245985656 RBS Credit Policy Copy

INSTITUTE OF BUSINESS ADMINISTRATION, PUNJAB UNIVERSITY

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Table of Contents Introduction ................................................................................................................................................. 3

Departments of RBS .................................................................................................................................. 4

Marketing Department of RBS: ............................................................................................................. 4

Credit Risk Management department of RBS: ...................................................................................... 5

Credit Administration Department RBS: ............................................................................................... 5

Secured loans ............................................................................................................................................ 8

Conventional Mortgages: ...................................................................................................................... 8

CHARGES: .................................................................................................................................................. 8

N cash facility (Business Finance): ......................................................................................................... 10

WHEELS ................................................................................................................................................... 11

Charges: .............................................................................................................................................. 11

Cash near Cash ........................................................................................................................................ 12

Loan against Shares ................................................................................................................................ 12

Personal Loans ........................................................................................................................................ 13

Credit Cards Facility ................................................................................................................................ 14

CREDIT POLICY:

GENERAL DEFINITION: ............................................................................................................................ 16

OBJECTIVES: ............................................................................................................................................ 16

SBPS REQUIREMENT: ............................................................................................................................. 16

Credit Standards Followed By RBS: ......................................................................................................... 17

CENTRALIZED AUTHORITY: ..................................................................................................................... 18

FUNDED AND NONFUNDED FACILITIES .................................................................................................. 18

SECTORAL BASED LENDING ..................................................................................................................... 18

NICHE MARKETING ................................................................................................................................. 19

UNAPPROVED SEGMENTS....................................................................................................................... 19

TIME REQUIRED FOR APPROVAL OF LOAN ............................................................................................. 19

PATTERN OF INSTALLMENTS................................................................................................................... 19

CREDIT CARD ........................................................................................................................................... 19

NPL Ratio ................................................................................................................................................. 19


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REVISION OF CREDIT POLICY ................................................................................................................... 19

INCOME REQUIREMENT.......................................................................................................................... 20

TIME PERIOD FOR FINANACING .............................................................................................................. 20

LC FACILITY .............................................................................................................................................. 20

Collateral Based Lending: ........................................................................................................................ 20

CDR (Credit deposit Ratio) position of RBS: ............................................................................................ 21

SAFTY MARGIN: ....................................................................................................................................... 21

CREDIT POLICY FOR RENEWALS & ENHANCEMENT ................................................................................ 21

SPREAD: ................................................................................................................................................... 21

PAYMENT INCENTIVES: ........................................................................................................................... 21

Documentation Required By RBS for Facilitating a LOAN: ..................................................................... 22

Sole Proprietor: ....................................................................................................................................... 22

Partnership: ............................................................................................................................................. 22

Company: ................................................................................................................................................ 22

Security Based: ........................................................................................................................................ 23

Property: ............................................................................................................................................. 23

Other Legal Documents: ..................................................................................................................... 23

SUGGESTIONS ......................................................................................................................................... 24

CONCLUSION ........................................................................................................................................... 25


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INTRODUCTION

The Royal Bank of Scotland Group has grown from small beginnings nearly 300 years ago to become the second largest financial services group by profit, in the world. With an AA credit rating, RBS group has more than 40 million customers worldwide, operating profit in 2007 10.3 billion, and total assets, as at 31 December 2007, of GBP 1,900.5 billion. Today the situation is different. Due to worldwide recession bank had a massive loss. According to

unaudited quarter report i.e30th June 2009 bank had a net loss of RS.584, 090,0001, compare to net loss of RS.59, 703,0002 on 30th June 2008.now MCB Bank has bought the Pakistan

operations of the Royal Bank of Scotland (RBS), paying a price of PRs7.2 billion ($87.4 million) for a 99.37% stake in RBS Pakistan3. RBS brands operate around the globe and down the street

to provide banking services for individuals, businesses and institutions.

VALUE PROPOSITION

Royal Preferred Banking offers its clients an unmatched blend of personalized banking and

wealth maximization opportunities.

PRODUCTS Alongside a comprehensive range of premium banking products and services, RBS offers

fully integrated financial planning and investment advisory capabilities.

PRIVILEGES From luxurious lounges to personalized attention, Royal Preferred Banking delivers its clients

exclusive services.

1 Unaudited half year income statement 2009

Source: www.rbs.com.pk 2 Unaudited half year income statement 2009

Source: www.rbs.com.pk 3 Source:financeasia.com


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Marketing Department Credit Risk

Management Department

Credit Administration Department

Departments of RBS

RBS has a centralized banking system. Facilitating a loan is a continuous process here which linked up

THREE major departments namely;

MARKETING

CREDIT RISK MANGEMENT

CAD

ALL the departments work together to make the system more efficient and to satisfy the customers

properly.

Marketing Department of RBS:

Following are the duties of this department:

It initiate the proposal

Direct the customer relationship with RBS

It collects all the required documents

It analyzes the financial statements of the bank

From initial analysis of the customer and his needs to the preparation of the proposal,

marketing department performed all duties to assist the Credit Risk Management Department.


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Credit Risk Management department of RBS:

The information provided by the marketing department is analyzed by this department to manage the

probability of being default of the customer. It has to manage in this way that profitability of RBS

increased and defaulters have been decreased. It checks out the purpose of this facility, track out the

record, ancillary business, margin or mark up.

The team of marketing department of RBs provide all documents and a track to reach the customer

after it the credit risk management department of RBS performed the further duties to check the credit

worthiness of the customer.

Credit Administration Department RBS:

It performed the following duties:

Perfection of the securities

Completion and last stamp on the authenticity of the documents

Acceptance and rejection of the proposal based on the decision of this department


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TREASURY / FINANCIAL MARKETS:

Foreign Currency Deposits

Spot and Forward

Exchange

OVERVIEW OF PRODUCTS

The figures above give a brief overview of products and services provided by a bank.

INTEGRATED CASH MANAGEMENT SERVICES

Product/ Services

Cash Management

PAYMENTS

Cash Withdrawl

Bankdraft

Cheque

COLLECTIONS

Cash Deposit

BankDraft

Cheque

Direct Debit

TRADED SERVICES AND SUPPLY CHAIN

Product/ Services

Documentry Credit

Documentry Collections

IMPORT

Issuance and amendments of LC

Special credit

Documents against Acceptance &

Payments

EXPORT

LC Confirmation

Advising and Negotiation of LC

Re-Imbursement Undertaking

Documents against Acceptance &

Payments


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OVERVIEW OF RBS LOAN PRODUCTS


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Secured loans

Conventional Mortgages:

Following are the different mark-up rates for mortgages.

MARKUP:

Slabs Benchmark KIBOR Spread Total

Up to 4,999,999 1 year KIBOR+4.25% 12.93% 4.25% 17.18%

Between 5,000.000 & 9,999,999 1 year KIBOR+3.75% 12.93% 3.75% 16.68%

Between 10,000,000 & 19,999,999 1 year KIBOR+3.5% 12.93% 3.50% 16.43%

More than 20,000,000 1 year KIBOR+3.25% 12.93% 3.25% 16.18%

CHARGES:

Documentation, Stamp Duty & Government Levies

Actual

Legal Charges

3500

Late payment charges

Rs. 1,000/- or 10% of installment which ever is higher

Pre-payment penalty, Full pay-off & Partial pre payment

10% for all BTF cases.

Processing Fee

Rs. 5,000/-

Enhancement Fee

Rs. 5,000/-

Installment Collection Charges

Rs. 400/- per visit


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N Cash Facility (RUNNING FINANCE):

This facility is provided for

Empower the customers with financing to fulfill their business needs.

With Running Finance customer can fulfill his working capital/cash flow needs.

Markup of N cash facility (Running Finance)


Up to 4,999,999 3 Month KIBOR+4.00% 12.60% 4.00% 16.60%

Between 5,000.000 & 14,999,999 3 Month KIBOR+3.75% 12.60% 3.75% 16.35%

More than 15,000,000 3 Month KIBOR+3.50% 12.60% 3.50% 16.10%

Charges

Fresh case processing fee

up to Rs. 5,000/- upfront

BTF case processing fee


Enhancement case processing fee



Rs. 100/- per day

Installment collection charges

Rs. 400 per visit

Loan Enhancement Facility

Choice between Running Finance or Installment Based financing


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N cash facility (Business Finance): with the Business Loan customer can invest in project financing, capital investment, business expansion or balance transfer from a running finance facility to a term loan.

Mark up of N cash facility (Business Finance)


Up to 4,999,999 1 year KIBOR+4.00% 12.93% 4.00% 16.93%

Between 5,000.000 & 14,999,999 1 year KIBOR+3.75% 12.93% 3.75% 16.68%

More than 15,000,000 1 year KIBOR+3.50% 12.93% 3.50% 16.43%

Charges:

Fresh case processing

fee

Up to Rs. 5,000/- upfront

BTF case processing fee


Enhancement case processing fee



Rs. 1,000/- or 10% of installment

which ever or higher


Rs. 400 per visit


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WHEELS

RBS cherishes the relationship with its customers; they will be accommodated with assistance from Relationship Managers who will facilitate them through the procedure until they find exactly what they want.

Markup of Wheels


Less than 600 K 1 year KIBOR+4.50% 12.93% 4.50% 17.43%

More than 600 K 1 year KIBOR+4.00% 12.93% 4.00% 16.93%

Existing AAB Customers 0.5% discount on above

Charges:

Processing Fee

Up to Rs. 5,000/-

Re-issuance of purchase order

Up to Rs. 1,000/-


Rs. 600/- per month


Rs. 400/- per visit

Full prepayment of Cars with registration:

During first 6 months

10% (on outstanding amount)

During 7th month to 12 months


During 2nd year


During 3rd year


4th year onward


Partial Prepayment :

Upto 1st year

5% (on amount being prepaid)

During 2nd year


During 3rd year


After 3rd year



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Cash near Cash

Help the customers to meet their sudden cash flow needs.

Acquire funds against your existing deposits or near cash instruments without liquidating

them.

Earn income from your pledged deposit or near cash instrument without it being

disturbed.

Markup for Cash near Cash

Slabs Minimum Bench mark

Branch/Preferred Customers 3 month KIBOR*+0.75% RBS Staff 3 month KIBOR*+0.25%

Charges

Loan against Shares

Loan against Shares (LAS) facility enables customers to take a loan against the shares invested in companies listed on the KSE-100 index and release the initial investment at its current market value. Their slogan is

Get more than just dividends - get the competitive edge with Loan against

Shares .

Charges:

Financing against shares

1) Pledged Share Scrips

Rs. 1,000/- per charge requested

2) Forced Facility Liquidation Fees

Rs. 5,000/- Plus applicable brokerage charges

Balance Confirmation Certificates

Rs. 300/- per certificate

Balance Confirmation Certificates to auditors

Rs. 1,500/- per certificate

Mark up Settlement

Up to Rs. 7,000/- if mark up is not paid within specified period


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BTF (Balance Transfer Facility)

BTF is the most convenient, flexible, economical and easy-to-use loan facility designed to suit

customer needs and gives them the power to control their finances. It offers a variety of features

that provide the spending convenience a customer actually craves for.

Markup of BTF

Slabs Benchmark

Salaried & SEP 26.0%

Self Employed Business Segment 29.9%

Schedule of Charges

Mark up Rate may vary for different customer segments

Mark up Rate Up to 35% per annum

Late Payment Fee

Rs. 500/- or 10% of the minimum amount whichever is higher

Enhancement Fee

Up to Rs. 1,500/-

Cash Withdrawal over the counter from BTF accounts

Up to Rs. 150/-

Cancellation of BTF Pay Orders over the counter

Up to Rs. 200/- per pay order

Personal Loans Whether a customer want s to reorganise their finances, pay for a major purchase such as a car or

home improvements or simply give themselves more financial flexibility, RBS offer a range of

affordable loan options.

Markup of Personal Loans

Slabs Benchmark

Salaried A&B 22.0%

Salaried C 25.0%

Self Employed Persons 22.0%

Self Employed Business Persons 29.99%

Unapproved Segment 28.0%


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Schedule of Charges:

Mark up Rate may vary for different

customer segments/loan tenure

Mark up Rate 35% per annum

Processing fee*

Up to Rs. 2,000/- or 1% of the loan

amount whichever is higher

Late Payment Fee

Rs. 500/- or 10% of the installment amount whichever is higher

Credit Cards Facility

Platinum Credit Card: It provides luxurious facilities to the customers and they can enjoy a

selection of the finest privileges complementing their superior preferences and lifestyle.

Air blue Credit Card: We can take credit to spend on Fuel Groceries, Restaurants, utilities, entertainment, and anywhere else. Its a master card of RBS.

Gold Credit Card: Our Gold Credit Card charges a fixed rate on transferred balances, until they

are repaid. It could help to shrink your balance. This offer is available exclusively to existing RBS

current account customers and only available online.

Markup of Credit Cards

Slabs Benchmark

Airblue Credit card 39.0%

Gold Credit Card 39.0%

Platinum Credit Card 18.0%


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Schedule of Charges:

Annual Fees

Primary Cards

Blue / Standard - up to Rs. 2,000/-

Gold - up to Rs. 4,000/-

Platinum - up to Rs. 15,000/-

Supplementary Cards

Blue / Standard /Gold - up to 1,000/-

Platinum - up to Rs. 2,000/-

Joining Fees*

Primary Cards

Blue / Standard - NIL

Gold - NIL

Platinum - NIL

Supplementary Cards

Up to Rs. 500/- (First 2 supplementary cards free)

Tenure in months Service fee (%)

6 30.23%

12 31.72%

18 31.76%

24 31.46%

30 31.04%

36 30.59%

42 30.14%

48 29.70%

54 29.28%

60 28.88%


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Net Assets of RBS as on June

30, 2009 are Rs. 9,346,762,000.

CREDIT POLICY

GENERAL DEFINITION: Credit Policy is the clear, written guidelines that set the following basic things:

(1) The terms and conditions for supplying goods on credit

(2) Customer qualification criteria

(3) Procedure for making collections

(4) Steps to be taken in case of customer delinquency.

It is also called collection policy4.

OBJECTIVES:

SBP regulations and economic conditions are kept in mind while designing the techniques and

objectives for credit management strategy. Following are some of the objectives of SPCBs credit

policy:

o Enable the bank to develop long-term business plans. o Equip the bank to face the ever changing competitive scenario more effectively and act proactively

rather than reactively. o To be a source of confidence to the lending officers and enable them to operate more effectively

within the framework of approved delegated authority. o Provide a framework of reference and standards and to enable the bank to provide uniform

treatment to the borrowing customers. o Provide guidance for what to do, not how to do. o Properly serve the credit needs of current customers by satisfying them and establish long-term

relationship with them. o Provide a framework in which to conduct business.

SBPS REQUIREMENT: It is SBPs requirement that every bank should keep 2% of its total capital as reserves with the State

Bank. SBP approves every loan and provides comprehensive

directions to every bank in the prudential regulations. These

instructions are same for every bank but banks could make certain

changes in the level of deposits, advancement ratio and their loan portfolio. Total amount of loan

advancement is totally dependent on SPCBs credibility situation.

4 Source:businessdictionary.com


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CREDIT POLICY OF RBS

Credit Standards Followed By RBS:

The RBS credit standards are as follows:

DIVERSIFICATION:

RBS being a clever financial institution doesnt invest in just one sector. It follows the basic rule

i.e.

DONT PULL ALL YOUR EGGS IN ONE BASKET!!!

Their focus is on the following sectors:

SECTORS LIMIT OF LOANS

Small Medium Enterprise (SME) 50 million Commercial Sector 50-350million Global banking and Markets Above 350 million

SAFETY:

RBS follow the SAFETY-FIRST principle i.e. Money given as loan

must be used properly. The credit risk management department handles this principle.

The following five elements(Cs) help a banker in

arriving at the conclusion regarding safety.

Character: Borrowers intention to repay the

advance, since his honesty and integrity is of

significance.

Capacity: Mixture of academics and experience in

the relative field and ability to repay. And How well

do we understand and know the relevant customer.

Capital: it means how much you are willing to invest your money.SBP restricts the

misuse of banks money.

Conditions: Bank should analyze the economic, business and socioeconomic

conditions to secure the loan.

Cash-flows: Cash flow statement of the customer should be analyzed to secure the

loan. We analyze the inflow and outflow of cash.

Agriculture

financing is just 1-

2% because SBP

makes it essential

for the bank.

RBS focuses on 3cs: CHARACTER,

CAPITAL.CAPACITY


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Liquidity condition

means tendency of

convertibility of

assets into cash.

LIQUIDITY: bank should analyze the liquidity condition of its and its

customer.

PROFITIBILITY: Profits are as important to RBS as are to the other

organizations as they also have different types of expenses. The

main source of income for RBS is the amount it charges from its

customers as mark up. Therefore, the RBS may prefer a customer

with low risk and reasonable markup to ensure an optimal profit.

DESIRABILITY: RBS focuses that money should be used for agreed purposes.

CREDIT RISK AND RETURN: The Credit risk management focuses risks associated with

the loans and their repayments.RBS focuses on short term loans to avoid defaults.

CENTRALIZED AUTHORITY: The decision making power regarding credit policy and any loan approvals is centralized in RBS. They are

moving toward the hub concept. This has a negative impact on potential or prospective customers

because any person wanting to acquire a small loan in a few days time has to wait a lot and as a result a

number of applicants cannot be satisfied. RBS credit policy hinders such activity because having no

power and setup to verify credentials etc, the process at the head office takes minimum 15days. But this

step is also going to show the confidential output by bank.

FUNDED AND NONFUNDED FACILITIES Both funded and non-funded facilities are provided by RBS but the preference is to provide non funded

facilities as it involves lower risk.

SECTORAL BASED LENDING RBS extends loan to almost all the sectors except for certain unapproved segments. However, RBS

focuses on consumer, commercial, corporate, agriculture, construction, engineering, automobiles and

fertilizers sector. No loans are available for textile sector this time because of the bad conditions of this

sector. RBS is moved the directions of its credit policy toward the recovery of its loans.


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NICHE MARKETING Their marketing objectives and techniques are based on niche marketing. They target on salaried class

which they have named as Category A. This is because salaried class is more conscious about making the

payments on time and it is easier to recover loan from them as compared to any other class. In current

economic conditions of Pakistan and worldwide recession, its the basic pillar of RBS which is not only

secured but also profitable but because of rapidly unemployment, RBS not advancing loans to this sector

but again we will say that they are not destroying their customers of this sector even at the time of

recovery. They are providing their non funded facility mostly to salaried based sector after all they are

golden pillars of RBS.

UNAPPROVED SEGMENTS Unapproved segments are the segments to which bank does not extend loan due to some reasons.

These include lawyers, journalists, farmers, money changers, politicians.

TIME REQUIRED FOR APPROVAL OF LOAN As RBS is a multinational bank it takes a long time of 15 days for any loan to get approved from the head

office because it does not give decision power to each branch. It has centralized system. The

preparation of documents also required a lot of time because of manual working system. Due to this

reason RBS is also losing a great number of its customers.

PATTERN OF INSTALLMENTS RBS prefers quarterly payments as part of their selling terms set with the customers in advancement of

the loan. However, such terms may vary from customer to customer and situation to situation.

CREDIT CARD Client can withdraw cash up to 75% of the available shared credit limit (if he is holding more than one

RBS Credit Card). For example, if your shared credit limit is PKR 300,000 and your cash withdrawal limit

is 75%, you can withdraw up to PKR 225,000.

NPL Ratio RBS NPL ratio is comparatively good if we consider the financial crisis and current position of the bank.

Reason behind this is that they dont accrue their revenues .Instead they are recorded when actually

incurred. Thats why their books show the good position.

REVISION OF CREDIT POLICY The credit policy is revised at least quarterly to incorporate the economic and financial changes in the

country. Similarly, any change in the prudential regulations by the State Bank of Pakistan and socio-

economical factors can prompt the bank to revise its policy in the given scenario accordingly.

Their policy also changed according to risks and opportunities in the market like payment incentives

54(flat rate, computed rate) and low risk credit policies (advance payment & LC). So according to this

policy, now a day RBS is working with flat rate


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The customer having between 1-6

months credit history reflecting in e-CIB

will be considered as NTI's.

INCOME REQUIREMENT

Minimum Income of Salaried, SEB, SEP, NTI & Branch Banking Segment are:

Segments Net Income (PKR)

A,B,C, Unapproved & Contractual 40,000 SEP 50,000 SEB/ NTI * 50,000

Branch Banking 50,000

Where;

SEB stands for Self-Employed Businessman

SEP stands for Self-Employed Professional.

NTI stands for New to the industry.

A includes bankers and clients with a good pay back history. They are given credit up to 4times of their salary.

B includes all the employees related to the textile sector. They are given credit up to 3times of their salary.

C includes the government employees. They are given credit up to 2times of their salary. Unapproved are given credit up to2 times of their salary.

TIME PERIOD FOR FINANACING

Running finance: its short term loan

Demand finance: 1 to 5 years maximum time period for this loan because it fulfilled the specific need of

the customer like construction.

Term finance: 5 to 10 years maximum time period but in this loan the installment is involved.

LC FACILITY

RBS focused on hypothecate based facility.

Collateral Based Lending: Bank focuses on financing backed up by a security. Because there is no proper documentation system

and Corruption rate is high!!


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CDR (Credit deposit Ratio) position of RBS: RBS has to reserve 30% in form of reserves in SBP (State Bank of Pakistan). This 30% can be reserved in

different forms as cash, T Bonds, T Bills and anything which can be easily convertible into cash.

RBS cash reserve ratio is 5 to 7 percent

SAFTY MARGIN:

For funded based facilities: 10 to 25 percent is the average safety margin rate. It varies

customer to customer. Its also varies by securities and liquidity position of the customers.0%

safety margin can also be for those customers who are most reliable customers.

For nonfunded based facilities: on average the 15% to 35% safety margin is taken.

If government has to stop the imports of anything to support the local production, SBP ordered to

increase this safety margin. For critical items like perishable items this safety margin can be 100%.

CREDIT POLICY FOR RENEWALS & ENHANCEMENT Following are the requirements for renewals:

Actual last year business progress Clean up condition for one year Basic Borrowers fact sheet report Credit Information Report Auditing Report of their business Bank Reference Personal Reference Customer has also to provide the action plan that the money which has been enhanced where

to use. The reason for which request of renewal is given.

SPREAD: RBS is stated to be charging around 2%-4% spread to its customers with negotiations or bargains with

customers even though they might not always be providing ancillary business to RBS. This depends on

the customers track record and his credibility.

RBS invests extensively in mortgages and as fewer mortgage investments are present, RBS has the

opportunity to charge high mark ups. The high charges cover the costs incurred on those who have

defaulted.

PAYMENT INCENTIVES: RBS deals with flat rate because flat rate does not consider TIME VALUE CONSTRAINT. Being customer

friendly it helps the customer to forecast his budget .this is rate is not affected by economic conditions.


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Documentation Required By RBS for Facilitating a LOAN:

Sole Proprietor: Call report

Id card.

Address and other business related information.

BBFS (Borrower Basic Fact Sheet).

E-CIB report.(Electronic Credit Information Bureau Report)

Credit Worthiness Report

Bankers Report

Partnership: Call report

Id card.

Address and other business related information.


E-CIB report.(Electronic Credit Information Bureau Report)

Partnership deed.


Bankers Report

Company: Call report

Basic Information Report

Companys e-CIB report.

Id cards of Directors.

Financial Statements.

Directors search and Assets Charges search report.



Bankers report


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Security Based: Based on different securities, bank requires the following documents:

Cash deposit: Letter of Lien on cash deposit with the signature of borrower.

Govt. securities: Letter of Lien on Govt. securities e.g.; T-Bills etc.

Shares: Letter of Lien obtained by bank with the help of ID assigned by SECP.

Property:

Title document:

o Sale deed

o Lease deed

o Transfer letter

Memorandum of deposit of title deed.

Personal guarantee by third party.

Letter of Lien on property.

Approved map of the location where the property is located.

General Power of Attorney (GPA).

PT-1 form is required for old cities, which had been settled by Settlement Commission during

partition.

Mortgage Deed (except DHA).

Faard and Letter of Lien are required from registrar in case of agriculture land.

Other Legal Documents:

Pro-note: It is a promissory note in which the customer promises to pay principal and markup.

Markup agreement: It contains all the terms and conditions related to markup e.g.; calculation

of markup at flat or computed rate etc.

Letter of Continuity (LOC).