Qss Advances General 15 January 2015

1 Quick Success Series Remittance & Collection

QUICK SUCCESS SERIES

ADVANCES GENERAL

QUICK SUCCESS SERIES was initiated in the year 2010 by Team SBLC Deoghar with a motive of learning support to the candidates of promotional examinations of different grades in the Bank they had to undergo. With the passage of time QSS became popular among its readers and SBLC Deoghar is receiving overwhelming demand for its updated version year after year from employees of SBI located in various parts of the country. We extend our sincere thanks to the readers of QSS for placing with us the demand of QSS whenever the date of promotional test is announced.

We take this opportunity to acknowledge active persuasion of Sri Manish Tandon, our Circle Development Officer for its updation before schedule. I take pride in representing a Team comprising of Sri Champak Das, Chief Manager (Training), Sri Rakesh Roshan, Chief Manager (Training) & Sri Mukul Manohar, Chief Manager (Training), who have maintained the trend of SBLC Deoghar and are constantly contributing towards its value addition and keeping it relevant, up to date for the users & they took extra pain for its updation.

We hope that QSS 2015 edition will be equally useful for various promotional exams. Though every care has been taken while updating th contents, we also request our readers to point out any lapses at the earliest. This book is however not a substitute for circular instructions issued by the Bank from time to time. For detailed guidelines please refer to Banks latest circulars. Soft copy of this edition is available on our ftp://10.151.51.33 in QSS folder & on SBI TIMES>PATNA CIRCLE>SBLC Deoghar site.

Team SBLC Deoghar is humbled by the response and recognition, it is receiving from various readers. Our Team wishes the readers grand success in their endeavours.

S P Singh Assistant General Manager, State Bank Learning Centre, Deoghar- 814112 Phone- 06432-232895 Fax - 06432-231810 E-mail: [email protected]

Updated By: Rakesh Roshan Chief Manager (Training), SBLC Deoghar Mobile- 9162370185 Email- [email protected]

Updated upto 15th January 2015

QUICK SUCCESS SERIES : ADVANCES GENERAL

Updated up to January 15, 2015

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Loan Policy (Applicable to domestic Lending)- Important Points (RBI cir-RBI-2014-15/66 dtd 01.07.2014) All Scheduled Commercial Banks(excluding RRBs) Prudential Credit Exposure Norms It has been prescribed by RBI. Single Borrower :- Maximum exposure 15% of Capital funds; for infrastructure lending 20%. Group Borrower :- Maximum exposure 40% of Capital funds; for infrastructure lending 50%. (Capital funds includes Tier I and Tier II capital) Individual Borrower :- Maximum aggregate credit facilities ( FB and NFB ) of Rs. 25 cr (excluding loan against specified securities).Rs.50 cr (H/L only) Non Corporates :- Maximum aggregate credit facilities ( FB and NFB ) of Rs. 100 cr (excluding loan against specified securities). Corporates :- 15% of Banks capital funds for single borrower exposures and 40% of capital funds for group exposures. A credit facility extended by lenders (i.e. banks and select AIFIs) to a borrower for exposure in the Transport, Energy, Water & Sanitation, Communication, Social and Commercial Infrastructure & their infrastructure sub-sectors will qualify as 'infrastructure lending'.

Exposures to NBFCs

The exposure (both lending and investment, including off balance sheet exposures) of a bank to a single NBFC / NBFC-AFC (Asset Financing Companies) should not exceed 10% / 15% respectively, of the bank's capital funds as per its last audited balance sheet. Banks may, however, assume exposures on a single NBFC / NBFC-AFC up to 15%/20% respectively, of their capital funds provided the exposure in excess of 10%/15% respectively, is on account of funds on-lent by the NBFC / NBFC-AFC to the infrastructure sector. Exposure of a bank to Infrastructure Finance Companies (IFCs) should not exceed 15% of its capital funds as per its last audited balance sheet, with a provision to increase it to 20% if the same is on account of funds on-lent by the IFCs to the infrastructure sector. Further, banks may also consider fixing internal limits for their aggregate exposure to all NBFCs put together. Infusion of capital funds after the published balance sheet

date may also be taken into account for the purpose of reckoning capital funds. Banks should obtain an external auditors certificate on completion of the augmentation of capital and submit the same to the Reserve Bank of India (Department of Banking Supervision) before reckoning the additions to capital funds.

Lending under Consortium Arrangements

The exposure limits will also be applicable to lending under consortium arrangements.

Food credit

Borrowers, to whom limits are allocated directly by the Reserve Bank for food credit, will be exempt from the ceiling.

Guarantee by the Government of India

The ceilings on single /group exposure limit would not be applicable where principal and interest are fully guaranteed by the Government of India.

Loans against Own Term Deposits

Loans and advances (both funded and non-funded facilities) granted against the security of a banks own term deposits may not be reckoned for computing the exposure to the extent that the bank has a specific lien on such deposits.

Exposure to Leasing, Hire Purchase and Factoring Services

Banks have been permitted to undertake leasing, hire purchase and factoring activities departmentally. Where banks undertake these activities departmentally, they should maintain a balanced portfolio of equipment leasing, hire purchase and factoring services vis--vis the aggregate credit. Their exposure to each of these activities should not exceed 10 per cent of total advances.

Irrevocable Payment Commitments (IPCs)

Banks issue Irrevocable Payment Commitments (IPCs) in favour of stock exchanges on behalf of



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domestic mutual funds/FIIs to facilitate the transactions done by these clients.

The maturity of Term Loan should not exceed 8 years, including moratorium period (except cases under CDR mechanism approved by the bank, Housing Loan, Infrastructure Loans, Education Loans and ATL under approved schemes etc.) Quantitative Credit Standard Appraisal

Minimum Current Ratio desired for manufacturing company - 1.33

Min. Current Ratio desired for others

- 1.20 (for FBWC limits above Rs. 5cr). 1.00 (for

FBWC limits up to Rs. 5 cr).

Maximum TOL/TNW desired for manufacturing company - 3.00

Maximum TOL/TNW desired for Others

- 5.00

Minimum Net DSCR desired for manufacturing company & others - 2:10

Minimum gross DSCR desired for

manufacturing company & others - 1.75:1

Maximum Debt/Equity desired for

manufacturing company - 2:1

Maximum Debt/Equity desired for others - 2:1 Credit Risk Assessment (CRA)

Models designed in conformity with Internal Ratings Based (IRB) requirements of Basel-II.

Separate models for Non-Trading Sector (NTS) and Trading Sector (TS).

Two-dimensional structure for Risk Rating Borrower Rating and Facility Rating.

Borrower Rating (BR) expanded to 16 grades (SB-1 to SB-16).

Hurdle rate is SB 10. Facility Rating (FR) would also range from

FR-1 to FR-16 The new CRA models will be applicable to all

accounts with Aggregate Exposure (FBL + NFBL) of Rs. 25 lacs and above, for both Non-Trading Sector (C&I, SSI & AGL segments) and Trading Sector (Including Services).

Simplified Model covers accounts with exposure of Rs. 25 lacs and above, but upto Rs. 5 crores.

Regular Model covers accounts with exposure above Rs. 5 crores.

Facility Rating (FR) will be applicable only for exposures covered under the Regular Model

Borrower accounts rated SB 10 and below would be rated at half-yearly intervals considering the risk severity of the loan.

TAKE OVER OF ADVANCES Take Over of Advances (Except AGL and PER segments) The proposed policy envisages strict compliance of the following norms: (a) Borrower account proposed to be taken over should be a Standard Asset in the books of the transferor bank / FI. (b) The Borrower should be rated not below SB 6 on the basis of the audited Balance Sheet not older than 12 months with a stipulation that the financial score shall not be less than 40 out of the possible 65. External Credit Rating, wherever applicable, shall have to be BBB (investment grade) or above (Both CRA & ECR norms to be complied with, wherever applicable). (c) The Units CRA rating must be in consonance with the latest industry outlook by the CRMD, wherever applicable. Takeover proposals satisfying the above referred criterion will require no administrative clearance. The above norms for takeover are considered sacrosanct, in as much as no deviation will normally be permitted by the Sanctioning Authority. However, deviations, if warranted, may be considered in select cases on the basis of following considerations only: (a) In respect of MSEs covered under CGTMSE scheme, CRA up to SB 8



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may be considered. (b) Units with Credit enhancement by way of urban tangible immovable (Non- Agricultural) collateral with a minimum of 40%, besides meeting credit appraisal criterion and in no case have credit rating of less than SB 8. (c) Units with Corporate Guarantee of Group Company with acceptable ECR of BBB & above, and CRA of SB 6 & above. Audited Financials should not be older than 12 months. But in all cases where Audited Financials are older than 6 months, provisional financials not older than 3 months are to be obtained and analysed to satisfy that the activity level and profitability, liquidity and solvency ratios are broadly in alignment with the estimates / projections. Important parameters such as Gross/Net Sales, Inventory, Receivables, Sundry Creditors, Unsecured Loans, Conversion of Share Application Money into PUC, Additions to Gross Block may be certified by a Chartered Accountant. The unit should have earned net profits (post tax) in each of the immediately preceding 3 years. If it does not have a track record for 3 years, it should have earned profits for at least two years. In other words, units for takeover should have at least two years of full fledged commercial operations backing their track record. Generally, takeover of loans below Rs 25 lacs is to be discouraged. However, in case of exceptional circumstances, operating units may consider takeovers on a case to case to basis where product specific minimum scores shall be the threshold for considering such takeovers. As and when New Scoring Models for loans up to Rs 25 lacs are rolled out, loans categorized/ graded as Good Loans Clear Lending Decision shall only be considered for take-over. Takeover of units from Associate Banks is not permitted. In all cases of take-over, branches should ensure completion of proper documentation and other formalities within a period not exceeding a month or as approved by the Sanctioning Authority, to protect the interests of the Bank. In the case of take over of loans from other banks/ institutions, as the original title deeds will

be available to the Bank only after the entire dues to the existing bank/ institution is repaid, an interim report has to be obtained from the panel Advocate based on certified copies of the title deeds based upon which branches can go ahead and takeover loan accounts from other banks/institutions pending actual creation of the equitable mortgage, Norms for takeover of advances under Agriculture segment i) The minimum amount eligible for takeover would be as under: a. ACC : Rs. 1.00 lakh b. ATL for Allied Activities : Rs. 10.00 lakhs c. ATL for other than allied activities : Rs. 2.00 lakhs (iI) The maximum amount eligible for takeover would be Rs. 50.00 lakhs. However, administrative clearance should be obtained from the Local Head Office in case, loans above Rs. 50.00 lakhs are required to be taken over. (iii) The account should have been a standard account in the books of the other Financial Institution (FI) during the preceding 2 years. (Iv) ATLs with a minimum 2 years repayment programme left are only eligible. (v) Advances to borrowers falling outside the Service Area of the branch are also permitted for takeover, subject to adherence of the other instructions. (vi) Crop loans converted to Term Loans and Term Loans, which are rephased, are not eligible for takeover irrespective of their quantum. (vii) Takeover from our Associate Bank is not permitted.

Stock Audit a) Stock and Receivables Audit shall be conducted at yearly intervals for all exposures above Rs. 1 crore and upto Rs. 25 crores. b) For units having credit limits of Rs. 25 crs and above, the frequency of Stock and Receivables Audit will be half yearly. For CAG/MCG accounts, all unlisted companies falling under speculative Grade, frequency of Stock and Receivables audit will also be half yearly. c) All other accounts of Rs. 5 crores and above with Credit Rating of SB-8 and below, or accounts where slippage in Credit Rating is by two notches



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or more, irrespective of the rating, will also be subjected to Stock and Receivables Audit at half yearly intervals. (e-cir- 324 dt 04/07/2012) d) In respect of accounts which are B and below, Stock & Receivable Audit to be conducted at quarterly intervals. e) In respect of all accounts eligible for Stock Audit, verification of Invoice by the Stock Auditor should be made part of the Stock Audit. Failure of verification of invoice should be suitably dealt with. (e-cir- 794 dt 15/10/2013) Legal Audit Reserve Bank of India told banks to do legal audit and re-verification of title deeds of loans above Rs 5 crore to check fraud. Two years back, banks were told to put a system a place wherein the concurrent auditors were required to look into the genuineness of the title documents especially for large value loans. This move was prompted by an RBI study of large value frauds, especially in the housing loan segment. The Legal Audit shall be conducted preferably 3 months before the commencement of RFIA / Credit Audit, so that auditee branches can comply with rectification of the deficiencies pointed out. A separate Legal Audit Report Format (LARF) to be submitted by Legal Auditor has been designed. The format contains Value Statements pertaining to documentation, mortgage, charge creation, etc., corresponding to Value Statements in the existing Credit Audit Report Format (CARF). Credit Audit Credit Audit Department (CAD) is a specialized wing of Inspection & Management Audit Department, Corporate Centre, Hyderabad, exclusively dealing with high value Credit Accounts (with an exposure of Rs.10 crore and above) domiciled at Branches all over the country. Takeout finance Banks also grant term loans for infrastructure projects like road, telecom, ports etc for 12 to 15 years. But the banks resources are for relatively short periods. So the banks face ALM problems in infrastructure finance. Infrastructure Development Finance Company (IDFC), provides finance for infrastructure projects. It also provides

takeout finance to banks. Under this IDFC agrees to take over the loan after 5 years from the bank. FACTORING:- Kalyansundaram Committee recommended introduction of Factoring in India. Factoring is purchase of a trade debt by a factor. Clayatons Rule It is incorporated in S 59-61 of Indian Contract Act. It is related to appropriation of Payment towards debt. The first item of debit is offset by the first payment. It is the sum first paid that is treated as first paid out. This rule is applicable to running a/cs like OD, CC etc., only. Various Types of Borrowers Minor: - As per S 11 of Indian Contract Act, a contract with minor is void-ab-initio (from the beginning). Money lent to a minor cant be recovered from him even after he attains majority. But if the money is spent for the necessaries or for the benefit of his estate, the minors estate would be liable. Joint Hindu Family (JHF): All adult co-parcener are required to sign the security documents. If a Joint Hindu Family has a minor co-parcener, his guardian should sign the documents on his behalf to bind the minors interest in the JHF. Loan granted to a JHF binds the share of the minor in JHF property, but not his personal property, if any. Loan granted for a business which is not ancestral will not bind the co-parceners. Partnership: All partners are jointly and severally liable for all the debts of the firm. The liability of the partners is unlimited. The properties of the firm as well as the properties of individual partners are liable for the satisfaction of the liabilities of the firm. Guarantee of the partners in their personal capacity is also obtained. This is done with a view to ensure that the Bank will rank along with the private creditors of the partners to claim the dividend from the personal property of the partners, in case of their insolvency. RBI has decided to prohibit NBFCs (both deposit and non deposit taking ) from contributing capital to any partnership firm or to be partners in partnership firms. In cases of existing partnerships, NBFCs may seek early retirement from the partnership firms.



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Trust: No trustee can delegate his power to the other parties for operation of the account. An advance can be granted to a Trust only if the trust deed gives power to borrow money. In the case of advances to Public Trusts, prior permission of the Commissioner of Charity is to be obtained. Liquidator: Official liquidator of a company is appointed by the court and the courts specific sanction for the borrowing must be obtained. Generally no advance is granted to the liquidator. Receiver: Receiver is appointed in respect of individuals and firms who have declared insolvency. Generally no advance is granted to the Receiver. Highlights On New Indian Companies Act, 2013

1. Immediate Changes in letterhead, bills or other official communications, as if full name, address of its registered office, Corporate Identity Number (21 digit number allotted by Government), Telephone number, fax number, Email id, website address if any.

2. One Person Company (OPC): It's a Private Company having only one Member and at least One Director. No compulsion to hold AGM. Conversion of existing private Companies with paid-up capital up to Rs 50 Lacs and turnover up to Rs 2 Crores into OPC is permitted.

3. Woman Director: Every Listed Company /Public Company with paid up capital of Rs 100 Crores or more / Public Company with turnover of Rs 300 Crores or more shall have at least one Woman Director. 4. Resident Director: Every Company must h

ave a director who stayed in India for a total period of 182 days or more in previous calendar year.

5. Accounting Year: Every company shall follow uniform accounting year i.e. 1 st April -31st March.

6. Loans to director The Company CANNOT advance any kind of loan / guarantee / security to any director,

Director of holding company, his partner, his relative, Firm in which he or his relative is partner, private limited in which he is director or member or any bodies corporate whose 25% or more of total voting power or board of Directors is controlled by him.

7. Articles of Association- In the next General Meeting, it is desirable to adopt Table F as standard set of Articles of Association of the Company with relevant changes to suite the requirements of the company. Further, every copy of Memorandum and Articles issued to members should contain a copy of all resolutions / agreements that are required to be filed with the Registrar.

8. Disqualification of director- All existing directors must have Directors Identification Number (DIN) allotted by central government. Directors who already have DIN need not take any action. Directors not having DIN should initiate the process of getting DIN allotted to him and inform companies. The Company, in turn, has to inform registrar.

9. Financial year- Under the new Act, all companies have to follow a uniform Financial Year i.e. from 1st April to 31st March. Those companies which follow a different financial year have to align their accounting year to 1st April to 31st March within 2 years. It is desirable to do the same as early as possible since most the compliances are on financial year basis under the new Companies Act.

10. Appointment of Statutory Auditors- Every Listed company can appoint an individual auditor for 5 years and a firm of auditors for 10 years. This period of 5 / 10 years commences from the date of their appointment. Therefore, those companies have reappointed their statutory auditors for more than 5 / 10 years, have to appoint another auditor in Annual General Meeting for year 2014.

Negative Lien:- It does not create any charge in favour of the bank but merely prohibits the



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company from creating further charge in favour if the third parties. (COS 245)

Paripassu Charge: In consortium advances, the borrower creates paripassu charge over his assets in favour of all member banks. This is a charge over the securities given to more than one creditor with the condition that all the creditors will be entitled to the charge on equal footing in proportion to the amount of their advances. CENTRAL REGISTRY UNDER SARFAESI ACT 2002

The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is a company licensed under section 25 of the Companies Act, 1956 and registered by the Registrar of Companies, New Delhi. CERSAI was promoted by central government to prevent frauds involving multiple lending by different banks on the same immovable property. It became operational on March 31, 2011.

The Company is a Government Company with a shareholding of 51% by the Central Government and select Public Sector Banks and the National Housing Bank are also shareholders of the Company.

The Company is providing the platform for filing registrations of transactions of securitisation, asset reconstruction and security interest by the banks and financial institutions.

Any person can also search and inspect the records maintained by the Registry on payment of fees prescribed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011.

The process of registration of transactions of

creation of security interest, securitization and asset reconstruction will be carried out through the web-portal www.cersai.org.in of the Central Registry.

As the registration of transactions of creation of security interest, securitization and asset reconstruction has been made mandatory in

respect of all mortgages created on or after 31st March 2011.

The filing has to be done on an ongoing basis within the 30 day.

A fee of Rs 500 is payable to CERSAI for each filing. The Registrar has the discretion to permit registration of charges up to 60 days from the date of the charge subject to payment of late fee up to ten times of the prescribed amount of the fee on the Banks/FIs However, the Central Registry has so far allowed for filing of charge within the next 30 days following expiry of the initial period of 30 days, without levying any penalty or additional fee. With the insertion of Section 26 A in SARFAESI Act , if the particulars of the transaction are not filed with the Registry within a period of 60 days from the date of transaction, the secured creditor has to approach the Central Government to get the delay condoned under the Act.

Sl. no

Registration on CERSAI after the date of transaction

Additional fee proposed to be charged if the loan amount is:

Upto Rs.5 Lakh

Above Rs. 5 Lakh

1 From 31st to 40th day Rs.500 Rs.1000



To strengthen measures to ensure proper end use

of Term Loan proceeds-Plant and machineries to be purchased out of Banks loan are procured directly from the manufacturer/authorized dealer instead of intermediaries. Borrowers have to submit quotations from the manufacturer/ authorized dealer, at the time of request for sanction of Term Loan, which should contain the details of RTGS Code and Account Number to which the TL proceeds have to be remitted. Early Sanction Review (ESR): There is a system of review of pre-sanction process of loan accounts with exposure of Rs.5.00 cr and above under Loan Review Mechanism (LRM). It has been decided to introduce a system of quick review of sanctions, covering exposures of above Rs.1 cr and below Rs.5 cr also which are largely sanctioned / renewed by RCCs and ZCCs.(e.cir:835/2014-15 dt:13/10/2014)



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LENDING TO PRIORITY SECTOR (RBI CIR RBI/2014-15/95 dtd 01.07.2014)

*Adjusted Net Bank Credit (ANBC) (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) *OBE - Off-Balance Sheet Exposure. For foreign banks with 20 and above branches, priority sector targets and sub-targets have to be achieved within a maximum period of five years starting from April 1, 2013 and ending on March 31, 2018. 1. EDUCATION Educational loans granted to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad.

2. HOUSING (i) Loans to individuals up to 25 lakh in metropolitan centres with population above 10 lakh and 15 lakh in other centres for purchase/construction of a dwelling unit per family excluding loans sanctioned to banks own employees. (ii) Loans for repairs to the damaged dwelling units of families up to 2 lakh in rural and semi- urban areas and up to 5 lakh in urban and metropolitan areas. (iii) Bank loans to any governmental agency for construction of dwelling units or for slum

Categories

Domestic commercial banks / Foreign banks with 20 and above branches

Foreign banks with less than 20 branches

Total Priority Sector advances

40 per cent of ANBC or credit equivalent amount of OBE, whichever is higher.

32 percent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.

Total agricultural

18 per cent of ANBC or credit equivalent amount of OBE, whichever is higher. Of this, indirect lending in excess of 4.5% will not be reckoned for computing performance under 18 per cent target.

No specific target. Forms part of total priority sector target.

Micro & Small Enterprise (MSE)

Advances to MSE sector will be reckoned in computing achievement under the overall priority sector target of 40 percent of ANBC or credit equivalent amount of OBE, whichever is higher. (i) 40 percent of total advances to micro and small enterprises sector should go to Micro (manufacturing) enterprises having investment in plant and machinery up to Rs. 10 lakh and micro (service) enterprises having investment in equipment up to Rs. 4 lakh; (ii) 20 percent of the total advances to micro and small enterprises sector should go to Micro (manufacturing) enterprises with investment in plant and machinery above Rs. 10 lakh and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment above Rs. 4 lakh and up to Rs. 10 lakh.

No specific target. Forms part of total priority sector target

Export credit

Export credit is not a separate category. Export credit to eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories.

No specific target. Forms part of total priority sector target.

Advances to weaker sections

10 per cent of ANBC or credit equivalent amount of OBE, whichever is higher.

No specific target in the total priority sector target.



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clearance and rehabilitation of slum dwellers subject to a ceiling of 10 lakh per dwelling unit. (iv) The loans sanctioned by banks for housing projects exclusively for the purpose of construction of houses only to economically weaker sections and low income groups, the total cost of which do not exceed 10 lakh per dwelling unit. For the purpose of identifying the economically weaker sections and low income groups, the family income limit of 1,20,000 per annum, irrespective of the location, is prescribed. 3. AGRICULTURE Separate strategic business unit viz.

Agriculture Business Unit (ABU), was created during 2004.

The credit policy and procedures for agricultural segment are by and large determined by RBI and NABARD and the State Level Bankers Committee (SLBC).

The policies and procedures substantially differ from those of other segments. Lending to this sector is characterised by the twin features of Service Area Approach (SAA) and scale of finance.

'Direct Finance' for Agricultural Purposes(RBI/01 FEB. 2014)

(i) Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers] engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture.

(ii) Loans to corporates including farmers' producer companies of individual farmers, partnership firms and co-operatives of farmers directly engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericultureup to an aggregate limit of `2 crore per borrower.

(iii) Loans to small and marginal farmers for purchase of land for agricultural purposes.

(iv) Loans to distressed farmers indebted to non-institutional lenders.

(v) Bank loans to Primary Agricultural Credit Societies (PACS), Farmers Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS) ceded to or managed/ controlled by such banks for on lending to farmers for agricultural and allied activities.

Analysis of Financial Statements Important Financial Statements Balance Sheet & Profit & Loss Statement Balance Sheet Statement of assets and liabilities of a concern as on a particular date Asset What the business entity owns Liabilities What the business entity owes Assets can be classified into Current Assets, Non Current Assets, Miscellaneous Assets, Intangible Assets and Fixed Assets Liabilities can be classified into - Current Liabilities, Term Liabilities and Net worth Current Asset Likely to be converted into cash in 12 months. Examples Cash and Bank Balance, Investments, Stock (Raw Material, Stock in Process and Finished Good), Sundry Debtors, Pre Paid Expenses ( Insurance Premium Paid, Advance Tax Paid, etc) Exceptions 1. Sundry debtors outstanding up to 6 month only are classified as Current Asset, outstanding beyond 6 month are classified as Non Current Asset 2. Investment in Banks TDR are classified as Current Asset irrespective of Period of Deposit

Non Current Asset Previously current, but now not likely to be converted into cash Examples Obsolete stocks, Non Moving Stocks, Sundry Debtors due beyond 6 months

Miscellaneous Asset Advance to employees, Investment in associate firms, Investment in equity shares

Intangible Asset Goodwill, Copy Right, Trade Mark, Patent, Royalties, Licences, Preliminary and Pre operative expenses incurred by the firm, Debit balance in Profit & Loss A/c.

Fixed Asset Assets employed for aid in the production process but not used up in the production process Examples Land & Building, Plant & Machinery, Furniture & Fittings, Office equipments, etc. Fixed



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assets go through wear and tear on their use. Depreciation by Straight Line Method (SLM) or Written Down Value Method (WDV) is applied on these assets every year. Depreciation is a non cash expense to the business entity.

Current Liabilities dues of the firm payable within 12 months from the date of balance sheet Examples Bank Borrowings (Cash Credit, Overdraft, etc), Sundry Creditors, Advance Payments Received from customers, Term Loan Installments due within 12 months

Term Liabilities dues of the firm Payable after one year from the date of balance sheet. Source for acquiring Fixed Assets, Supporting accumulated losses and raising working capital margins. Examples Term Loan from Bank & FIs, Debentures, Deferred Credit from supplier of Capital equipments, Deposits from Public (Repayable beyond one year) Term Liabilities are repaid out of Cash Accrual (Profit after Tax + Depreciation + Other Non Cash expense)

Definition of Net Worth

Net worth would comprise Paid-up capital plus Free Reserves including Share Premium but excluding Revaluation Reserves, plus Investment Fluctuation Reserve and credit balance in Profit & Loss account, less debit balance in Profit and Loss account, Accumulated Losses and Intangible Assets. No general or specific provisions should be included in computation of net worth. Infusion of capital through equity shares, either through domestic issues or overseas floats after the published balance sheet date, may also be taken into account for determining the ceiling on exposure to capital market. Banks should obtain an external auditors certificate on completion of the augmentation of capital and submit the same to the Reserve Bank of India (Department of Banking Supervision) before reckoning the additions, as stated above. Tangible Net Worth Net worth Intangibles Ratio Analysis Financial Ratios can be classified broadly under four heads a) Liquidity Ratio Indicates ability to meet current dues out of Short Term Assets

b) Solvency Ratio Indicates extent of dependence on outside liabilities and the feasibility of meeting them if need arises c) Activity Ratio Indicates efficiency of the unit in utilizing present available resources d) Profitability Ratio Indicates capacity of the unit to generate profit and its rate of return Liquidity Ratio i) Current Ratio = Current Asset/Current Liabilities ii) Quick or Acid test ratio = (Current Assets Inventory) / Current liabilities iii) Net Working Capital (NWC) or Margin or Liquid Surplus = (Long Term Sources Long Term Uses) or (Current Asset Current Liability) Solvency Ratio i) Debt Equity Ratio = Debt / Equity or Term Liabilities / Tangible Net Worth ii) Financial Leverage Ratio = Total Outside Liabilities/ Tangible Net worth iii) Debt Service Coverage Ratio = (Profit After Tax + Depreciation + Interest on TL)/(Principal Repayment of TL + Interest on TL) Activity Ratio i) Assets Turnover Ratio = Net Sales/Net Tangible Assets ii) Stock Turnover Ratio = Cost of goods sold (COS)/ Average Inventory COS = Net Sales Gross Profit Average Inventory = (Op Stock + Closing Stock)/2 iii) Debtors Period = Average Sundry Debtors/Average daily credit sales Average Sundry debtors = (Opening + Closing Debtors)/2 iv) Creditors Period = Average Sundry Creditors/ Average daily credit purchases Profitability Ratio i) Return on Investment (ROI) = (Profit after Tax/ Total Tangible Assets) x 100 ii) Return on Equity (ROE) = (PAT / Tangible Net worth) x 100 Bank Guarantees Proper Classification- Financial or Performance Credit Conversion Factor (e-cir-365-16.07.2013) Financial guarantees, attract a CCF of 100 per cent. Performance guarantees, attract a CCF of 50 per cent.



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VALUATION OF LANDED ASSETS: (Modifications in the obtention of Valuation Reports for Loans, applicable to all segments irrespective of the amount) (e.cir.sl.no 229/2014-15 dt:04/06/2014)

In case of variation of 10 % or more in the valuation proposed by the valuer and the Guideline value provided in the State Government notification or Income Tax Gazette, justification on variation has to be given by the Valuer. The same should be brought out in the Appraisal Memorandum for the Sanctioning Authority to take a view.

Details of last two transactions in the area also to be incorporated in the Valuation Report.

Valuers are to be provided with precise details of the property to be valued. A copy of the TIR obtained from the Empanelled Advocate for the property to be valued should be given to the Valuers.

REGISTRATION OF CHARGES:

Manual on Loans & Advances, Part-2, Chapter-18, para 1.3 (iii) on the captioned subject says The pledge of goods on the companys assets is a specific/ fixed charge. Therefore, the relative document does not require registration with the Registrar of Companies.

Revised Instructions: it has been decided that till any future clarification is issued by the Ministry of Corporate Affairs, operating functionaries should register charges created by pledge under the option Other under Type of Charge in Form CHG 1. (e.cir.sl.no 242/2014-15 dt:07/06/2014)

FUND TRANSFER PRICING (FTP) (e.cir.sl.no 267/2014-15 dt:11/06/2014)

For rated accounts, differential Transfer Pricing Rates for limits from Rs. 5 Crores to 25 Crores and Rs.25 Crores and above, are introduced To sensitize the branches for follow-up of NPAs, the Transfer Price Rates has been Increased

Transfer price is applied for Savings Bank and Current Account deposits on the portfolio outstanding balance of the branch.

For Limits Rs.5 Crs. and above but below Rs. 25 Crores Transfer Price is applied on External Rating basis.(i.e. External Agencies)

CC/OD/DL/WCDL (Limits Rs.5 Crore and above) for accounts where External Rating is not available, Transfer Price is to be charged/applied on Internal rating basis.

Term Loans (Limits Rs.5 Crore and above) for accounts where External Rating is not available Transfer Price is to be charged/applied on Internal rating basis.

Accounts where there is neither External nor Internal ratings, such accounts irrespective of the limit transfer price is charged as under Food Credit Accounts and others limits below Rs. 5 Crores Base Rate + 15 bps

Restructured Accounts (As per details obtained from CBS/BU) Base Rate + + 50 bps

As per the published accounts of the Bank as on 31.03.2014, the total capital funds (Basel III -Tier I and Tier II) stood at Rs.1,40,151.00 crores and Banks Net Worth stood at Rs.1,12,242.24 crores.

As per extant instructions, Staff Accountability is to be conducted when an account becomes NPA or a fraud has been detected.

Conveying reason(s) leading to rejection of loan proposal and providing a copy of loan document to the borrower is detailed under Fair Practices Code for Lenders in line with RBI guidelines.

It has now been decided to enable Cash Credit accounts and Current Accounts with sanctioned overdraft limits under non-retail segments for transactions through Mobile Banking Service. All other conditions remain the same.

(e.cir.sl.no:337/2014-15 dt.02.07.2014)

Ministry of Corporate Affairs had introduced e-filing system in 2006.

As a part of information to be submitted quarterly on large borrowers (CRILC), starting from June 2014, Reserve Bank of India required the Banks to furnish the information on non-cooperative borrowers with exposure of Rs.5 cr and above. RBI also prescribed higher/accelerated provisions on new loans/exposures sanctioned to such borrower entities as well as new loans/exposures to any other entities promoted by such promoters/directors or to a company, on whose



SBLC DEOGHAR

board any of the promoter/directors of identified non-cooperative borrower entity is a director.

Definition: Reserve Bank of India defined a non-cooperative borrower as

One who does not provide necessary information required by a lender to assess its financial health even after 2 reminders; or

Denies access to securities etc. as per terms of sanction or

Does not comply with other terms of loan agreements within stipulated period; or

Is hostile/indifferent/in denial mode to negotiate with the bank on repayment issues; or plays for time by giving false impression that some solution is on horizon; or

Resorts to vexatious tactics such as litigation to thwart timely resolution of the interest of the lender/s. (e.cir.sl.no:355/2014-15 dt:07/07/2014)

Provisions applicable: The higher/accelerated provisions applicable in cases where a borrower is identified as non-cooperative borrower are as under:

Standard-5% Sub-standard (secured)

Upto 6- months--15% 6 months to 1 year25%

Sub-standard (Unsecured-ab-initio) Upto 6- months--25% 6 months to 1 year40%

Doubtful-I- 2nd year- 40% (secured portion) & 100% (unsecured portion)

Doubtfull II- 3rd & 4th Year-100% for both secured and unsecured portions

Doubtfull III- 5th year Onwards- 100%

ADOPTION OF IBA APPROVED COMMON

APPLICATION FORM: it has been decided that in addition to the PAN No., Mobile No. & email IDs of promoters / guarantors, all other details viz. Aadhar No., Passport No., Social Media IDs etc. are also to be captured in the loan application form. These details may be

inserted in item no. 14 & 20 (a) of the captioned application.

Appropriate authority has approved

reclassification of major infrastructure related construction activities viz. Roads, Ports, Airports, Railways, Transport Terminals, Bridges, Tunnels and Dams, from the existing Services Sector, to Industry Sector. Following this reclassification, the Collateral Security norms applicable to Working Capital and Term Loans to units under the Services Sector, will not be applicable to units engaged in the eight aforementioned major infrastructure related construction activities. (e.cir. sl.no.911/2014-15 dt:29/10/2014)

TUFS-Technology Upgradation Fund Scheme-

submission of Asset Verification Certificate has been made mandatory for release of subsidy under TUFS from quarter ended June 2014 onwards.

It has been decided to give separate value

statements in CRA (framework is to be used for all internal credit rating models) more relevant for assessment of New Units under Management & Corporate Governance parameter.

Whenever a breach of covenant takes place, a

suitable communication be sent to the CEO of the Company expressing concern of the Bank. (e.cir.sl.no:1028/2014-15 dt:12/12/2014)

VALUATION OF LANDED ASSETS AND PHYSICAL VERIFICATION OF PROPERTY (e.cir.sl.no:1130/2014-15 dt:24/12/2014) In case of variation of 20 % or more in the valuation proposed by the valuer and the guideline value provided in the State Government notification or Income Tax Gazette, justification on variation has to be given by the Valuer.

Details of last two transactions are additionally to

be provided in the Valuation Report, if available. Selfie of the Inspecting Official at the site, with or without the borrower should be taken as an integral part of inspection and the same should be kept along with the security documents. This exemption (with or without the borrower) will apply only in respect of Housing Loans.



SBLC DEOGHAR

In respect of prospective new connections where our estimated exposure is Rs. 5 crore or above (aggregate of fund based and non-fun based exposures), the Bank has entered into an agreement with a service provider M/S Cubictree Technology Solutions Pvt. Ltd., (CTSPL)for pre-screening services.

Obtention of CIR is mandatory prior to sanction of credit facilities when the borrower is having Multiple Banking Arrangement or considered under take over norms. The genuineness of the CIR should be ascertained diligently and carefully i.e. to be verified by way of branch visit, telechecking, examining statements of accounts etc.

It has been decided that Branch Managers, Case Lead Officers or Case Officers in SAMBs and Officers from SARBs/ Branches in the Circle / MCG / CAG can file RTI application with Income Tax Department, Sub-Registrar of Assurances and Municipal Corporation for ascertaining details of income and properties owned by the borrowers / guarantors. Further the Income Tax Authorities cannot claim exemption as furnishing the details would involve overriding public interest for recovery of money due to the Bank which is public money. In case the CPIOs or the respective Appellate Authorities reject the application or deny the information, the Bank can consider taking up the matter with CIC and subsequently with High Court and Supreme Court, if necessary. (e.cir.sl.no:179/2014-15 dt:20/05/2014)

Documents

Qss Advances General 15 January 2015