INDEX No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 SUBJECT

SCOPE OF THE SCHEME ACTIVITIES NOT COVERED UNDER THE SCHEME CONSTITUTION-WISE COVERAGE OF THE SCHEME ENTRY LEVEL NORMS CEILING ON LOAN QUANTUM PURPOSE & MODE OF UTILISATION OF LOAN PROCEEDS PRIMARY SECURITY COLLATERAL SECURITY MARGIN GUARANTEE STANDARD REPAYMENT TERMS MORATORIUM PERIOD RATE OF INTEREST PENAL INTEREST MODE OF DISBURSE-MENT/ OPERATIONS ASSIGNMENT OF RISK RATING INSURANCE COVER ON THE SECURITY PROCESSING & OTHER CHARGES CHARGES FOR SERVICE PROVIDERS LOAN DOCUMENTATION STANDARD CLASSIFICATION OF THE LOAN BORROWER STANDARD FINANCIAL STANDARD CREDIT ASSESSMENT STANDARD DOCUMENTS TO BE FURNISHED BY THE APPLICANT PROCESS OF VERIFICATION OF DOCUMENTS OBTAINED PROCEDURE FOR SHORT REVIEW PROCEDURE FOR REGULAR REVIEW & RENEWAL POST SANCTION SUPERVISION & FOLLOW UP ENTRY LEVEL PRE SANCTION DUE DILIGENCE ROLE OF THE BRANCH AT THE PRE-SANCTION LEVEL ROLE & RESPONSIBILITIES OF REGIONAL OFFICE ROLE & RESPONSIBILITIES OF SERVICE PROVIDERS SANCTIONING POWERS POST SANCTION REPORTING SYSTEM GUIDELINES FOR TAKEOVER OF EXPOSURES GUIDELINES FOR RESTRUCTURING OF ACCOUNTS UNDER STRESS TREATMENT OF EXISTING CCM ACCOUNTS EARLIER CIRCULAR REFERENCES PREVENTIVE VIGILANCE MEASURES QUARTERLY CREDIT MONITORING REPORTING SYSTEM AUTHORITY FOR CLARIFICATIONS & APPROVAL OF RELAXATIONS AUTHORITY FOR APPROVAL OF MODIFICATIONS IN THE SCHEME GUIDLINES DISCONTINUANCE OF EXISTING SCHEMES CONCLUSION
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1 1 2 2 2 2 4 5 5 6 7 7 8 8 8 9 10 10 11 12 13 14 15 18 20 22 24 25 26 28 29 31 32 35 35 35 37 41 41 41 41 41 42 42 42

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V-SECURED OVERDRAFT SCHEME (VSOD)

1.

SCOPE OF THE SCHEME

To meet the working capital & capex needs of not exceeding Rs.100.00 lakhs in respect of the following broad category of activities: Business Enterprises Small Service Enterprises (SSE) Small Manufacturing Enterprises (SME) Contractors Distributors Stockists Commission Agents Service Providers Hospitals, Nursing Homes, Poly Clinics Hotels & Restaurants Educational Institutions Schools & Colleges Service Enterprises of professionals such as Doctors, Lawyers, Engineers, Consultancy Firms Advertising Agencies Transport Operators

ACTIVITIES NOT COVERED UNDER THE SCHEME

Following activities, having direct or indirect element of speculation are excluded : Real Estate Development Real Estate Brokers Film Production, Exhibition & Distribution Stock Brokers Dealers in Stock Exchange Securities such as Shares, Debentures & Mutual Funds Investment Advisors Security Dealers/Traders in Government Bonds, Forex, Currency Exchanges, Commodity Exchanges & all type of Derivative Products NBFCs Leasing, Hire Purchase & Asset Finance Companies Dealers in Gold Bullion Commodities covered under the Selective Credit Control Measures, from time to time. Trading/Dealing in any product, activity, which are specifically banned or placed under restrictive category by the Bank, RBI, Government Departments etc. All type of activities which are speculative in nature.

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3 CONSTITUTION- WISE COVERAGE OF THE SCHEME :

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Following category of entities engaged in any type of activity as listed in Sl.no.(1) above. Individuals Proprietorship Firms Partnership Concerns Hindu Un-divided Family (HUF) Association Of Persons (AOP) Limited Liability Partnership (LLP) Limited Company both Private and Public. Trusts & Societies

ENTRY LEVEL NORMS CEILING ON LOAN QUANTUM

Existing entities having satisfactory operational history/record, covering a period of at least 12 months with one years completed Financial Statement. i. ii. iii. Working Capital (WC) component - Not exceeding Rs.100.00 lakh. Term Loan (TL) component - maximum of 25% of (i) above viz. Rs 25.00 lakhs within the overall outer limit of Rs.100.00 lakhs. Working Capital Demand Loan (WCDL) - Not exceeding Rs.100.00 lakh.

Note : a. Total of (i) & (ii) not to exceed Rs.100.00 lakhs. b. Loans covered under CGTMSE scheme up to Rs 10.00 lakhs are to be financed outside this scheme. c. Credit delivery under WCDL can be divided into core WCDL and WC limit at the option of the borrower. Part of loan can be for capex purpose as provided under item ii) above. d. For Professionals and Self employed, their need based requirement up to Rs 50.00 lakhs may be considered as Term Loan at their option. 6 PURPOSE & MODE OF UTILISATION OF LOAN PROCEEDS : i. Working Capital component:

Towards normal day to day working capital needs of the entity being financed. ii. Term Loan component :

For financing 75% of capital cost of various fixed assets being purchased towards normal operational needs (other than for Land & Building) such as equipment, plant & machinery, computer & communication system, vehicles, furniture, office equipment, refurbishment & remodeling of own, rented or leased business/office premises

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iii.

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Working Capital Demand Loan (WCDL)

Towards normal working capital needs with flexibility at the option of the borrower to repay the principal within maximum period of 5 years either in monthly or quarterly instalments, with interest being serviced separately as and when debited. Capex requirements funded, if any, shall be treated as term loan component with 25% margin for maximum amount of Rs 25 lakhs. At the option of the borrower, a sub-limit under WCDL can be carved out representing operative working capital limit. In such cases, the entire operations shall be routed through the operative working capital account. Note : Only 75% of the capital cost of the assets/expenses shall be financed by the bank, balance amount shall have to be borne by the entity by way of margin. No. of vehicles to be financed under the Scheme shall be limited to 2 nos per year, of which vehicle for personal use shall be limited to one only. Capital Assets being financed under the Scheme shall be treated as Secured Loan and classified under single head irrespective of the type of asset being financed. Either Working Capital or WCDL limit with Term Loan component, if any can be sanctioned simultaneously. Borrower has the option to avail Term Loan component with in a period of 12 months, reckoned from the date of sanction without revalidation of the same. Further, the borrower shall also have the additional option to change the item of capital asset to be purchased, within the overall approved capital budget furnished to the bank at the time of credit sanction. However, release of Term Loan component after six months reckoned from the date of sanction requires prior approval from the sanctioning authority. There shall be minimum of 12 months gap between availment of two TLs & the second loan can be considered on merits, based on the record of satisfactory recovery performance under the first/previous loans.

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Second & subsequent TLs under the Scheme can be considered, within the outer ceiling of permissible TL quantum, even while the earlier loans are still outstanding & continuing under Standard HC 01 category. Cost of refurbishment & remodeling of office space as estimated by the borrower's engineers shall have to be got vetted by the panel valuer of the Bank. Working Capital /WCDL Component : First charge by way of hypothecation of entire movable assets as are available, such as stock, book debts, receivables and other movable assets both present & future, of the entity being financed. Mortgage of self occupied, residential properties owned by the promoters of the entities being financed, or their close relatives. In case, the value of such residential property offered as security is considered inadequate, commercial properties - self occupied, owned by the promoters and or their close relatives may be accepted. Note : i. Rented/ tenanted properties should not be taken as security for the facility. ii. A declaration shall be obtained from the borrower at the time of every renewal, confirming and declaring that the property offered as security continues to be in self possession and will not be rented out during currency of the Loan. Term Loan Component (SL): Hypothecation of the relative asset being financed. Continuing security of land & building & all other movable assets charged to working capital loan component and other unencumbered machinery and equipments owned by the entity. Note : i. Promoters are defined as proprietors, owners, directors, partners, trustees, Managing Committee members (in the case of Society), karthas or coparceners of the entities being financed. Close relative is defined as spouse, children, parents, siblings of the borrower, of any one of the partners, directors, Trustees of the entities,

PRIMARY SECURITY

ii.

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Managing Committee members (Society) being financed as the case may be. iii. Properties owned by the third parties i.e., other than the family members, owners, directors, partners, trustees, karthas, co-parceners etc., shall not be acceptable as security. Self occupied residential property owned by either the promoters or their close relatives as defined above, shall be the first preference acceptable as security. However, self occupied commercial properties, can also be taken as security Properties under mortgage to the bank shall be valued once in three years. Vacant sites shall not be security under the Scheme. acceptable as

iv.

v. vi. vii.

Revenue land such as land classified as agriculture/non converted and or building constructed on such land, farm house etc., shall not be acceptable as security under the scheme. Properties being offered as security under the scheme shall be independent, un-encumbered and cannot be a subsisting security for any other credit facility. In other words, primary security offered to the facilities under the scheme, cannot be by way of continuing security of the property already under mortgage to the bank. Property offered as security under the scheme cannot be taken as continuing security for other credit facilities especially for the specific purpose of exercise of delegated powers. In other words, while there is no bar on taking the relative property as continuing security for other credit facilities, surplus/residual value of the same cannot be reckoned for exercise of delegated powers.

viii.

ix.

8 9

COLLATERAL SECURITY MARGIN

: :

Exempted for the Scheme. Primary Security : Working Capital/WCDL Component:

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Nil margins on the movable assets.

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40% of market value of the property being mortgaged as per the latest report by the panel valuer covering both VSOD facility & Term Loan.

Term Loan Component : 25% of cost of the asset/capex being financed. Note: Purchase of Land and Building cannot be financed under Term Loan. Collateral Security : 10 GUARANTEE STANDARD : Nil

Following Guarantee Standard shall be followed in the case of : i. ii. iii. iv. v. vi. vii. Individual, Proprietorship Firms: Spouse of the applicant, in the normal course. Partnership concerns & LLPs : All the partners individually & jointly & severally. Hindu Undivided Family (HUF) : Kartha of HUF & other major co-parceners Private/Public Limited Company : All the promoter directors of the company (other than professional directors) Trusts : Managing Trustee & other Trustees having major stake in the Trust (other than minors). Societies : President, Secretary and other key Office Bearers of the Society. Association Of Persons(AOP) All the members of the AOP

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Note :

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In addition to the above, personal guarantees of the owners of properties, whose property has been offered as security, shall have to be taken as additional guarantors in respect of all categories of borrowers. 11 REPAYMENT TERMS : Working Capital component : Facility shall have to be reviewed & renewed within a period of not exceeding 24 months (2 years) from the sanction date. However, during the intervening period, account shall have to be Short Reviewed yearly within a period of 12 months, reckoned from the date of sanction. Monthly interest & other charges debited to the working capital facility shall be absorbed from out of operational credits as & when received. WCDL Component : Principal loan component of WCDL shall be repaid within maximum period of 5 years in equal monthly/quarterly instalments. Interest on WCDL Loan account shall be paid separately as & when debited. Term Loan Component : Principal loan component shall be repaid in appropriate number of monthly instalments not exceeding period of 60 months. Interest on Term Loan account shall be paid separately as & when debited. Monthly interest charged to the Term Loan account shall have to be recovered from the operative account as and when debited. Repayment period and number of instalments may however be determined based on availability of cash accruals from operations, repayment capacity of the borrower. Following general stipulation form a part of loan document : A specific authorization letter shall be obtained from the borrower covering the above aspects (this aspect has been incorporated as a part of

002.HOC 10199-Index-2.doc 8
comprehensive loan document) 12 MORATORIUM PERIOD Working Capital component : Moratorium concept operative facility. is not

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applicable

for

an

WCDL/Term Loan Component : As the applicants under the Scheme are existing operating entities having cash accruals, there is no need for granting repayment moratorium in the normal course. However, if there is time lag between the actual loan drawdown & installation of the equipment/machinery, completion of refurbishment & remodeling of the office, etc., repayment moratorium of not exceeding six months may be allowed for justifiable reasons, having regard to the ground realities. 13 RATE OF INTEREST : Working Capital, WCDL & Term Loan component : 12.25% p.a. (floating) i.e., 4% over Base Rate of 8.25% (presently) chargeable & compounded monthly - Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time. 14 PENAL INTEREST : Penal interest at 2% shall be charged over & above the regular interest rate on the excess drawings, arrears, & overdue component covering the actual number of days, during which such features persisted. Working Capital component : Facility shall be operated by cheques & the loan proceeds thereof shall be utilized for meeting the normal commercial operations. Extent of cash transactions in the operative facility shall be determined by the branch officials based on the nature of activity & mode of conducting the same. WCDL Component : Facility shall be utilized towards working capital and the loan proceeds shall be utilized for meeting the normal commercial operations. The amount

15

MODE OF DISBURSEMENT/ OPERATIONS

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drawn shall be transferred to operative current account of the entity wherein all sales and other operations are routed through and monitored in the normal course as stated above under working capital. . Note: Following general stipulations form part of loan documents. Sales realization received both in cash and by way of cheques, shall have to be routed through the operative account of the borrower. A specific undertaking letter may be obtained in this regard (condition forming part of the document). Borrower shall furnish to the bank an undertaking to utilize the loan proceeds for the purpose for which the same is extended /availed. Borrower shall be advised to route the transactions & confine the dealings through the operative account with the bank. Borrower cannot borrow or open an account with other bank during the currency of loan availed from us. A specific undertaking covering these aspects shall be obtained in this regard (condition forming part of the document). Term Loan Component : Loan proceeds, net of margin already paid, or together with 25% margin, if not paid already, shall have to be remitted by DD directly to the suppliers or crediting the loan proceeds to suppliers account with our bank or other bank. In case the capex work is carried out by the entities themselves under labour contract, Term Loan proceeds may be credited to the operative accounts for utilization for the intended purpose. Work progress shall be monitored by the branch once at the time of loan release and second and final after final drawdown and completion of work undertaken. Relative Visit Reports shall be held on record (condition forming part of the document).

16

ASSIGNMENT OF RISK RATING

In compliance with Basel II norms, rating of borrowal accounts through CRISIL Software, with advanced Basel II approach at yearly intervals, shall be mandatory. This aspect shall be ensured by the respective credit originating & disbursing branches. As a measure of abundant precaution, credit proposals

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securing/assigned with rating of above VB-7 Investment Grade i.e., VB-8 & above shall not be entertained/acceptable. Such rating based entry level hurdle norms may be noted for compliance. In case of negative movement in risk rating beyond VB-7 grade subsequent to disbursement of the loan, such matter shall be placed before the next higher authority for further decision. Rating exercise shall be carried out in Model-I for existing borrowers and Model-II (as furnished by RMD-HO) in respect of new applicants.

17

INSURANCE COVER ON THE SECURITY

Properties & assets charged to the bank as security shall be covered by insurance with banks clause thereon, at the cost of the borrower. It shall be the responsibility of the borrower to keep the insurance policy in force, by prompt remittance of premium on due dates. A specific undertaking from the borrower shall be obtained in this regard (condition forming part of the document)

18

PROCESSING & OTHER CHARGES

a. Working Capital limit: Processing Charges will be levied as follows in respect of borrowers above the cut of level.
Other than individuals 0.50% p.a. 0.25% p.a. Individuals outside Rural Area 0.25% p.a. Min.Rs.250.00 0.15% p.a. Individuals in Rural area 0.14% p.a. Min.Rs.100.00 0.14% p.a. Max.Rs.9000.00

Loan Amount

Rs.0.25 lakh Rs.2.00 lakh

to

Over Rs.2.00 lakh to Rs.100.00 lakh

Note : Applicable Service Tax to be collected separately. Apart from the above, all other relevant applicable charges such as annual inspection & folio charges as per HOC 80/09 & 134/09 as modified from time to time shall be collected. At the time of annual review 50% of the applicable processing charges as above shall be collected. However, at the time of renewal normal PC shall be levied.

b. WCDL/Term Loan:

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Upfront charges @0.50% plus applicable service tax shall be collected upfront for both WCDL portion and Term Loans.

19

CHARGES FOR SERVICE PROVIDERS

Lawyers Charges : Indicative Lawyers fee structure shall be 0.10% of the loan amount, subject to a minimum of Rs.1500.00 & maximum of Rs.2500.00. These charges are exclusive of actual out of pocket expenses required for obtention of EC & conducting of search in the records of Sub Registrars Office etc.

Valuers Charges: Indicative charges (exclusive of actual out of pocket expenses) for valuation of property shall be as follows :
(Amt.in rupees) Loan amount Upto Rs.25.00 lakhs Over Rs.25.00 to Rs.50.00 lakhs Over Rs.50.00 lakhs to Rs.100.00 lakhs For subsequent valuation once in 3 years Fees 1500.00 2000.00 2500.00 500.00

Charges for Due Diligence Verification Agency: Indicative charges shall be: applicant/report. Rs.1200.00 per

Charges for conducting in the Search in the ROC: Charges for conducting search in the records of ROC in the case of Limited Companies & LLPs Rs.1000.00 (this may be got done through empanelled professional Chartered Accountants etc.)

Charges for credit information : Actual charges payable to CIBIL as specified by the bank. All charges as dealt above are subject to changes at periodical intervals. Appropriate charges which are in vogue, from time to time, shall have to be collected from the borrowers.

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All charges as above towards Lawyers Fees, Valuation charges, Fees payable to service providers and all other out of pocket expenses shall have to be recovered directly from operative account of the applicant borrower forthwith. A letter authorizing the bank to recover the same directly from the operative account may be obtained (proforma enclosed). Documentation process shall have to be completed before loan release, as per the guidelines specified by Credit - Legal Dept. HO. Comprehensive single document for Loan and security component being designed by Credit-Legal Dept for Term Loan & Working Capital facility as well as WCDL. Personal Guarantee Letter as per the prescribed format of documentation in DOC-46 SOD/WCDL & TL. Mortgage charge on the property as suggested by the panel advocate. Mode of creation of mortgage charge on the property shall be as per the advice of the panel advocate. All the supplementary property documents as suggested by the advocate shall have to be obtained while creating the mortgage charge in favour of the bank. Acknowledgement of Debt (AOD) [also covering Acknowledgement of Security (AOS)] charged to the loan account, Supplementary Agreement from the borrower & confirmation balance from the guarantor at the time of every renewal. Documents shall be duly stamped as per the prevailing Laws of the State in which the documents are being executed. In case of equitable mortgage, Memorandum of Deposit of Title Deeds shall have to be registered with Sub Registrars Office in such of those States where such system is in vogue. All the charges in this regard shall be borne by the borrowers. All the property documents as suggested by the Advocate for creation of effective mortgage charge in favour of the bank shall have to be obtained at the pre release stage itself. While lending to corporates, a resolution passed in the meeting of Board of Directors agreeing to the

20

LOAN DOCUMENTATION STANDARD

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terms of sanction indicating the names of the directors authorized to execute the loan documents, shall be obtained prior to release of loan.

Similar resolution shall be obtained in the case of Trust, Societies & LLPs. In the case of Trust, it shall be the resolution passed in the meeting of Trustees & for Societies it shall be in the meeting of the office bearers incorporating the aspects dealt in the pre-para. In the case of LLPs, it shall be the resolution passed in the joint meeting of the partners. Upon release of loan, charge on the entire movable assets of the borrowing company/LLP secured to VSOD facility as also fixed assets being financed in the case of Term Loan, shall have to be registered in the records of Registrar of Companies within the mandatory period of 30 days reckoned from the date of release of the facility. Similar charge in the records of ROC needs to be registered upon release of loan to LLPs. Such registration in ROC shall not be necessary in case immovable properties owned by the Directors or partners (in the case of LLP) are taken as security.

Note : Following undertaking shall be incorporated in the loan document. All the expenses with regard to creation of mortgage charge, Legal opinion, documentation, search in the records of Sub Registrars Office, EC and such other measures as may be considered necessary by the bank shall be borne by the borrowers. Credit facilities sanctioned under the Scheme shall be classified under Priority-Micro & Small Enterprises (MSE) as follows Credit facilities sanctioned to the entities engaged in Service Sector having investment in capital assets not exceeding Rs.10.00 lakhs in equipment (original cost excluding land & building, furniture & fittings) shall be classified as Micro Enterprise (ME).

21

CLASSIFICATION OF THE LOAN

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Similarly, credit facilities sanctioned to the entities engaged in Service Sector having investment in capital assets more than Rs.10.00 lakh but not exceeding Rs.2.00 crores in equipment (original cost excluding land & building, furniture & fittings) shall be classified as Small Service Enterprise (SSE).

Credit facilities sanctioned to the entities engaged in Manufacturing Sector having investment in capital assets not exceeding Rs.25.00 lakhs in equipment (original cost excluding land & building, furniture & fittings) shall be classified as Micro Enterprise (ME). Similarly, credit facilities sanctioned to the entities engaged in Manufacturing Sector having investment in capital assets more than Rs.25.00 lakhs but not exceeding Rs.5.00 crores in plant & machinery equipment (original cost excluding land & building, furniture & fittings) shall be classified as Small Manufacturing Enterprise (SME).

22

BORROWER STANDARD

Any of the following entry level Borrower Standard shall be maintained in respect of Loan accounts being entertained under the Scheme. Existing Account holders with satisfactory dealings & track record covering a period of six months ; or Account holders of other banks having satisfactory dealings at least for 12 months & are inclined to switch over their dealings in full to our bank henceforth; or Borrowers of other banks enjoying working capital facilities/Term loans classified under Standard Asset category - by way of takeover of exposure, subject to compliance of takeover guidelines as dealt in the ensuing para;or Bankable proposals from Business Enterprises & Service Providers as dealt in Col.(1) having at least one year satisfactory commercial operations with one final financial statement;or Upcoming business enterprises/service providers in operation for not less than 2 years and not having bank accounts hither to but having satisfactory market reputation & professional skill.

Applicants shall enjoy good market standing, reputation as assessed by the Branch Head/SBM/ABM & recorded in inspection report based on the above criteria.

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Note :

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Following guidelines shall be adhered to while opening current accounts of clients already having dealings with other banks.

Customer willing to open current account with our bank with an intent to avail credit facility shall provide a declaration stating that he does not enjoy any credit facilities from the existing bank or any other commercial bank hither to. Credit facility for existing borrowers of other Banks can be extended by way of take over of dues from existing lenders together with relative securities subject to compliance of scheme guidelines & take over code as dealt elsewhere. Existing CCH / CCM accounts, as also any other operative secured facility classified under Standard Asset category availed from our Bank can also be absorbed under the Scheme, subject to compliance of relative guidelines as set out herein.

23

FINANCIAL STANDARD

Following minimum Financial Standard shall be maintained while entertaining the proposals falling under the Scheme. i ii Current Ratio : [Current Assets (CA) 1:1 Current Liabilities (CL)] Net Working Zero : (CA CL) Capital (NWC) Following explanations may be noted : As long as sum total of stock + receivables + cash & bank balance + other Current Assets (Gross Working Capital) are equal to or higher than the sum total of sundry creditors + working capital borrowings + current dues to others such position shall be acceptable. Net positive or negative difference under the above shall be the Net Working Capital (NWC). While any positive difference denotes extent of surplus margin availability in the system, negative difference captures the extent of erosion or the deficiency/shortfall of margin in the system.

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Current Ratio of 1:1 denotes neutral status with zero Net Working Capital in the system. In respect of applicants seeking Working Capital facility of Rs.50.00 lakh & below, slippage up to 0.15 i.e., Current Ratio of 0.85:1 can be tolerable at the entry level provided that all the other factors such as ratio of TOL:TNW, profitability position are favourable. Such applicants may be advised to conform to the guidelines within a period of 2 years by plough back of at least 25% of earnings in the system. A specific undertaking as per annexure herein shall be obtained.

For the Professionals &Self employed category, a lower current ratio of 0.75:1 is acceptable considering their low current assets position. ii. Ratio of Total Outside Liabilities (TOL) : Tangible Net Worth (TNW) - 6:1 (TOLTNW) Following explanations may be noted : Unsecured Loan contributed by relatives & family members of the promoters may be kept out of TOL while computation of the ratio. TNW would mean capital + retained profit as reduced by accumulated losses + other intangible assets such as goodwill, patents etc., if any accounted under the assets. Total Outside Liabilities (TOL) would mean total of liability side of Balance Sheet minus Own Funds (as represented by Capital + Reserves + Share Application money + Partners funds + Subordinated unsecured loan).

iii.

Debt Service Coverage Ratio (DSCR) : 1.20:1 (Average)

Net profit + Depreciation + Interest Interest & Instalment on Term Loan covering each year of Term Loan repayment period. Following explanations may be noted : Debt under this concept represents repayment obligations per year together with applicable

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interest thereon only on the Term Loan component (Total of instalment + interest on Term Loan per year). Servicing of the same is effected from out of gross cash accruals represented by net profit + depreciation + interest on TL all for the relevant year. As long as sum total of aggregate gross cash accruals (net profit + depreciation + interest) covering Term Loan repayment period, as per sanction terms, is 1.20 times of the total repayment obligations under Term Loan (total instalments + interest on Term Loan covering the repayment period), the position is acceptable. In other words, average DSCR of 1.20:1 can be acceptable provided that DSCR for any given year is not less than 1.10:1. Net Profit : Entity being financed shall have history of earning profit covering operations for the previous three years. In case, such entity has been in existence covering a period of less than 3 years, it shall be acceptable if it has earned profit covering the period of its actual operations. Level of Receivables : In order to ascertain the quality of receivables & the average period of credit extended to the buyers, it is necessary to compare the level of receivables as captured in the financial statement with sales for the relevant year. Accordingly, the levels of receivables as percentage to sales reflect the average age of such receivables. Longer the credit period extended on sales, higher would be the percentage of receivables in terms of sales. Such situation being an aspect of concern, needs proper evaluation of the quality of receivables by scrutiny of age wise list of receivables & reasons for such delay in realization of the same in order to take a final view on the proposal.

iv.

v.

Following aspects may be noted : Completed Financial statements as furnished by the applicants shall be treated as final & forms the

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basis for the evaluation of financial position & working results. In respect of those entities whose accounts are audited as per the provisions of Income Tax Act (Please refer Annexure), the Branches should obtain copies of audited financial statements for doing the needful. In respect of such entities, who fall outside the purview of audit requirement, it shall be in order to rely on the financial statements as compiled by the entities in-house duly certified by the applicant entity. Audited financial statements would mean true copy of final financial statements as submitted to Income Tax Department covering reports such as 3-CB & 3-CD. As such, along with the audited statements, obtention of reports in the form of 3-CB & CD shall be necessary. For computation of credit assessment, it is necessary to obtain from the applicants, financial statements for the last three years, together with estimated financial statements & working results for the current year. In case, the applicant entity is less than three years old, it shall be in order to rely upon the financial statements for the number of years of actual operations. Working Capital/WCDL requirement shall be assessed under Projected Turnover Method (PTM), where total quantum of credit facility shall be minimum of 20% of target sales (estimated) for the current year. However, target sales as furnished by applicants, shall be compared with actual performance till date, by comparing the same with copies of Monthly VAT Returns relating to actual number of months of operations in the current year. If sales estimate as furnished by the applicant is considered ambitious, in comparison with the sales growth for the previous year & actual performance till date during the current year, such target growth may be pruned down to a reasonable level say; in the range of 25% - 30% over the previous years actual performance. However, in case, for justifiable & valid reasons, target sales growth is considered acceptable having regard to orders pending to be executed immediately or for any other reasons sales

24

CREDIT ASSESSMENT STANDARD

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growth over & above 25% can be reckoned for credit assessment, provided that, the factors which enable the applicant to surpass target sales, beyond 25% growth, shall have to be captured & recorded in the process note itself. Similarly, level of individual components of Current Assets or Liabilities have no bearing on quantum of credit eligibility as assessed under the Scheme. Based on the broad guidelines as set out in the pre paras, computation of credit eligibility shall be assessed under Projected Turnover Method as dealt below.
Sl. No. i ii iii Particulars (Rs.in lakhs) Previous Current years years Actuals estimates

iv v vi vii

viii

Actual / Estimated Sales Accepted Sales for Credit Assessment 25% of turn over (ii) above being assumed as level of gross Current Assets Eligible Bank Finance 20% of (ii) above 5% of turnover (ii) above being promoters margin. 20% of turnover (ii) above being Eligible Bank Finance. Value of the property taken as security net of margin as specified in para (9) above. Eligible Loan Quantum (vi or vii whichever is lower) With regard to margin contribution of 5% by the promoters, it shall be in order to accept the position as given, as long as ratio of TOL:TNW is maintained well within the Financial Standard as set out in para 23. As the guidelines of the scheme provide adequate leverage & flexibility in terms of financial standard & other critical post disbursal norms, linkage of loan quantum to the primary security coverage is necessary. Accordingly, the actual loan quantum may be restricted to EBF as assessed above or eligible exposure based on security value net of stipulated

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margin as dealt in para (9) above, whichever is lower. This aspect needs to be scrupulously adhered to. However, in case credit needs of the applicant is found to be higher than the eligibility as assessed under the Scheme, need based requirement of such borrowers can be taken up for consideration on merits outside the scheme guidelines under normal working capital assessment norms as set out in the Lending Policy guidelines. The guidelines relating to VSOD is scheme specific, whereas our existing credit products particularly to smaller segment of Micro and Small Enterprises requiring credit needs up to Rs 10.00 lakh shall qualify for extending collateral free financial support as per the extant guidelines vide HOC 10096 dated 27.05.2010. Therefore, Branches are advised to entertain viable proposals falling under this category in the normal course as per the prevailing guidelines. Similarly in respect of borrowers seeking working capital limit of more than Rs 10.00 lakh also, such requests may also be entertained on merits in the normal course as per the lending policy guidelines as VSOD scheme caters to specific target group.

25

DOCUMENTS & PARTICULARS TO BE FURNISHED BY THE APPLICANT

Loan application, statement of assets & liabilities together with title deeds in original & other connected documents relating to the property offered as security shall be furnished by the applicant. Following are the constitution wise particulars which the applicant needs to furnish to the bank inter alia along with other details. Individuals/Proprietorship : Letter of proprietorship (In form II-40). PAN card of the firm & individual partners. IT Assessment orders of the individuals.

Partnership concerns : Deed of partnership & Partners Liability Letter (Form II-39), copy of the registration of firm, if any. Partners Liability Letter (Form II-39) in the case of unregistered firms. PAN card of the firm & individual partners. IT Assessment orders of the firm & individual partners.

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Limited Liability Partnership (LLP) :

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Partnership Agreement duly registered with Registrar of Companies (ROC). Names of present partners along with their individual PAN cards. In case there is a change of partners due to resignation or retirement, revised list of names of partners along with the certificate covering such revision issued by Registrar of Companies. PAN Card of LLP. Certificate of Incorporation issued by Registrar of Companies. IT Assessment orders of LLP & individual partners.

Private/Public Limited Company : Memorandum & Articles of Association duly certified. Certificate of Incorporation issued by Registrar of Companies. Name of the present Directors along with their individual PAN card. PAN card of the company. IT Assessment orders of the company & individual directors.

Association of Persons (AOP) : Joint Liability Letter. PAN card of individual members of AOP. IT Assessment orders of AOP & individual members.

Hindu Undivided Family (HUF): Joint Family Letter. PAN card of HUF & individual members of HUF. IT Assessment orders of HUF & individual members of HUF.

Trust : Registered Trust Deed. Names of the Trustees. PAN card of Trust & Trustees. IT Assessment orders of Trust & Trustees.

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Society :

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Registered Bye-Laws of Society Names of the office bearers PAN card of Society & office bearers. IT Assessment orders of Society & individual members.

Common particulars to be furnished by all category of applicants : Final/Audited Financial Statements covering Balance Sheet & Profit & Loss Account duly certified by the applicant for atleast one year & estimated Financial Statements & working results for the current year. Statement of Assets & Liabilities of individuals, directors, partners, trustees as the case may be. Present borrowings & banking details of the entities. Copies of statement of accounts maintained with other banks for the period of six months in case of entities dealing with other banks. Copies of sanction letter of credit facilities if any availed from other banks. VAT Registration Certificate for other than P&SE. Tax Identification Number (TIN) issued by Commercial Tax Department. Monthly Return of VAT covering period of at least six months. Trade License for other than P&SE. Service Tax Registration Certificate in case of professionals & service provider. Statement of all the movable assets of the applicant consisting of stock, receivables, book debts, other movable assets such as furniture & fixtures, system support, equipments etc.

26

PROCESS OF VERIFICATION OF DOCUMENTS OBTAINED

Following specific verification process shall have to be carried out in respect of each category of individual applicant as follows : Public/Private Limited Company Verification of borrowing powers of the entity & its authority to offer the

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companys assets as security for such borrowings from the scrutiny of Memorandum & Articles of Association. In the case of Public Limited Company, Resolution passed in the Annual General Meeting of the Shareholders under Sec.293 (i) (d) of the Companies Act for borrowing in excess of the company paid up capital & free reserves and Companys statutory auditors certificate confirming that the proposed loan is within the borrowing powers of the company. . Search in the records of Registrars Office to verify the subsisting charge on the movable & immovable assets of the applicant entity.

Trust : Verification of borrowing powers of the entity & its authority to offer the assets of the Trust as security for such borrowings from the scrutiny of Trust Deed. Applicant Trust should be engaged in commercial activities & that the borrowings should be utilized for funding needs of its activity. Verification of borrowing powers of the entity & its authority to offer the assets of the Society as security for such borrowings from the scrutiny of Bye-laws of the Society. Applicant Society should be engaged in commercial activities & that the borrowings should be utilized for funding needs of its activity.

Society:

Limited Liability Partnership Verification entity & companys borrowings Partnership passed by of borrowing powers of the its authority to offer the assets as security for such from the scrutiny of Agreement or the Resolution all the partners fixing the

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borrowing powers/limit, including the name of the partner/partners empowered to borrow and the maximum amount that can be borrowed by the LLP. Search in the records of Registrars Office to verify the subsisting charge on the movable & immovable assets of the applicant entity. Undertaking letter that, any changes in the partnership agreement which needs to be filed with Registrar of Companies, shall be effected only after securing the prior approval of the Bank.

Hindu Undivided Family (HUF): Joint Family Letter signed by Karta and major co-parcenors. for verification of other

Common guidelines documents :

27 PROCEDURE FOR SHORT REVIEW :

Legal scrutiny of property title deeds through empanelled advocates. Property identification & assessment of its fair market value & acceptability of the same as security through empanelled valuer. Verification of genuiness of PAN card, TIN, VAT certificate, Monthly VAT Returns, IT assessment orders, Business & residential address verification & verification of such other records & documents by due diligence agencies. VAT Registration Certificate. Trade License Service Tax Registration certificate in the case of professionals and service providers

While the regular renewal of SOD shall be carried out at the end of two years, the facility needs to be reviewed during the intervening period once in 12 months. At the time of short review, following particulars needs to be submitted by the borrower : Final-certified/audited financial statements relating to immediately preceding financial year. VAT Monthly Return covering the number of

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months of actual operations for the current year. Details of changes, if any in the composition of Directors in the case Private Limited Company, Partners in the case of LLPs, Coparceners in the case of HUF, Trustees in the case of Trusts & office bearers in the case of Society as borrowers. Copies of IT Returns. Statement of movable assets consisting of stock, receivables & other movables capturing the position as on date of the proposal. Visit Report of the branch officials covering the borrowers office/business premises/unit to assess the status of movable assets.

There is no need for obtention of loan application, statement of assets & liabilities and other basic particulars by the borrowers other than a letter of request for continuance of the facilities. Review & renewal process essentially involves evaluation of the quality of borrowal account in terms of credit discipline, utilization of funds, total credits to the account in relation to annual sales, core level of credit utilization & the extent of fluctuation thereon & overall financial position & working results for the previous year in comparison with assumptions as originally made at the time of credit sanction. No separate documentation is necessary other than obtention of AODs (which include acknowledgement of security) from the borrower & confirmation of balance from the guarantors. 28 PROCEDURE FOR REGULAR REVIEW & RENEWAL : SOD needs to be renewed once in two years with a short review by 12 months. Along with the regular renewal, it shall be in order to take up the partys request for need based enhancement on merits subject to compliance of various parameters as covered under the Scheme. However, regular renewal-cum-enhancement can also be taken up earlier during the intervening period after the short review by 12 months. Following documents may be taken for regular renewal: Final-certified/audited financial statements

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relating to immediately preceding financial year. Target/estimated financial statements for the current year. VAT Monthly Return covering the number of months of actual operations for the current year. Details of changes, if any in the composition of Directors in the case Limited Companies, Partners in the case of LLPs, Co-parceners in the case of HUF, Trustees in the case of Trusts & office bearers in the case of Society as borrowers. Copies of IT Returns. Month wise sales/purchase covering the actual month of operations in the current year. Statement of movable assets consisting of stock, receivables & other movables capturing the position as on date of the proposal. Visit Report of the branch officials covering the borrowers office/business premises/unit to assess the status of movable and immovable assets. Loan application in the prescribed format together with statement of assets & liabilities of all the concerned parties. Renewal/Enhancement proposal needs to be approved by the appropriate sanctioning authorities based on proper credit appraisal as per the credit assessment format relevant to the scheme (copy enclosed).

For Term Loans and WCDL, annual review has to be submitted as per the simplified format. 29 POST SANCTION SUPERVISION & FOLLOW UP : Credits to the account, frequency & mode of such credits, average level of credit utilization needs to be constantly monitored. In case, extent of credits become fewer & frequency gets longer, enquiries with the borrowers reveal the factual position. Remedial measures if required needs to be initiated by the branch officials forthwith in order to reactivate the account. Further, operation in the SOD account needs to be closely & continuously monitored at post disbursal stage particularly covering the payments made/withdrawals during the initial period. This aspect shall be ensured by the branch officials. Loan documents shall be subjected to Legal Audit

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with the help of junior advocates empanelled for providing such services upon disbursal of the facility. Wherever possible, Legal Audit shall be handled by an alternative advocate, other than the one who has furnished the opinion on the property. Discrepancies if any, observed in documentation, during the course of Legal Audit shall have to be got rectified immediately. All the expenses with regard to creation of mortgage charge, Legal opinion, documentation, search in the records of Sub Registrars Office, EC and such other measures as may be considered necessary by the bank shall be borne by the borrowers. Encumbrance Certificate & Tax paid receipt covering the property under mortgage to the bank shall be obtained & verified once in two years. Search in the records of ROC shall have to be conducted immediately on post disbursal stage to ensure registration of charge on the borrower assets in our favour, in case the borrowers are Corporates/LLPs. Similar search in the records of ROC shall have to carried out once in two years to coincide with regular renewal process. Borrower shall submit to the bank annual statement of movable assets consisting of stock receivables, all other movable assets covering both description & value along with the loan application & at the time of every subsequent review & renewal. Similarly, the branch officials shall visit the borrowers business/office/unit for evaluation of the movable assets as declared in the statement. Branch officials should visit the property under mortgage to the bank once at pre-sanction stage & at every year thereafter to coincide with review & renewal process. Similarly, all the movable assets offered as security to the Bank covering Term Loan shall also be inspected at yearly intervals. During the currency of the credit facility availed from our Bank, original title deeds cannot be parted with, under any circumstances. However, scrutinizing the same by the owner can be allowed only in the presence of the branch head or his

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authorized representative within the branch premises. Certified photo copies of the original title deeds may be furnished against specific written request only to the owner boldly mentioning in each page of the copy as certified true copy.

30

ENTRY LEVEL PRE SANCTION DUE DILIGENCE

i.

Entry level pre-sanction due diligence compliance broadly covers broadly involves four areas applicant due diligence, credit due diligence, legal due diligence, property/security due diligence. While the applicant due diligence is primarily the branch function, other aspects involving specific skills & knowledge, needs to be handled by service providers as dealt in detail under sl.no. 33. Broad aspects of due diligence covers the following issues. Applicant due diligence - covering compliance of KYC norms, verification of antecedents, business status, VAT Registration Certificate, Tax Identification Certificate (TIN), both issued by Commercial Tax Department, Monthly Return of VAT, Trade License & other Certificates, IT Returns, address/telephone number proof & such other vital documents on which credit decision is based. Note: Copy of the IT return filed with computation sheet should be got verified.

ii.

Credit due diligence involving mainly verification of financial track record, credit history of the applicant, banking & borrowing details, verification of statement of accounts with the existing banks, CIBIL data & RBI Defaulters' List, enquiries with peers, neighbours, competitors, business association, or respectable known references & confidential enquiries both oral & in writing from existing bankers/lenders. Legal due diligence - covering mainly legal scrutiny of title deeds in original to ensure subsistence of marketable title for the owner/mortgager over the property offered as security, verification of genuiness of title deeds by carrying out search in the records of Sub Registrar's Office, obtention of Encumbrance Certificate covering minimum required period,

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scrutiny of Mother Deed on which the title of the relevant property is derived, link documents & such other documents & papers which are necessary for creation of effective & enforceable mortgage charge in favour of the Bank to secure the exposure. Property/Security due diligence - the process involves essentially identification of the relevant property and its location, offered as security, assessment of its fair market value and acceptability of the same as security for the bank, comparison of construction of building with copy of the plan approved by the local Municipal/Corporation authorities. While compliance of KYC norms as per RBI guidelines & credit due diligence shall essentially fall within the functional domain of the credit originating & disbursing branch, some of the presanction functions relating to scrutiny of property/security documents its valuation & verification of other related records require specialised knowledge & skill.

iii.

31

ROLE OF THE BRANCH AT THE PRESANCTION LEVEL

In this regard, the Scheme provides for availing the services of empanelled Service Providers such as - Advocates, Valuers & Engineers and Due Diligence Verification Agencies for doing the needful as dealt in detail under sl.no.33. Marketing of all credit products and its timely delivery to the client fall within the primary functional domain of the branch. In this context, credit originating branch shall be responsible for sourcing the bankable credit proposals, compliance of KYC norms as per RBI guidelines, applicant identification, verification of financial credentials & the relative credit due diligence process, besides final credit delivery to the client/borrower. Main functions of the branch with regard to the Scheme under reference: Identification & marketing of bankable proposals from creditworthy applicants. Compliance of KYC norms as per RBI guidelines, covering applicant identification, proper introduction by the known respectable references etc. Verification of credit history, financial track

iv.

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record & antecedents of the applicant through oral enquiries and OPL reports from existing bankers/lenders, if any, statement of accounts/pass books and such other documented sources, such as CIBIL data, RBI Defaulters List etc. Enquiries with regard to creditworthiness with known references, peers, neighbours, business associates & competitors & other respectable persons engaged in similar business/activity. Verification of CIBIL Data and RBI Defaulters' List be carried out by contacting RO through I-Net, and confirmation held on record at pre sanction stage. Personal visit/inspection of the property offered as security, business/office premises at pre sanction stage itself. To personally handover the original title deeds and property documents as received from the applicant, to the empanelled advocate for his opinion. Similarly, empanelled valuer may be requested to identify the property & furnish valuation report covering the relative property. Note: Branches should get the details of short listed professionals for entrusting the job from RO. Evaluation of the applicants credentials, commitment to & knowledge of the business through personal discussions & interactions with the applicant borrower & summarize & capture the same in inspection report.

Once satisfied with the financial credibility of the applicant & viability of the business operations, decision on the relative proposal may be taken by the branch head on merits of each case, based on inputs as provided by the due diligence reports of the advocate, valuers & other service providers in case relative proposal falls under the branch powers. In case such proposals falls beyond the powers of the Branch Head the same shall be forwarded to RO duly incorporating the specific views,

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observations, remarks & recommendations as the case may be, along with the application & relative documents as submitted by the applicant for decision.

32

ROLE & RESPONSIBILITIES OF REGIONAL OFFICE

RO shall be responsible for handling proposals relating to the Scheme falling beyond the powers (as dealt in sl.no.34) of the respective branches under its jurisdiction for expeditious sanction of the same, based on merits in compliance with relative Scheme guidelines in force. It shall function as a pro-active facilitator & an inter-face between the branches and all the service providers, responsible for growth of healthy retail credit portfolio. RO shall be responsible for the following : Scrutiny of all proposals under the Scheme received from feeder branches falling beyond the delegated powers of the respective Branch Heads for expeditious final sanction/decision on merits of the case. Short listing of efficient & pro-active service providers from out of approved empanelled list for legal scrutiny of title deeds offered as security, identification & evaluation of fair market value of such properties & authentication of related documents submitted by the applicants. For this purpose, RO shall ensure that the efficient advocates and valuer are entrusted with the work. Names of the professionals may be circulated amongst the branches in the Region for handling the case falling within the powers of the branch. Similarly, empanelment of Due Diligence Verification Agents specially for pre-sanction verification of some of the vital documents submitted by the applicants also falls under functional domain of RO. Names of such empanelled due diligence agents shall be circulated amongst the branches in the region for handling the cases falling within the powers of the respective branches.

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Fees, charges & expenses payable to all the three categories of service providers shall be borne by the applicants, irrespective of the final decision on the relevant proposal. RO shall interact with service providers for gathering vital inputs which they have encountered during the course of their operations relating to the functioning of some of the shady characters set to defraud the bank by furnishing fraudulent/fake title deeds/income certificates. RO shall share such inputs with the feeder branches as an preemptive measure against possible recurrent of frauds.

RO shall enter into service contract with these specialized professionals service providers for rendering efficient & bonafide services for safe guarding interest of the Bank. Draft copy of the agreement may be got vetted from Credit-Legal Department, H.O. CID-HO shall carry out surprise check of documents verified by Due Diligence Agencies (DDA) in order to ascertain the quality & authenticity of services provided by these agencies. RO shall avoid concentration of cases in the hands of only few service providers such as Advocates, Valuers & DDAs. In order to achieve this general principle, RO shall evenly distribute the cases to various service providers for rendering expeditious service. 33 ROLE & RESPONSIBILITIES OF SERVICE PROVIDERS Advocates : Advocates/Lawyers shall be entirely & solely responsible for legal scrutiny of title deeds of properties in original, offered as security to the bank. On scrutiny of the same, the advocate shall furnish to the bank an unambiguous opinion as to the genuineness of those title deeds, and also availability or otherwise of valid, enforceable & marketable title to the owner over the relative property. Advocate shall verify title deeds/property documents in original as also such other documents which together, confer on the concerned owner, valid & enforceable marketable

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title on the property.

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Opinion shall be furnished in the prescribed format as annexed herein & shall essentially incorporate the following aspects, based on the compliance of which he has tendered his considered opinion to the bank as to the acceptability or otherwise of the property as a valid & enforceable security. Verification of vital title deeds in original. Verification of Mother - Deed in respect of multi unit residential flats. Verification of link documents covering the previous ownership for scrutiny & evaluation of flow of title to different owners over the period. To conduct searches in the concerned Sub Registrars office covering mandatory minimum period (including broken period, if any) and to verify the subsisting charge, if any. To conduct searches in the concerned Revenue/ Municipality / Panchayat Office regarding any statutory pending dues. Verify & compare the Sale Deed/property document offered as security, with that of the one held in the records of Sub Registrar's Office by conducting search. With such comparison, acceptance of fake documents can be minimized at the presanction stage itself.

Valuers/Engineers : Valuers/Engineers shall have dual responsibility of identification of the relative property and evaluation of its fair market value at pre-sanction stage itself. Valuer shall furnish to the bank a report covering location of the property supported by geographical sketch of route map of the same, its identification, present fair market value & the extent of deviation occurred in the case of pre-existed structures in the specified format as annexed herein. In other words, he should clearly spell out acceptability or otherwise of the property in question as security for the bank. Thus, his functions broadly covers the following :

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Visit the site independent of the owners for its identification; Evaluation & assessment of the fair market value of the property and its acceptability as security for the bank. Verify the pre-existed structure with the building plan approved by Local Municipal Bodies/Corporations for identification & reporting the extent of deviation vis--vis approved building plan. He shall also clearly spell out whether such deviations are within the normal tolerance level & whether such property with the extent of deviation thereon shall be accepted as security.

To sum up the valuer shall advise the bank with regard to identification of the property, its quality & fair market value as a proper security for the bank. Due Diligence Verification Agencies : Agency shall be responsible for verification of various documents & certificates as furnished by the applicant for their veracity & genuineness. Main documents which needs such verification are IT Returns, VAT Registration Certificate, Tax Identification Number (TIN) issued by Commercial Tax Department, Monthly Return of VAT, Trade License, Service Tax Registration in the case of professionals, Financial Statements as furnished by the applicant, business status, verification of residence, enquiries in the neighbourhood, details of business/services rendered by the applicant, verification of telephone numbers & such other details as furnished by him for arriving at a fair judgment. For conducting search in the records of ROC both at pre-sanction & post disbursal stage in the case of Corporates & LLP borrowers, services of professional Chartered Accountants shall be hired by the branches. He shall be responsible for providing true & fair report covering the extent of charge on the specific securities outstanding in the records of ROC at the relevant point of time. In view of availability of services of various professionals such as advocates, valuers & engineers and due diligence verification agencies, the branch shall be in a position to focus its attention to marketing & sourcing of bankable proposals aggressively.

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34

SANCTIONING POWERS

Scheme specific sanctioning powers of the respective delegatees at the Branch & RO are as follows : ScaleII Branch Head Scale III Branch Head Scale IV Branch Head/CM at RO Up to Rs.60.00 lakhs Scale V&VI Branch Head Above Rs.60.00 lakhs Respective delegatees in the RO / Regional Head* * Proposals falling beyond the powers of the Branch Head shall be approved by the authority not less than the rank of an Executive i.e Scale IV and above at the RO as per the chart indicated above. AGM and above at RO shall have the powers to sanction the loans falling beyond the powers of the Branch Heads/ CM at RO as indicated above and upto Rs 1.00 crore under VSOD. All credit sanctions as approved by the Branch Head shall have to be reported to the immediate next higher authority for perusal by way of Control Returns. Such sanctions should be reported monthly in the form of MR25 (A) along with copies of process notes for the perusal by the immediate next authority in the RO. Separate General Ledger head shall be given for loans under VSOD by CAD, HO. Separate scheme code under CBS shall be provided by DIT, HO. Branches should ensure proper reporting of the sanctions/disbursements under the specified scheme code and capture the advance under priority sector/MSE/Retail lending and other sub-categories. Takeover of exposures from other banks is one of the identified sources for expansion of retail portfolio. Following aspects should be noted while takeover of exposures from other banks. Account being taken over should be classified under Standard Asset category with the existing lender bank without there being any track record of default history, as evidenced by verification of copies of statement of accounts with the existing lender covering minimum period of twelve months. In this regard, copies of sanction letters from the existing lenders shall be obtained in order to ascertain the terms of sanction & security details. Apart from this, personal enquiries with the officials of the existing lender bank (from whom the exposure is being taken over) would enable the bank to evaluate the track record & dealings of the applicant entity with them. Interactions with existing lender should also cover the aspect Up to Rs.15.00 lakhs Up to Rs.25.00 lakhs Up to Rs.40.00 lakhs

35

POST SANCTION REPORTING SYSTEM

36

GUIDELINES FOR TAKEOVER OF EXPOSURES

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relating to present asset status of the exposure with them. Feedback & opinion gathered during the course of discussions & interactions with the existing lender bank shall be recorded in inspection report Approval for takeover of exposure shall have to be permitted by an authority one rank above the rank of sanctioning authority. Such permission should be in place before takeover. Liabilities outstanding with existing lenders should be taken over along with the relative securities in our favour. No Due Certificate from existing lenders shall also be obtained and copies held on record on completion of takeover process. Charge on the assets already registered in the records of ROC on the companys/LLPs assets offered as security shall be got vacated by filing satisfaction of charge on our takeover of exposure in full. Sanction of loans for takeover shall be governed by the relevant Scheme guidelines. Borrower Standard & Financial Standard, credit assessment norms as applicable under the Scheme guidelines shall be strictly adhered to. As also, adherence to KYC & due diligence norms, entry level presanction guidelines, credit assessment norms as applicable under the Scheme shall be strictly adhered to. However, as title deeds relating to property documents are presently held by existing lenders as security, legal scrutiny of the same shall have to be based on the Xerox copies of property documents as obtained from and certified by the existing lender banks, wherever possible. Loan proceeds equivalent to the outstanding in the existing lenders shall have to be remitted to them directly by way of DD (in the name of existing lender bank account borrowers name) in full & final settlement of the dues of the borrower. Such remittance should be accompanied by a letter advising the existing lender bank, to utilize the proceeds only towards settlement of the borrowers loan account and handover the original property documents only to the authorized official of our Bank. Copy of the acknowledgement furnished by

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the existing lender banks agreeing to handover the documents directly to our Bank Official shall be obtained and held on record. A No Due Certificate from the existing lender bank shall be obtained. All other documentation guidelines applicable to the Scheme shall be adhered to. Definition: It needs to be noted that, in terms of RBI Master Circular DBOD.No.BP.BC.21 /21.04.048/2010-11 dated 01.07.2010 relating to IRAC norms, restructuring of a borrowal account would normally involve modification of original sanction terms covering security structure, repayment terms, loan tenor, funding of irregularity etc with an intent to extend an element of concessions/relaxations/relief to the borrower which the bank would not have normally considered otherwise. Such relaxations, covering funding of irregularities, extension of repayment terms having direct bearing on the account conduct, shall become necessary, when income stream of the borrower comes under stress. In such situation, servicing of interest & charges in the operative facility and timely repayment of installments & interest in respect of Term Loans become difficult resulting in deterioration of credit quality. It needs to be noted that, irregularities in the operative facility can either be in the form of intrinsic deficiency as reflected by the erosion of asset base or external symptoms, as observed from unpaid interest dues, excess drawings, dishonour of cheques & such other deficiencies in the account conduct. Under such circumstances, funding of such irregularity as WCTL, by carving out of excess/unpaid overdues in the operative facility is considered one of the acceptable option available under restructuring guidelines. Restructured terms shall have to be communicated in writing to the borrower/co-borrower/guarantor and their specific acceptance of the restructured terms shall have to be held on record. Need for restructuring : Under these circumstances, funding of irregularity/overdues & re-schedulement of repayment terms is considered one of the safe

37

GUIDELINES FOR RESTRUCTURING OF ACCOUNTS UNDER STRESS

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viable option in order to conserve the credit quality & asset status of the borrowal accounts. Eligibility criteria to qualify for restructuring: However, restructuring option can be exercised only under following circumstances There is a specific request by the borrower to restructure the loan account. Bank's exposure is fully secured. Viability of restructuring option, as evidenced by the capacity of the borrower, to meet the repayment obligations under rescheduled terms, without further strain, within the available income stream & in accordance with the revised repayment terms. Restructured dues shall be repaid in full within the overall extended period of 7 years from the date of restructuring. Terms of repayment shall be determined in accordance with income stream. In other words, only those entities which have the potential & capacity to generate adequate income to be able to meet the repayment obligations within the outer time frame of 7 years shall be considered as viable. Re-schedulement of repayment terms should be only "for the first time" (It needs to be noted that, restructuring of an loan account for the second & subsequent time would be termed as "repeated restructuring" & such accounts automatically qualify for down gradation to lower asset status.

Asset classification on restructuring: Restructuring of a loan account, when the same is still classified & continuing under standard asset status, would enable the account to be maintained & continued in the same asset category. Against this background, in case of stressed account, it is all the more necessary to attempt restructuring well in time in order to conserve the credit quality & asset status & to facilitate unhindered recovery of the dues under rescheduled terms. Reporting :

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All restructured accounts needs to be reported in AC-8 each quarter. Follow up : All restructured accounts needs effective & constant follow up in order to ensure recovery of the dues in accordance with rescheduled terms. Any failure thereof, or recurrence & subsistence of overdues beyond the period of 90 days, would automatically restore the account to status quo ante, whereby the account shall revert to the original asset status, in which initial reschedulement was first attempted. Delegated powers for approval: Approval for restructuring shall be accorded by the next higher authority i.e., one authority higher than the authority under whose power the loan was originally approved. Provisioning : Viewed purely from economic angle reschedulement of any borrowal account would automatically result in diminution in the fair market value of such exposure. Such diminution in fair market value, is considered an economic loss for the bank. Extent of erosion in the fair market value of the loan account can be evaluated, as a difference between the fair value of the loan account prior to and after restructuring. In other words, economic loss represents the net difference in the present value of future cash flows as per existing terms (pre-restructuring) and net present value of future cash flows under restructured terms. Provisioning shall be necessary for such notional economic loss which the bank would suffer upon restructuring. Methodology and the formula together with the Excel soft copy for computation of the sacrifice has been provided to the branches for doing the needful. Higher interest load : In order to compensate the economic loss suffered

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by the bank, it is necessary to factor marginally higher interest rate on the borrowal account upon restructuring. In other words, all loan accounts under the Scheme which shall be restructured henceforth be loaded with additional interest of at least 0.25%, over & above the normal applicable interest rate. No penal interest need be charged on restructured loan accounts, provided that the borrower meets the repayment obligations in accordance with restructured terms. In the event of bank being called upon to fund any portion of economic loss arising out of restructuring, borrower shall have to bear upfront 15% of such sacrifice, as a part of restructuring package by way infusion of additional funds. Levy of restructuring charges: Accounts under the scheme are exempted from payment of any Restructuring Charges. Income recognition : Interest charged on restructured loan account can be recognized as income, provided that, repayment obligations under restructured terms are met as per approved terms. Restructuring of Non-performing Assets: Restructuring option can be exercised even in the case of accounts under non performing category (SSA & DA), provided that the activity is found to be viable, & the inability to service the interest & or instalment is for reasons beyond the control of the borrower even while his intention and integrity remains unblemished. Such accounts (i.e., restructuring of accounts under non performing category) shall qualify for up-gradation, essentially based on satisfactory recovery performance for a minimum period of one year, reckoned from the date, when the first payment of interest or instalment falls due under restructured terms & that there shall not be any arrears beyond 90 days in respect of interest/instalment during the course of the year & nil arrears, as at the end of the qualifying year. In other words, if only the borrower has serviced the interest & or instalment for a minimum period of one year, reckoned from the date when the first

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interest & or instalment falls due as per the restructured terms, provided that there has not been any arrears beyond 90 days covering interest/instalments & nil arrears as at the end of the qualifying year.

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TREATMENT OF EXISTING CCH ACCOUNTS

Existing CCH accounts, inter alia secured by immovable properties with specified security margin, outstanding under Standard Asset category, which conform to the guidelines as dealt herein, can be covered under the Scheme forthwith. This is a new retail product, launched by the Bank focusing on business & service enterprises. Comprehensive guidelines as dealt in this Master Circular under reference capture the essence and critical features of the Scheme. All the guidelines laid down herein are unique & Scheme specific. As such, there is no prior reference for the Scheme. In the context of series of frauds relating to fake title deeds, VAT & IT Returns, TAN, approved plan for builders, impersonation, Registration Certificates etc certain precautionary measures have been suggested by the HO from time to time in order to minimize recurrence of the same. Guidelines issued by HO in this regard as preventive vigilance measure, as factored under the Scheme needs to be scrupulously adhered to. QCMR/HCMR as presently in vogue has become redundant in the context of implementation CBS System in the Bank. As such, in lieu of QCMR/HCMRs, branches shall henceforth submit to RO. Annual Credit Monitoring Report (ACMR) relating to account conduct (as per the annexure) covering the period reckoned from six months of short review & annual review date. Monitoring systems as set out herein may be noted for compliance.

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EARLIER CIRCULAR REFERENCES

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PREVENTIVE VIGILANCE MEASURES

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QUARTERLY CREDIT MONITORING REPORTING SYSTEM

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AUTHORITY FOR CLARIFICATIONS &

General Manager-Credit (Retail & Priority), HO shall be the appropriate authority to furnish clarifications as also approval of relaxations relating to the Scheme

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APPROVAL OF RELAXATIONS 43 AUTHORITY FOR APPROVAL OF MODIFICATION S IN THE SCHEME GUIDLINES DISCONTINUANCE OF EXISTING SCHEMES Guidelines.

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The Chairman and Managing Director is the appropriate Authority for approval of modification in the Scheme guidelines

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With the introduction of VSOD Scheme, existing Retail Loan Schemes as covered in V-Trade scheme is simultaneously discontinued. Borrowal accounts under V-Trade Scheme may be brought under VSOD, in compliance with Scheme guidelines.

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CONCLUSION

VSOD is a newly introduced retail product in order to cater to the credit needs of entities under MSE category - classified under Priority Credit. Relative Scheme guidelines as set out herein, being comprehensive, incorporate all aspects covering credit origination & dispensation. Simplified application form, proforma of legal scrutiny report, valuation report, asset verification report & such other documents as may be necessary have also been designed and are available as annexures for ready reference. With these measures, the field functionaries are expected to effectively market & popularize the product in order to augment our share in Retail & Priority Credit.

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ANNEXURE List of IT assesses who have to get their accounts compulsorily audited under IT Act.(Sec. 44AB) Type of Tax Payer Business entities Criteria for compulsory audit under IT Act. If the total sales, turnover or gross receipts in business for the previous year relevant to the Assessment Year exceed or exceeds Rs 40.00 lakh (Rs 60.00 lakh from the assessment year 2011-12). If his gross receipts in professions for the previous year relevant to the assessment year exceeds Rs 10 lakh (Rs 15 lakh from the assessment year 2011-12). Auditing in respect corporate entities is mandatory irrespective of turnover/gross receipts criteria as applicable to the above categories. As per LLP Act, auditing is compulsory when their turnover exceeds Rs 40.00 lakh or the initial contribution of partners is more than Rs 25.00 lakh

Professionals & Self employed Companies LLPs

Note: a. In such cases, where the borrower files compulsorily IT returns, the relevant copies of the return filed with full details of income/copy of assessment order for the latest period to be obtained and held in record. Copy of the IT return filed/IT assessment orders submitted with the application should be carefully scrutinized. In case the gap between filing of two IT returns is found to be less than 6 months, the reason for the same should be ascertained and due precautions should be taken while entertaining the proposals.

b.