STUDY OF CONVENTIONAL ADVANCES AT INDIAN BANK, CANNAUGHT PLACE, NEWDELHI

A report submitted towards the partial fulfillment of the requirements of the two years full-time Post Graduate Diploma in Management.

Submitted by: Divya Saini Post Graduate Diploma in Management Roll No.: 2K10BFS07 (2010-12)

ASIA-PACIFIC INSTITUTE OF MANAGEMENT 3, Institutional Area, Jasola, New Delhi 110025

CONTENTS

1 ACKNOWLEGNMENT 2 OBJECTIVE 3 COMPANY PROFILE 4 METHODOLGY 5 INTRODUCTION 6 PRINCIPLES OF LENDING 7 CREDIT RATING AND RISK MANAGEMENT 8 TYPES OF BORROWERS 9 MODES OF CHARGE 10 PROCESSING OF CREDIT PROPOSALS 11 SANCTION OF CREDIT 12 DISBURSEMENT OF CREDIT 13 MONITORING OF ADVANCES 14 LIMITATION 15 BIBLIOGRAPHY

ACKNOWLEGEMENT

I would like to express my profound sense of gratitude and sincere thanks to the Additional Director General, Dr. Das, Asia Pacific Institute of Management, NEW DELHI, for having given us such a nice opportunity to accomplish this project, during my course of study. I would also like to take this opportunity to show appreciation to Mr. R MANI (Assistant General Manager), Mr. ANIL KUMAR BHATIA (Chief Manager), MRS. SUDESH DEVI (Mentor) of the INDIAN BANK, CANNAUGHT PLACE, NEW DELHI, for his motivation and encouragement to carry out the project. I also take immense pleasure in expressing my sincere gratitude to faculty guide, Dr. RAVINDER BHATIA, Head of The Department, ASIA PACIFIC INSTITUTE OF MANAGEMENT, NEW DELHI, for his continuous relentless support and devoted guidance.

Most important of all, I am highly indebted to my parents for understanding and encouraging me on each step. For, if it were not for their being with me throughout the process, I would not have been able to successfully accomplish what I had aimed for before commencing this project. Not that I am following any hierarchy, but, finally, I am grateful to the almighty to have blessed me with such wonderful family and friends.

OBJECTIVE

To study the Indian Bank System of conventional Advances

SCOPE AND USES OF PROJECT As a part of our POST GRADUATION DIPLOMA IN MANAGEMENT course curriculum SUMMER INTERNSHIP PROJECT for two months to be undertaken by the students. So, I get the opportunity to work in Indian Bank, Connaught Place.

COMPANY PROFILE

Indian Bank is one of the indigenous banks of India that emerged as a result of the Swadeshi Movement during the British Raj. The bank was established on 15th of August, 1907. One of the prime figures associated with the establishment of the bank was V. Krishnaswamy Ayer, a lawyer from Madras (Now Chennai). The bank soon spread its wings outside India too, and opened its branch in Colombo, Sri Lanka in the year 1932 and Rangoon, Burma in 1940. The bank was further nationalized by the Government of India in the year 1969. Total Business crossed Rs.1,81,530 Crore as on 31.03.2011 Operating Profit increased to Rs. 3291.68 Crore as on 31.03.2011 Net Profit increased to Rs.1714.07 Crore as on 31.03.2011

I have been worked in the Connaught place branch, New Delhi established in 1973 which deals in the following Services: Card To Card Money Transfer, Currency Exchange, De-mat Services, Direct Tax Payment, Electronic Clearing Service, Mobile Phone Banking, Multi City Cheque Facility, Net Banking, Over Draft Facility, Pension Disbursement, Personal Tax Assistance & Investment, Portfolio Management, Retail Sale Of

Gold Coin, Wealth Management Service Investment Products: Bonds, Equity, Fixed Deposit, Flexible Deposit, Insurance, Mutual Fund, Stock Invest Business Loans: Business Loans, Professional Loan, Project Finance, Term Finance, Trade Finance Cards: Account Types: Corporate Credit Card, Credit Card, Debit Card Current Account, Demat Account, Fixed Deposit Account, Recurring Deposit Account, Saving Account Personal Loans: Agricultural Loan Schemes, Commercial Vehicle Loan, Consumer Goods Loan, Educational Loan, Four Wheeler Loan, Home Improvement Loan, Housing Loan, Loan Against Deposit, Loan Against Gold, Loan Against Property, Loan Against Share, Loan Against Vehicle, Personal Loan, Two Wheeler Loan

Global Presence The modest beginning made by the Bank has come a long way since then, with 1642 branches located nationwide within India and 40 Overseas branches in Singapore and Colombo etc. A 22,000 strong workforce of dedicated employees takes pride in serving the Indian Bank.

METHODOLOGY

LIMITATION

According to the Bank secrecy Act, under Sec 13 banks are not able to disclose the details of the customer accounts, their various policies and disclosures etc.

PRINCIPLES OF LENDING

Lending of credit should be done on the following basis which will be discussed as below a) Safety of the funds b) Identification of the borrower c) Liquidity/repayment d) Security e) Remuneration/profitability f) Risk management g) National interest

Norms on credit exposure As per RBI of India guidelines, the ceiling on credit exposure for the bank should not exceed 15% of owned funds of the bank in case of single borrower and 40% in case of a borrower group.

Fair lending practices code (FLPC)

a) it comes into existence w.e.f 1st November,2003 b) it is for Retail Credit facilities up to Rs. 2 lakhs c) FLPC purpose is to render courteous and speedy services to all borrowal customers.

d) All necessary information like range of loan products available, securities, other terms and conditions etc. should be furnished to a prospective borrowal customer. e) General terms and conditions for advances and schedule of service charges as advised by HO from time to time along with application Form f) The chart showing interest rates and service charges for advance to public should be displayed through notice board. g) On receipt of loan application complete in all respect, branches should give an acknowledgement as per the format h) If any additional details required while processing the application i) On sanction of the loan, branches should obtain customer s signature for acceptance of the terms and conditions of the sanction in the copy of the sanction ticket etc. j) FLPC provides for Grievances Redressal Mechanism by which any grievances of customer shall be attended with in time frame. Bank s loan policy Loan policy is formulated by HO with long prospective to achieve a well structured loan portfolio. Policy is based on following factors: a) RBI s monetary and credit policy b) RBI s new thrust on risk management c) Our bank s strategy for profit through qualitative credit expansion. An analytical study of the industries their present positions and future prospects.

d) The view and suggestions as solicited and received from HO executives and the field level functionaries. e) Comparative market forces emerging in the economy due to Liberalization of the market. f) Targets prescribed by RBI in regard to social and other lending. Types of credit In Indian bank, we consider the following types of loan and advances. Advances are made by bank to eligible borrowers in the following forms a) Temporary overdrafts/Clean Cash Credit b) Demand loan c) Cash Credits d) Bill discounted and purchased which included LC bills receivable (LCBR) e) Term loans Advances to industrial sector, SME, Agriculture, FX business, Retail borrowers etc. are dealt with separately. Pricing of loan products Various terms in price mechanism as below a) Benchmark prime lending rate

It is come in to existence w.e.f 01.02.2004. In tune with RBI guidelines bank adopts a single BPLR which is determined by taking in to account cost of funds, cost of operations and appropriate requirement for provisioning /capital charge and profit margin b) Card rate It is the quoted price/lending rate on our loans and advances to public. c) Commercial rate Card rate applicable for public or staff without any relaxation. For staff, commercial rate means the rate quoted for loans other than concessional loans. d) Penal interest Penalty charges over the contracted, for the overdue/irregular part as per guidelines issued from time to time e) Fixed interest rate If interest quoted at time of sanction/disbursement will not undergo any change despite change in BPLR e.1) it can be offered only for the schemes/products/category for which it is specifically permitted by HO. EMI will not undergo any change through charging interest of out the repayment period, unless there is a major policy change like periodicity of charging interest. e.2) fixed rate account, for over dues; Penal interest is to be charged at contracted rate. e.3) FIR may also undergo change whenever bank exercise the interest reset option.

f) Variable rate of interest Changes along with change in BPLR or spread g) Finer rate of interest Customers having high volume/Hi-tech facilities may be considered for FROI from the card/commercial rate as per rating of borrowal. Accounts, business consideration, value addition, cost of servicing the advances and other internal parameters. Branches shall take up with appropriate authorities furnishing their recommendation as per Credit Rating system. h) Bank rate Bank rate at which RBI is prepared to lend to banks or rediscount bills of exchange or buy other commercial papers eligible for purchase. i) Call money rate Prevailing interest rate for overnight/short duration borrowing by banks in interbank market. Charging of interest on monthly compounding a) As per RBI guidelines banks switched over to charging of interest on loans /advances at monthly rests w.e.f April 01, 2002 b) Accounts brought under this system are all loans/advances such as loans on deposit, personal loan products, structured loan products (for both fixed and variable rate of interest) demand loans such as WCDL, staff loans etc. exceptions in agricultural loans.

RBI Regulation and restrictions on loan and advances 11.1 Reserve bank of India has, from time to time, issued a number of circulars containing guidelines/instructions, directives to banks on loan and advances. These guidelines on the aspects of eligible borrowers, securities, bankable purposes, margin stipulations, creation of charges over securities etc. 11.2 Statutory Restrictions 11.2.1 Advances against bank s own shares 11.2.2 Advances to bank s directors 11.2.3 Restrictions on holding shares in companies 11.2.4 Restrictions on credit to companies for buy-back of their securities 11.3 Regulatory restrictions 11.3.1 Granting loans and advances to relatives of our Bank Directors ,Directors of other Public sectors, Private sectors ,Scheduled co-op banks and subsidiaries and their relatives. 11.3.2 Restrictions on grant of loans and advances to officers and relatives of senior officers of Banks 11.3.3 Declaration by borrowers about relatives in the lending bank

11.3.4 Restrictions on grant of financial assistance to industries producing/consuming ozone depleting substances (ODS) 11.3.5 Advances against sensitive commodities under section credit controls. 11.3.6 Restrictions on payment of commission to staff members including officers 11.4 Restrictions on other loans and advances are as follows 11.4.1 Loans and advances against share, debentures and bonds 11.4.2 Advances against money market mutual funds 11.4.3 Advances against fixed deposit receipts (FDRs) issued by other banks 11.4.4 Advances to agents/intermediaries based on consideration of deposit mobilization 11.4.5 Loans against certificate of deposits (CDs) 11.4.6 finance to NBFCs 11.4.7 Banks finance to equipments leasing companies 11.4.8 Finance of infrastructure projects under budgetary support 11.4.9 Issue of bank guarantees in favour of financial institutions 11.4.10 Discounting /Rediscounting of bills by banks 11.4.11 Advances against bullion/primary gold/silver bullion 11.4.12 loans and advances to real estate sector

11.4.13 Loans and advances to small scale industries 11.4.14 loan system for delivery of bank credit 11.4.15 Working capital finance to information technology and software industry 11.4.16 Guidelines for bank finance for PSU disinvestments of GOI

Credit Rating and Risk Management

In recent times, the financial sector has undergone far-reaching changes in the operational arena of Banking both in respect of such approach and procedure. One important dimension is Credit Risk Management. In terms of guidelines of RBI on Credit Risk Management, head office formulation annual Credit Risk Policy focusing on improving the quality of the assets and healthy credit growth for overall business development of the bank .The policy document covers mainly on the architecture, entire process of Credit Risk Management like risk identification, risk measurement, risk control and mitigation. Credit risk will affect the position of overall liquidity of the bank, should there be default in repayment. Risks need to be Accurately (identification) Carefully selected (assessment for decision making) Adequately priced (risk based loan pricing) and Effectively monitored (risk control) Banks have various kinds of financial and non-financial risks on Credit Interest rate Exchange rate Liquidity

Commodities Legal, regulatory and operational

While liquidity and interest rate risks are aspects broadly in the purview of overall Assets and liability management of the bank, specific related to credit are: Intrinsic Risk Concentration Risk Credit Risk depend on both External a.1) state of economy a.2) wide swings in commodity/equity price a.3) exchange / interest rates a.4) trade restrictions / economic sanctions Internal factors b.1) deficiencies in loan policy / Administration b.2) absence of prudential credit concentration limit b.3) deficiency in loan appraisal b.4) absence of loan review mechanism 1 Aspects of credit risk

1.1 This approach is essentially long term for a Term loan proposal, short term view is essential for working capital limits. Any inadequate focus on credit risk assessment may adversely affect the quality of the credit portfolio. 1.1 The aim of risk assessment is to ensure that the borrowing company s prospect of earning profit continuously is so evaluated as to keep the account under standard assets category. 1.2 Competition /market risk Factors include i) ii) iii) Status/trends in the economy Status/trends in the industry Competitive factors in the industry

1.3 Technology risk 1.3.1 Risk of fast changing technology 1.3.2 Risk of going stake or losing the market share 1.3.3 Incompatibility of foreign technologies under Indian conditions. 1.4 Financial risk 1.4.1 It is related to operational performance 1.4.2 Judge the reasonableness of presumptions on various aspects e.g. sale price etc. 1.4.3 Risk shall be judge from factors peculiar to specific industry. 1.5 Exchange risk

1.5.1 Includes monetary transactions involving currencies of other countries (risk of fluctuation in rupees value) mean risk of depreciation of rupee against foreign currency to save on cost of funds. 1.5.2 Cautions about an un-hedged exchange risks of the borrower. 1.5.3 Buy back arrangement and advance remittances from overseas could mitigate these risks to some extent. 1.5.4 Import substitutes and outsourcing are also other ways to explore for an entrepreneur to get around foreign exchange risk. 1.6 Economic/political risk 1.6.1 Hostile/unfavorable conditions inside a country may affect like tourism industry etc. 1.6.2 Financial risk factors are closely interrelated with external environment in which the business functions. If the user industries are not doing well, the product manufacturer concerned will also be facing risk. 1.7 Change of government regulations 1.7.1 Involves like reduction in import duty etc. 1.7.2 Today world, ecological concerns like sudden and adverse impact by way of loss of sales and profit generation. 1.8 Management risk

1.8.1 Prime factors of management are skill and integrity of promoters of project. 1.9.2 It requires constant vigilance to watch for management errors. It is difficult to eliminate all management risks. 1.9.3 Business risks arise out of managerial inefficiency. 1.9.4 When factories remain closed due to high incidence of labour unrest, there is risk of loss of production with harmful consequences on profitability and quality of bank credit. 2 Management of risk 2.1 perception of the risk This involves basic understanding of the element of risk in each industry/activity for which lending is undertaken. 2.2 Identification of various types of risks The process which is being assessed out of operations of normal banking. 2.3 Mitigation of credit risk 2.3.1 Management of risk involves scientific management of the risk aimed at mitigation adverse affect. 2.3.2 It is a part of risk management concerned with monitoring various borrowal accounts on a ongoing basis. It involves strategy to assess the risk potential.

2.4 Managing of risk lie in hand of bank, every loan appraisal has to identify the risk involved and find out to what extent the risk is acceptable. It needs to be ascertained the extent to which borrower bear. 2.5 After carefully weighing the strength and weaknesses of the proposal, ultimately, it will be possible to arrive at a balanced credit decision. 2.6 The risk assessment analysis of risk and its impact on the borrower would go a long way in ensuring the quality of loan and prevent slippages and reduce the incidence of NPAs and ultimately strengthen the Bank by preservation and growth of profitability. 3 Tools of credit risk management 3.1 Credit approving authority 3.2 prudential limits 3.3 Risk Rating 3.4 Risk Pricing 3.5 Loans portfolio management 3.6 Loan review mechanism 3.7 Off balance sheet exposures

The type of exposures are standby letters of credit, money guarantees, bonds etc .the current and potential credit exposures is measured on a daily basis to evaluate the impact of potential charges in market conditions, on the Bank s exposures. 4 Credit rating system and sanction of finer rate of interest 4.1 with deregulation of interest rate structure of advances and articulation of different financial instruments, the market has been opened up for the corporate instead of solely looking to Bankers so to determine the comfort level on advances and the spread over PLR taking in to account the quality of asset portfolio. 4.2 A Credit Risk Assessment rating system has been devised in our bank in consistent manner. 4.3 The concept of risk rating and the operational guidelines includes appropriate risk rating models. 4.4 Branch managers/Circle heads have to be record the n the proposal, the merits of the account and the need for considering finer ROI while recommending the proposal to higher authorities. 4.5 Credit rating is not to be done in following I) Sick accounts under rehabilitation II) Loans against deposits/NSCs/shares/Mutual Fund units/LIC policies etc. 4.6 The finer ROI are not eligible in some cases like all staff loans under schematic lending, direct and indirect housing finance

4.7 Applicability All borrowal accounts with credit limits of Rs.2 lakhs and above should be rated every year based on audited balance sheet. 4.8 consortium accounts 4.9 Rate of interest for adhoc sanctions/penal interest 4.10 Interim Review 5 Two-dimensional integrated Risk Rating/scoring models. 5.1 Credit rating models expected to achieve the following 5.1.1 Differentiating the degree of credit risk in different credit exposures of the bank. 5.1.2 Providing transaction based or borrower-based rating or both 5.1.3 Rating of all the exposures 5.1.4 Identifying the problem-credits before they become NPAs 5.1.5 Helping in pricing of credit 5.2 rating and scoring models In both models points/scores are awarded to various attributes of the borrower considered relevant i.e. Financial, managerial, industrial and operational parameters. Rating model is applicable where audited financial statements are required. Scoring model is applicable for individual borrowers and some cases SMEs

The rating based on accepted level of projections, guidelines issued by Basel II 6 Loan Review Mechanisms LRM is effective tool for constantly evaluating the quality of loan book and to bring about qualitative improvements in credit administration. Main objective of this are as follows: I) To identify promptly loans which develop credit weaknesses and initiate timely corrective action. ii) To evaluate portfolio quality and isolate potential problem credits. iii) To provide information for determining adequacy of loan loss provision iv) To assess the adequacy of adherence to, loan policies and procedures and to monitor compliance with relevant laws and regulations. v) To provide top management with information on credit administration including credit sanction process, risk evaluation and post sanction follow up. vi) Review of credit risk independently vii) Picking up warning signals and suggest remedial measures. Loan review policy 6.1 extent of coverage At least 30% to 40% of the standard borrowal accounts exposure is to be brought under LRM. 6.2 Accounts to be covered under LRM

6.2.1 All fresh proposals and renewal with enhancements for Rs. 5 crore and above shall be put under LRM within 6 months of sanction. 6.2.2 All existing standard accounts with sanctioned limit of Rs. 25 lakhs and above shall be the cut off limit. 6.2.3 From the rest of the accounts all accounts coming under HO powers with rating of C and below C under standard category. 6.2.4 in case the standard accounts with a limit of Rs.25 lakhs and above do not constitute about 30% to 40% of the circle office power exposures, accounts having exposures below Rs.25 lakhs may also be brought under LRM to cover 30% to 40% level fixing a suitable cut off limit within circle. 6.2.5 Review under LRM has to be undertaken within 6 months of sanction. 6.3 Frequency of Review The review of accounts rated BB and below as per our internal model can be under taken one more time in a year in addition to the annual renewal. 6.4 Reviewing Authority I) The accounts have to be reviewed under LRM by a committee. ii) Borrowal accounts sanctioned at HO with a limit of Rs. 100 lakhs and above shall be taken up for review under LRM by HO. Risk management department and put up to LRM committee at HO for review.

iii) Borrowal accounts sanctioned at Circle Office powers with a limit of Rs.25 lakhs and above and also under HO powers with limit below Rs. 100 lakhs are to be reviewed LRM committee. 6.5 Scheduling of accounts for review under LRM I) Accounts having a lower rating ii) Accounts which have not been reviewed under LRM during the previous year iii) Accounts showing warning signals and belonging to industries facing adverse conditions.

TYPES OF BORROWERS

MINORS Money lent can never be recovered against a minor, even after he attains majority .Any security given by a minor for a loan is also void ab initio .If a third party gives a guarantee to secure an overdraft to a minor ,the guarantor is not liable .Hence, no credit facility should be sanctioned to a minor. Loans can also be granted against fixed deposits standing in the name of a minor subject to precautions. JOINT ACCOUNTS All joint borrowers should join in the application for accommodation. Any security in joint names charged against the advance. Joint promise-the is obligation is single and entire and the creditor can bring one cause of action and several actions against the joint promissors .The joint liability can be enforced against all or any one of them but at one time. Account holders are jointly liable and in the event of the death of one of them the estate of the deceased is not released and the banker can look for payment to the survivors as well as to the legal representative of the deceased. Joint and several liabilities

There is a right of action against all parties severally and successively, until the whole debt is recovered. Moreover, a right of set-off exists between a private account with credit balance and the joint overdraft. SOLE PROPRIETORSHIP Creditors of the business could look to the personal assets of the proprietor, should the business fail and should the business assets be insufficient to satisfy the debts. PARTNERSHIP ACCOUNTS A partnership should not consist of more than 10 persons, if it is engaged in banking business or more than 20 persons in any other class of business. It is not necessary that there should be a partnership deed between the partners; if partnership letter is taken .partnership deed should be carefully scrutinized to see that all the partners of the firm have signed it by the bank. If a partner pays to the credit of his private account a cheque drawn by him on the firm s account there is no prima facie case for enquiry .the transactions may represents repayment of loan or share of profits etc .It is however, desirable that the drawer-partner and the payeepartner of cheque are different persons. Any of the partners has power to countermand payment of cheques drawn by him or another partner and the bank is bound to comply with such instructions.

A partnership as such cannot guarantee the lending s to a third party, unless the firm carries on the business of issue of guarantees .Any partner in his individual capacity may give guarantee or secure third party s obligations without binding the firm. Limited company as a partner in a firm The liability of the limited company vis--vis the partnership is not limited in proportion to its share in the partnership. The entire liability of a partnership can be realized from the limited company alone subject to the extent of its assets. Minor admitted to the benefit of partnership A minor cannot be a partner but can be admitted to the benefit of the partnership. He cannot be made personally liable. However, his property in the firm is liable for the firm s debt. Neither the natural nor the legal guardian can enter in to agreements of partnership on behalf of the minor beneficiary. A minor may repudiate his liability as a partner within 6 months of his attaining majority or within 6 months of his obtaining knowledge that he was admitted to the benefit of the partnership whichever date is earlier .His silence after expiry of the above period will be taken to mean, in law, that he has been elected to be a partner. JOINT STOCK COMPANY A joint stock company is a legal entity and is regarded as a person in law with perpetual succession and a common seal with the capacity to contract or handle obligations or undertake

transactions in its own name .The liability is limited to the share capital and the liability of the shareholder is to contribute unpaid value of shares. Private Ltd. Company A private Ltd. Company is a company which has a minimum paid up capital one lakh as per Companies act 2000 and by its articles. i) Restricts the right to transfer its shares ii) Limits the number of its members to 50 iii) Prohibits any invitation to the public to subscribe for any shares or debentures of the company or issue of prospectus. Public company A public company means a company which i) Is not a private company ii) Has a minimum paid up capital of rupees 5 lakh or such higher paid up capital as may be prescribed iii) Is a private company which is a subsidiary of a company which is not a private company. Other types of borrowers It includes Hindu undivided family (HUFs), societies, charities etc. Group Concept

All types of borrowers are covered by this concept for the purpose of i) Computation of credit exposure ceiling ii) Sanction of credit facilities to group of borrowers, and iii) Sanction for filing suit

MODES OF CHARGE

Lein Lein is the right to retain securities/goods belonging to another, until a debt due from the latter is paid. There are two kinds of lein i) Particular-A particular lien is the right to retain security/goods in respect of which the debt was incurred. ii) General-Bankers have a general lien on all securities deposited with them as bankers by a customer .A general lein does not ,as a rule, carry with it the right to sell the security/goods. Set Off Set-off means the total or partial merging of a claim of one person against another in a counter claim by the latter against the former. It is in effect the combining of the accounts of the debtor and the creditor so as to arrive at the net balance payable to one or the other. The right of set-off is a statutory right and can also arise out of agreement between the parties. The right to combine the accounts is, however, a right only of the banker and not of a customer and so a customer cannot expect his cheque on one account to be paid by combining the balance of all accounts which he maintains and the aggregate balance of which would have been adequate to pay the cheque unless, of course, he has asked the bank specifically to do so. Pledge

i) Pledge is bailment or delivery of goods as security for payment of a debt or performance of a promise. ii) The pledgee gets the possession of the property but does not become its legal owner .Any kind of goods, documents or valuables of a personal nature, can be pledged as security .Government promissory notes, which are negotiable instruments, can also be pledged when duly endorsed and delivered. iii) A pledgee is entitled to the possession of the goods pledged till the debt is repaid with interest or the promise is performed. In the event of default, the pledgee can a) sue the pledgor, retaining the goods pledged as a collateral security b) Sell the goods after giving a reasonable notice to the pledgor of his intension to sell. The notice need not specify the date, time or place of the intended sale etc. IV) The pledgee cannot retain the goods pledged for any debt or promise other than that for which the pledge has been contracted. Normally, it would also be covered by a letter of continuing security, in case of a fluctuating cash credit or overdraft account. v) If the pledgor has a limited interest in the goods pledged, the pledge is valid to the extent of that interest. VI) Bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. The burden of proof is on the bailee that there has been no negligence, when he fails to return the goods or returns them in a damaged condition and that

the loss or damage occurred in spite of the fact that he took reasonable care of them. If goods are damaged or destroyed in anyway, the bailee is not liable for the loss, destruction of the thing bailed. Hypothecation i) When the possession of the property in the goods and other movables offered as security remains with the borrower and only an equitable charge is created in favour of the lender, the transaction is called hypothecation. ii) The charge which is normally created by an instrument in writing known as the letter of hypothetication is shifting in nature. iii) The hypothecator not only has the possession of the security hypothecated but he is free to deal with it. He can sell; transfer, process and substitute the security provided the value of the security continues to cover the advance in the manner agreed in the letter of hypothecation. IV) After obtaining possession of the property hypothecated, in the event of any default or any breach of covenant of the borrower. The lender can sell the property without the intervention of the court. v) If the borrower is a joint-stock company, the charge has to be registered as in the case of moveable property. VI) Although the security is not in his possession, a hypothecate is a secured creditor and he would be treated as such in insolvency or liquidation proceedings.

Mortgage i) A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced by way of loan, an existing of future debt or performance of an engagement, which may give rise to a pecuniary liability. ii) A person who creates the mortgage is called Mortgagor, the person in whose favour the mortgage is created is known as Mortgagee and the principal money and interest, payment of which is secured for the time being is called Mortgage money and the instrument by which the transfer is effected is called Mortgage Deed. iii) A mortgage by a minor is void. It is created by individual, joint owners, partners of a firm, karta of HUF, a guardian of a minor after permission. In case of joint owners, all the co-owners must join creating the mortgage and in the case of a partnership firm all partners should join in creating the mortgage. I v) Consideration for mortgage may be a) payment of money by way of loan b) existing or future debt or c) Performance of an engagement giving rise to a pecuniary liability. v) Kinds of mortgage a) Simple mortgage a.1) the mortgagor does not part with the possession of mortgaged property.

a.2) the mortgagor binds himself personally to pay the mortgaged money. a.3) the mortgagee has no power to sell the property without the intervention of the court. a.4) it will invariably be registered with the Sub-Registrar, where the principal money secured is Rs.100 or more b) Mortgage by conditional sale It is a transaction in which the mortgagor ostensibly sells the mortgaged property on condition that b.1) on default of payment of the mortgage-money on a certain date, the sale shall become absolute b.2) on such payment being made, the sale shall become void or b.3) on such payment being made, the buyer shall transfer the property to the seller This type of mortgage is not usually taken by banks, as there is no personal covenant for repayment of the debt. c) Usufructory Mortgage c.1) where the mortgagor delivers possession or binds himself expressly or by implication to deliver possession of the mortgaged property to the mortgagee and authorize him to retain such possession until repayment of the mortgage-money and to appropriate the same in lieu of interest or in payment of the mortgage-money or partly of both.

c.2) the only remedy for the mortgagee is to remain in possession of the mortgaged property and pay himself out of the rents and/or profits of the mortgaged property. d) English Mortgage d.1) where the mortgagor binds himself to repay the mortgage-money on a certain date and transfers the mortgaged property absolutely to the mortgagee subject to the provision that the mortgagee will retransfer it to the mortgagor upon repayment of the mortgage-money as agreed. d.2) in it, the personal liability of the mortgagor remains notwithstanding the absolute transfer of the property to the mortgagee. e) Anomalous Mortgage e.1) A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructory mortgage, an English or a mortgage by deposit of title deeds . e.2) they are a simple-cum-usufructory mortgage and an usufructory mortgage accompanied by a conditional sale. f) Equitable mortgage where a person ,in any of the following towns, namely ,the towns of Kolkata, Chennai and Mumbai or in any other towns which the State Government concerned may ,by notification in the official Gazette ,specify in this behalf ,delivers to a creditor or his agent, documents of title

to an immovable property with an intent to create a security thereon, the transaction is called a mortgage by deposit of title deeds. Assignment i) The transfer of the right, title and interest in a contract by a party to the contract to another person is called an assignment of the contract. An assignment can be absolute or by way of security. ii) Assignment may also be made by operation of law. Insolvency or death of a party to the contract, when the legal representative or the official assignee or the receiver steps in, are examples of assignment by operation of law. iii) A policy of marine or fire insurance can be assigned by endorsement on the back of the policy or by a separate deed of assignment .These policies constitute an exception to the general rule of giving notice, because they cannot be assigned without a transfer of the property insured.

PROCESSING OF CREDIT PROPOSALS

The management of credit portfolio at branches has three important stages i) Pre-sanction appraisal ii) Sanction and disbursal iii) Post sanction/disbursal follow up and monitoring Pre-sanction processes The pre-sanction includes obtension of application form from the prospective borrower, analysis of the financial statements, projections, etc. compilation of a credit report and determination of the eligible quantum of advance, type of advance, securities to be obtained etc. The Branch Manager shall have a personal interview with the borrower so as to ascertain the identity of the borrower as per KYC norms. i) Obtension of application for credit facility a) Written application complying with certain basic requirements as per KYC norms like identity of the applicant etc., should be obtained.

b) The Branch Manager has to take in to the account the Loan policy of the Bank, before entertaining any proposals c) It has to be ensured that the application tendered is appropriate to the facility sought and all the columns in the form are properly filled up. d) Three copies of passport size photographs of borrowers, where they are individuals, should be obtained except in cases of advances against our own deposits, Govt. securities, gold ornaments etc. e) At the time of receiving the credit proposal, branches should obtain a declaration from the borrowers about their relatives, if any, employed in our Bank or in any other bank/financial institution. f) The details of legal heirs of the borrower/guarantor should be obtained in the loan application .These details should be obtained for the borrower and guarantor separately. ii) Credit proposals received register The register should constitute a continuing record relating to applications for credit assistance and should contain information relating to the date of receipt of the application, date on which it was disposed off, either by sanction or by rejection at the branch level or at the circle/head office level. iii) Analysis of the information collected

a) Analysis the data, the branch has to prepare Credit Reports of the borrower/guarantors and present the applicant s request in the form of a credit proposal to the sanctioning authority. b) Even for fresh/renewal proposals involving credit limits of below Rs.10 lakhs, branches should bring in all major aspects/particulars that are covered in the Board Memorandum Format, wherever warranted. c) If the applicant is already a customer of the bank, a scrutiny of the operations in the account will reveal the trends, connections, nature of business dealings etc . IV) Compilation of credit Report a) Credit Report is the basic document on the basis of which assessment of the borrower s character, capital and capacity is made by a banker. b) Before extending any credit facility whether fresh or additional, to any of the units belonging to a particular group, the branch should obtain a credit report/consent of the Lead Bank financing the main company. c) In preparing Credit reports, the branch should be careful about the following: c.1) Inclusion of assets not standing in the applicant s name c.2) Inclusion of other s share of property c.3) Suppression of encumbrances on the property c.4) Overvaluation of assets

c.5) Suppression of liabilities d) As the sanctioning authority relies on credit reports received from the Branch Manager .Only after independent verification of the information relating to the assets and liabilities furnished by them. e) The tangible net worth shall be arrived at as under e.1) for individuals/proprietorship concerns Add e.1.1) Movable assets such as Bank deposits, gold ornaments/jewellery etc. e.1.2) Personal immovable properties Less Loans taken against any of the above assets in individual name or offered as third party security. e.2) for partnership/joint Hindu family firms Add e.2.1) capital invested in the business e.2.2) undivided profits/deduct accumulated losses, if any e.2.3) total worth of individual partners

e.3) Limited companies Add Paid up capital and free reserves Less Accumulated balance of loss, balance of deferred revenue expenditure and also intangible assets in all the above cases. f) When the borrower s guarantor s declared Net worth exceeds Rs.50 lakhs, the following documents should be obtained f.1) Certificate from a chartered accountant f.2) Photocopy of the title deeds in case of immovable properties f.3) a declaration that any disposal of properties will be intimated to the bank f.4) a declaration that additional liability assumed will be intimated to the bank. g) the branch should indicate in the credit report both the fund based and non-fund based limits enjoyed by the party. If the borrower has stood as co-obligant/guarantor for any facility extended to a third party, such details should also be incorporated. h) a certified true copy of the same should be sent to the appropriate sanctioning authority along with the proposal.

i) Particulars of all litigation against the borrowers /or their partners/Directors etc. should also be incorporated in the loan application/credit report. j) It is necessary to obtain a separate statement on the contingent liabilities of a borrower /guarantor along with the assets and liabilities statement. Proposal should be verified whether it is due to any revaluation of the assets. v) Assessment of quantum of credit required Branches have to keep in view the purpose, the period for which the advance is required, type of facility, security offered, additional benefits that may accrue to the bank etc. The assessment of Working Capital shall be made, taking in to account reasonable projected level of activity, so as to avoid frequent sanction of adhoc limits and excess drawings. It involves 3 steps and done by Turnover and short term bank credit method. a) Assessment of the level of current assets required to be held for a given level of production. b) Determination of credit other than bank financial available to the borrower and c) Calculation of bank finance required VI) Contents of credit proposals A fresh /renewal proposal should contain the following a) Name, address of the borrower/guarantor along with the asset classification assigned to the borrower

b) Net worth of the borrower/guarantor along with the Assets and Liabilities statements and credit reports c) Purpose of advance/nature of facility d) Quantum of credit requirements of the borrower e) Basis on which projection of performance and reliability of such projection f) Margin proposed , sources from which the borrower would bring in such margin g) Nature and value of security offered, its title, the mode of charging such security h) Deposits/business connection already available from the borrower or from associate concerns or proposed deposit/business connection i) Scope of availability of refinance, if any, in case of term loans j) Availability of credit guarantee cover, in case of export credit facility or facilities granted to priority sector segments k) Detailed working of accounts/facilities in case of existing borrowers enjoying facilities with us along with the branch manager comments. l) The renewal proposals should also carry the particulars such as l.1) Date of inspection l.2) Name and designation of the officer who inspected l.3) Brief remarks with observation made during the inspection by the Branch regarding securities etc. vii) Time norms for disposal of Credit Proposals

a) For sanctions falling under the powers of Circle Office, proposals must be prepared in triplicate of which two copies shall be forwarded to Circle Office and the third copy retained for branch records. Of the two copies received, one copy will be returned by the circle office with their sanction or rejection order. b) For sanction falling under the powers of Head office, the proposal should be prepared in quadruplicate of which one copy shall be sent to HO, two copies to the circle office and the fourth copy retained for branch record. c) The circle heads should scrutinize the proposals and seek clarifications, if any, from the branch within 2 weeks from the date of receipt of proposals from the branch. Branches should answer the queries within 2 weeks from the date of such queries. d) Circle heads must convey their views /recommendations to HO within 10 days from the date of receiving the proposals from the branch. e) A proposal should not be kept pending beyond 3 months from the date of receipt from the branch.

SANCTION OF CREDIT

1. Issuance of Sanction tickets a) Terms and conditions should be mentioned in the final recommendations made to the sanctioning authority along with the reasons for instituting them. b) Special conditions applicable to the respective loan/product depending on various factors like the type of facility , type of security, period of repayment etc. could be specified c) Sanctioning authorities need not go in for printed sanctioning tickets comprising the set of terms and conditions .instead , they may keep these terms and conditions in their computers and generate sanction tickets containing only those terms and conditions which are appropriate for each credit limit sanctioned. d) In case of Export Credit, sanction should be reported by branches in the appropriate format within 30 days from the date of sanction to ECGC, irrespective of the acceptance of the sanction by the borrower. e) The sanction communication should clearly divide the terms and conditions into predisbursement and post-disbursement conditions.

2. General terms and conditions of a sanction a) All borrowers and guarantors must furnish their Passport size photos.

b) Processing fee and other charges as per prescribed by the bank should be paid in time. c) Processing charges for renewal of facilities will be charged irrespective of whether the renewal papers are submitted or not. d) Bank is entitled to charge and recover interest, various fees, and charges as per actual/prescribed tariff from the borrower as applicable from time to time. e) The limits shall be availed within the prescribed time limit from the date of communication of sanction. f) The working capital limits disbursed are valid for a period of one year from the date of sanction. g) Acceptance of immovable properties offered as security is subject to the unqualified legal opinion of the bank s approved lawyer conveying a clear, valid, subsisting and marketable title. h) Valuation of the property, wherever given as security, should be done by the bank s approved engineer/revenue authorities. i) In the case of immovable properties given as security, the borrower should furnish up-to-date encumbrance certificate showing NIL encumbrance and up-to-date tax paid receipt at the time of documentation. j) Fixed assets charged to the bank shall not be leased /disposed/substituted/ relocated/mortgaged/assigned without the prior approval of the bank.

k) All the assets charged to the bank shall be adequately insured against all attendant risks at the expense of the borrower. The insurance policy with bank clause shall be lodged with the bank. l) Machinery, equipment, vehicles etc. charged to the bank should be painted with the bank s name or affixed with the bank s name board prominently both inside and outside the premises. m) Assets charged to the bank are subject to inspection by bank s officials from time to time n) Delayed submission of stock statement /financial statements etc. will attract levy of penal interest as par bank s rules in force from time to time. o) All fund based/non-fund based/fee based transactions shall be routed only through the account with our bank. p) Interest will be generally charged on the last working day of every month and should be paid as and when charged. q) Default in payment of interest/installments on the respective due dates will attract overdue interest on the defaulted amount at 2 % over and above the contractual/maximum interest rates or at such rates as applicable from time to time. r) Upon sanction, the duplicate copy of the sanction letter is to be returned duly signed by the borrower in token of acceptance of the terms and conditions. s) The bank may at its discretion recall the entire advance upon default of a single installment/interest. t) For advances to limited companies

t.1) In the event of slippage in asset classification of the borrower s accounts, the bank will have the discretion to have a nominee director on the board of the borrower-company. t.2) Promoter directors/majority shareholders shall not sell/pledge their shares to the third parties without bank s prior approval.

3. Confirmation /approval of any deviation from sanctioned terms Wherever the deviation sought for approval imply simple changes and do not involve modifications beyond the minimum terms authorized in Discretionary powers, such cases could be dealt with at the level of sanctioning authorities themselves.

4. Relaxation in sanction terms Relaxations may be considered on merits by an authority at the level of Circle Head.

5. In-principle sanctions The in-principle sanction has to be obtained from the Circle Head , if the powers for sanction of the facility falls under his powers .In case of sanctions under HO powers, inprinciple sanction should be obtained from the appropriate authority at HO. On obtention of in-principle sanction, full-fledged-proposal has to be submitted early with a view to get the regular sanction within a maximum period of 3 months .In-principle sanction shall not be a commitment to sanction and the bank reserves its right to decline the proposals after detailed appraisal.

6. Allowing Excess over sanctioned limit

Credit disbursed beyond the sanctioned level or drawing limit in a working capital account is termed as Excess. Resultant Excess The excess may be caused in any working capital account by any one or combination of the following factors: a) Depletion of stocks under hypothecation leading to reduced drawing limit. b) Erosion in value of stocks under hypothecation /pledge c) Non-servicing of interest, other charges debited to the account and default by the borrower to conduct the account properly. Branches should desist from the practice of granting excess over the sanctioned/drawing limits .If there is a need to allow excess based on business requirements it may be permitted strictly within delegated powers. Guidelines on allowing excesses Branch managers are empowered to allow excess drawing in an account subject to the prescribed tolerance level and monetary ceiling, if the following conditions are fulfilled: a) Account is of standard category b) Group accounts, if any, are also regular

c) All terms and conditions of sanction have been compiled with d) Accounts have regular sanctioned limits in force duly received/renewed or for which proposals have already been submitted and e) The track record and the operations in the sanctioned working capital limits are good. Proposal for prior approval for excess beyond the discretionary powers Branches should take up with the sanctioning authority through Circle Office in advance with the following particulars a) Key financial indicators of the firm b) Availability of drawing power in the account c) The latest balance under all facilities sanctioned d) The overdue (if any) in any of the sanctioned facilities e) Justification for additional financial accommodation f) Time frame within which the excess will be adjusted and g) Cash flow source for repayment of the excess proposed Overdue Excess/Out of order RBI defines that an account should be treated as Out of order if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. Situations/requests may come to allow operations in an out of order/overdue excess account with the approval of the competent authority. Penal Interest

Penal interest at 2 % over the contracted rate should be levied for the excess portion for the period permitted .If it has become overdue, the maximum Card rate shall be levied. 7. Sanction of adhoc limits Adhoc limit is sanctioned to meet unforeseen bulk orders/bulk purchases or other contingencies, for a short period .It is always based on due appraisal and sanction by the competent authority for a specific period, generally not exceeding 3 months. This makes the difference between Excess allowed and adhoc limits sanctioned. Eligibility criteria for considering adhoc limit in borrowal accounts a) Accounts shall be continuously of Standard category, at least for 2 half years in the immediate past. b) Accounts for which limits are in force by regular review/renewal sanctions. c) All the sanction terms and conditions for the existing credit facilities should have been compiled with d) Group accounts (if any) should be regular e) There should not be any over dues in other institutional loans such as Term Loans with Term Lending Institutions f) All excess drawings as well as adhoc limits granted to any single borrower should not exceed the

f.1) Stipulated percentage of the sanctioned working capital limits or sectors as the case may be

f.2) Delegated credit powers of the authority for the purpose of Excess /Adhoc limits g) There should not be any over lapping of sanctions h) The period of adhoc facility should not exceed generally 3 months Other guidelines a) C over documents must be obtained for the facilities extended b) Proportionate processing charges should be recovered c) The stocks/securities/asset created out of adhoc limits, if applicable, should be inspected d) Stock statements should be obtained, wherever applicable e) If not adjusted on due date, it becomes overdue and appropriate ROI for overdue shall be applied.

DISBURSEMENT OF CREDIT

Documentation process a) The purpose of documentation is to enforce Bank s legal rights when it becomes difficult to recover an advance in the normal course. b) Branches should scrutinize the sanction, list out documents appropriate to the advance with reference to the terms and conditions, procure them and fill in the blanks correctly without overwriting, cutting, erasing etc. c) It must be ensured that all documents/undertaking letters as stipulated in the sanction, letter are obtained. d) A separate declaration from the borrower should also be obtained that the documents were executed by him/her/them, only after they are duly filled in and understood by him/her/them. e) All fresh disbursements under consortium shall be effected only after the documentation is completed, which shall be certified by the Circle Head under whom the Branch falls. f) In the process of documentation, it should be ensured that f.1) the set of documents are those stipulated for the category of borrower, nature of facility, nature of charge and securities involved.

f.2) the stamping is adequate for the state concerned. f.3) the executants are duly empowered to execute the documents. f.4) the mode of execution as prescribed in the documentation f.5) DPN / D-11 are stamped adequately with adhesive revenue stamps and signed by the executants across the stamp. g) Printed documents are stamped for appropriate values at the stamp office of the state concerned. h) Any correction/addition/deletion/interlineations in documents are authenticated by all the executants. i) Before actual release/disbursement, a note of compliance shall be prepared indicating whether all terms of sanction have been compiled with. Registration of charges in case of limited companies a) In case of advances to limited companies charges as required by companies act should be filed with Registrar of companies b) Before creation of charge on land, buildings, plant and machinery, share securities, FDs etc income tax certificates should be obtained in all cases where borrowers are assesses to income tax. c) The advances sanctioned shall be secured by the personal guarantee of all financially involved Directors.

d) Charge by way of hypothecation /mortgage must be registered with the Registrar of Companies within 30 days from the date of execution of the documents and receipt for payment of necessary fees for filing the same must be furnished. Conduct of Pre-release Audit a) Pre release Audit is stipulated in respect of advances with limits of Rs. 10 lakh and above in order to bring in discipline with regard to compliance of terms and conditions of credit sanctions, zero error documentation and conduct of accounts. b) For structured loan products pre-release audit is to be conducted for advances of above Rs 50 lakhs. c) Pre-release audit shall cover only pre-disbursement conditions and completeness documentation Valuation and verification of securities Fixed assets Acceptance of immovable properties offered as security is subject to a) An unqualified legal opinion of the Bank s approved lawyer conveying a clear, valid, subsisting and marketable title. b) Valuation of the property by the Bank s approved Engineer/Revenue authorities. c) Furnishing of up-to-date encumbrance certificate showing NIL encumbrance and up-todate tax paid receipt at the time of documentation

d) In respect of landed property, the valuation may be obtained from the Revenue Authorities. e) In case where first charge on fixed assets is in favour of other banks/financial institutions, it should be ensured that second charge on such assets is made in our favour, unless waiver of the same has been permitted by the sanctioning authority. f) Machinery, equipment, vehicles etc. charged to the bank shall be painted with the Bank s name or affixed with the bank s name board. g) Securities offered for one or more facilities and charged to the Bank shall also stand as additional security for all other facilities already granted or shall be granted from time to time. h) Fixed assets charged to the bank shall not be leased/disposed/substituted/re-located without the prior approval of the bank. Stocks under hypothecation/pledge a) Bank s name board with specific mention of the branch name shall be displayed prominently both inside and outside the premises where the stocks pledged/hypothecated to the bank are stored. b) Where our borrower has given goods/stock to third party for processing, the said third parties processors /their bankers should furnish a no-lien certificate on the stock lying with them on behalf of our borrowers. A list of such third party processors /location should be held on record for registration at their sites.

c) While arriving at the drawing power against stocks/book-debts in the monthly statements, sundry creditors for goods are to be deducted from the value of stocks declared. Precautionary Measures for different types of facility a) No advance payments should be made to the suppliers of machinery. While making disbursements of the term loan for purchase of assets including machinery, payments should be made directly to the suppliers. b) Disbursements towards cost of construction should be made in stages depending on the progress made .For valuation up to Rs 5 lakhs, Bank s approved valuation need not be insisted at each stage and the assessment could be done by the Branch manager himself. Where the valuation exceeds Rs. 5 lakh, certificate from the approved engineer should be obtained at each stage, before making further disbursements. c) Any shortfall in margin/cost overrun shall be met by the borrower from his own sources. d) The bank may at its discretion recall the entire advance even upon default of a single installment. e) In case of advance against vehicles, Bank s hypothecation shall be noted in the RC book and a copy of the RC book along with the duplicate keys of the vehicle shall be lodged with the bank. Comprehensive insurance cover must be obtained for the purchase value and renewed thereafter annually. Export credit In case of exporter borrowers will

a) Apply for suitable credit limit, buyer-wise and get them approved by ECGC. b) Obtain prior approval of ECGC for any extension of usance under DA or conversion of DP bill into DA bill and c) Obtain specific approval of ECGC for each shipment or contract in advance where exports are to be made to countries placed by ECGC under restricted cover. Feedback Report a) The feedback report system is applicable to all fresh/enhancement/renewal sanctions to borrowal accounts of structured loan products below Rs 50 lakhs and other borrowal accounts below Rs 10 lakhs sanctioned by circle/head office. b) The feedback report system is not applicable to loans sanctioned under Loan against deposits, staff loans and jewel loans. c) Feedback report has to be submitted by the branch to circle office within a month from the first disbursement of the sanctioned facilities. d) In case of sanctions accorded by HO, a copy of the report should be submitted to HO by the branch and Circle office has to summit their consolidated views on the report to HO within 15 days from the date of receipt of the report from the branch. Ensuring endues of funds The branch should take utmost care to verify whether the advance granted is used for the purpose for which it is raised. In case of advances for purchase of equipment /machinery/vehicle/other movable assets, the cost price of such articles should be sent directly to supplier of goods. The cash receipt/bill should be kept with our records.

In case of advances given to construction activity the disbursal should be made in stages in accordance with the progress of construction already achieved. Submission of QIS/MSOD statements In case of working capital limits of Rs. 1 crore and above,QIS statements in Form I,II and III /MSOD statements shall be submitted within the prescribed time limit and any delay in submission will attract levy of additional interest for the period of default at 1% over the contractual rate or at the rates stipulated by the bank from time to time. In case noncompliance of this stipulation continuously for 6 months, Bank may at its discretion withdraw/cancel the facilities sanctioned. Financial Discipline a) All fund based/non-fun based /fee-based transactions shall be routed through the account with our Bank only, unless specifically exempted. In case of consortium accounts pro-data share shall be routed through our Bank b) The borrowers shall submit audited/unaudited financial statements on quarterly/half yearly/annual basis. c) All dues to SSI units shall be paid within 90 days of their creation. d) Entering into leasing will be subject to Bank s prior approval and ability of the borrower to generate sufficient surplus to secure the liabilities. General

a) Changes ,if any made to the structure of ownership/management of the borrowing concern shall be promptly informed to the bank b) The bank reserves to itself the right to cancel/suspend/reduce any or all the limits sanctioned and to alter/amend/vary the terms of sanction including ROI at its sole discretion without assigning any reason whatsoever. c) In addition to these terms and conditions, all the facilities sanctioned shall be subject to the Bank s rules as well as the directives issued by RBI from time to time. Transfer of loan/advance accounts from one branch to another a) For transfer of advance accounts from one branch to another branch within the same Circle, Circle heads shall accord approval where the credit sanction is made by the Branch Manager or by the Circle Head. b) For sanctions accorded at the level of Branch Managers/Circle Heads, the Circle heads shall authorize inter-branch transfer of accounts, provided b.1) the concurrence and credit advice for taking the account to be obtained from the transferee branch with the approval of the Circle head Concerned of the transferee branch. b.2) the account should be in standard asset category b.3) the renewal documents should have a residual life of minimum 6 months b.4) the renewal/review sanction should not be older for more than 3 months b.5) the review/renewal Note copy should accompany the transfer documents.

b.6) the inspection and documentation irregularities, if any, should have been rectified and b.7) there should be justifiable reasons for transfer of the accounts. c) For transfer of advances accounts from one branch to another branch situated in

another Circle and for inter-branch transfer of accounts sanctioned by higher authorities, the approval shall be given as per the following schedule: Advance falling under the powers of Branch Circle head Head office -GM -Executive Director -CMD/MC Authority for approving the transfer Circle head Circle head GM concerned Executive Director Chairman and Managing Director

MONITORING OF ADVANCES

Monitoring and follow-up play a crucial role in ensuring that the account continues to be a performing asset. Once a unit slips in to sickness, it becomes difficult for the Bank to recover its advances in full or even part of it, at times. Security Monitoring Bank borrowings must be adequate secured by core current assets. For ensuring this, margins are prescribed on each of core current assets. Irregularity in the cash credit account arises when bank borrowings exceed the Drawing Power and the security position is adversely affected. Collection and analysis of data Following are important returns/statements in the monitoring of working capital advances a) Monthly stock statement and Monthly data on production and sales(MSOD) b) Inspection of stocks c) Operations in the account d) Statements under Quarterly Information System(QIS) e) Annual Audited Accounts f) Review/renewal of advance

g) Asset classification under IRAC and other norms h) Credit rating i) Review during quarterly consortium meetings wherever applicable j) Stock audit and concurrent auditor s report, comments by external auditors and the reports of Credit Monitoring Officers k) Report on unit inspection Scrutiny of stock statements Borrowers should submit a stock statement showing the quantity and value of stocks hypothecated to the bank. The stock statement should clearly show the value of unpaid stock. Inspection of stocks Stock inspection is usually done on a monthly basis with an element of surprise maintained at the time of inspection. Such inspections are besides Stock Audit exercise for fund based and non-fund based working capital limit of Rs.1 crore and above Stock Audit Stock audit covers in its ambit the quality of stocks and Book debts, their value and their conformity to the criteria of current assets holding levels. It is remedial measure which is crucial in improving the quality of loan assets of the Bank. Eligible Accounts and Frequency/Periodically valuation of securities

Stock audit has to be conducted once in a year for accounts with fund based and non-fund based working capital limit of Rs.1 crore and above. The gap between two successive Stocks Audits should not exceed 15 months and not less than 6 months. If such excess drawings could not be recovered immediately, a report of such excesses should be made to controlling authority and efforts made for regularization of the account early. Coverage Stock audit should cover Book Debts, pledge stocks, fixed assets (charged to Bank either as primary or as collateral security) and goods. Periodical Inspection of units and verification of securities Periodical inspection and verification may also be undertaken of machineries and immovable properties taken as security for term loans. It is to be noted that the purpose of inspection is not only to ensure the availability of sufficient security cover for the advances but also to have a firsthand knowledge about the borrower s current business position, his problems etc. so that necessary corrective measures can be taken immediately. Quarterly Information System (QIS) Periodical return should be submitted in time to the controlling authority who should scrutinize them effectively. For borrowal accounts having aggregate working capital limit of Rs. 1 crore and above, statements under QIS should be obtained as per time schedule prescribed, scrutinized, submitted to QIS at Circle/HO Office with the observations of the Branch Manager/Circle Head.

Early Warning Signals The performance of the borrowing company should be regularly monitored without compromising on the supervision of the security. Some of the warning signals that may help in detecting the slippage of borrowal accounts into NPA category and the proactive measures required at the operational level are given below: a) Frequent excess/devolvement of commitments under letter of credit/non-servicing of interest/request for release of margins etc. b) Cheques issued getting dishonored for wants of fund c) Delay in submission of MSQD/QIS statements d) Year ending being postponed/non finalization of accounts e) Attachment orders from sales tax/IT/central excise authorities f) Opening and operation of accounts with other banks without our permission resulting in our bank s account g) Bills purchased/discounted becoming overdue etc. Keeping the documents alive for legal action Acknowledgement of debt should be obtained from borrowers /guarantors once in a year. This will afford an opportunity for the Branch Managers to have a discussion with the borrower about the advance account. Branch Managers should take priority basis renewal of cover documents where the documents are aged 30 months and over below 3 yrs.

Monitoring recovery of periodical interest and installments Proper notices should be sent to the borrowers before the due date of term loan installments. Irrevocable authority to debit loan installments to cash credit/Current account should be obtained before disbursing the amount. Identification and reporting of willful defaulters to CIBIL A willful default would be deemed to have occurred, if any of the following events is noticed a) The unit has defaulted in meeting its payment/repayment obligations to the lender even when it has the capacity to honour the said obligations. b) The unit has defaulted in meeting its payment/repayment obligations to the lender and has not utilized the finance from the lender for the specific purposes for which the finance was availed of but has diverted the funds for other purposes c) The unit has defaulted in meeting its payment/repayment obligations to the lender and has siphoned off the funds so that the funds have not been, utilized for the specific purpose for which the finance was availed of nor are the funds available with the unit i9n the form of other assets. The scheme of Reporting Willful defaulters came in to force with effect from April 1st,1999 covering all NPAs with outstanding aggregating Rs. 25 lakhs and above.

BIBLIOGRAPHY

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Manual of the Indian bank on conventional advances of 2006 Website of the bank Indian-bank.com Circulars, advertisements published on the staff web-site provided by the bank.