General Guidelines On Loans & Advance: Sachin Katiyar-Chief Manager
General Guidelines On Loans & Advance: Sachin Katiyar-Chief Manager
General Guidelines On Loans & Advance: Sachin Katiyar-Chief Manager
5 Cs 6 Ms 7 Ps
GST verification
The facility to view the GSTIN status is available on https :// services.gst. gov.in /
services/searchtp.
The facility to view Company and Limited Liability Partnership (LLP) master data link
is available on http://www.mca.gov.in/mcafoportal/viewCompanyMasterData.do
Verification of Voter ID :
PAN related print-out may be obtained using on-line PAN verification option under Non-CBS page on
main screen.
A list of members containing names, address, membership no. and status of the membership is available
on the Institute‟s Website (http://www.icai.org) under the heading “Member Directory Search – As On
Date”
CIR
a) Advance against Bank’s own Deposits, Govt. Securities/Bonds, PSU Bonds, Postal Securities, LIC
Policies, Shares, Debentures& Mutual Funds.
b) Advances against 100% Cash Margin.
c) All Staff Loans.
d) Advance against gold jewellery/ornaments
CIR Charges Consumer Category: Rs 54.50 /- + GST@18% ieRs 64.31 per report (As per MISD Cir-07/17)
Commercial Category: (Report to be drawn from CIBIL only)
All loan above Rs 1 lacs and up to Rs 50 lacs& in case of KCC above Rs 3 Lac.
In accounts having aggregate sanctioned limits of Rs. 50 lacs and below in branches there is no second
officer available, the rating and vetting can be done by the same authority. However in such cases, the
same has to be submitted by the BO to the higher authority along with the limit-sanctioned statements
regularly.
Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 4
Validity of Credit Risk Rating:
The credit risk rating become due after the expiry of 12 months from the month of confirmation of
rating
or
18 months from the date of balance sheet on the basis of which credit risk rating was assigned,
whichever is earlier.
The rating shall be treated as “overdue”after the expiry of 15 months from the month of confirmation
of rating
or
21 months from the date of Balance Sheet on the basis of which the credit risk rating was assigned,
whichever is earlier.
A. Mandatory Review of rating: Midterm review of rating falls due on expiry of 5 months from date of
last rating and should necessarily be completed within next 1 month
B. Review when regular rating falls due for renewal: Review of rating in dynamic review rating model to
be completed before expiry of 14 months from the month of confirmation of rating or 20 months from
date of balance sheet, whichever is earlier.
Vetting authority for rating done in Dynamic Review Rating Model: The vetting authority for review
ratings carried out in dynamic review rating shall be as per extant bank guidelines except-
For loans sanctioned by HO level committees: Vetting shall be done by vetting authority at
concerned Zonal Office.
For Overseas Branch/Office (all ratings irrespective of sanctioning authority): vetting shall be
done by vetting authority at concerned Branch/Office.
In case loan sanctioning authority is Branch Office: Validity period may be extended for a maximum
period of 6 months in a single review.
In all other cases: Validity period may be extended for a maximum period of 3 months in a single review.
The validity period of the last rating may be extended for a maximum period of 6 months.
However, during the extended validity period of the rating penal interest@0.50% (within overall cap of
3% for penal interest) shall be charged over & above the existing rate of interest, till the rating is not
renewed in regular rating model.
Cut off limit for external risk rating is Rs 5 Crore exposureor turnover more than Rs 50 Cr &Rs 10 Cr
exposure if loan is secured by Cash, gold or mortgage of residential or commercial property.in case of
MSME Rs 25 Crore with loan is having 75 % cover by way of Cash, gold or mortgageof residential or
commercial property.
Valuation-
Aggregate credit limit Value of IP Valuation by
Rs 10 lakh & above Rs 20 lakh & above Valuer on bank approved panel
Rs 5 crore& above Min 2 valuer on bank approved panel form Cat A or B
Categories of valuers-
Confidential Report:
It has been advised to insist for UDIN in all certificates / documents / reports etc. certified by
CAs,Branches are advised to make use of the UDIN facility which will enable them to verify the said
documents on the UDIN Portal at https://udin.icai.org.
System of E-way bill has been made mandatory for inter-state movement of goods of more than
₹50,000 in value throughout India. https://ewaybill.nic.in/
Definitions -
The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of
which payment is secured for the time being are called the mortgage-money, and the instrument (if any)
by which the transfer is effected is called a mortgage-deed.
Types of Mortgages -
1. Simple Mortgage -
In a Simple mortgage, the possession of the mortgaged property is not transferred from mortgagor to
the mortgagee.
If the mortgagor fails to repay the loan, the mortgagee has the right to sell the property and recover the
loan from the sale amount.
Under such Mortgage, the mortgagor apparently sells the property to the mortgagee on certain
conditions -
1.On failure to repay the mortgage money before a certain date the sale shall become absolute
4. English Mortgage -
In an English Mortgage -
1.The mortgagor binds himself to repay the borrowed money on a certain date.
2.The mortgagor transfers the property absolutely to the mortgagee.
3.But such transfer is subject to the condition that the mortgagee will retransfer the property on
repayment before the agreed date.
6. Anomalous mortgage -
7. Reverse Mortgage
A reverse mortgage loan is a loan where the lender pays the monthly installments to you instead of you
making any payments to the lender. Hence the name reverse mortgage, as the payment stream is
reversed. A Reverse mortgage enables senior citizens to convert their home equity into tax-free income.
Reverse mortgages enable eligible homeowners to access the money they have built up as equity in
their homes. They are primarily designed to strengthen seniors’ personal and financial independence by
providing funds without a monthly payment burden during their lifetime in their home.
REGISTRATION
According to Section 59 of the Transfer of Property Act, 1882, where the principal money secured is
Rs.100 or more, a mortgage, other than a mortgage by deposit of title deeds, can be effected only by a
registered instrument signed by the mortgagor and attested by at least two witnesses. In case the
instrument is not duly attested and registered, the mortgage will be void. In terms of Section 23 of the
Indian Registration Act, 1908, the document is to be presented for registration at the offices of the Sub-
Registrar of Assurances within 4 months from the date of its execution.
'”Where the value of immovable property to be mortgaged/ charged is Rs. 1 crore& above, branches
shall take NEC from 2 different advocates on panel, one before sanction and the 2nd after sanction, but
before disbursement to safeguard the interest of the bank.”
Lien (Section -170 of ICA 1872 -Particular Lien,Section -171 of ICA 1872-General Lien)
A banker’s lien is a general lien which is tantamount to an implied pledge. It confers upon the banker the
right to sell the securities after serving reasonable notice to the borrower.
Right in case of failure to repay: If the pledger fails to repay within the stipulated time, pledgee may,
When the pledgee decides to exercise the right of sale, he must issue a clear, specific, and
reasonable notice.
Hypothecation as “a charge against property for an amount where neither ownership nor possession is
passed to the creditor”. Floating type of charge defined in SERFASEI Act
Assignment means transfer of any existing or future right, property, or debt by one person to another
person. The person who assigns the property is called ‘assignor’ and the person to whom it is
transferred is called ‘assignee’.
Usually assignments are made of actionable claims such as book debts, insurance claims etc. In banking
business, a borrower may assign to the banker;
(i) The book debts,
(ii) Money due from government department,
(iii) Insurance policies.
ii. If Fails to file with within a period of 60 days of such 0+30+3 Normal Fees +
in 30, days creation 0 3 time Additional
= 60 Fees
iii. If Fails to file with Registrar may, on an application, 0+30+3 Normal Fees +
in 60, days allow such registration to be 0+60 3 time Additional
made within a further period of = 120 Fees +
60 days. i.e. 120 days of such Advalorem Fees
creation
Application to be supported by a declaration in Form CHG-10 from the CS or Director that such belated
filing will not adversely affect the rights of any creditors of the company.
Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 11
DUTY OF REGISTRATION OF CHARGE:
But before filling of form person will give 14 days’ notice to Company. If company doesn’t register the
charge or show sufficient cause then person himself will file the form with ROC.
This is not responsibility of Person (in whose favour charge is created) to file form. Therefore if company
fail to file form for registration of charge and person also not filed form then person will not liable to pay
any penalty.
SATISFACTION OF CHARGE:
As per Section 82 – Form for Satisfaction of charge will be file in form CHG-4 within 30 days of
satisfaction of charge. If company fail to file form CHG-4 within 30 days of creation of charge then
company have to go for condonation of delay for satisfaction of charge.
CHARGES FILING OF WHICH WITH ROC IS NOT NECESSARY:
Branches will recover the amount, 109% of present rate of charges plus GST@ 18% on 109% charges as
conveyed vide MISD circular no 6/2017 dated 29/06/2017, from the borrowers and will use CBS menu
option MCHRG for recovery of all type of CERSAI fee and credit in branch income head 2081002(CERSAI
FEE RECOVER). CERSAI fee is to booked at branch level in Branch income head. Branches to provide
invoice to customer through menu CGSTRPT.
SCHEME Time Norms for RAB Time Norms for Branches other
than RABs
Non mortgaged based viz. 3 days 3 days
Vehicle, Gold, Personal,
Pensioner Loans.
Mortgage based loans (Housing 7 days 10 days
Loan, Adv. Against IP, Reverse
Mortgage)
Education Loan 1 week - for loans falling under 1 week - for loans falling under
Branch power; Branch power;
Validity of Sanction:
Sanction valid for 6 month from date of sanction of 6 month from date of documentation if executed
within 6 months from date of sanction, whichever later can be revalidation can be done within next 6
month.
DOCUMENTATION
In the matter of documentation, there are five essential points to be noted:-
1. The person(s) executing the documents should have the legal capacity to do so.
2. The document should be in the prescribed forms of the bank.
3. The document should be properly stamped.
4. The documents are properly witnessed wherever required.
5. The documents are registered wherever required.
According to section 11 of the contract Act, 1872: Every person is competent to contract who is of the
age of majority according to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.
All the loan documents in respect of sanctioned limits of Rs. 2 crore& above (both FB and NFB) vetted
from the local approved advocate/solicitor, first before their execution and again after execution but
before disbursement of the loans.
all Branches, including LCBs, are to submit Legal Compliance Certificate for credit limits of Rs. 10 lakhs
and above (Fund Based & Non Fund Based) in respect of fresh sanction/enhancement/renewal to
respective controlling office within 7 days from the end of the month in which the facilities are
disbursed certifying the compliance of all the formalities contained therein.
Limitation-
The Limitation Act prescribes the period within which existing rights can be enforced in a court of law.
In fact, the Act was passed with the intention of avoiding any uncertainty or anomaly with respect to
limitation.
The statute does not create an obligation or a right to sue where none existed. It simply imposes a time
limit to litigation. Section 3 of the act states “that every suit instituted, appeal preferred and application
made after the prescribed period shall be dismissed, although limitation has not been set up as a
defence”.
However, under Section 5 of the Act, “an appeal or an application under any of the provisions of Order
21 of the CPC 1908 may be admitted after the prescribed period, if the applicant or the appellant
satisfies the court that he had sufficient cause for not preferring the appeal or making the application
within such period.” The parties cannot, by agreement, extend or alter the period of limitation as laid
down by law. Similarly, they also cannot waive limitation by agreement.
There is a legal relation between a document obtained by a banker and the Limitation Act. Once the
period of limitation for a document has expired, the banker will have no legal recourse against the
defaulting borrowers to recover his dues. In short, the period of limitation bars the legal remedy by way
of a suit. It is, therefore, of paramount importance for bankers to keep the documents alive.
It begins to run from the date of the document. Once the period of limitation has begun to run, no
subsequent disability or inability to institute a suit or make an application stops it (Section 9).
The period of limitation with regard to some of the Bank’s activities, as prescribed under the Act is as
follows:
Period of Time from which the limitation
Article No. Description of suit
limitation period begins
For the balance due on a mutual, The close of the year in which the
open, and current account, where last item admitted or proved is
1 3 years
there have been reciprocal entered in the account; such year
demands between the parties to be computed as in the account
19* For money payable for money 3 years When the loan is made
Extending Limitation
Limitation period of a document can be extended in the following ways.
Fresh Documents
Acknowledgment
Part payment
Cash Credit Accounts being mutual, open, running and continuous accounts, the period of limitation will
be further extended up to three years from the date of last credit/debit entries (Article 1, Limitation Act
1963). However, a debit entry of interest due on loans would not be considered for such purposes.
A debit entry shown on the Liability side of a borrower’s balance sheet i.e., of a Limited Company, signed
by its agents is considered an acknowledgement of debt (BabulalRukmandand vs. Official Liquidator
1968, I, com.lj). If such acknowledgement is recorded within the prescribed limitation period, it extends
the limitation for a further prescribed period.
Exclusion of time-
1. Borrower abroad
2. Case under consideration with BIFR
3. When the Court is on Vacation
Acknowledgement of an authorised agent –POA holder can sign if POA empowers
Acknowledgement from a guarantor- From the date of invocation of guarantee
Death of borrower-Can be signed by legal heirs if inherited assets are available
Handout on DP Calculation-
Margin
Stock 100 25%
Book Debt 100 40%
Sundry Creditor 20
Accepted level of creditor at the time of CMA validation
Case I 10
Case II 30
Note-Stock under LC & Bill discounted are not taken to reduce complexity. However value of stock under
LC, will be deducted from stock and value of bill discounted from the book debt value for arriving at the
net value.
Stock verification-
All borrowals accounts enjoying Fund Based & Non Fund Based (NFB) working capital limits of
Rs.5 crores and above from our Bank. All NFB limits, which are being used for Working Capital
Funding like LC, SBLC, BG for purchase of goods for sale and BGs for mobilization Advances are
to be included within threshold limit of Rs.5 crore for stock credit, but Capex LCs, Bid Bond
Guarantees etc. need not be included in NFB limits for the purpose of conducting stock audit.
Annual Stock Audit should be compulsorily conducted in all ‘B2 to C3’ risk rated accounts and
NPA accounts enjoying fund based and non fund based working capital limits of Rs. 3 crore and
above.
Quarterly Review Sheets (QRS) (L&A-107/12)
QRS in respect of accounts with limit of Rs. 20 lacs and above and uptoRs. 1 Crore, which is in line with
PMS report , so as to determine the health of the account. Branches shall assign score for 14 important
parameters. Total score of 14 parameters will decide the rank of the account ranging from 1 to 4, based
on the seriousness of the irregularities:
Rank Category
1 Healthy
2 Early Warning
3 Warning
PERT
Cut off limit is Rs 5 crore& above working capital limits, to be submitted within 7 days preceding to the
quarter
WILFUL DEFAULTERS
The photographs of wilful defaulters are not to be published in the newspapers in the following cases:
(a) Education Loans
(b) In case the concerned branch is located in the States/UTs listed herein below:
Andhra Pradesh
Arunachal Pradesh
Assam
Karnataka
Sachin Katiyar- RSC Belapur- updated up to 31-10-2019 Page 20
Lakshdeep
Mizoram
Nagaland
Telengana
Kerala
CARD Audit-
Rs 10 Crore and above individual or group exposure (on yearly basis)
Rs 1 Crore in case of takeover account (once within 3 month of sanction and then after 1 year)
Top 5 rated standard accounts of Circle with a minimum balance of Rs. 5 crores and above
where auditable accounts are less than 10 in a Financial Year(on yearly basis)
However in following cases half yearly audit may be conducted in respect of accounts with
exposure of Rs.5 crores and above:
o Where there is decline in Credit Risk Rating by two notches, and/or
o Decline in PMS by 2 notches for 2 quarters continuously and /or
o Account is persistently in SMA-II category for 2 quarters continuously.
Forensic Audit
NPA fraud account or Red flagged account with o/s Rs 50 Crore& above
The norms, which will come into effect from financial year 2017-18, define a large borrower as a
specified borrower, that is, one with an „aggregate sanctioned credit limit‟ (fund-based credit limits
sanctioned or outstanding, whichever is higher by the banking system) of Rs 25,000 crore at any time in
the first year, Rs 15,000 crore at any time during 2018-19, and Rs 10,000 crore from April 1, 2019.
Starting FY 2017-18, if the banking system crosses the lending limit prescribed for a large borrower, the
provisioning requirement on the excess amount would be 3 percentage points higher than normal.
Additionally, the banking system would have to assign a risk weight of 75 percentage points over and
above the applicable weight for the exposure to the large borrower.
1. Where the accounts of other banks have been adjusted for over 3 months.
2. In case of crop loans/KCC, the prior approval from next higher authority is not necessary even if
the accounts from other banks/FIs have been adjusted within three months subject to the
1. Borrowal account should be taken over from other banks on selective basis.
2. The permission from the next higher authority shall not be applicable for taking over of
Retail Loan Accounts from other banks/FIs.
3. However, Loan Accounts with other banks/FIs are running regular with no defaults in
payment of interest/installment.
4. The account should be in the ‘Standard Asset’ category of the existing Bank/FI.
5. Borrowers should have a rating of “B2 & above” as per credit risk rating models (PNB
Trac) as applicable in loans to business concerns. However, for takeover of Retail loans
covered under the PNB Score Models, cut-off levels for sanction of all Retail Loans
circulated by Retail Assets Division, HO shall apply mutatis mutandis.
6. Statement of account of minimum 6 months, a certificate with the content that account
is running regular with no default and asset classification is standard may be called from
existing banks.
7. Takeover of borrowal accounts from the banks where our present EDs and MD&CEO
have worked earlier need not to be considered.
1. Circle Heads shall have discretion to permit transfer of any loan facility within their
respective areas.
2. Circle Heads are empowered to permit transfer of limits to other Circles at the request
of the borrower and with the consent of the transferee Circles provided the account is
in standard category.
3. ZM shall have discretion to permit transfer of any loan facility within their respective
areas.
4. General Manager at HO shall have full discretion.
5. No permission shall be required for transfer of staff loans and they can be transferred by
the Incumbent Incharge
Reimbursement in Term Loan Account: In emergent circumstances, COCAC & above may permit
reimbursement, on merits, within six months of acquisition of fixed assets to the extent of loan
sanctioned to MSME borrowers within their vested loaning powers and after ensuring end use of funds.
In other than MSME borrowers also, reimbursement in term loan account for capital expenditure
incurred within last six months may be given in highly deserving cases, on merit of the case.
Part disbursement of term loan may be allowed through current/cash credit account by the sanctioning
authority not below the level of CM subject to maximum of 25% of the sanctioned limit
Exceptions
Advance under SGSY, SJSRY, 20 point programme etc.,
Loans upto Rs.10,000/- under priority sector schemes to all categories of weaker sections
All Government’s sponsored programmes.
CONSORTIUM FINANCING
RBI had withdrawn its earlier guidelines regarding mandatory formation of consortium where
working capital limits are Rs. 50 crores and above from the banking system.
Share of a Bank as a member of consortium should be minimum of 5 percent of the fund based
credit limits or Rs. 1 crore, whichever is higher.
Where 5% of the fund based working capital limit sanctioned/to be sanctioned to a borrower is
more than prudential norm for exposure of a bank, lower percentage can also be considered on
merits of each case by the consortium.
Total term loan exposure should not exceed 75% of the prudential exposure norms for
individual/group of borrowers. The balance of 25% should be kept for meeting the working
capital needs of the borrower.
Diligence Report shall be obtained for the borrowers with aggregate (fund and non fund
based) limits of Rs.20 crores and above with our bank. However, Public Sector Undertakings/
establishments (Govt. Undertakings) will be exempted from such Diligence Report, as they are
under audit by Comptroller & Auditor General of India. In respect of Consortium Accounts
where our bank is not the leader, the matter be taken up with the lead bank for obtaining the
same
JOINT LENDING ARRANGEMENT
The policy shall be applicable to all lending arrangements involving more than one public sector
bank with a single borrower with aggregate credit limits (both fund based and non fund based)
of Rs.150 crore and above. All non-investment grade borrowers (External Commercial Rating
Command Area for Small, Medium & Large borrowal accounts (L&A Circular No. 133 dated 30.08.2008)
At the place where the Registered/ Head/Administrative Office of the borrowing company/firm is
located.
OR
At the place where factory/ manufacturing unit of the borrowing company/firm/project site office (for
infrastructure advances) is located.
IBA, in light of the Supreme Court of India judgement dated 15.09.2016, has now advised that as per the
2013 amendment in Section 28 of the Indian Contract Act, atleast one year claim period needs to be
incorporated in the limitation clause.
Loaning Power:
As per extant guidelines, CMs/AGMs may permit issuance of letter of Guarantee upto a maximum of 5
years and Branch Heads in scale-I, II & III may permit issuance of LG upto the maximum of 1 year,
excluding claim period not exceeding 1 yr. DGMs may permit issuance of Letter of Guarantee up to a
maximum of 10 years, excluding claim period not exceeding 1 Yr. COCAC (headed by DGM) may permit
issuance of Letter of Guarantee upto a maximum of 10 years, excluding claim period not exceeding 1 Yr.
CENTRAL ECONOMIC INTELLIGENCE BUREAU LARGEVALUE BANK FRAUDS (L&A Cir No-89/17)
Ministry of Finance (MoF) had advised to seek a report from CEIB (Central Economic Intelligence
Bureau) on any prospective borrower in 2015. CEIB is the nodal agency for economic intelligence
mandated to ensure effective interaction and coordination among all the concerned agencies in the area
of economic offences. MoF has informed that Report would be furnished within 1 week after receiving a
request from the bank. Accordingly, Credit Division is advised to seek report from CEIB on any
prospective borrower at the time of pre-sanction stage for proposals coming under the power of
HOCAC-I & above (at present exceeding Rs.50 cr). If the report is not received within 10 days from CEIB,
the proposal may be processed after taking all precautions/due diligence in terms of guidelines, as
required in the case.
L & A CIRCULAR NO. 97/17-Introduction of Legal Entity Identifier for Large Corporate Borrowers
The Legal Entity Identifier (LEI) initiative is designed to create a global reference data system that
uniquely identifies every legal entity, in any jurisdiction, that is party to a financial transaction. The LEI
code is conceived as a key measure to improve the quality and accuracy of financial data systems for
Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity
Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. In India,
LEI code may be obtained from Legal Entity Identifier India Ltd (LEIIL), a subsidiary of the Clearing
Corporation of India Limited (CCIL), which has been recognised by the Reserve Bank as issuer of LEI
under the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF as the Local
Operating Unit (LOU) in India for issuance and management of LEI.
CONTROL MEASURES - PASSPORT DETAILS OF BORROWERS (As per L&A Cir No-92/18)
Certified copy of the passport of all promoters/directors/partners/proprietors etc. and other authorised
signatories of companies/firms etc. be obtained in all existing as well as prospective borrowal accounts
having exposure of ₹50 Crore and above from banking system. If personal does not have passport then
his /her declaration with undertaking as per L&A Cir No-92/18 is to be obtained. Also we need to do
this for all loan account above Rs 50 lacs and below Rs 50 lacs sanctioning authority may decide the
same on merits of the case.
Loan system for delivery of bank credit for borrowers having aggregate fund based working capital limit
of ₹150 crore and above from the banking system as 60 % of working capital requirement as WCDL & 40
% as cash credit running limit.
Exemption-
Guidelines for Appointment of ASMs for specialized monitoring of the account, wherein the credit
exposure is more than Rs.250 crore.
Primary & Collateral security documents including title deeds are released immediately but not later
than 10 days of closure of loan. (L&A Cir No- 99/19).
Joint Registration Certificate (JRC) be extracted from VAHAN Portal online: https://vahan.nic.in for all
the vehicles henceforth financed under all MSME schemes and a copy of the same should be held on
record for compliance of guidelines. (MSME Cir No-56/19)
National e-Governance Services Ltd. (NeSL) - Information Utility under the Insolvency and Bankruptcy
Code 2016 (charges & undertaking from borrower as per L&A Cir No-50/19)
AMENDMENT IN IMPORT POLICY OF IRON AND STEEL AND INCORPORATION OF POLICY CONDITION IN
CHAPTER 72, 73 AND 86 OF ITC (HS), 2017, SCHEDULE-I (IMPORT POLICY)
Import policy from “Free” to “Free subject to compulsory registration under Steel Import Monitoring
System (SIMS) . SIMS the importers are required to submit advance information in an online system for
imports of items as per the Annex attached and obtain an automatic Registration Number by paying
registration fee of Rupee 1 per thousand subject to minimum of Rs.500/ and maximum of Rupees 1
lakh on CIF value. Importer may apply for registration not earlier than 60th day and not later than 15th
day before the expected date of arrival of import consignment. The automatic registration number will
be valid for a period of 75 days (FOREIGN EXCHANGE CONTROL CIRCULAR NO.62/2019)
“Credit risk” is the possibility of loss associated with changes in the credit quality of the borrowers or
counter parties. The counter parties may include an individual, small & medium enterprise,
corporate, bank, financial institution, or a sovereign.
Under overall credit risk management framework, the bank has put in place the following structure:
A.
i) Integrated Risk Management Division (IRMD):
The Division is headed by Chief Risk Officer with distinct functions related to credit risk, namely:
Framing of policies, inter alia, related to credit risk, development of systems & models for
identifying, measuring and managing credit risks and their implementation;
Risk Management Departments functioning at Circles are called as Circle Risk Management
Departments (CRMDs). CRMDs will function under the administrative supervision of second senior
most official of the Circle. The operational work will be looked after by DGM/AGM/CM of the Circle
Office who is not directly involved in the process of the sanction of credit proposal.
is a top level functionalCommittee headed by Managing Director & CEO and comprises of EDs, Chief
Risk Officer, GMs of Credit, Treasury, etc., as per the directives from RBI. Its specific responsibilities are
as under:
THRUST AREAS
In the year 2017-18, the thrust areas for the bank shall be as under:
Retail Segment
Priority sector Credit
Advances To Micro, Small & Medium Enterprises (MSME):
CD Ratio:
Benchmark of 60 per cent under CD ratio of rural and semi-urban areas.
With the above policy, Bank aims to achieve the following National Goals under
Priority Sector and Sub- sectors:
In other words, bank has to pay the outstanding amount plus premium payment (difference between
NPV of interest chargeable as per sanction of the selling institution and interest rate at which loan has
been purchased by our bank) and the total amount has, therefore, to be debited to the term loan. In
MCBs will handle proposals between Rs.5 crore and Rs.25 crore at places where LCBs are
also located and loan proposals of Rs.5 crore and above at places where LCBs are not
located.
LCBs will handle loan proposals above Rs. 25 crore.
In case of genuine and urgent cases falling under MC/Board sanction, “In Principle” consent may be
given by HOCAC-III in case of both fresh as well asexisting borrowers.
iv) For considering real estate proposalsexcluding home loan sector, scheme of finance against
mortgage of Immovable Property and Traders under MSME sector for purchase of shop/show room ,
but including proposals for Hotel Industry (excluding hotels falling under MSME segment), finance
against future lease rentals, the prior administrative clearance by the competent authority shall be
obtained as under:
Adhoc limits:
Adhoc (AGM & above only) can sanction. (COCAC & ZOCAC- Max 2 times)
In fund-based secured advances, overdrawings may for very short period say 2-3 days, but not
exceeding 7 days (including roll over, if any) to meet temporary mismatch of funds in unforeseen
circumstances by officials at branch level within their vested loaning powers for sanction of adhoc
facility.
Adhoc Facilities –
Adhoc limit/facility should be granted as regular sanction for fixed period to the borrower after
analyzing the financials & requirements of the borrowers only for unexpected business and subject to
the other laid down stipulations for sanction of adhoc limits.
Confirmation of Action:
Proposal to be sent within 3 days of such action, & from CO within 7 days to HO if falling under power
of HO. deemed confirmation if decision not taken by competent authority within 15 days.(L&A Cir
No-8/2010)
In case limit/DP is not reduced to the level of original sanction after due date of TOD/Adhoc limit, the
confirmation of action (for period wise) shall be obtained from competent authority as under:
Up to COCAC No power
ZOCAC/HOCAC I Max 1% provided-
Concession not allowed for retail loan
Min rating B1
Applicable interest rates not fall below MCLR+1 %.
Where already special concessions allowed as per scheme
HOCAC II Up to MCLR +1 % Provided
Min rating B3
PSU
Advance against liquid security
Export advance –up to MCLR
STL- up to MCLR+0.50 %
HOCAC III Up to MCLR ( in case of own & MC power)
For loans above Rs. 500 crore with minimum risk rating of A4 as per credit risk rating.
For loans upto Rs.500 crore with minimum credit risk rating of B3 .
Public Sector Undertakings of repute, showing profits in the latest period as per audited Balance
Sheet or duly certified by Chartered Accountant and/or having a positive fund flow/Escrow
arrangement, without reference to their rating.
The details of STLs raised by the PSUs during last two years from our bank/other lending
institutions should be obtained to ascertain whether the same have been repaid on time or not.
Need based Max up to average gross revenue for the last three years.
Min amount Rs 25 Crore.
Considered only by HOCAC-II and above .
In case of sensitive area min risk rating is A4.
Within assessed PBF & DP.
The ceiling for aggregate Short Term Loans is fixed at 18% of the total advances of the bank as
at close of the previous quarter.
In respect of Partnership and Proprietor concern, exposure to a borrower by way of Fund Based/Non
Fund Based facilities shall be restricted to the limits mentioned below:
Substantial Exposure is defined as sum total of exposures assumed in respect of those single
borrowers enjoying credit facilities in excess of a threshold limit of 10% of capital funds of the Bank
as per published accounts as on 31st March of previous year. In order to reduce concentration risk
in a few accounts, substantial exposure limit has been fixed as under:-
1 All Engineering 3
2 Chemical, Dyes & Paints 3
3 Construction 2
4 Cotton Textiles 2
5 Other Textiles 3
6 Food Processing 3
7 Sugar 2
8 Infra - Power 10
9 Infra - Transport 6
10 Infra - Telecom 3.5**
11 Infra - Others 3
12 Iron & Steel 8.5
13 NBFCs* 11.00
Unsecured Exposure should not exceed 20 % ofthe total outstanding advances as on close of
previous quarter. Within this sub ceiling of 12 % for Govt& PSU.
A maximum State-wise exposure limit to State Govt. Undertakings/PSUs (excluding advance against
bank deposits) is fixed at 20% of Bank’s capital funds as at previous year end with sub-ceiling to
State Govt.
No fresh Advance
h) NBFCs:
Ceiling for bank‟s aggregate exposure to all NBFCs has been put at 11 % of bank‟sgross
advances at the close of the previous quarter.
Within the above ceiling of 11 %, an internal sub-limit for aggregate exposure to all NBFCs,
having gold loans to the extent of 50% or more of their total financial assets is fixed at 1.5% of
bank‟s gross advances at the close of the previous quarter .
Sub ceiling for micro finance segment is 1 %.
i) Film Industry sector: Exposure per borrower in the sector shall not be more than Rs.25 crore.
Fresh exposure i.e. aggregate of FB +NFB facilities sanctioned in a financial year should not exceed
Rs.200 crore.
j) Real Estate: It being a sensitive sector, the overall exposure ceiling for realestate sector has been
fixed at 15 % of the total advances of the bank as at close of last quarter.
Segment-wise sub-ceilings have been revised as under:
As per RBI,The ceiling for capital market exposure is fixed at 40% of its net worth on a solo and on
consolidated basis. The following advances shall form part of Capital Market exposure:
Bank has stipulated following ceilings in respect of advances forming part of exposure to capital market:
An overall ceiling of 20% of net worth of the bank as on 31st March of the previous year
A sub-ceiling of 10% of net worth of the bank as on 31st March of the previous year
(within the aforesaid ceiling of 20% of net worth of the bank), for aggregate advances to
all stock brokers .
The loaning powers for advances to Shares and Stock brokers have been vested with
COCAC, ZOCAC and HOCAC-I and quota has been allocated to relative COs/all ZOs with a
stipulation that ZMs to obtain prior administrative approval/clearance of ED while
considering such proposals. It is advised that Circle Heads/ZMs need not obtain prior
administrative clearance from ED for considering proposals to Shares and Stock Brokers
within the quota allocated to their office for such advances.
A sub-ceiling of Rs. 100 crore (within the aforesaid ceiling of 10% of net worth of the
bank), for advance to any single stock broking entity (fund based & non-fund based)
including its associate/inter connected companies.
A ceiling of Rs. 10 lakh and Rs. 20 lakh for financing individuals for acquiring shares under
IPO/FPO and ESOP respectively.
STATUTORY PROVISIONS
A Bank cannot hold shares in any company, whether as pledgee, mortgagee or absolute owner of an
amount exceeding 30% of the paid-up share capital of the company or 30% of the own paid up
share capital and reserves, whichever is less. Further a bank cannot hold shares, whether as
pledgee, mortgagee or absolute owner, in any company in the management of which any Managing
Director or Manager of the bank is in any manner concerned or interested.
A Bank cannot grant any loans or advances on the security of its own shares.
Exposure limit of 1% of Gross Advances for lending to Renewable Energy within the overall limit of
10 % fixed for Energy sector as on close of previous quarter
Bank should monitor the currency wise un-hedged foreign currency exposure in the books of borrowers
at quarter ends along with the Annualized Earnings Before Interest & Depreciation (EBID). The
incremental provision (ranging from 0 to 80 bps on total credit exposure, over and above the standard
asset provisioning) and capital requirement will depend on likely loss (due to foreign currency
fluctuation).
Term Loan
Cut off limit for review of term loan- Rs.1 crore& above
a) All proposals for infrastructure projects shall continue to be sanctioned by ZOCAC& above
only except in case of following:
b) Proposals for setting up of cold storages shall be considered by COCAC/DGMs and above
within their vested powers. However, proposals relating to construction for preservation
and storage of processed agro products, perishable goods such as fruits, vegetables and
flowers including testing facilities for quality shall be sanctioned by Chief Manager & above
within their vested loaning powers.
c) No Fresh exposure in Field level for proposals for construction of educational institutions.
d) Proposals relating to Water Supply Project, Irrigation Project, Water Treatment System,
Sanitation & Sewerage System or Solid Waste Management System, shall be considered at
the level of COCAC& above within their vested loaning powers.
e) Proposals for financing Windmill Power projects may only be considered at the level of
COCAC/ DGM & above within their vested loaning powers.
Credit Audit shall be conducted on standalone basis in all standard risk rated accounts except:
a) Those secured by 100% cash security and buyers credit secured by LOC of approved banks.
b) Buyers credit secured by LOU of approved banks.
c) Bills discounted under LC issued by approved banks after receiving acceptance from the LC
issuing bank.
d) Term loan secured by SBLC of approved banks.
The frequency of credit audit for loan accounts with overseas branches is as under:-
Credit Rating of accounts Frequency
A1,A2,A3, A4 rated accounts Yearly
B1, B2, & B3 rated accounts Yearly
C1 C2 and C3 rated accounts Half yearly
PMS rank 3 and above Half yearly
Central PSU account Yearly, irrespective of risk rating
Sanctioning
Authority Credit Risk Rating Authority Vetting/Confirming Authority*
ZMRMD at ZO in consultation with
Branches / VLBs / ELBs / Large
Corporate Branches in respect of
proposals falling under HO powers
(Credit Risk Ratings will be routed by
Branches / VLBs / ELBs / LCBs through
HO ZO to HO) CGM / Chief Risk Officer (IRMD), HO
i)Branches/ VLBs / ELBs to route
Credit Risk Ratings through Circle
Offices.
ii) LCBs in respect of proposals falling
under ZM powers to submit Credit Risk
ZO Ratings directly to ZO DGM / AGM / CM (ZMRMD) ZO
DGM / AGM / CM (CRMD), COAn official
designated by the BranchHeadnot
Connected with processing/recommending
CO Branches / VLBs / ELBs of
Branch Officer/Manager, Credit Section The concerned loan proposal.
* Vetting authority shall be one step higher, wherever internal ratings are having variance of
more than one notch with the ratings assigned by approved external rating agency.
Group Approach
For identification of a group, the guiding principle is “Commonality of Management and Effective
Control”.
PIM to be place to HO for proposal envisaging exposure above Rs 50 Cr, approval of PIM is valid for 6
Month. ( meeting at HO every Wednesday -4 PM)
Credit limits of Rs. 20 lakhs and above (except the exempted category) and cases where accounts are
required to be audited under any other law i.e. Income Tax Act, Company’s Act, etc. should be duly
audited by Chartered Accounts (L & A Cir. No. 89 dated 26.06.04 superseded vide LA 133/2008 dt
30.08.2008 and LA110/30.07.2008). (However in board format annexure and in application form
annexure it is given that Audited Balance sheet is required for Credit limit more than Rs 25 lacs )
In case of Non Corporate Micro Enterprises having annual sales less than Rs. 40 lakhs, annual accounts
duly audited by Chartered Accountants shall not be insisted upon irrespective of the credit limit.
However, the key figures (i.e. sales, net profit, capital etc) be verified from documents like IT returns,
sales tax returns etc. (LA110/2008).
CMA Data Base Forms for Assessment of Working Capital Requirements Where assessment of working
capital limits is done as per Simplified Turnover method (Nayak Committee) (Details LA 100/2000),
information on Credit Monitoring Arrangement (CMA) data base forms shall not be obtained.
Sanctioning Authority, however, may satisfy himself on the projected turnover. (LA 110/2008)
In case of Partnership, Proprietorship and Private Ltd. Companies, the unsecured loans raised from
friends, relatives and Directors etc. which remain in the business on continuous basis may be treated as
quasi capital to the extent not exceeding 100% of tangible net worth of the party subject to the
condition that these loans shall not be withdrawn during the currency of the loan and shall be
subordinate to bank borrowings.
Current Ratio and NWC In terms of L&A Cir. No.140 dated 29.11.2014 - Term Loan instalments due
within one year are to be treated as ‘other current liabilities’, while computing MPBF, NWC and current
ratio to keep with the prevalent industry practice and to match with the accounting standards.
a) For calculating MPBF the amount of export receivables may be excluded from the current assets as
need based limits for export receivables could be sanctioned and in respect of such receivables
borrowers are not required to bring in 25% by way of Net Working Capital (NWC).
b) Where an exporters desires, export receivables may be included in the total current assets for
arriving at MPBF, but the minimum stipulated NWC (i.e. 25% of total current assets under second
method of lending) may be reckoned after excluding the quantum of export receivables from the total
current assets for fixing up the post shipment credit limit.
In the above situation, the sanctioning authority may permit to accept lower current ratio keeping in
view the margin requirement in respect of limits set up for domestic sales as against normal current
ratio 1.33:1 where export receivables are being financed without any margin.
Margin Money on LCs/ BGs are taken by Bank to cover risk and is to be treated as Non Current Assets. As
such, Margin Money is to be excluded from projected build up of Current Assets while assessing working
capital credit needs of the borrower. (LA 100/2000 dt 28.09.2000)
Investments made in shares, debentures, etc. of a current nature, units of Unit Trust of India and other
Mutual Funds and in associate companies/ subsidiaries as well as investments made and/ or loan
extended as inter corporate deposits are to be excluded from the build-up of current assets at the time
of assessment of Maximum Permissible Bank Finance. It is also advised that as far as possible, on
account of investments made in associate/allied/subsidiary concerns and inter corporate deposits, the
current ratio should not slip below the stipulated level. Investment made in Associate/Allied
concerns/Subsidiaries etc. is also to be excluded for arriving at Adjusted Net Worth.
Ratios
Ratio Analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratios to
interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical
performance and current financial position can be determined. It should be noted that computing ratios
does not add any information not already inherent in the financial statements. The ratios however
reveal the relationship in a more meaningful way so as to enable one to draw cogent conclusions from
them. It also facilitates intra and inter- firm comparisons. Therefore, the rationale of ratio analysis lies in
the fact that it makes related information comparable. A single figure by itself has no meaning, but
when expressed in terms of a related figure, it yields significant inferences.
i) Debt-Equity Ratio =
The level of DER varies from case to case depending upon the nature ofproject, promoters’ strength,
availability of collateral securities etc. apart from thetype of industry. In capital intensive industries
involving large capital investment,DER is normally higher as compared to the other industries.
Generally banks prefer a ratio below 3:1. In the case of SME the ratio can be relaxed to 4:1. The main
purpose of this ratio is to ascertain the relative financial stakes or skin in the business of the owner’s vis-
à-vis the creditors and banks.
Keeping in view the spirit of RBI guidelines, Board has approved thedesired level of DER for project
financing under different industries and powersvested with various authorities to relax the same as
under:
*Large Projects
Power - independent power 2.33:1 - HOCAC I may relax upto 3.00:1
producing plants (Thermal, - HOCAC II/ HOCAC III may relax
Hydro, Gas based) upto 4.00:1
- MC to have full powers
Mid/small projects
No distinction for various 2:1 - COCAC may relax upto 2.50:1
industries/ segments for this - HOCAC I may relax upto 3.00:1
category as projects financing - HOCAC II/ HOCAC III may relax
normally falls under the Large upto 4.00:1
Projects category - MC to have full powers
DSCR is a measure of the unit’s capacity/ability to service its debt obligations. Higher the coverage safer
is the unit from the bankers’ perspective. It is worked out as:-
DSCR = Net profit + Depreciation + Interest on Term Loan (÷) Interest on Term Loan + Instalment
The ratio of 1.5 to 2 is considered reasonable. A very high ratio may indicate the need for lower
moratorium period/repayment of loan in a shorter schedule.
The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest payments.
Interest coverage ratio is equal to earnings before interest and taxes (EBIT) for a time period, often one
year, divided by interest expenses for the same time period. ICR also known as Times Interest Earned
Ratio (TIE), states the number of times a company is capable of bearing its interest expense obligation
out of the operating profits earned during a period. The ratio is calculated as:-
ICR = EBIT ÷ Interest obligation
This ratio should be less than one in most industries because a portion of fixed assets must be financed
with equity. A ratio of less than one offers greater cushion for the bank. A complement to Debt to Fixed
Asset Ratio is to compare equity to fixed assets.
Liquidity Ratio-
CR is defined as a ratio of current assets to current liabilities.The CR can be worked out as:-
Current Assets
Current Ratio:
Current Liabilities
MinCR-1.25 for MSME & 1.33for Other respectively.
The Acid Test Ratio is a more stringent measure of liquidity than the CR. It is expressed as a ratio of all
the current assets excluding inventory to the current liabilities. It is also referred as Quick Ratio. The
ratio is computed as:
Quick Assets
Acid Test Ratio =
Current Liabilties
d) Cash Ratio
The severest measure of liquidity of a firm is the ratio of cash and marketable securities to that of
current liabilities. The ratio is being computed as:-
Activity Ratio-
Turnover Ratio:
The working capital turnover ratio is also referred to as net sales to working capital. It indicates a
company's effectiveness in using its working capital. It can be calculated as:-
Working capital Turnover = Net Sales ÷ Working Capital
This ratio indicates the number of times the working capital is turned over in a year. A higher ratio
indicates efficient utilisation and a low ratio indicates otherwise.
The ratio shows the relation between the final profits of the company to sales. For the purpose of this
ratio, net profit is equal to gross profit minus operating expenses and income tax. This ratio is being
computed as:-
Net Profit Ratio = (Net Profit ÷ Net Sales) × 100
Net profit (NP) ratio is a useful tool to measure the overall profitability of the business. A high ratio
indicates the efficient management of the affairs of business.
Other formulae
EPS is generally considered to be the single most important variable in determining a share's price. It is
also a major component used to calculate the price-to-earnings valuation ratio.
Net Profit after tax – preference share dividend paid ,if any
EPS =
Number of ordinary shares outstanding
EPS has some limitations in as much as an increasing EPS may be due to profits being retained in the
business with the number of ordinary (equity) shares outstanding remaining the same. It also does not
reveal the amount of dividends paid to the owners. Nevertheless, the EPS is a widely used ratio and
lends itself to be compared with the EPS of other similarly placed firms and comparison with the
industry average.
The P/E ratio examines the relationship between the stock price and the company’s earnings.
For example, a company with a share price of Rs. 140 and an EPS of 7 would have a P/E of 20 (140 / 7 =
20).
The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the
P/E, the more the market is willing to pay for the company’s earnings. Generally, a high ratio with an
increasing EPS indicates good future prospects.
MPS
P/E ratio =
EPS
The sum of declared dividends for every ordinary share issued. It is given by the formula:
f) Earnings Yield
The earnings per share for the most recent 12-month period divided by the current market price per
share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each Re.
invested in the stock that was earned by the company.
EPS
Earnings Yield = * 100
MPS
An increase in the numerator will bring about a corresponding increase in the denominator. Generally, a
low yield along with an increasing EPS trend indicates that the investors consider the future prospects of
the firm in terms of sales growth and profits as good.
A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates
as investors seek other dividend-paying stocks.
A stable dividend payout ratio indicates a solid dividend policy by the company's Board of Directors.
h) Market Capitalization
The total market value of all of a company's outstanding shares. Market capitalization is calculated by
multiplying a company's shares outstanding by the current market price of one share. The investment
community uses this figure to determine a company's size, as opposed to sales or total asset figures. It is
frequently referred to as "market cap."
If a company has 35 million shares outstanding, each with a market value of Rs.100, the company's
market capitalization is Rs. 3.5 billion (35,000,000 x Rs. 100 per share).
i) Swap Ratio
The ratio in which an acquiring company will offer its own shares in exchange for the target company's
shares during a merger or acquisition. To calculate the swap ratio, companies analyze financial ratios
such as book value, earnings per share, profits after tax and dividends paid, as well as other factors, such
as the reasons for the merger or acquisition.
For example, if a company offers a swap ratio of 1:1.5, it will provide one share of its own company for
every 1.5 shares of the company being acquired.
IRR is that rate of discount which makes the discounted value of the netcash flow from a project just
equal to the amount which has to be invested toobtain that net cash flow. In other words, IRR is that
rate of discount which givesthe project an NPV equal to zero and cost benefit ratio equal to one.
SPV is an entity formed for a single, well defined and narrow purpose.Technically SPV is a company and
has to follow rules of the formation ofcompany as laid down in the Companies Act. It is an artificial
person and has allthe attributes of a legal person. Unlike Companies, the scope of operation inSPV is
limited and focused. The memorandum of association in case of SPV isquite narrow and is primarily to
provide comfort to the lenders who are concernedabout their investment.
In order to mitigate the equity funding risk, a need is felt to prescribeguidelines with regard to the
timing of induction of promoters’ contribution asunder:
a. Officialsupto scale-III level may consider sanction of TL/Project loanwithin their vested
powers with the pre-condition that at least 40% promoters’ contribution should be
brought upfront and balance to be brought pro-ratawith the disbursement of the term
loan.
b. Officials in the grade of CM and AGM may however, consider sanction ofTL/Project
Loan falling within their vested powers with stipulation thatminimum 30% promoters'
contribution to be brought upfront and balance tobe brought pro-rata with the
disbursement of the term loan.
c. DGMs LCB, COCAC & HOCAC I may consider sanction of TL/ProjectLoan with minimum
25% promoters’ contribution to be brought upfront andbalance to be brought pro-rata
with the disbursement of the term loan.
d. However, HOCAC II & above will have full powers to give relaxation in thisregard on
merits.
The sensitivity analysis is carried out by the bank in order to evaluatecapacity of the project to absorb
shocks due to adverse movement in prices/some other adverse developments and sustain financial
viability. The analysis iscarried out to capture the decline in revenue of the project assuming
adversechange in values of various parameters/ factors.
In the absence of any defined factors and its values for carrying out thesensitivity analysis, it has been
decided that a common 5% sensitivity factor onsale price/cost price of major raw materials should be
applied in appraisals of allthe projects irrespective of the industry. However, 10% sensitivity factor may
beapplied in highly volatile industries by assessing the expected volatility in saleprice/ cost price of
major raw materials on case to case basis.
The cash flows of the SPV are captured by way of TRA arrangement.Such an arrangement provides for
appropriation of all cash flows of the companyby the independent agent (acting on behalf of security
trustee). This is thenallocated in a pre determined manner to various requirements including
debtservicing and it is only after all requirements are met that the residual cash flow isavailable to the
project company. Thus, the lender would have the security ofcash flows in addition to the assets of the
company.
In order to ensure regular payment of interest plus instalment, DSRAequivalent to the instalment plus
interest of some specified period is maintainedas a cushion.
BEP is the level of operations (in terms of sales or production or capacity utilization) at which total
revenues are equal to total operating costs (fixed and variable) or, in other words, the operating profit is
equal to zero. A business entity starts earning operating profits only after the break-even is reached. At
BEP, “contribution” exactly equals the “fixed costs”.
(i) In order to meet financial requirements of infrastructure projects, banksmay extend credit facility by
way of working capital finance, term loan, projectloan, subscription to bonds and debentures/
preference shares/ equity sharesacquired as a part of the project finance package which is treated as
"deemedadvance” and any other form of funded or non-funded facility.
Takeout finance is the product emerging in the context of the funding oflong-term infrastructure
projects. Under this arrangement, the institution/the bankfinancing infrastructure projects will have an
arrangement with any financialinstitution for transferring to the latter the outstanding in respect of such
financingin their books on a predetermined basis.Thenorms of asset classification will have to be
followed by the concernedbank/financial institution in whose books the account stands as balance
sheetitem as on the relevant date. However, the takingover institution, on taking over NPA assets,
should make provisions treating theaccount as NPA from the actual date of it becoming NPA even
though theaccount was not in its books as on that date.
Banks are permitted to issue guarantees favouring other lending institutions inrespect of infrastructure
projects, provided the bank issuing the guarantee takesa funded share in the project at least to the
extent of 5 per cent of the project costand undertakes normal credit appraisal, monitoring and follow-up
of the project.