review
Non – funded limits : As per extant guidelines

15 Credit Rating Credit Rating is to be done at the time of sanction /


review of the account. Fresh advance can be granted
only to the applicants securing minimum credit rating
of BTL-6 under the new Credit Rating Model
applicable for limits upto Rs.200 lacs hosted on LAPS.
Facilities of more than Rs.200 lacs shall continue to
be rated on BOBRAM.
(New Credit rating sheet is enclosed )

16 Priority Sector As per Bank’s extant guidelines, advised from time to


Classification time.

17 Take over Norms The operating units may take over good quality
accounts from other Banks subject to complying with
non-financial norms laid down in Domestic Loan Policy
/ revised guidelines advised from time to time.

The entity must also satisfy following financial norms:

Current Ratio : Minimum 1.17:1


Debt Equity Ratio : Maximum 6:1

Besides, above operating units must also ensure


compliance of norms for Takeover of Borrowal
Accounts from other Banks in Terms of circular no
BCC:BR:104:305 dt 27.08.2012

18 Other Provisions • Loan for shop development should be disbursed by


direct payment to suppliers. Branch to ensure end
use.

• Borrowers to route the sales and all other


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transactions through their Overdraft or Current


A/c (in case of loan) with the Branch.

• Stock statement to be obtained once a year i.e. as


of last day of February, by 10th of March every
year.

• If Government Bonds/National Savings


Certificates/Life Insurance Policies/Bank
Deposits are offered as security, Bank’s extant
guidelines / norms to be followed for
lien/assignment.

• Borrowers will not be considered for Working


Capital assistance both under Baroda Traders
Loan as well as under any other usual scheme for
Retail Traders simultaneously.

• However, Retail Traders enjoying finance under


the existing scheme can have the facilities
transferred into Baroda Traders Loan, if they so
desire, after providing the collateral security.

• Inspection to be carried out once in a year and


inspection report to be kept on record.

• Pre-sanction inspection to be conducted and


report to be kept on record.

• Obtaining of financial statements i.e. Balance


Sheet and Profit & Loss A/c is dispensed with.
However, declarations on annual sales supported
by Returns/Assessment on Sales Tax, Income Tax
etc. be obtained and kept on record at the time of
annual review. In case the Audit of Financial
Statements of the Borrower is mandatory due
to statutory provisions, Audited Financial
Statements to be obtained and examined at
the time of fresh sanction as well as at the
time of Review.

• Branches are required to ensure that the funds


are used in business and are not diverted.

• Stock etc. should be hypothecated, however,


monthly submission of stock statements and
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periodical inspection may be waived.

• Where security is in the form of our Bank’s FDR,


the same should be appropriated in case there is a
default in servicing interest for one quarter and
a/c slips back to NPA.

• Branch to ensure that Borrower displays a plate


describing “Our bankers- Bank of Baroda-------
Branch”.

• In case of Guarantee and L/C, Banks extant


guidelines to be observed.

Retail Banking Dept.


BCC, Mumbai.
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Enclosure-II to circular No.BCC:BR:104:404 Dated 20.11.2012

CREDIT RATING MODEL FOR BARODA TRADERS LOAN UPTO RS.200 LAC

Max Marks
Marks awarded
I Compliance Basic Business Requirements 15
a Required licenses and permission obtained 5
(If not required- parameter will not be applicable)
b Experience and market reputation of entrepreneur 5
(If experienced more than 3 yrs- full marks otherwise
to be reduced accordingly)
c Present Business /Activity OUtlook 5
( Marks to be awarded as per prudence of the appraising
/sanctioning authority)

II Business Performance 20
1. Achievement of Projected Sales Turnover 10
a If achieved 100% of target 10
b Negative Variance within 10% below accepted level 8
c Negative Variance above 10% but below 20% 5
d Negative Variance above 20% 0

2 Achievement of Projected PAT in terms of 5


percentage to net sales
a Achievement as projected 5
b Achievement upto 10% negative variance 3
c Achievement beyond 10% negative variance 0

3 Increase in Tangible Net Worth 5


a If PAT ploughed back 100% 5
b 50% to 99% 3
c 25% to 49% 1
d Below 25% 0
e No Increase /Reduction (-) 5

III RATIOS 15
1 Current Ratio 5
a 1.33 and above 5
b Below 1.33 and upto 1.20 3
c Below 1.20 and upto 1.10 1
d Below 1.10 and upto 1.00 0
e Below 1.00 (-) 5

2 D E Ratio 10
a 3.00 and below 10
b Above 3.00 and upto 5.00 4
c Above 5.00 and upto 6.00 0
d Above 6.00 (-) 4
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IV Conduct of the Account (with our Bank /other bank) 30


1. Repayment obligation /Timely Repayment 10
a Repayment with in 7 days 10
b Repayment with in 15 days 8
c Repayment with in 1 month 5
d Repayment beyond 2 months 0

2 Operation in the Account (with our bank /other bank) 10


– Routing of sale proceeds
a Entire sale proceeds routed through A/c 10
b Sale proceeds partially routed ( Equal or above 75%) 5
c Sale proceeds routed below 75% and upto 50% 0
d Sale Proceeds routed below 50% -5

3 Discipline in the Account (Our Bank/Other bank) 10


a Whether cheques are returned for financial reasons If yes 0,
if no 5
b Account remained in excess of limit more than 4 If yes 0,
occasions if no 5

V Adequacy and Nature of Security 20


1 Adequacy of coverage 10
a If coverage is 200% or above 10
b If coverage is above 167% and upto 200% 8
c If coverage is below 167% ( After taking Deviation) 5

2 Nature of Collateral Security 10


a Offered security is Residential building and self 10
occupied / liquid security
b Offered security is Residential building but rented 8
c Offered security is commercial property 6
d If offered property is a plot of land 0

TOTAL MARKS 100

VI Bonus Marks To a maximum of 8 8


a Liquid security available – 25% or above of the loan 2
amount
b Consistent growth in sales for 3 years by more than 15% 2
c Continuous plough back of PAT (100%) for last 3 years 2
d Business Unit is established for more than 5 Years. 2

VII Negative Marks (-) 5


If any deviation is proposed/considered for the 5
proposal including concession in Interest Rate
/Processing Charge

Marks Obtained out of Total 100


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S Score % Score Grade Rating


No. Investment (BTL 1 to BTL
/Non- 10)
investment
1 Total Marks scored …….
2 Out of total score of …….
3 % Score
4 BTL Rating as per parameters
given below

Grading and cut-off score for the proposals under the proposed Rating System;

S No. Score Awarded Rating Grade Risk Perception


1 More than 95 % BTL -1 Investment Grade Low Risk
2 > 90% and upto 95% BTL-2 Investment Grade Modest Risk
3 >85% and upto 90% BTL -3 Investment Grade Satisfactory risk
4 >80 %and upto 85% BTL- 4 Investment Grade Fair Risk
5 >70% and upto 80% BTL-5 Investment Grade Acceptable Risk
6 50% and upto 70% BTL-6 Investment Grade Hurdle Rate
CUT OFF MARKS – Below 50
6 <50% and upto 40% BTL-7 Non Investment Caution List
Grade
7 <40% and upto 35% BTL-8 Non Investment Off Credit
Grade
8 <35% and upto 30% BTL-9 Non Investment Off Credit
Grade
9 Less than 30% BTL-10 Non Investment Off Credit
Grade