LOANS

AND
ADVANCES

UPDATED UPTO
03-01-2020

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COMPILED BY:
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SANJAY GUPTA
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CHIEF FACULTY
(9414062928)
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VETTED BY:
RAJESH GUPTA
CHIEF FACULTY
07

(9987816769)

STAFF TRAINING COLLEGE

LUCKNOW

Loans & Advances STC, Lucknow Page 1 of 174

 CREDIT CULTURE

A Bank may establish a detailed and comprehensive policy, lay down procedures
and systems and provide checks and balances to manage its Credit Administration
function, but unless there is strong core credit culture, such measures will not be of
much use. If the drivers on a highway do not believe in the speed limit and do not
start respecting those limits, the task of the patrolling authority i.e. the Police, cannot
be accomplished. On the other hand, if they start believing that the speed limits are
meant for their safety and smooth traffic movement, the job of the highway patrol
becomes easier to check the rogue individuals from causing harm to others or
themselves. The Bank or the Institutions may not fail because of lakhk of systems,
policies or procedures, but for a credit culture which encourages making use of these
systems, policies and procedures. The credit culture has to be an integral part of a
risk culture to be facilitated by a strong and clear sense of purpose.

With this in mind and enabling the banker‘s to take an informed decision while

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processing a proposal, it is our endeavor to make the participants aware of
methodology in discharging Credit Administration function as per Bank‘s systems/

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procedures/ book of instructions/ circulars etc.
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DISCLAIMER
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Though every effort has been made to incorporate latest guidelines for updation of
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the contents for ready reference of users, this chapter is not a substitute of Bank‘s
Circulars/ guidelines and regulatory directives/ advisories.
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Any suggestion for rectification of any inadvertent error or for improvement of the
contents is welcome and may be emailed to [email protected]
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Loans & Advances STC, Lucknow Page 2 of 174

 INDEX

The Topics have been divided into various parts as under:

1. Pre Sanction Appraisal: General Guidelines -Page 4

2. Due Diligence -Page 9
3. Pre Sanction Visit -Page 11
4. Drawing of CIRs -Page 12
5. Genuineness of Balance Sheet -Page 16
6. Industry Rating -Page 17
7. Credit Risk Rating -Page 18
8. Valuation of Property and Plant and Machinery -Page 28
9. Insurance -Page 32
10. Genuineness of Title Deeds and Valid Mortgages -Page 33
11. Investigation of Title and Search Report, NEC -Page 45

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12. Confidential Reports -Page 47

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13. Credit Information and Opinion on Borrowers -Page 50
14. Validity of Sanction 19 -Page 53
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15. Takeover of accounts from Other Banks -Page 54
16. Time Norms -Page 57
17. Loaning Powers -Page 58
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18. Credit Related Service Charges -Page 72

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19. C.P.T.S -Page 78

20. Demand Loan/ Overdraft -Page 80
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- Against Bank Deposits

- Against Life Policies
- Against Govt. Securities
21. Audit of Annual Accounts by CAs -Page 87
22. Command Area -Page 88
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23. Financial Appraisal -Page 89

a) Understanding Financial Statements
b) Reclassification/ Rearrangement of B/ Sheet
c) Ratio Analysis
d) Working Capital Assessment
24. Bank Guarantees (BG) -Page 120
25. Letter of Credit (LC) -Page 128
26. Consortium and Joint Lending Arrangement -Page 133
27. Post Sanction Follow-up & Monitoring -Page 137
28. Miscellaneous -Page 170

Changes during the week -Page 171

Loans & Advances STC, Lucknow Page 3 of 174

 1. PRE SANCTION APPRAISAL

Some general guidelines:

1. Every Loan proposal in Branch is to be entered in Register for Receipt of
Credit Proposals (PNB 587).
2. It is also to be entered in ‗Online Credit Proposal Tracking System‘ at the
home page of Finacle on CBS enabled PCs (internet browser- by using IP
address http://210.212.92.35/proposal).
3. Rejection in case of MSME category and SC/ST category- An authority,
higher than the one in whose loaning powers such proposals fall. Sanction of
reduced limits should be reported to the next higher authority immediately
with full details for review and confirmation.
4. Loan application would form a part of the loan proposal and should invariably
accompany the proposal being sent to the sanctioning authority. (LA 58/2018/
Page-6, Sr.-6(i))

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5. It is desirable to advise the Loan Applicants, in each case, the reasons for
rejection of their applications.

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6. All favourable and adverse features with comments and justification be part of
Proposal.
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7. Use Board Note Format as per LA 05/2019 dated 11.01.2019 for

Standardized Credit Appraisal Format for for credit proposals upto Rs.2 crore
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(upto Rs.5 crore for MSME borrowers) and above Rs.2 crore (above Rs.5 crore
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for MSME borrowers).

8. Obtain latest audited Balance Sheets.
9. Credit Risk Rating -On latest ABS with latest financial data.
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10. The proposed terms and conditions being stipulated in the proposals be
thoroughly discussed with the concerned borrowers before sanction/
forwarding the credit proposals to higher authorities so as to avoid any
amendments at a later stage
11. Ensure that the particulars furnished by the borrower in the Loan Application
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Form have been duly verified and discrepancies, if any, observed have been
indicated in a separate sheet (s) attached to the loan proposal.
12 If BH, have to exceed their vested loaning powers, then even in
telephonic/oral sanctions obtained from the higher authority for exceeding the
powers), it should be reported immediately to the Controlling Offices, for
confirmation of action by the Competent Authority through submission of a
proposal on Bank‘s prescribed format as per L&A Circular No. 51 dated
16.07.2016 giving the details/justification and explaining the circumstances
necessitating accommodation beyond their powers and the reason why it was
not possible to have prior approval from the Competent Authority.
13 Proposals for confirmation are not to be linked with the
renewal/review/sanction of facilities.

Loans & Advances STC, Lucknow Page 4 of 174

 14 Cases of diversion of funds, if any, could be brought to light at the earliest
opportunity for taking corrective action.
15 The present activities/interests of the borrower even in other concern need to
be looked into thoroughly.
16 Wherever applicable, CRs from the bankers where the group concerns have
their banking arrangements should invariably be called.
17 While granting credit facilities to associate/allied concerns, the quantum and
the need for credit of the sister concerns in conjunction with the facilities
availed of by the parent company or the borrower group as a whole should be
ascertained.
18 In case of trading finances, it should be ensured that it does not lead to
hoarding/speculation.
19 Working capital Limits upto Rs.5 crore in case of MSME borrowers and Rs. 2
crore in case of other borrowers be assessed as per Simplified Turnover
Method.
20 Borrowers not eligible to be provided fund-based working capital limits under
―Simplified Turnover Method‖ (as explained above), is to be done as per

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MPBF system (Second Method of Lending), except in case of Tea & Sugar

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industries etc. where credit requirement is assessed as per cash budget
system. Such types of facilities should be adequately collaterally secured by
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mortgage of IP or pledge/assignment of other tangible assets as far as
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possible.
21 In case of project finance, the promoter/borrower may bring in his upfront
contribution (other than funds to be provided through internal generation) and
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the branches should commence its disbursement after the stipulated funds
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are brought in by the promoter/borrower. A condition to this effect should be

stipulated by the sanctioning authority in case of project finance, on case to
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case basis depending upon the resourcefulness and capacity of the promoter
to contribute the same. It should be ensured that at any point of time, the
promoter‘s contribution should not be less than the proportionate share. (LA
58/2018- Page-8, Sr- 6(xi)).
22 At the time of considering proposals of Subsidiaries of Foreign Companies,
the possibility of obtaining Foreign Bank Guarantee/Corporate Guarantee be
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explored.
23 While extending credit to Multi-National Companies (MNCs) or where NRIs
are promoters/guarantors, efforts be made to obtain collaterals situated in
India and/or guarantee of parent Company to guard against situations like
non-availability of non residents for recovery of bank dues.
24 Exercising due diligence in takeover accounts.-FRMD Internal-36/2011
25 Assessment of credit worthiness of borrowers. FRMD Internal -36/2011
26 Penetrative discussion with prospective borrower and discreet enquiries
from other reliable sources regarding his credentials were not done. FRMD
Internal -36/2011 (FPIS Internal Cir No. 36/2011 dt 03.10.2011)
27 Independent spot verification of the property and address of the borrower
not done. FRMD Internal -36/2011
28 Laxity in obtaining/ establishing chain of title deeds. FRMD Internal -36/2011

Loans & Advances STC, Lucknow Page 5 of 174

 29 Scrutiny of title deeds, obtaining NEC & valuation reports and certified copy of title
deed from Sub-Registrar for ensuring genuineness of the title deed held in bank
records. FRMD Internal-36/2011
30 Verification of salary/ income certificate. FRMD Internal -36/2011
31 Take special care to avoid financing on the basis of multiple title deeds / coloured
photocopies of title deeds / scanned copies of title deeds as primary security as well
as collateral security. FRMD Internal -36/2011
32 Vetting of Loan documents of independent branches headed by officers upto
scale III, in case of Retail Loans (Housing, OD Housing, Education, Vehicle, Loan
against Property, Personal Loan to Public/ Pensioner Schemes) accounts prior to
disbursement be got done as per RAD Cir No. 54/2017 dated 27.07.2017 with the
help of e-VEDA portal. Complete Check list with detailed procedure and navigation
given in the circular. Disbursement only after Vetting by concerned RAPC/ CO.
Certificate of Vetting/ Approval to be held on record alongwith other documents. Non
compliance of these vetting guidelines to be considered as lapse in Pre sanction.
33 Guidelines contained in LA Cir 58/2017 dated 13.07.2017 on pre sanction
appraisal to be complied with.

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34 Search be made in CERSAI Portal on the lines of CIR. LA-60/2017 dt 19.07.2017.

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35 Branches to ensure that CIN/LLPIN is mandatorily filled in field ―Registration No.‖ in #
detail of CUMM in all new as well as existing Cust IDs of Companies/LLPs. (LA
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81/2017 dated 25.09.2017)
36 It is also advised that the genuineness/credentials of the supplier/dealer must be
ascertained before disbursing the loan amount by visiting the supplier/dealer‘s
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plakhe/by reference to the website of supplier/dealer or by adopting other means

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such as search the internet, making telephone call etc. besides ensuring correctness
of cost/price of asset being financed by the bank. (LA 87/2017 dt 09.10.2017)
37 Credit Division is advised to seek report from CEIB on any prospective borrower at
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the time of pre-sanction stage for proposals coming under the power of HOCAC-I &
above (at present exceeding Rs.50 cr). (LA 89/2017 dt 10.10.2017)
38 On Knowledge Repository -> List of frozen accounts of strike off Companies
(LA95/2017)
39 Road map to obtain The Legal Entity Identifier (LEI) is given vide LA Cir 97/2017 dt
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07.11.2017. Repeated and how to feed the same in CBS explained vide LA
105/2018 dt 18.10.2018.
40 It is mandatory to compare the Balance Sheet, P&L account filed with application
with the Balance Sheet, P&L filed with the MCA (Corporate Affairs) website and
officer concerned should certify that aspect at the pre sanction stage. (LA
36/2018 Dt 27.04.2018 58/2018 Dt 30.06.2018, page 10-12)
41 The balance sheet submitted by the borrower should be verified with the one filed
with Government Departments i.e. ROC, IT Deptt, etc.(LA 10/2018 Dt 13.02.2018).
42 Covenant regarding dealing with our bank/ consortium banks exclusively as advised
vide L&A Cir No. 102 dated 19.12.2016 should be duly incorporated in the terms &
conditions along with permission to deal with other banks, if any and should be got
accepted and complied with by the borrower before disbursement of facilities. In
case of non-compliance penal interest should be charged as per extant guidelines.
43 Guidelines as circulated vide RBD Cir No. 40 dated 10.08.2017 inter-alia advising to
make use of the information available in Central Repository of Information on Large

Loans & Advances STC, Lucknow Page 6 of 174

 Credits (CRILC)1 at the time of opening of Current Account should be complied with.
(40,41,42 above  vide LA 10/2018 Dt 13.02.2018)
44 If a company is found to be engaged in transactions with allied/ associate
concerns (intra group dealings) such transactions should be closely monitored
and if needed, the same be restricted by stipulating a suitable condition in the
terms of sanction. (LA 58/2018 Dt 30.06.2018- Page 13).
45 ―Equity has to be brought in by the promoter upfront. Quality of equity shall also
be assessed by verifying its loss absorption capacity.‖ it is advised that the
promoter‘s/borrower‘s funding sequence i.e. upfront contribution/contribution on
pro-rata basis should be clearly stipulated in the terms of sanction and should be
fully complied with. Also, at the same time, quality of equity should also be
assessed and be made part of credit appraisal to ascertain its loss absorption
capacity. (Also refer at Sr 20) (LA 58/2018 Dt. 30.06.2018 on page-8 Sr-6-xi).
46 The certified copy of passport or In cases where the concerned person does not
have passport, a declaration to this effect along with an undertaking that he shall
submit the passport details as and when obtained by him in future be obtained

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along with other KYC documents and held on record. (LA 58/2018 Dt 30.06.2018

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on page 10 and further modified vide LA 92/2018 dt 29.09.2018)
47 Banks can verify the authenticity of the attested documents by visiting on the
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UDIN Portal at https://udin.icai.org. It is mandatory now for all CAs to upload
as under:
 All Certification done by practising CAs w.e.f. 1st February, 2019.
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 All GST and Tax Audit Reports w.e.f. 1st April, 2019.
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 All other attest functions w.e.f. 1st July, 2019.

(See LA 28/2019 dt 19.03.2019)
48 There are transactions which require close scrutiny and analysis to detect
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instances relating to diversion of funds.

49 Transactions with business units of family members/relatives of promoter of
borrowing entity.
50 Transactions with business units promoted by employee/staff of borrowing
entity.
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51 Units which are shown as debtors/creditors but whose line of business is not
related to the borrowing unit.
52 Dealings with companies who do not file returns/balance sheet with RoC.
(LA 108/2018 dt 31.10.2018)
53 In respect of borrowers having aggregate fund based working capital limit of ₹150
crore and above from the banking system, a minimum level of ‗loan component‘
of 40 percent shall be effective from April 1, 2019 to be revised to 60 percent,
with effect from July 1, 2019.
(LA 126/2018 dt 15.12.2018)
54 An authority letter to be obtained from Borrower/ Guarantor to access/ obtain/
verify information from Income Tax Department/ as also any other Governmental
Department/ Authority/ Agency. Sample letter is to be as per LA Cir 09/2019
dated 17.01.2019.
(LA 09/2019 dt 17.01.2019)

Loans & Advances STC, Lucknow Page 7 of 174

 55 While considering advances/credit facilities to a company on the basis of Brand
name which does not form any tangible security for the purpose of recovery, the
advance/credit facility should be secured by taking tangible security as far as
possible.
(LA23/2019 Dt 28.02.2019)
56 While considering credit facility on the basis of brand name as security, atleast two
different valuation reports preferably from Govt. Approved valuer should be obtained
and the lower of the two valuations should be accepted.
(LA23/2019 Dt 28.02.2019)
57 In case of Performance cum Mobilization Advance Guarantees, Escrow Account
should be opened at the time of sanction of such limits to monitor the cash flows and
amount received as mobilization advance should be credited in the escrow account.
(LA23/2019 Dt 28.02.2019)
58 In Jewellery sector advances, it is advised to obtain details of all
transactions/financial agreement/contract entered into by its subsidiaries with their
business associates every month. Suitable condition in this regard should be
incorporated in terms of sanction.
(LA23/2019 Dt 28.02.2019)

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59 Information in respect of all borrowers to be submitted to NeSL. Agreements/
letter of undertakings as per LA 41/2018 to be obtained as applicable and
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Undertaking for debiting charges on annual basis to be obtained as per LA cir
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50/2019
(LA 50/2019 Dt 25.04.2019)
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60 In terms of L&A Cir. No. 104 dated 18.10.2018 confirmation has to be

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provided in the appraisal note that GSTIN of the borrower is active and up to
date GST return has been filed as checked from GST website. If not, the
details along with reason should be given in the note.(LA 59/2019 dt
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30.05.2019)
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Loans & Advances STC, Lucknow Page 8 of 174

 2. Due Diligence

Need based credit requirement of the borrowers shall be assessed properly

keeping in view the laid down systems/ procedures. Margin and security
stipulation shall not be used as a substitute for due diligence on credit
worthiness of the borrowers. (LA84/2011)

Branches to make search on the website www.mca.gov.in. through the DIN

no. of the respective director to verify the name of directors of borrowing
company as well as the names of group/allied concerns. The report(s) so
obtained should be scrutinized carefully to ensure that the details regarding
associate/allied concerns are duly captured and reported in the appraisal
note. (LA 61/2016). Also See LA 36/2018

KYC guidelines aimed at identification of the customer opening an account

with the Bank are applicable to borrowal accounts as well. (LA 04/2013 and
87/2017 LA 58/2018 Dt 30.06.2018) Read it alongwith KYC-AML Circular

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no.03/2017 11/2018 dated 30.01.2017 08.06.2018.

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Where frequent changes in management structure are observed, officials should
be more vigilant and complete the process of due diligence while dealing with
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such companies while taking credit decision. (LA 08/2015)

Whether all formalities/requirements under various Acts relating to

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organization of the borrowing concern have been complied with viz.

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compliance of provisions under the Companies Act, 1956, provisions

contained in Memorandum and Association of the Co., Listing Agreement, if
any and provisions of various statutes etc. Borrower/Partners/Company
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Directors are not figuring in defaulters‘ list (RBI/ECGC)/willful defaulters‘ list

etc. While doing spot verification, names and addresses of neighbours,
Important Landmarks, Physical inspection of stocks relating to the
Goods/Services procured against the LCs issued and duly verifying the same
from the books of accounts and other sources to detect fudged figures, if any,
Inventory Management, Receivables Management, Control over Information
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etc., Budgetary control, Adverse remarks in CIBIL, Court Cases pending,

Statutory dues pending, defaults, if any (LA 45/2013 / Also See LA 50/2018).
It is obligatory for Borrower to provide change in address (LA105/2017 dt
23.11.2017).
Guidelines as contained in LA 43/2019 dated 10.04.2019 must also be
complied with.
ROCs have struck off the names of 1.62 lakh companies as of 12/07/2017
and these companies stand dissolved. The ROC-wise lists of such companies
are available on the website of the Ministry at link
http://mca.gov.in/MinistryV2/stk7publicnotices5.html. Branches to check it
immediately, including all standard accounts.

It is also advised to have an enhanced diligence while dealing with

Companies in general. While maintaining due diligence when dealing with

Loans & Advances STC, Lucknow Page 9 of 174

 companies, officials shall also check the status of companies on the web-site
of MCA as the status gets updated with each filing.
(For details LA Cir 73/2017 dt 25.08.2017)

While dealing with companies, bank officials shall also check their status on the
MCA web-site to ensure that their name is not stuck-off / inactive. The facility to
view Company and Limited Liability Partnership (LLP) master data link is
available on http://www.mca.gov.in/mcafoportal/viewCompanyMasterData.do
and there is also a view public documents facility on link
http://www.mca.gov.in/mcafoportal/viewPublicDocumentsFilter.do. which may
also be checked at pre-sanction stage.

Bank officials shall also check the status of GSTIN and GST return filing of all
borrowing concerns on GST web-site to ensure that GSTIN is active and upto
date return has been filed. The facility to view the GSTIN status is available on
https://services.gst.gov.in/services/searchtp.

(LA 47/2018 dt 04.06.2018)

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Data be submitted to MCA on such companies as per LA 78/2017 and 92/2017 &

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95/2017. BM to Check in Terms of LA 98/2017 & 118/2017.
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Banks can verify the authenticity of the attested documents by visiting on the
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UDIN Portal at https://udin.icai.org. It is mandatory for all CAs to upload as

under:
 All Certification done by practising CAs w.e.f. 1st February, 2019.
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 All GST and Tax Audit Reports w.e.f. 1st April, 2019.
 All other attest functions w.e.f. 1st July, 2019.
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(See LA 28/2019 dt 18.03.2019)

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Loans & Advances STC, Lucknow Page 10 of 174

 3. Pre sanction Visit

For sanction of any loan, a Pre-sanction visit must be made to Residence (Both
Borrowers and Guarantors), Office, Factory, Business premises etc.
independently with noting of various aspects including Important Land Marks. All
types of Information about Borrowers/ Guarantors/ their reputation/ market
standing/ scale of business/ their dealings etc must be gathered from Neighbors/
Their suppliers/ competitors/ persons dealing in similar products/ our existing
clients/ our staff which is near to their residence etc. Bank has prescribed a
Performa (Appendix-IIA) vide LA Cir 58/2018 dated 30.06.2018 which is
comprehensive

The aim is to verify KYC/ Whether all formalities/requirements under various Acts
relating to organization of the borrowing concern have been complied with viz.
compliance of provisions under the Companies Act, 1956, provisions contained in
Memorandum and Association of the Co., Listing Agreement, if any and
provisions of various statutes etc/Past dealings with our bank/ Other banks/

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Security offered/ associated and allied concern/ CIR/ Defaulters list/ Board of

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governance/ physical inspection of stocks relating to the Goods/Services, /
Inventory Management, Receivables Management, Control over Information etc/
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Budgetary Control System/ Any other adverse remarks. For this steps required
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are as under:

 The appraising office, should conduct pre-sanction visit of borrower‘s

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factory/business premises/IP offered as security in the loan

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account/borrower‘s plakhe of work/residence as part of appraisal and annex

the copy of visit report (Proforma Appendix-IIA as per LA 58/2018)with the
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proposal.
 The report should contain the date of visit, name of the official who visited the
site, important nearby landmarks, name of the neighbourers and observations
made about approximate market value of IPs offered as security gathered
through local enquiries.
 In order to keep a record, a register for unit inspection as per Appendix-IIB
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(LA 58/2018) may be maintained at the appraising office where details of

visits made to the borrower‘s premises may be captured in chronological
order. (LA 58/2018-Page 6, Bullet 4) Proforma-Page 52
 Comment in brief regarding pre sanction visit should be invariably mentioned
in the appraisal note at appropriate plakhe.

Source: LA 58/2018 Dt 30.06.2018

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 4. Drawing of CIRs:

CIRs provide Credit History of Individual or Firm and be looked into very
minutely for credit appraisal. This is a tool, which allows us, knowledge
through technology, about person/ firm, telling correctly or falsely, along with
conduct of their account.

After the operationalization of Credit Information Company (Regulation) Act

2005, banks/FIs can submit data to Credit Information Companies without
obtaining consent of the borrowers/co-obligants / guarantors. As per RBI
guidelines every Credit Institution has to become member of all the Credit
Information Companies (CICs) and our Bank is member of all the CICs.

Presently, Bank has also linked interest rate of many types of retail loans with
CIC score. (Latest being L&A cir No 138 dated 17/12/2019)

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a. Drawing of Credit Information Report (CIR) from Credit Information
Company (CICs) is mandatory for Borrowers, Guarantors & Co-obligants

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(both Consumer & Commercial Category Accounts).
b. It is required at the time of fresh credit facilities (before sanction of
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facilities), then at the time of Renewal/Review/Enhancement of such
facilities except in certain exempted categories of advances.
c. There are two types of CIRs
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i. Consumer- For Individuals

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ii. Commercial- For other than Individuals

d. There are four CICs, namely: CIBIL, EQUIFAX, EXPERIAN & CRIF
HIGHMARK.
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e. We draw CIRs under consumer category as under:

CIBIL- With or Without Score
Equifax- Demographic, Basic and Enhanced (we draw Basic and
Enhanced Report
Experian and CRIF HIGHMARK- Only Consumer category
f. Commercial_ Through CIBIL only
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g. Mandatory Drawing of CIRs/ Exempted Categories

Drawing of CIRs in certain cases,ill be as under:-

Loans & Advances STC, Lucknow Page 12 of 174

Sr Category of Consumer Commercial
account
1 Proprietorship For Prop (Individual) and For Firm
accounts Guarantor
2 Partnership For all Partners (Individual) and For Firm
accounts Guarantor
3. Company For each individual director/ For company
accounts guarantor
4. Trust account For those trustees authorized to For Trust
act on behalf of the Trust
5. Corporate For company standing as
guarantees guarantor
6. Allied / Associate For allied/ associate
Concerns concerns
7 SHGs All Members and Guarantor SHG

Drawing of CIRs in certain cases, will be as under:- (As per LA 77/2018 dt

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21.08.2018)

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Consumer Category
Loan Amount CIRs
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Less than Rs.5,00,000/- One CIR with score from Any approved CIC.
Rs.5,00,000/- and above OR Two CIRs with score from Any approved CIC.
Customers having credit risk
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rating ‗B2 & below

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Under Consumer category- CIBIL charges for even NO HIT report.

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Exemptions from drawing CIRs

(a)Advance against Bank‘s own Deposits, Govt. Securities/Bonds, PSU Bonds,
Postal Securities, LIC Policies, Shares, Debentures & Mutual Funds.
(b) Advances against 100% Cash Margin.
(c) All Staff Loans.
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(d) Advance against gold jewellery/ornaments

(e) In all these above cases/ accounts, Information be collected as per
Proforma (App-1 of LA 70/2016) for submission of data to CICs.

CIR Charges
Consumer Category: Rs 64.31- per report (Change as per MISD 07/2017)

Commercial Category:

Loan amount Commercial CIRs

Upto Rs 50 lakh One CIR from any CIC i.e. CIBIL or CRIF High
Mark (with score) or Experian (with score)
Above Rs 50 lakh Two CIRs from any CIC i.e. CIBIL or CRIF High
Mark (with score) or Experian (with score)
Vide LA 94/2018 dt 04.10.2018

Loans & Advances STC, Lucknow Page 13 of 174

Charges for Commercial Category:

Loan Amount Charges per CIR

Upto Rs.2 Lakh Rs.1028.96
Above Rs.2 Lakh to Rs.10 Lakh Rs.1286.20
Above Rs.10 Lakh Rs.1672.06
(Change as per MISD 07/2017)
The charges so recovered shall not be refunded even if the proposal is
declined. In case of the existing borrowers, these charges should be debited
to their accounts.

Maintenance of Record of CIRs drawn from Database of CICs

Record to be maintained as per Register Format conveyed vide MISD Cir
05/2015.

Sec. 21(1) of Credit Information Companies (Regulation) Act, 2005:

“Any person, who applies for grant or sanction of credit facility, from any

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credit institution, may request such institution to furnish him a copy of the

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credit information obtained by such institution from Credit Information
Company”. 19
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Sec. 21(2): “Every credit institution shall on receipt of request as indicated in

sub section (1) shall furnish to such person a copy of the Credit Information
subject to payment of charges specified by the Reserve Bank under the
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regulations.”
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Sec. 12(3): On receipt request and fee of Rs.50/-, provide copy of CIR to the
3

person concerned.

Damodaran Committee Recommendations on CICs:

 Branches should be doubly careful while reporting a borrower as
defaulter in the LADDER system.
 It is to be ensured that all the communications to obligants on delay
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in payment of dues/instalments, invariably indicate that status

reporting to CIC is mandatory and any adverse remark could
adversely impact their credit score, which could affect their ability to
raise loans on beneficial terms in future.

Discrepancy in CIR:

 In case of any dispute/doubt or any query/discrepancy related to any

CICs on CIR by Branch/Borrower during processing of loan proposal
should immediately be taken up with MISD, HO along with authority letter
and KYC documents at [email protected] for taking up the matter with
concerned CICs.
 Branches are further advised, not to approach any of the CICs directly,
for account query related issues.
KYC Documents and Authority Letter as per Annexure – 1 of MISD Cir
02/2019 dated 13.03.2019 in case of Individual CIR and in case of Commercial CIR

Loans & Advances STC, Lucknow Page 14 of 174

be submitted as above.

# Source LA 70/2016, 77/2018, 94/2018 PSLB 02/2017, MISD 5/2015,

MISD 04/2017, 07/2017, 08/2017 and 02/2019

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Loans & Advances STC, Lucknow Page 15 of 174

 5. GENUINESS OF BALANCE SHEET

1. Authenticity of specific documents relating to a company such as status of

charges, Balance Sheet etc. can be ensured on the website www.mca.gov.in.
To get the CIN and the address of the company a link may have to be
established with MCA site.(Reference L&A cir.no.61 dated 17.08.2016)
2. While dealing with the reports submitted by CAs, the genuineness of the
signatures of CAs/firm should be verified from the Regional Office of the ICAI
under whose jurisdiction the CAs/firm in question falls to avoid any serious
implications for the Bank due to such fake reports. Further in case false
documents as aforesaid have been noticed, suitable action may be initiated
against the parties involved such as filing of FIR etc. under intimation to
concerned CAs/firm of CAs.(Reference L&A cir.no.135 dated 27.12.2013)
3. Directors Identification Number (DIN) is a unique identification number allotted
to an individual who is appointed as director of a company. While appraising a
credit proposal, information of DIN of all the directors is required to be
captured in the appraisal note and its correctness needs to be ensured.

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(Reference L&A cir.no.26 dated 22.02.2014)

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Accordingly, as part of due diligence exercise, branches are advised to make
search on the website www.mca.gov.in.through the DIN no. of the respective
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director to verify the name of directors of borrowing company as well as the
names of group/allied concerns. The report(s) so obtained should be
scrutinized carefully to ensure that the details regarding associate/allied
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concerns are duly captured and reported in the appraisal note.

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(Reference L&A cir.no.61 dated 17.08.2016)

3

L&A Cir. No. 135/2019:- Drawing Balance Sheet of companies from MoCA (Ministry
of Corporate Affairs) portal.

REVISED GUIDELINE: the Audited Financial Statements for further

processing/records, it is mandatory to compare the Balance Sheet, P&L account
submitted by the Company/LLP with Balance Sheet, P&L account filed in MCA portal
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and confirm the authenticity of the documents submitted as per procedure given
below:
P&L account in all existing as well as in fresh accounts, the officer concerned should
certify that copy of Balance Sheet and P&L of the Company/LLP have been
downloaded from MCA website, checked with the documents received from the
Company/LLP and found to be in order. The copy of the financials downloaded from
MCA website shall also be held on record.

Loans & Advances STC, Lucknow Page 16 of 174

 6. INDUSTRY RATING

Industry Ratings are being used as one of the inputs in Internal Credit Risk
Rating models for carrying out credit risk rating of borrower accounts as also in
credit decision making as per extant guidelines. The industry reports are
available on our e- circular site for ready reference of our field functionaries
engaged in appraising/sanctioning credit proposals.

Bank has tied up with CRISIL for Industry Ratings. Who in turn has provided
Industry ratings of 140 Industries and same are available vide LA Cir 81/2019 dt
20.07.2019. The industries not rated are to be treated as neutral.

Particular area of concern is Copper cathode, Glass Rice Mills for which
present Industry Outlook has been downgraded besides 4 other Industries.
Also see LA Cir 10/2017 dt 31.01.2017 (Third Housing Unit onwards to be
covered under Commercial Real Estate)

As per Credit Management and Risk Policy for the year 2019-20, circulated vide

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LA Cir 47/2019 dated 18.04.2019, there are certain restrictions imposed in

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exercising loaning powers in respect of Fresh/ additional exposure to
Unfavourable Industries (see page 17 LA 47/2019). Also See LA 122/2017 (See
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Item 49 Annex III, Page -45)
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Loans & Advances STC, Lucknow Page 17 of 174

 7. CREDIT RISK RATING:

Banks should have a comprehensive risk scoring / rating system that serve as
a single point indicator of diverse risk factors of a counter party and for taking
credit decisions in a consistent manner. The risk rating system is designed to
reveal the overall risk of lending, for setting pricing and non-pricing terms of
loans and also to present meaningful information for review and management
of loan portfolio.
Each separate legal entity to which the bank is exposed must be separately
rated irrespective of the nature of the limits and constitution of the borrower.
It is further clarified that in case of take over of accounts, rating and its
approval should be done by the competent authority in the office of loan
sanctioning authority. After the approval of the rating, case should be referred
to next higher authority along with rating of the borrower for getting permission
to take over of the account as per extant guidelines.
(Ref: LA 103/2003)
The risk rating is an important tool facilitating the credit decision process. A
borrower‘s rating must represent his ability and willingness to contractually

4
perform despite adverse economic conditions or the occurrence of

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unexpected events. By not assigning an appropriate rating to a borrower we
may miss the opportunity to invest in good accounts or may end up in having
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invested in high risk accounts. As such, a casual approach in using the tool
may not only defeat the purpose of the exercise but also have serious
consequences.
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(Ref:LA 86/2004)
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General Guidelines
i) The credit risk rating models contain several qualitative parameters that are to be
evaluated subjectively. For this:
3

 Be adequately familiar with the company and the industry.

 Regular visits to the company and interaction with company‘s management.
 The business prospect of the company and its management.
ii) Make best efforts to have an effective system to obtain and update
relevant information on the borrower‘s financial condition, and factors
affecting business prospects.
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iii) Take all relevant information into account, collect information from all
possible sources to conduct rating exercise completely, accurately, and in
an authenticated manner.
iv) Information used in rating process must be current.
v) Sufficient human judgment and assessment is necessary.
vi) It must be ensured to include all relevant information, including those
outside the scope of the model for rating.
vii) the model is used appropriate.
viii) The data used to assign rating should be annualized and comparable.
ix) The financials of the company should be made comparable with peers in
case of change in accounting policies, merger, de-merger, acquisition,
sell-off etc.
x) For multi-divisional companies, which are involved in more than one
activity/product/industry, business parameters should be evaluated
separately for each activity/industry, (upto 3 major activities) whereas

Loans & Advances STC, Lucknow Page 18 of 174

 financial, management, conduct of account evaluation should be done for
company as a whole.
xi) Given the difficulties in forecasting future events and the influence they will
have on a particular borrower‘s financial condition, a conservative view of
projected information should be taken.
xii) The complete rating sheet, justification, financial ratios (if computed
manually) and all relevant information must be sent to vetting authority for
each rating.
xiii) The record of rating exercise and history of ratings should be kept on
record for further references, uses, and audit etc.
xiv) The final/approved rating on vetting/ approval be informed to concerned
branch.
xv) The credit risk rating alongwith date of approval and date of balance sheet
must be stated in all references made to competent authorities for taking
any credit decision in the account.
xvi) Secrecy of the rating mechanism has to be maintained and it should be
ensured that the exercise on the rating of the borrower i.e. format/rate

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assigned to various parameters and the notes on justification for assigning
the rate etc. should not be provided to the borrower/consortium/other bank

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under any circumstances. However, the final rating may be informed to the
borrower/consortium members etc.19
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(Source for above: LA 103/2003)

xvii) A borrower rating must represent the borrower‘s ability and willingness to
20

contractually perform despite adverse economic position or the

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concurrence of unexpected events. If the subsequent rating of any

borrower slips more than one notch when compared to the previous rating,
the vetting authority should make a detailed evaluation of all such previous
3

ratings to know if there had been a negligence /casual approach in

assigning previous rating to a borrower. If warranted, staff side should
be initiated against the erring officers. Similar exercise is required
when a better rated account turns NPA.
(LA 86/2004)
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Credit Risk Management

Credit risk management process involves identification, measurement, monitoring
and control. The bank has put in plakhe strong credit risk management structure,
which ensures continuous identification of possible areas, which may adversely affect
the credit quality of a borrower and/ or portfolio. The process of identification of credit
risk is done by:
 Identifying potentially good and weak industries to manage risk in portfolio through
industry wise exposure ceiling model.
 Identifying potential credit risk in a new as well as existing borrower through various
credit risk rating models.
 Identifying signals of weakness in an existing borrower through preventive monitoring
system.
 Identifying weak accounts having incipient sickness.

Loans & Advances STC, Lucknow Page 19 of 174

 Credit Risk Rating Models
To measure risk in individual borrowal accounts, the bank has identified various
segments viz. large corporate, mid corporate, small, NBFC, New projects, Banks,
Retail, Pnb Super Scorer etc. Borrowers in these segments reflect similarity of
potential credit risk factors and as such can be rated using the single model for the
segment. The credit risk rating awarded to a borrower is subject to review from time
to time. The bank has developed the following models: (Refer IRMD 23/2017
dt 13.12.2017 & IRMD 32/2019 dt 20.12.2019)

S. No Credit Risk Rating Applicability

Model Total Exposure Turnover
1. Large Corporate Above Rs. 15 Crore (OR) Above Rs.100 Crore,
except Trading
concerns
2. Mid Corporate Above Rs.5 Cr and up to Rs.15 Above Rs.25 Cr and
Cr. (OR) up to Rs.100 Cr.
All trading concerns falling in the Large Corporate
category shall also be rated under this model

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3. Small Loans Above Rs.50 lakh & up to Rs.5 Cr Up to Rs.25 Cr.

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(AND)
4. Small Loans II Above Rs.2 lakh & up to Rs.50
lakhs 19
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5. NBFC All Non Banking Financial Companies irrespective of
Limit
6. New Projects Rating Above Rs. 5 Cr. (OR) Cost of Project
Model above Rs.15 Cr
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This Model is also applicable for existing borrowers

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undertaking substantial investments in diversified

activities/major expansion. The substantial investment is
defined as investments (in value) exceeding 50% of
3

gross value of block assets at the end of last financial

year.
7. Entrepreneur New Borrower setting up new Cost of Project upto
Business Model business and requiring finance Rs.15 Cr.
above Rs 50 lakh upto Rs. 5 Cr
(AND)
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New Non Banking Financial Companies (NBFCs)/New

Micro Finance Institutions (MFIs).
New borrower entities, setting up new business requiring
only working capital/NFB limits of above Rs.5 crore but
not involving setting up of any project as such.
Projects already completed with own finance, audited
results for first year of operations are not yet available
and proposal is only for sanction of WC/NFB facilities.
However, all new trading business irrespective of limits
shall be rated under this model.
Existing borrower proposing to avail credit limits
above Rs.50 lakhs and up to Rs 5 crore undertaking a
major expansion i.e. value of block assets being added
are more than 50% of existing gross block assets value
as per the latest audited accounts and value of gross
block assets being up to Rs.15 crore after expansion.
8. Credit Risk Rating All banks and Financial Institutions
models for Banks/ FI

Loans & Advances STC, Lucknow Page 20 of 174

S.No Transaction Rating Applicability
Model
1. Facility (Expected Assigning rating to facility sanctioned to the borrower
Loss) Rating based on default rating and securities available
Framework
2. Future Lease Rental Advances to property owners against future lease
Model rentals

Half Yearly Rating Applicability

Model
1. Half Yearly Rating i) All listed companies rated on large /mid corporate
Model rating models.
ii) Other borrowal accounts rated on large / mid
corporate rating models availing limits (FB+NFB)
above Rs.50.00 crores from our bank.

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NPA Marking Model
S.N. Credit Risk Rating Applicability

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Model
1. NPA Model For marking NPA accounts in on-line PNBTrac Credit
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Risk Rating System

All these credit risk rating models applicable to borrowers are available in the on-line
Central Server based system PNB Trac for conducting ratings.
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CREDIT SCORING MODELS:

PNB SUPER SCORER: To strengthen the credit risk assessment for all fresh/
3

enhancement/ additional limit proposals in standard accounts falling within HO power

and to capture changes in risk dynamics post regular rating, a new quantified scoring
model ‗PNB Super Scorer‘ has been developed.
The Model will be used by the Raters/Vetter‟s at IRMD, Head Office.
PNB Super Scorer shall serve as an additional tool on top of regular rating in PNB
Trac in the account to capture fine tuned riskiness/change in riskiness in borrower
07

since the previous recent rating.

The Model will be applicable to all fresh/ enhancement/ additional limit proposals in
standard accounts falling within HO power.
‗PNB Super Scorer‘ is quantified majorly on Objective criteria. The Risk parameters
have been classified under five sub- categories i.e.
i) Borrower entity,
ii) ii) Security Coverage,
iii) iii) Conduct of Account,
iv) iv) Promoter & Group entities
v) v) Industry/Sector.
Based on the total score obtained above identified parameters, the PNB Super
Scorer will classify the account into four categories as under:

S.No Total Score (Out of Risk Categories Go/No-Go

400) Classification
1 Above 260 Low Risk Go
2 Above 160 & upto 260 Medium Risk Go with additional

Loans & Advances STC, Lucknow Page 21 of 174

 Stipulations
3 Above 120 & upto 160 High Risk Go only if certain
critical conditions
fulfilled
4 120 & below No- Go No- Go

PNB SCORE : To evaluate risk in retail segment, 8 Scoring models for all the retail
schemes except i) PNB Baghban Scheme (Scheme for Reverse Mortgage) and ii)
Loan against Gold Jewellery & Gold Coins have been developed under the name
PNB SCORE. This is applicable to all Retail Loan applications (except exempted
categories) for loan upto Rs.50.00 lakh, however, for retail loan schemes namely
Housing Loan, Education Loan and Vehicle Loan (loans to individuals), the same is
applicable irrespective of amount.

The models are as under: 1) Housing Loan/ Loan against IP to Individual 2)

Conveyance Loan 3) Education Loan 4) Personal Loan (Pensioner) 5) Personal Loan
(Others) 6) Doctors‟ Loan @ 7) Traders‟ Loan (New)@ 8) Traders‟ loan (renewal)@.

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@ These credit scoring models are still part of PNB Score, though some of the
schemes covered under these scoring models are now being looked after by MSME

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Division. For link on Finacle Home Page as Non CBS applications  PNB IRMD 
PNB Score. 19
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PNB SME SCORE: For SME, following models have been developed, which can
cater to the requirements of the schemes under SME sector:
1. SME Manufacturing (New Cases including takeover) - Above Rs.10 Lakhs up to
20

Rs.50 Lakhs.
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2. SME Service (New Cases including takeover) - Above Rs.10 Lakhs up to Rs.50
Lakhs.
3. SME Manufacturing and Service (New Cases including takeover) - Rs.10 Lakhs
3

and below.
4. SME Manufacturing and Service (Renewal / Enhancement) - Above Rs.10 Lakhs
up to Rs.50 Lakhs.
5. SME Manufacturing and Service (Renewal / Enhancement) - Rs.10 Lakhs and
below.
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SME scoring models are collectively known as PNB Score-SME and a link on Finacle
home page is available as ―Non CBS applicationsPNB IRMD  PNB Score SME‖.

Scoring Model for Credit Card: For scoring of fresh applications for issue of the
credit card to individuals and to assess the credit card limit for Classic, Gold and
Platinum Cards.

PNB FARM SECTOR: In its endeavour to develop credit scoring models for all
eligible small loan accounts under various segments up to Rs. 50.00 Lakhs, bank has
developed following models for lending to agricultural (direct and allied) activities
under various schemes of PS&LB Division:
 Direct Agriculture with limit above Rs. 1 lakh and up to Rs. 50 lakhs
 Allied Agriculture with limit above Rs. 1 lakh and up to Rs. 50 lakhs
 Direct Agriculture with limit above Rs. 1 lakh and up to Rs. 50 lakhs
(Renewal/Enhancement)

Loans & Advances STC, Lucknow Page 22 of 174

  Allied Agriculture with limit above Rs. 1 lakh and up to Rs. 50 lakhs
(Renewal/Enhancement)

In addition, the following 3 models are also in force:

S.No. Credit Risk Rating Model Applicability
1 Exposure to undertakings of All states within Union of India
State
2 Exposure Ceiling Model for All industries, where the bank has substantial
various industries exposure
3 Segment Rating Pool wise default and ratings approach for loans
Methodology upto Rs.5 Crores and loan under exempted
category of rating.

Grading of Borrowers under the Rating system:

RATING RISK DESCRIPTION
GRADE SIGNIFICANCE
PNB- Minimum Risk Excellent business credit, superior asset quality and
A1 excellent track record of debt repayment capacity and

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coverage.
PNB- Marginal Risk Very good business credit, asset quality and liquidity,

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A2 debt repayment capacity and coverage.
PNB- Modest Risk Good business credit, asset quality, debt paying
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A3 capacity and coverage.
PNB- Lower Risk Satisfactory business credit, asset quality, liquidity, good
A4 debt repayment capacity and coverage.
PNB- Average Risk Acceptable business credit with average risk,
20

B1 acceptable asset quality, modest debt capacity.

/01 09

However, adverse economic conditions or changing

circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial
3

commitments.
PNB- Marginally An obligor is less vulnerable in the near term. However,
B2 Acceptable Risk it faces major ongoing uncertainties and exposure to
adverse business, financial, or economic conditions
which could lead to the obligor's inadequate capacity to
meet its financial commitments.
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PNB- Cautiously An obligor is more vulnerable than the obligors rated

B3 Acceptable Risk 'B2', and currently the obligor has the capacity to meet
its financial commitments. Adverse business, financial,
or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial
commitments.
Ratings with PNB-A1, PNB-A2, PNB-A3, PNB-A4, (All signify Low Risk) PNB-B1,
PNB-B2, and PNB-B3 (All signify Average Risk) grades signify ―Investment Grade‖
and C1, C2 and C3 rating grades are called ―High Risk Grade‖.
The NPA rating categories are as follows:

Score Obtained Rating Grade Description

Defaulted Accounts PNB-NS NPA - Sub-Standard
(Accounts that have
PNB-ND NPA - Doubtful (I,II and III)
slipped to NPA
PNB-NL NPA - Loss
category)

Loans & Advances STC, Lucknow Page 23 of 174

 To ensure the quality and consistency of basic risk related data, the process of rating
and vetting has been defined as under:

Loan Credit Risk Rating Authority Vetting/Confirming Authority

Sanctioning
Authority
HO i) ZMRMD at ZO in consultation CGM/ Chief Risk Officer (IRMD), HO
with branches/ VLB/ELB /
ii) Large Corporate Branches
and identified branches
ZO i) Branches / VLBs / ELBs to DGM / AGM / CM
route Credit Risk Ratings (ZMRMD)
through Circle Offices ZO
ii) LCBs in respect of proposals
falling under ZM powers to
submit Credit Risk Ratings
directly to ZO
Circle Office ELBs/VLBs/branches. DGM/AGM/CM (CRMD), CO
The assistance of CRMD/

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Functional Manager (Credit) of

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Circle Office may be taken in
case of need. 19
Branch Officer/Manager, Credit Section An official designated by the
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Incumbent not connected with
processing/recommending of the
concerned loan proposal.
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Rating/ vetting at BOs in accounts with limits of Rs. 50 lakhs and below:
3

In accounts having aggregate sanctioned limits of Rs. 50 lakhs and below in

branches- there is no second officer available, the rating and vetting can be done by
the same authority. However in such cases, the same has to be submitted by the BO
to the higher authority along with the limit-sanctioned statements regularly.
Validity of Credit Risk Rating: The credit risk rating become due after the expiry of
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12 months from the month of confirmation of rating

or 18 months from the date of balance sheet on the basis of which credit risk rating
was assigned, whichever is earlier.
The rating shall be treated as „overdue‟ after the expiry of 15 months from the month
of confirmation of rating or 21 months from the date of Balance Sheet on the basis of
which the credit risk rating was assigned, whichever is earlier.

Dynamic Review Rating Model – Treatment of Overdue Credit Risk Ratings

If rating is not renewed within the validity /extended validity period and rating falls
overdue, then rating shall be downgraded and treated as PNB-B3 and re-priced
accordingly, from the day on which rating falls overdue, till rating is renewed in
regular rating model. However, if the rating is already ‗PNB-B3‘ or below, the rating
shall be treated one notch down for pricing. (IRMD 03/19)
Treatment specified above for overdue credit risk ratings has been deferred
till 31.12.2019 (extended up to 31/03/2020 vide IRMD circular No 33/2019). However,
till such time existing guidelines will prevail and penal interest @ 2% shall be charged
over and above the applicable interest rate for the default period. (IRMD 29/19 )

Loans & Advances STC, Lucknow Page 24 of 174

 Treatment specified for overdue credit risk ratings is kept in abeyance
till 31.03.2020. However, till such time existing guidelines will prevail
and penal interest @ 2% shall be charged over and above the
applicable interest rate for the default period as specified for overdue
credit risk ratings in existing guidelines issued vide IRMD Circular No.
23/2017 dated 13.12.2017 and 25/2018 dated 14.09.2018 (IRMD
33/2019)

In case of downgrade in Dynamic Review rating, various loan

related actions (to be taken), have been advised. Competent
Authority to waive specific loan related actions are also advise (L&A
circular 144/2019 dated 31/12/2019).

CRR is aimed at measuring the Probability of Default of the borrower

The pricing (ROI and other charges) is linked with credit risk rating. Interest rate is
charged depending upon the quality of asset. In normal course of business, better-
rated accounts are priced at lower rate of interest as compared to low rated
accounts. However, in the larger business interest of the bank, the competent

4
authority can permit lower than card rates on case to case basis strictly on merits by

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recording the reasons/justification for making the exception. In respect of borrowal
accounts availing limits over Rs. 20 lakhs, interest rates have been linked with the
credit risk rating with certain exceptions.
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Situations may arise, where the borrowers would like to know about the
rationale of their rating. Borrowers may be informed about their weak areas
20

such as Financial, Business/Industry, Management or Conduct of Account.

/01 09

The rating report/individual parameters in detail are not to be disclosed to

them.
The Bank has in plakhe a multi-tier credit approving system. For taking
3

expeditious decisions and to attract quality accounts, the CACs/officials

shall exercise loaning powers linked to risk rating of borrower/rating of
the industry, as under:

Credit Risk Rating Loaning Powers

(CRR)
07

„A1‟ & „A2‟ CMs, AGMs, DGMs, COCAC & above shall exercise 125% of
their normal loaning power.
„A3‟ & „A4‟ CMs, AGMs, DGMs, COCAC & above shall exercise 110% of
their normal loaning power.
„B1‟ Normal Loaning Powers by officials at all levels to the extent of
their vested loaning powers.

No fresh exposure should be taken upto field level for borrowers under
unfavourable industries irrespective of their credit risk rating.
While exercising higher powers including the adhoc powers, the
Officials/CACs other than HOCAC-II/III should ensure that the total
commitment does not exceed the aggregate powers vested with the next
higher authority.
Bank endeavours to exit from accounts showing early warning signals and
having „C1‟ to „C3‟ (high) risk-rating based on credit risk rating/PMS ranking.

Loans & Advances STC, Lucknow Page 25 of 174

 For accounts with CRR B3 and below and w.r.t. their Industry rating and other
details please refer LA Cir 47/2019 dated 18.04.2019 (See Page 44).

Categories of “Advances” exempted from Credit Risk Rating/ Scoring:

(LA 47/2019 dt 18.04.2019)
i. All accounts with sanctioned limits of ₹2 lakh and below.
ii. All loans against shares and debentures, units of mutual funds, life insurance policies.
iii. Advances to Central/State Govt. Departments. Undertaking/ Establishments, which
are not running on commercial basis (e.g. Industrial/Agricultural/Rural Development
Boards of various State Govts.). An organization may be treated as not running on
commercial basis if the borrower is not required to draw Profit & Loss A/c (including
income & expenditure) and Balance sheet (statement of affairs) under the law.
iv. Loans to individuals, against mortgage of IPs where market value of IP is at least
150% of the loan amount, who are not engaged in any activity for which annual accounts
are required to be prepared.
v. Advances to individuals under Agriculture (Direct), Agriculture (Indirect), Other Priority
Sectors including Transporters, Artisan and Handicrafts.
vi. Loans under LUCC and advances against warehouse receipts of CWC.

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vii. Borrowers who are availing only those loans/limits where full powers have been

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granted as per loaning power chart e.g. purchase of cheque drawn by Central & State
Govts and drafts of public sector banks, ILCs/FLCs where full cover is held by way of
deposits till maturity etc.
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viii. Advances against clearing instruments/ bills/ clean overdrafts permitted within the
vested loaning powers at various levels where the client is not availing any other
loan/limit for which risk rating is applicable as per guidelines.
20

Note: The exemption from credit risk rating under (vii) and (viii) shall be subject to
/01 09

the condition that the loan/limit allowed is for a short period and is for a specific
transaction. The exemption from rating should be exercised only in exceptional
circumstances and wherever possible, credit risk rating in appropriate rating
3

model be conducted. In case the borrower is availing any other limit, risk rating as
per guidelines shall be applicable.
ix. Borrowers setting up new business where requirement of credit facilities is up to
₹50.00 lakhs.
x. Borrowers dealing with our bank and availing only Bill Purchasing/
Discounting/Negotiating Limit, against LC of approved Banks as permitted by extant
07

Bank guidelines. Exemption shall not be available to borrowers who are availing Bill
Purchasing/Discounting/ Negotiating limit alongwith other credit facilities from our Bank.
xi. Further in addition to above Exempted categories of Credit, exemption can be sought
in respect of following.
The overseas branches handling proposals having following characteristics:
i. The borrower company, normally incorporated outside India, is wholly owned
subsidiary (WOS) of major Indian Corporate.
ii. These subsidiaries work as an investment arm of the Indian Corporate and do not
have their own operations or revenue flows.
iii. Their balance sheets mostly reflect funds raised towards margin requirement (from
parent company; by way of debentures / unsecured loan/ investment etc) and debt
raised from international banks.
iv. These funds are in turn invested in acquiring companies, capital expenditure and
other projects; through their WOS / group companies; by way of onward lending.
v. The loan is backed by the guarantee of parent company.

Loans & Advances STC, Lucknow Page 26 of 174

Exemption may be granted on case to case basis by GM (IBD) from internal credit risk
rating subject to following conditions:
a. The borrower entity is an overseas investment arm of major Indian Corporate / holding
company, not having its own operations.
b. Repayment of loan is proposed from the sources of holding company.
c. The loan is backed by the guarantee of holding company having adequate Tangible
Net Worth and
d. Internal credit risk rating of the Indian corporate / holding company is not below
investment grade.
(Page 40-42, LA 47/2019 dt 18.04.2019)

B. Exempted categories of PNB Score

a. Advances under Retail Banking Schemes, where scoring models are not available
(Loan against Gold & Jewellery and PNB Baghban)
b. Loan against Sovereign Gold Bonds

C. Exempted categories of PNB Score SME

a. All accounts with sanctioned limits of ₹2 lakh and below.

4
b. Advances to Transport sector and Documentary Films (on themes like family

:5
planning, social forestry, energy conservation and commercial advertising).

D. Exempted categories of PNB Farm Score

19
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a. Cash Credit/Production Credit loan upto ₹3.00 lakhs and investment Credit / Term
Loan upto ₹1.00 lakh.
b. Schemes which are being classified in Agriculture, but to be evaluated through other
20

scoring models.
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E. Following Advances are exempt from the purview of both Credit Risk rating and
scoring models:
3

a. All advances against security of Bank‟s own deposits.

b. All advances against Govt. securities including NSCs/KVPs/IVPs etc.
c. All staff Loans
(Page 42 of LA 47/2019 Dt 18.04.2019)

Where there is decline in Credit Risk Rating by two notches, half yearly audit may be
07

conducted in respect of accounts with exposure of Rs.5 crores and above.

(Chapter 13 of BOI, Page 20, Frequency of Credit Audit)

INDUSTRY RATING – CRISIL RESEARCH SITE ACCESS

1. Attention of Incumbents is invited to L&A Circular No. 07 dated 14.01.2019

advising the ‗Industry Ratings‘ conducted by CRISIL of 140 Industries.
2. As Industry risk score and detailed Industry Reports are being subscribed from
CRISIL, it has been decided to provide access to the CRISIL Research site for
having real time analysis of all industries through internet.
3. The process to get registered is as under:
3.1 Click on the link https://www.crisilresearch.com/CuttingEdge. First time users can
receive password by registering once by clicking Register icon on top right side of
www.crisilresearch.com.

Loans & Advances STC, Lucknow Page 27 of 174

3.2 CRISIL has issued a unique License Key for our bank. Put this License Key
CRRW/NHH/SDRT40C3C65316 along with your Email id and personal details and click
Submit button.
3.3 Any existing users who forget their password – Click Sign in, put your registered email
id and click Forgot Password icon to receive a new password via mail.

3.4 For queries you may contact CRISIL Helpdesk at [email protected] or

+91 22 3342 8001 (LA 117/2013)

Vetting authority shall be one step higher, wherever internal ratings are having
variance of more than one notch with the ratings assigned by approved external
rating agency. In case external rating is assigned after the approval of internal rating
then the rating shall be reviewed and vetted on the basis of variation in the rating
(refer IRMD Cir.No.05/2017 dt 17.03.2017)

External Risk Rating MSME Borrowers of our Bank with total exposure (both Fund
Based & Non Fund Based) of up to Rs.25 Crore may not be insisted for external risk
rating, where exposure is secured by collateral to the extent of 75% or more in the

4
following forms:

:5
Eligible as Collateral under this criteria NOT Eligible as Collateral under this criteria
1. Cash / Gold 19 1. Personal / Corporate Guarantees
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2. FDR/ NSC/ KVP 2. Agricultural Land / Properties
3. LIC Policies (Surrender Value) 3. Plant and Machinery
4. Immovable Properties in the form of 4. Properties under Pari Passu charge / 2nd
20

Residential Properties, Industrial charge basis

/01 09

Properties, Commercial Properties.

5. Properties under Negative lien etc.
3

Surplus value of primary securities of Land & Building, if available, can also be
considered for the purpose.

CONCESSION IN INTEREST RATE AND SERVICE CHARGES ON THE BASIS OF

CRR
In terms of guidelines contained in LA Cir 99/2017 dt 15.11.2017, Board in its
07

meeting dated 02.11.2017 has approved that COCAC’s and above are empowered to
permit continuation of relaxations in rate of interest and service charges earlier approved
by ZOCAC/HOCAC/MC, at the time of renewal/enhancement of limits falling within their
vested loaning powers subject to certain conditions mentioned in the circular.

Relaxation in service charges is not to be permitted in lapsed sanctions. (For details see
LA 103/2018 dt 18.10.2018)

For details please go through various circulars as referred above from Loans
and Advances Division: 103/2003, 141/2004, 169/2004, 117/2013, 28/2017,
38/2017, 61/2017, 08/2017, 26/2018, 103/2018, 47/2019)

Loans & Advances STC, Lucknow Page 28 of 174

 8. Valuation of Property and Plant and Machinery:

(LA 58/2016 dt 05.08.02016 & LA 19/2019 dt 21.02.2019)

Criteria for valuation in fresh accounts:

Fresh Accounts:
In borrowal accounts having
Aggregate credit Value of IP Valuation by
limits
1 Rs.10 lakhs & Rs.20 lakhs & Valuer on the Bank‘s
above and above approved panel
2 Above Rs.5 crore Minimum two valuers of
category A or B on the
Bank’s approved panel

In case of 2 above,
In case the difference in two valuations is more than 15%, 3rd valuation may be

4
got done from a senior valuer in category A and the average of the two valuation
reports having difference of not more than 15% be taken.

:5
If the difference in valuation of two valuers is less than 15%, the average value may
19
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be taken.

Now a ceiling of Rs. 5 cr. on value of property has been imposed for
20

valuation of property by diploma holders in Civil Engineering /Architecture

in case of both retail loan as well as corporate loan. (LA 19/2019-Page10)
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In existing accounts: (LA19/2019)

3

Aggregate credit Value of IP Revaluation by Valuer on

limits/ Outstanding the Bank‘s approved
panel Provided the
valuation is
1 Rs.10 lakh & above Rs.20 lakh & above more than one year old
07

$ but less than

Rs.1.00 Crore and
2 Rs. 1 crore & above, Once in Three Years

$For 1 above, If Branch Head feels that realisable value of IPs is significantly
lower than the one on bank‘s record
In case of 3 above, if the difference in valuation of two valuers is less than 15%,
the average value may be taken

Very Important
Valuation report should clearly indicate: i. Date of purchase of immovable
property, ii. Purchase Price of immovable property, iii. Book value of the IP, iv.
Realizable Value of IP, V. Distress Sale Value of immovable property and vi.
Guideline Value (value as per Circle Rates), if applicable, in the area where
immovable property is situated. vii) Independent accessibility of the IP, Viii.
GPS Coordinates of IP, ix. Photograph of owner with IP in the background. x.

Loans & Advances STC, Lucknow Page 29 of 174

 Building, Layout and Floor Plan

Branch Head to do valuation by adopting one or more of the following

methods on the prescribed format as per Appendix-VI of LA Cir 19/2019:
i) Taking architect's or valuer's/engineer's certificate if the property consists of a
building. In case of machinery embedded to the earth, the services of special
surveyors may be requisitioned. ii) Personally inspecting the property. iii)
Scrutinizing the valuation certificate issued by local authority for taxation
purposes. iv) Making enquiries through brokers neighbours etc. v) Net yield
method (by way of rent).

The assessment by the Branch Head is for due diligence/ countercheck and not a
substitute to valuation by professional valuer. The responsibility of the Branch Head is
to ensure that:
 The job of valuation is assigned to a valuer in Bank‘s Panel, the Valuation
Report is as per Bank‘s prescribed proforma and all the points are duly
covered.
 The specifications of the IP as given in the Title deed, Search Report

4
and Valuation Report match with each other.

:5
 Chain of the title deeds, non-encumbrance of the property and
genuineness of the mortgagor. 19
 wherever the IP is not got valued by approved valuer the extant system
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of valuation by Branch Head shall continue as hithertofore. In those

cases also where there is significant variation (25% and above) in the
valuation reported by borrower and the one assessed by the Branch
20

Head, the property shall be got valued from the valuer on the approved
/01 09

panel.

Difference in Valuations:
3

Difference in valuation of BH and valuer more than 25%  Fresh

valuation in consultation with CH by another approved valuer and will be
final.

Difference in valuation of BH and valuer below 25%  Lower of the two

07

be reckoned.

In case the IPs are recently purchased (12 months from the date of
sale deed)  Valuation is as per Purchase Price

In case the IPs are recently purchased (<12months old) and

guideline value revised after the date of sale deed and is higher than the
purchase value  Valuation is as per Guideline Value.

With respect to valuation of land in all proposals including Real Estate, if

the land is acquired / purchased beyond one year, realizable value or 85%
of the market value whichever is lower assessed by the Bank‟s approved
valuer should be taken as value of the land.

Loans & Advances STC, Lucknow Page 30 of 174

 Subsequent valuation should be assigned to the empanelled valuer
other than the valuer who has conducted the previous valuation.

VALUATION OF PLANT & MACHINERY:

i)For new plant and machinery  Valuation is the cost price as per
quotation/ supplier‘s bill, To be verified through enquiries through other
vendors supplying such machinery.
ii) In fresh borrowal accounts for existing plant & machinery, valuation from
the valuer on the Bank‘s approved panel .
iii)) If the value of Plant & Machinery is Rs.50 crore & above,  valuation from
minimum two valuers on the Bank‘s approved panel.
iv) Valuation report as per Appendix-III of LA 19/2019.

The panel already approved and circulated vide Recovery Division (Now known
as SASTRA Division) Cir. No. 22/2018 dated 21.05.2018 is in force and valid
as on 21.02.2019 (Vide LA 19/2019).

4
Categories of Valuers: (LA 19/2019)

:5
Category of Work experience 19 in Value of property for
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valuer Undertaking valuation assignment of valuation
work.
A More than 10 years No limit
20

B More than 5 years and less Up to Rs.50 crores

than 10 years
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C Upto 5 years Up to Rs.5 crore

3

Procedure to allot work to empanelled valuers: Bank shall maintain a

Register of Valuation Work Outsourcing. Work shall be offered to valuers based
on their performance. If a valuer does not take up the work for some reason,
the same should be recorded and then allotted to another valuer. (LA 19/2019,
Page-18)
07

Fee Structure (including SARFAESI):

VALUE OF PROPERTY VALUATION FEE (RS.)* (LA 19/2019)

MINIMUM MAXIMUM
Upto Rs.20 Lakh Rs.1000 Rs.1500
Over Rs.20 lakh to Rs.50 Rs.1500 + 0.05% of amount above Rs.2500
lakh Rs.20 lakh
Over Rs.50 lakh to Rs.1 Rs.2500 + 0.05% of amount above Rs.4500
cr. Rs.50 lakh
Over Rs.1 cr. to Rs.5 cr. Rs.4500 + 0.005% of amount above Rs.9000
Rs.1 cr.
Over Rs.5 cr. to Rs.10 cr. Rs.9000+ 0.005% of amount above Rs.15000
Rs.5 cr.
Above Rs.10 cr. Rs.15000+0.005% of amount above Rs.25000
Rs.10 cr.

Loans & Advances STC, Lucknow Page 31 of 174

*The fees are inclusive of out of pocket expenses.
In exceptional circumstances, Circle Heads may permit payment of fees to valuers
beyond the above ceilings subject to a maximum of Rs.50,000.

Obligations of the Bank:

 All appointments / empanelments of valuers shall be done in accordance with

the provisions of this document and its amendments from time to time as per
LA 19/2019.
 All instructions to valuer to be given by the bank in writing
 Maximum 10 days normally to be given for valuation
 No security to be taken
 Payment within 45 days of submission /acceptance by the bank.
 Detail of Property mortgaged be entered in CBS through MENU option
―HCLM” vide LA Cir 14/2017 dated 13.02.2017 and further explained vide LA
Cir 21/2017 dated 04.03.2017.

4
POLICY FOR REVALUATION OF BANK‘S OWN PROPERTIES is available as per

:5
Annexure - B to LA Cir 19/2019 dated 21.02.2019
19
Please read page 4 & 5 of LA Cir 19/2019 very carefully as these are main
/20 554
changes in the guidelines and extremely important
1. In the Raghubans Narayan Singh VS. Sate of Uttar Pradesh (AIR
1967 SC 465 at 467), it was observed, ―In other words, value of
20
/01 09

market price in the open market is the price that a willing buyer
would pay to a willing seller considering all the factors.‖
3

Market value is defined as the estimated amount on the date of

valuation for which an asset should be exchanged between a willing
buyer and a willing seller. The transaction should be at arms-length and
07

after proper marketing. Each party should act knowledgeably, prudently

and without compulsion.

LA 19/2019 dated 21.02.2019 Page 19

Loans & Advances STC, Lucknow Page 32 of 174

 9. Insurance:

Insurance of each and every security is required to safeguard bank‘s interest,

Assets/securities mortgaged or hypothecated to the Bank should be
adequately insured at all times with the agreed Bank clause and renewed
timely. The Insurance Policy should be in the joint names of the borrower and
the Bank and remain in the custody of the Bank.

Risk coverage Policy be obtained Where IP is mortgaged to the Bank as

Primary Security Collateral Security
Equivalent to reconstruction cost of Full market value excluding land cost
the property excluding land cost

All insurance policies (Except Consortium accounts) shall be renewed on a

th th th th
common date i.e. 15 May, 15 August, 15 November and 15 February. In
case, common date falls on Sunday/Holiday, insurance policies shall be
renewed on the preceding working day.

:5 4
In addition to Life Policies issued by LIC of India and Non-Life Policies issued
by Public Sector General Insurance Companies, Insurance Policies (Life &
19
Non-Life) issued by Private Sector Insurance Companies registered with
/20 554
IRDA as per list given in Appendix to LA Cir 46/2014 dated 23.04.2014 may
be accepted.
20

Reference: LA Cir 46/2014 dated 23.04.2014 and LA Cir 113/2015 dated

/01 09

26.11.2015
07 3

Loans & Advances STC, Lucknow Page 33 of 174

 10. Genuineness of Title Deeds and Valid Mortgages

What constitutes Mortgage:

A mortgage is the transfer of an interest in specific immovable property for the
purpose of securing the payment of money advanced by way of loan, an existing
or future debt or performance of an engagement, which may give rise to
pecuniary liability.

A mortgage is a way to use one's real property, like land, a house, or a building,
as a guarantee for a loan to get money. Many people do this to buy the home
they use for mortgage: the loan provides them the money to buy the house and
the loan is guaranteed by the house.

In a mortgage, there is a debtor and a creditor. The debtor is the owner of the
property, while the creditor is the owner of the loan. When the mortgage
transaction is made, the debtor gets the money with the loan, and promises to
pay the loan. The creditor will receive money back with interest over time (usually

4
in payments made each month by the debtor). If the debtor does not pay the
loan, the creditor may take the mortgaged property in plakhe of the loan. This is

:5
called foreclosure.
Mortgagor and Mortgagee: 19
/20 554
The transferor is called a mortgagor and the transferee a mortgagee. The
principal money and the interest of which payment is secured are called the
mortgage money and the instrument (if any) by which the transfer is effected is
20

called the mortgage deed.

/01 09

Immoveable Property:
Immovable property includes land, benefits that arise out of land and things
attached to the earth, like trees, buildings, fixed machinery etc. The machinery
3

which is not permanently attached to the earth and which can be shifted is not
considered immovable property.

Types of Mortgage
Simple Mortgage
Where, without delivering possession of the mortgaged property, the mortgagor
07

binds himself personally to pay the mortgage-money, and agrees, expressly or

impliedly that in the event of his failing to pay according to his contract, the
mortgagee shall have a right to cause the mortgaged property to be sold and the
proceeds of sale to be applied, so far as may be necessary, in payment of the
mortgage-money, the transaction is called a simple mortgage and the mortgagee
a simple mortgagee.
i) There is personal obligation/liability to pay;
ii) Possession is not given;
iii) There is a right to cause the property to be sold through court; and
iv) Power of sale without intervention of the court can be conferred if the property is, on
the date of the execution of the mortgage deed, situated at Kolkata, Chennai, Mumbai,
Ahmedabad, Delhi and at such other plakhes specified by state Governments.

Loans & Advances STC, Lucknow Page 34 of 174

 Mortgage by Conditional Sale
Where, the mortgagor ostensibly sells the mortgaged property-
i. On condition that on default of payment of the mortgage-money on a certain date
the sale shall become absolute, or;
ii. On condition that on such payment being made the sale shall become void, or ;
iii. On condition that on such payment being made the buyer shall transfer the
property to the seller,
The transaction is called a mortgage by conditional sale and the mortgagee a
mortgagee by conditional sale:
PROVIDED that no such transaction shall be deemed to be a mortgage, unless
the condition is embodied in the document, which effects or purports to effect the
sale.

Usufructuary Mortgage
Where the mortgagor delivers possession, or expressly or by implication binds

4
himself to deliver possession of the mortgaged property to the mortgagee and

:5
authorizes him to retain such possession until payment of the mortgage money,
and to receive the rents and profits accruing from the property or any part of
19
/20 554
such rents and profits and to appropriate the same in lieu of interest or partly in
payment of the mortgage money, partly in lieu of interest and partly in payment
of the mortgage money, the transaction is called a usufructuary mortgage and
20

the mortgagee a usufructuary mortgagee.

/01 09

English Mortgage
Where the mortgagor binds himself to repay the mortgage money on a certain
3

date, and transfers the mortgaged property absolutely to the mortgagee, but
subject to a proviso that he will re-transfer it to the mortgagor upon payment of
the mortgage money as agreed, the transaction is called an English mortgage.

Anomalous Mortgage
07

A mortgage which is not a simple mortgage, a mortgage by conditional sale, an

usufructuary mortgage, an English mortgage or a mortgage by deposit of title
deeds within the meaning of section 58 is called an anomalous mortgage.

According to Section 58 (f) of Transfer of Property Act 1882 where a person delivers
to a creditor or his agent documents of title to immovable property, with the intent to
create a security thereon, the transaction is called a ―mortgage by deposit of title
deeds‖. This is also called Equitable Mortgage. This mortgage does not require
registration.

Equitable Mortgage can be created in the following manner:

BY DEPOSIT OF TITLE DEEDS ACCOMPANIED BY A REGISTERED MEMORANDUM

OF DEPOSIT: The memorandum as per APPENDIX 1 (specimen) of LA Cir 53/2016 dt
03.07.2016 should invariably state the maximum amount to be secured and that the

Loans & Advances STC, Lucknow Page 35 of 174

mortgage covers all present and future advances. It requires to be stamped under Article 6
of Schedule 1 of the Indian Stamp Act or the corresponding Article of the State Stamp
(Amendments) Act and must be registered under Indian Registration Act, but it must not for
this reason be confused with a registered mortgage.

BY SIMPLE DEPOSIT OF TITLE DEEDS WITH INTENTION TO CREATE A SECURITY:

For the purpose of bank for creation of mortgage by deposit of title deed, title deed is
understood to mean for example a Registered Conveyance Deed/Sale Deed, Gift Deed,
Exchange Deed, Lease Deed (where sanction stipulates mortgage by deposit of Lease
Deed) and Partition Deed, Probate of Will etc.

These are the documents to the title which exist by way of a single registered document to
title of a property at any given point of time.

However in case of mortgage by deposit of certified copy of a decree alone should not be
created because of the fact that there can be more than one certified copy of a decree
unless and until it is accompanied by Original Title deed of the IP (For details see guidelines
at Sr 12 Page 21-22 of LA Cir 53/2016).

4
Under-mentioned steps be followed for this (Equitable) Mortgage:

:5
1. Property to be mortgaged be visited by Bank officials.
2. Photograph of IP along with Mortgagor and Borrower with date and signature of
Mortgagor be obtained. 19
/20 554
3. All dimensions of IP as per Title Deed/ Approved Map be tallied with actual.
4. Its value be ascertained from Neighbours/ Property dealers in vicinity.
5. Search in CERSAI Portal be made. In case of Hit, it be probed and in case of No Hit,
20

this report be kept on record.

6. Legal Opinion and Search from Advocate on bank‘s approved Panel on IP be made.
/01 09

7. Valuation be got done from valuer on bank‘s approved panel as per guidelines
contained in LA Cir. 58/2016.
3

8. BMs valuation report be obtained as per LA Cir 58/2016.

9. All the documents required for creation of Equitable Mortgage (EM) as per
documents stated in Report of bank‘s counsel along with Original Title Deeds,
Certified copy of Title Deed and Chain of Title Deeds be obtained.
10. Any other document as per Bank‘s counsel report.
11. The terms on which the advance to be secured by the deposit of title deeds has been
made, including the maximum limit of the advances, must be recited to the
07

mortgagor(s) and his or their verbal acceptance obtained in the presence of the
witnesses.
12. Particulars of the deposit must be recorded in the title-deed register (Form No.PNB
363) and must be verified and signed therein by two Bank witnesses. The
mortgagor(s) must on no account sign the register.
13. The entries in the title deed register must be made very carefully and in chronological
order. Proper maintenance of this register is necessary as the entries therein afford
admissible evidence of the transaction.
14. The specimen of recital is ordinarily to be as per format given on Page-4 of LA Cir.
53/2016 (may vary as per circumstances). The mortgagor must in no case sign the
Mortgage register.
15. No writing is to be taken from the mortgagor(s) at the time of the deposit except
under legal advice.
16. If a registered memorandum of deposit is subsequently considered necessary, it
should be drawn up by the Bank's solicitors after consideration of the attendant
circumstances, lest the mortgage by simple deposit be broken and any intervening
encumbrances thereby allowed to gain priority.

Loans & Advances STC, Lucknow Page 36 of 174

 17. In case of mortgagor being a company, there must be a resolution authorising the
person who is going to make the deposit of the title-deeds, to make the necessary
declarations and to complete all other formalities. A copy of the resolution duly
certified should be obtained and kept on branch record. Resolution be got certified
(see Page-5 of LA Cir 53/2016)
18. Obtain a letter of authority as per APPENDIX -11 (LA Cir 53/2016)
accompanied by Form No.PNB 374 from the owners authorising the Bank to
effect insurance of the properties mortgaged in the event of their failure to do
so.
19. Intention to create EM and subsequent acknowledgement by bank alongwith all
dates in chronological order is as under:
1. Date of Deposit of Title Deeds (date of EM) i.e. Intent to Create EM-(Verbal)
2. Date of Documentation viz Date of First Disbursement
3. Date of Intent to Create EM
i. As per Appendix-2 (In case Borrower is Mortgagor)
ii. As per Appendix-2A (In case person other than Borrower is Mortgagor)
4. Date of Acknowledgement by Bank
i. As per Appendix-3 (In case Borrower is Mortgagor)

4
ii. As per Appendix-3A (In case person other than Borrower is Mortgagor)
20. Stamp duty as per state act be paid (Page 8- BOI 30.06.2016)

:5
21. Letter of Continuity for subsequent Mortgage be obtained with instructions as under:
19
Make an entry in the title-deed register for the enhanced portion of the limit only. The
/20 554

narration of the entry to be made in the title-deed register is given in the specimen-'A'
of APPENDIX -12 (Page 64 of LA Cir 53/2016). The party must not sign the title-
deed register. A "Letter of Continuity", as per specimen-'B' of APPENDIX -12A (Page
20

65 of LA Cir 53/2016) signed by the party whereby the party confirms the previous
/01 09

deposit of the title-deeds and agrees that the title-deeds shall be held by the Bank as
security for the enhanced limit should be taken. Care may please be taken in dating
these documents (Date of entry in the title-deed register of Appendix-12 should be
3

prior to the date of letter of continuity).

22. Detail of Property mortgaged be entered in CBS through MENU option ―CLM”
vide LA Cir 14/2017 dated 13.02.2017 and further explained vide LA Cir
21/2017 dated 04.03.2017.

Points to be noted for Creation of EM:

07

1. All queries as per Check List as per Appendix-4 (Page 40-46 of LA Cir. 53/2016)
be answered and deficiencies as per check list be removed before effecting EM.
2. The title deeds should, be passed on to local counsel (On Bank‘s approved
panel) with forwarding as per Appendix-7 (Of LA Cir. 53/2016) for his inspection
and opinion. The Special Report and Counsel‗s Certificate (as per format given in
APPENDIX 5 and APPENDIX 6 (Of LA Cir. 53/2016)) shall be accompanied by
chain of title and search report as to encumbrances.
3. Search Report/Non-Encumbrance Certificate be obtained from Bank‘s approved
counsel (as per format given in APPENDIX 6 –A(Of LA Cir. 53/2016).
4. The guidelines with regard to verification of genuineness of the Title Deeds and
obtention of Search Report in respect of non-encumbrance of the property as per
Law Division Circular No. 07 dated 30.01.2014 be observed.
5. A Declaration as per APPENDIX-8 (Of LA Cir. 53/2016) to be obtained from the
owner of property, who is proposing to create mortgage.

MORTGAGE OF IMMOVABLE PROPERY- PRECAUTIONS: For details see Page

24 item 15 of LA Cir 53/2016- Summary as under:

Loans & Advances STC, Lucknow Page 37 of 174

 1. That the borrowers have to obtain prior permission from government/local
government/other statutory authorities for the project including approval of the plan,
wherever required.
2. An affidavit-cum-undertaking may be obtained from the proposed borrower applying
for such credit facility that he shall not violate the sanctioned plan, and/or building
bye laws and wherever applicable borrower shall also submit a completion certificate.
3. An architect appointed by the Bank shall give a certificate at various stages of
construction that the construction is strictly as per the sanctioned plan.
4. In cases where built up IPs are proposed to be accepted as primary/collateral
security, the following guidelines are required to be observed:
a) No loan against those properties which fall in the category of unauthorised
colonies unless and until they have been regularised and development and other
charges paid.
b) Substitution/release of IP kept as collateral may not be permitted upto the
level of COCAC, except where the IP is proposed to be replakhed by the cash
security/FDR of equivalent amount and in sanctions falling upto the vested
loaning powers of COCAC (including sanctions by LCBs), the substitution/release
of collateral in the form of IP shall be permitted by ZOCAC.

4
c) An architect/valuer appointed by the bank shall also certify while giving

:5
valuation of proposed IP that the built up property is strictly as per sanctioned
plan and/or building bye-laws.
d) No loan shall be given in respect of properties meant for residential use but
19
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the applicant intends to use the same for commercial purposes and declares
so while applying for loan.
e) Cost of Affidavit, certificates etc should be borne by the borrower(s).
20

f) A clause be put in the Sanction letter that any third party liability coming on
the bank due to wrong information/detail given by the borrower, will be his/her
/01 09

responsibility.
g) Building plan duly approved by competent authority be made a pre-condition
3

for considering housing loans.

h) While financing specific housing/development projects/Real estate proposals,
following stipulations should be made as part of terms of sanction besides other
usual terms and conditions and funds should not be released unless the
builder/developer/company fulfils the same:
i. The builder/developer/company would disclose in the
Pamphlets/Brochures etc., the name(s) of the bank(s) to which the
07

property is mortgaged.
ii. The builder/developer/company would append the information relating
to mortgage while publishing advertisement of a particular scheme in
newspapers/magazines etc.
iii. The builder/developer/company would indicate in their pamphlets/
brochures, that they would provide No Objection Certificate (NOC)/
permission of the mortgagee bank for sale of flats/property, if required

REGISTRATION
According to Section 59 of the Transfer of Property Act, 1882, where the principal
money secured is Rs.100 or more, a mortgage, other than a mortgage by deposit
of title deeds, can be effected only by a registered instrument signed by the
mortgagor and attested by at least two witnesses. In case the instrument is not duly
attested and registered, the mortgage will be void.
In terms of Section 23 of the Indian Registration Act, 1908, the document is to be
presented for registration at the offices of the Sub-Registrar of Assurances within 4
months from the date of its execution.

Loans & Advances STC, Lucknow Page 38 of 174

Lease hold Property:
In case of Lease hold property, 1st examine original Title to property to examine
whether person leasing the IP is competent to do the same. Then
1. Obtain Original Lease deed and examine :
i. Unexpired period of Lease Deed
ii. Study the terms and conditions of the lease
iii. If there are any onerous conditions such as the necessity of taking
lesser's consent before mortgaging the property.
iv. Borrower to surrender latest ground rent receipt to ensure that lease
money/ground rent is not in arrear
v. The lease continues to subsist.
vi. Lease hold rights must be mortgaged.
vii. The document conferring the title to property should be studied to
ascertain whether mortgage of the said property is permissible. If
necessary, permission from the appropriate authority concerned should
be obtained.

Municipal Tax Receipt:

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For IP situated within the Municipal limits, the receipt for payment of house-

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tax be obtained as Municipal taxes constitute preferential charge on property.

Government dues: 19
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The borrower to produce latest receipts regarding the land revenue or any
other Government dues paid by him.
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INCOME-TAX CLEARANCE:
/01 09

To make necessary enquiries from the borrowers/guarantors/person creating

security about the liability, if any, payable or that may be payable in respect of
Income Tax. If need be, in appropriate matters, the permission of the
3

Assessing Officer be insisted upon.

Accordingly, branches should obtain the necessary permission/ certificate

under Section 281 of the Income Tax Act, wherever required.

Mortgage of agricultural properties for facilities to be granted for agricultural activities

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In case of agricultural land, the borrower should be asked to produce

certified true copies of the latest revenue records.

Revenue record with true copies regarding Title of Land with type of
land, Crops for last five years sown in that land, Summary of share of
applicant in land be obtained, examined. As most of the states do not
charge any Registration Fee for mortgage of agriculture land for
Agriculture activities, Registered Mortgage be created and Mortgage
deed filed with revenue authorities for recording charge of bank in
revenue record. Before going for Registered mortgage, it must be
ensured that land being mortgaged in un-encumbered.

Mortgage of agricultural properties for facilities to be granted for non-agricultural

activities

Loans & Advances STC, Lucknow Page 39 of 174

 1. As far as possible, Agricultural properties should not be mortgaged for
facilities to be granted for Non-Agricultural Activities.
2. In cases where facility is to be granted for Non-Agricultural purposes
against the mortgage of Agricultural property, the advocate giving opinion
on title shall state that mortgage of Agricultural property is permissible for
the purpose stated and shall give his advice as to the legal position
prevailing under local law.

Mortgage of immovable property located in cantonment areas

1. (a) It is to be ascertained that the person occupying the land has legal title to occupy
the same and;
(b) If it is there, then the super structure being owned by the individual occupier can be
mortgaged in favour of the Bank subject to obtaining permission of the Cantonment
Board.
2. Equitable Mortgage can be created at the Cantonment Area, if it is a notified town,
otherwise registered mortgage has to be got executed.
3. The value of the land may not be considered while arriving at the value of property
mortgaged, although the same may be got reflected while arriving at value of the

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superstructure. Only the realizable value of property, as per guidelines of the Bank, if
sold as it is, may be taken for the purpose of financing.

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4. The borrower has to deposit title deed of super structure alongwith Letter of
Authority / Lease from the Cantonment Board showing his right to occupy the same.
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Permission of the Cantonment Board to mortgage with the Bank is also to be
furnished.
5. Mortgage of immovable property located in cantonment areas shall be
considered by Circle Heads and above within their vested loaning powers on
20

selective basis.
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SECOND MORTGAGE: A mortgagor, after giving a first mortgage can thereafter

3

create a Second and even subsequent mortgage on the same property.

In case of Guarantor‘s (Not Borrower) Property  IP Agriculture or Ancestral means

do not possess Title deeds for offering as security  security bond as per
APPENDIX -10 (LA Cir 53/2016) may be accepted wherever possible as per Laws of
the State.
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PNB-576  Term loans are sanctioned against moveable assets alone

and/or hypothecation of moveable assets along with mortgage of immovable
property.

PNB-973  Term loans are sanctioned against mortgage of immovable

property alone.

If a mortgagor wishes to inspect his title-deeds he may be allowed to do so at

the Bank in the presence of the manager or officer but he must not on any
account be permitted to take them away from the Bank.

Particulars of mortgages (registered or equitable) created/ modified by limited

liability companies should be got registered with the registrar of companies
within 30 days of creation.

Loans & Advances STC, Lucknow Page 40 of 174

 On the expiry of the period for which a limit/loan against the security of
mortgage is sanctioned, permission from Circle Head/Head Office should be
obtained for further continuance of account. It should, however, be noted that
such account must be adjusted before the expiry of 12 years.

Balance confirmation on Form No. PNB 139 should be obtained from all the
obligants at the close of each half year.

Where IP is Collateral Security only  Renewal documents except BC letter

be not obtained.  Existing accounts should not be closed and operation
continued in existing accounts.

Limitation  12 years against Mortgaged IP and 3 Years against Mortgagor.

If Minor has Interest in IP  Not be accepted for Mortgage (See Pt. N on

Page 13 of LA Cir 53/2016)

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Guidelines for creation of second charge/subsequent charge
1. Prior NOC from other institutions be obtained.

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2. Legal opinion and upto date NEC be obtained and held on record.
3. Any permission/sanction/clearance certificate required from lessor or any
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authority or any other law should be obtained and the original documents
granting permission are to be kept on bank's record.
4. Other precautions/enquiries/instructions as may be required in case of mortgage
as contained in Chapter 11 Mortgages – Immovable Property, of Book of
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Instructions on Loans (on page4 and page 31 to 33) be complied with.

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Procedure for mortgage of immovable property by branches not located

3

in notified towns:

Action Points For Lending Branch:

1. The lending branch shall complete all the formalities i.e. physical verification,
valuation of the IP from the approved valuer, obtaining of NEC and Legal opinion-
cum-Search Report from the Bank‗s approved Advocate, etc. and to take a view that
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the IP is mortgagable. In this regard the responsibility shall lie with the lending
branch.
2. The lending branch shall address and send a suitable letter to the mortgage creating
branch containing :
a. The details of the credit facilities sanctioned (copy of the sanction letter be
also attached),
b. Complete details of the IPs (landed property) to be mortgaged as security for
the credit facilities,
c. Name(s), parentage and full address of the mortgagor(s),
d. Correct location/address and description of the ips to be mortgaged,
e. The particulars of chain of title deeds to be deposited
f. NEC /Legal Opinion-cum-Search Report given by the Advocate,
g. Valuation certificate of Bank‗s approved valuer alongwith valuation certificate
by Branch Head,
h. Photograph of the IP duly verified by the mortgagor.
3. The original title deeds along with the chain of title deeds and all other papers
mentioned in the NEC and legal opinion-cum search report for valid creation of EM

Loans & Advances STC, Lucknow Page 41 of 174

 shall be carried by the officer of the lending branch with him for creation of EM at the
mortgage creating branch accompanied by the mortgagor(s).He will sign as witness
in EM register.
4. Periodical inspection of the mortgaged property and its insurance shall be conducted
by the lending branch and copy is to be sent to EM creating branch for their record.
5. A copy each of the
a. Title deeds,
b. Nec and legal opinion-cum-search report,
c. Letter of confirmation of deposit of title deeds from the mortgagor sent to the
mortgage creating branch
d. The acknowledgement sent to the mortgagor by the mortgage creating
branch in token of having received the title deeds,
e. Copy of receipt generated from central registry
shall also be kept with the lending branch.
6. After creation of EM, particulars shall be filed with Central Registry by the EM
creating branch. Lending branch shall obtain the details of central Registry particulars
and the same shall be entered in CBS system through menu option SRM as per
details given in ITD Circular No.88 dated 17.10.2011 and the details shall be kept

4
with loan documents.

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Role /Action points for EM creating branch:
Follow procedure as per Sr 10(ii) on Page 19 of LA Cir 53/2016
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In nut shell EM Creating branch is to accept papers as submitted by lending branch,
do all actions as required for creation of EM and register under CERSAI also.

EQUITABLE MORTGAGE ON THE BASIS OF CERTIFIED COPY OF TITLE

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DEEDS:
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Follow procedure as per Sr 11 on Page 19 of LA Cir 53/2016: Ordinarily not done

except with prior approval of Credit Division, HO. For staff housing Loans (Special
3

cases) See procedure as per Sr 11 (iii & iv) on Page 20 of LA Cir 53/2016.

Equitable mortgage of IP without making the owner as borrower/ guarantor:

It is legally possible for third party to offer his property as security without being liable
personally (For details See Item 13 Page 22-23 of LA Cir 53/2016).
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LOSS OF TITLE DEEDS IN THE BANK CUSTODY- PRECAUTIONS:

To be discussed under heads: Duty of the Bank, Custody and Measures to be taken in the
event of a loss of title deed deposited for creating mortgage

Duty of the Bank :

If the title deed is lost, bank is liable for deficiency in service.

Custody:
1. Enter in PNB-363, Keep in Fire proof cabinet, on adjustment of a/c  Receipt be obtained
and return recorded in PNB 363.
2. Movement of TD be recorded in Register as per Appendix-27 of LA Cir 53/2016.
3. Stock taking of TDs be taken and certified in above Register as per Appendix-27 of LA Cir
53/2016.
4. Physical status of TDs be assessed, if it is torn or fragile, its status report be made and
got signed by the party. If the document requires lamination to be done, it should be got
done by the party.

Loans & Advances STC, Lucknow Page 42 of 174

Measures to be taken in the event of a loss of title deed deposited for creating
mortgage:
1. The concerned branch will give a certificate that title deed has been lost from bank‗s
possession.
2. In appropriate matters (like when terrorists have taken away the title deeds) an FIR
be also lodged.
3. If bank‗s officials have lost the title deed, in transit when taking the same out for any
purpose, a report from the official be taken. Paper publication be also given.
4. Certified copy of title deeds be obtained from Sub-Registrar of Assurances at Bank‗s
cost.
5. With letter of regret, certificate referred to above as also certified copies of title deeds
be delivered to the mortgagor against receipt.
6. If mortgagor is still not satisfied and takes the matter to Court/Consumer
Forum/Banking Ombudsman, Bank has to go by their orders.
7. Bank‗s Concurrent Auditors/Inspectors while auditing the branches should verify
compliance of above guidelines.

Periodicity of visits to the site of mortgaged property

Particulars Primary security Collateral security

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Value of property At least on yearly basis or At least once in three

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mortgaged/charged is as per terms of sanction, years or as per terms of
upto Rs.20 lakh or credit whichever is earlier.
19 sanction, whichever is
facilities are upto Rs.1 earlier.
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crore.
Value of property At least on half yearly At least on yearly basis or
mortgaged/charged is basis or as per terms of as per terms of sanction,
20

above Rs.20 lakh or the sanction, whichever is whichever is earlier.

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credit facilities are of earlier.

above Rs.1 crore,
3

For details refer Item 16 page 26-27 of LA Cir 53/2016.

For Common Irregularities in Mortgage: Please see Item 17 page 27 of LA Cir

53/2016

In nut shell: Dates in TD Register and Letter of Intent be taken special care of.
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Similarly is case with dates w.r.t. Letter of Continuity. All Columns of TD

Register be filled completely/ accurately.

 Detail of Property mortgaged be entered in CBS through MENU option ―CLM”

vide LA Cir 14/2017 dated 13.02.2017 and further explained vide LA Cir
21/2017 dated 04.03.2017.

LOANS & ADVANCES CIRCULAR NO. 136/2019:

 In view of various instances of defrauding the bank by borrowers availing multiple
credit facilities from multiple lending institutions against the same property, the
pre sanction and post sanction guidelines related to mortgage are recapitulated
as under:-

 Pre sanction Measures

Loans & Advances STC, Lucknow Page 43 of 174

  Pre sanction Due Diligence of borrowers including KYC verification and CIR
should be drawn and analyzed properly to know the previous credit facilities
availed by the borrower and property mortgaged for the same.
 Independent spot verification of residence, business & mortgaged IP should
be done by the branch officials.
 Certified copy be invariably matched meticulously (line to line) with the title
deed held on record.
 The property to be mortgaged should be mandatorily searched in CERSAI
portal and report should be filed.
 Particulars of the mortgages created by deposit of title deeds must be
entered in the CERSAI on date of creation of equitable mortgage of IPs without
waiting for 30 days period specified under the Act. Further, the Branch head must
ensure that in no case disbursement shall be made without entering the
particulars of equitable mortgages by deposit of title deeds in CERSAI site, in
order to curb the frauds due to the gap in entering the particulars of mortgages of
deposit of title deeds.
 It should be ensured that charge in respect of mortgages has been got
registered with Registrar of Companies within 30 days from date of creation and

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that Registration Certificate is held (in case of Companies).

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 Branches are advised to be vigilant while getting the reports of Advocate and
other Third Parties Entities and extensive reliance on information given by
19
outside agencies/professional etc should be avoided.
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 It is to be ensured that the title deeds held for mortgage are original and in
case copy is held, specific sanction of GM, HO & above has been obtained. If
equitable mortgage is to be created based on deposit of certified copy of Title
20

Deeds and Receipt (Chirkut) issued by Office of Sub-Registrar in cases where it

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takes long time in getting the Registered Sale Deed from the Office of Sub-
Registrar, whether prior approval of Competent Authority of the Bank has been
obtained for the same.
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 Further it should be ensured that the property is not situated in cantonment

area and in case situated, Head Office approval has been obtained.

 Post sanction Measures

 In order to minimise the instances of selling off of mortgaged IP/ multiple
mortgages, etc., the guidelines regarding periodic visit to the mortgaged (IP)
07

accepted as security should be adopted.

 As such, in case some change is observed in respect of aforesaid
parameters as well as any other issue relating to mortgaged IP since the date of
last inspection/visit of the site, the proper enquiries should be made locally/from
the borrower to ascertain that the mortgaged IP is properly charged to the bank.
 In case of any doubt further remedial measures such as obtention of fresh
NEC/ valuation report/ copy of approved map/mutation etc. may be obtained to
safeguard bank‘s interest.
 End use of bank‘s fund should be verified properly.
 The mortgaged properties should be insured in the joint names of bank and
mortgagers.

HANDOVER OF SECURITY DOCUMENTS/ TITLE DEEDS (IRMD L&A 99/2019)

1. Registered letters should be issued to the mortgagor(s) well in time for
collection of title deeds/security documents and all necessary precautions be

Loans & Advances STC, Lucknow Page 44 of 174

 taken during delivery of the documents to the owner(s) of the property or the
authorized persons as the case may be.
2. After repayment of all dues agreed to/contracted by parties, it is to be ensured
that :
A) The process of satisfaction of charge in security interest is to be completed at
the earliest.
B) Primary & Collateral security documents including title deeds are released
immediately but not later than 10 days of closure of loan.

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Loans & Advances STC, Lucknow Page 45 of 174

 11 Investigation of Title and Search Report, NEC

Bank has prescribed detailed guidelines on Mortgage as contained in various

Circulars. Presently there are three main source for these guidelines on
Mortgage. These are
1. Book of Instructions on Loans -30.06.2016
2. Loans and Advances Circular No. 53/2016 , 44/2017 & 60/2017
3. Law Division Circular No 07/2014 & 04/2017

Besides these, there are other circulars on Mortage viz

LA Cir. 106/2009- On Builder/ Developers to disclose name of bank in
Pamphlets who has financed their project ,
LA Cir. 126/2009- Mortgage of IP- Housing Loan that Construction is as per
approved Plan,
LA Cir 105/2015- Loss of Title Deeds in bank Custody,
LA Cir 58/2016 - On Valuation of IP

4
As per guidelines: The inspection of title deeds and the verification of the
borrower's title require thorough legal knowledge. The Photocopy of the

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Title deeds should, therefore, be passed on to local counsel for his inspection
and opinion by Bank Manager personally (LAW Div 04/2017) and in no case
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Borrower should know the name of the Bank‘s approved counsel. All queries
to counsel be routed through BM only. ORIGINALS CAN BE SHOWN TO
THE ADVOCATES BEFORE ISSUING THE CERTIFICATES BY THEM. A
20

report stating name/ PF No. etc of bank official handing over documents and
/01 09

accepting report from Counsel be plakhed on record. (LAW Div 04/2017 dt.
19.04.2017)
3

Further Where the value of immovable property to be mortgaged/ charged is

Rs. 1 crore & above, branches shall take NEC from 2 different advocates on
panel, one before sanction and the 2nd after sanction, but before
disbursement to safeguard the interest of the bank. (LA 44/2017 dt.
29.04.2017)
07

As such this specialized job has been entrusted to Experts. First and
foremost of these jobs is to Inspect that Title Deeds being submitted for
Creation of EM are Genuine. For this Complete set of documents relating to
IP are passed on to Bank‘s approved Counsel for Investigation, Search and
Obtaining NEC.

A. The title deeds alongwith Chain of Title Deeds and other related documents
should be passed on to local counsel (On Bank‘s approved panel) with
forwarding as per Appendix-7 (Of LA Cir. 53/2016) for his inspection and opinion.
The Special Report and Counsel‗s Certificate (as per format given in APPENDIX
5 and APPENDIX 6 (Of LA Cir. 53/2016)) shall be accompanied by chain of title
and search report as to encumbrances.
B. Search Report/Non-Encumbrance Certificate be obtained from Bank‘s approved
counsel (as per format given in APPENDIX 6 –A(Of LA Cir. 53/2016).
C. The guidelines with regard to verification of genuineness of the Title Deeds and
obtention of Search Report in respect of non-encumbrance of the property as per

Loans & Advances STC, Lucknow Page 46 of 174

 Law Division Circular No. 07 dated 30.01.2014 & 04/2017 dt 19.04.2017 read
with LA 44/2017 dt 29.04.2017 be observed.
D. A Declaration as per APPENDIX-8 (Of LA Cir. 53/2016) to be obtained from the
owner of property, who is proposing to create mortgage.
E. All queries as per Check List as per Appendix-4 (Page 40-46 of LA Cir. 53/2016)
be answered and deficiencies as per check list be removed before effecting EM.
F. Report of Counsel be scrutinized and If Counsel has given his opinion on Clear/
Un-encumbered and Marketable Title, All documents as per Report of bank‘s
approved counsel for creation of EM be obtained and EM Created as per bank‘s
guidelines.
G. Mortgage to be created before disbursement and entered in CERSAI on the date
of creation of Mortgage itself without waiting for 30 days period. LA 60/2017
dated 19.07.2017.

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Loans & Advances STC, Lucknow Page 47 of 174

 12. Confidential Report

Detailed guidelines are as per LA Cir 33/2011 and Book of Instructions

Compilation of CR forms part of due diligence exercise which helps the bank to verify the
antecedents of borrowers/co-obligants besides acting as a post sanction follow up tool.

As such, CR must be compiled on every Borrower/ Guarantor. CRs should

contain full and reliable record of character, estimated means, business
activities and credit-worthiness of all Individuals, firms and corporate bodies
who are under any form of liability to the Bank, whether as direct borrowers or
guarantors. Various tools/ data is available from KYC data duly verified,
Registration of Firm, Phone No, Associate and allied concern, Partnership deed,
Salary Certificate, CIBIL data, Statement of account of the Party/ Individual, ITRs,
Balance Sheets and Trading and P&L statement, Statement of Assets Liabilities
of Party with Proof for each Asset/ Liability, Spot Verification of all IPs mentioned
in CR with their status, Market Report, ROC Search etc.

4
Exceptions where CR need not ordinarily be compiled:

:5
i. Persons borrowing against security of Bank deposits,
ii. Persons borrowing against government securities and other trustee
19
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securities upto Rs.25000/-.
iii. Makers of bills of small amount which are re-discounted by third parties.
iv. Loans to staff members, including loans upto Rs.15000/- against
20

share/debentures of approved company.

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v. Advances upto Rs.10000/-, against gold/silver jewellery/ ornaments.

vi. Borrowers to whom temporary overdrafts are sanctioned occasionally by
the Branch Heads within their vested loaning powers.
3

vii. Persons borrowing against the pledge of their life policies.

Forms prescribed for preparing CRs are as under:

i. PNB 905 (Revised) (Annexure I) of BOI - To be used for preparing brief
CR.
ii. PNB 282A (Revised) (Annexure II) of BOI - To be used for Joint Stock
07

Companies and Co-operative Societies.

iii. PNB 282B (Revised) (Annexure III) of BOI - To be used for Borrowers/
Guarantors – Individuals {other than those covered under (iv) below}, sole
proprietorship firms, partnership firms, H.U.F. firms.
iv. PNB 282C (Revised) (Annexure IV) of BOI – To be used for Individual
Borrowers/ Guarantors, in case of loans under Retail Lending Schemes
(personal segment) i.e. car, consumer, housing, etc.

INDEXING
The CRs compiled on PNB 905 and PNB 282C need not be indexed and
should be part of loan document file, CRs compiled on PNB 282A and 282B
should be filed in CR binders and not with loan document files.

Loans & Advances STC, Lucknow Page 48 of 174

 Confidential reports should be divided into four categories with Indexing as
under:
Sr Sanctioning Code Index Here 1st two letters are Code/ Next
Authority alphabet is 1st letter of name of
category Borrower/ Guarantor/ Firm (if
I Branch BR BR/P/5 name of firm starts with ―The‖,
II COCAC CO CO/P/5 Alphabet next to ―The‖ be taken)/
III ZOCAC ZO ZO/P/5 Next Numeral in ‗P‘ series of this
IV Head Office HO HO/P/5 category.
M/s. Parkash Ram Chand Mal will be indexed as CO/P/57 if the facilities are
within the powers of Circle Head and there are already four CRs in "P" series
of this category.

If total No of CRs is small, then same CR binder can be further subdivided

into CRs under various Sanctioning Authority Powers

Index number once allotted to a party should in no case be changed

4
irrespective of the fact whether CR remains on active record or not and the
same index number should not be allotted to another party.

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Scrutiny and Monitoring:
CRs will be complied in duplicate (except LCBs) under Category I & II i.e
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Branch and Circle Head Powers. One Copy in Branch Binder and other in
Circle Office Binder. For Category III and IV, CO to give confirmation that CR
compiled as per laid down systems/ procedures/ guidelines.
20

COMPILATIONS OF CRs
/01 09

A. CRs on Joint Stock Companies (PNB 282 A Revised)

The heading under first part of the CRs are self-explanatory.
3

The second part of the CR consists of summary balance-sheet and

information relating to sales and profit.
B. CRs on Individual/Sole Proprietorship/Partnership Firms (PNB-282B
Revised)
The portion in respect of I to VI columns of the CR form is self-explanatory
07

and easy to fill. For No. VII (Means), the guidelines are as under:
As far as possible, the heads of Assets & Liabilities as given in the form
should not be changed.
Form No. PNB-282B (Revised) is meant for compilation of CRs on
individuals, sole proprietors, partnerships and H.U.F. concerns.
For compilation of means and other items specially details at Sr.10 in each
case, detailed guidelines are available in L & A Cir 33/2011 dated
31.03.2011

Means must be verified by evidences and all the evidences should be part
of CR. Securities mentioned under Sr. 10 (Details of IPs) should be
personally verified and details with date with PF No be mentioned in
respective column in respect of official who has visited the IPs. No Column
to be left blank.

Brief Confidential Reports.

Loans & Advances STC, Lucknow Page 49 of 174

 Brief CR (PNB-905) in respect of advances under certain priority sector
schemes. Brief CRs need not be indexed nor are their copies required to
be sent to the Circle Office.

For individual borrowers availing loans under Retail lending schemes i.e.
car, consumer and housing, etc., brief confidential report on individuals
(borrower/guarantor) is to be compiled on PNB 282 C (Revised) and it is
not to be indexed.

Review of CR:
CR to be reviewed annually. CRs should invariably be compiled after the
lapse of every two years even though there may not be any change in the
constitution and financial position of the party. It should be carefully noted
that ―No Change Certificate‖ must not be sent for more than two years and
fresh CR should be prepared in the third year. In case of adverse
development, fresh CR may be compiled earlier.

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Loans & Advances STC, Lucknow Page 50 of 174

 13. Credit Information and Opinion on Borrowers

Many a times branches are requested for giving reports/opinion on their

customers. Such requests generally come from:
1. Banks and Financial Institutions;
2. Directorate General of Supplies and Disposal and other Government
Departments;
3. Trade Associations;
4. Diplomatic missions, commercial counsellors and trade attaches;
1. BANKS AND FINANCIAL INSTITUTIONS
Reports to banks and other financial institutions must be sent on the bank's
prescribed format as per Appendix `A' of LA Cir 100/2011. The related guidelines
for compiling the Credit Information Report are available at Appendix `B' of LA Cir
100/2011. Please ensure that the report is based on the dealings of the customer
and is given in general terms without over-estimating or under estimating the
customer’s worth. Under no circumstances, details of the facilities sanctioned or
balance outstanding in the account and its turnover be disclosed.
2. DIRECTORATE GENERAL OF SUPPLIES AND DISPOSAL AND OTHER
GOVERNMENT DEPARTMENTS

4
Send the report on the prescribed format (Appendix A) of LA Cir 100/2011

:5
keeping in view the creditworthiness of the party.
3. TRADE ASSOCIATIONS 19
Normally, no request from Trade Associations be entertained unless the written
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consent to do so is obtained from the customers on whom the credit reports are
called for. In this case, the procedure as given at serial No.1. be followed.
4. DIPLOMATIC MISSIONS, COMMERCIAL COUNSELLORS AND
20

ATTACHES
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When reports are called by diplomatic missions, commercial counsellors

and trade attaches, the details should be carefully collected and properly
worded and passed on promptly on the prescribed format available at
3

Appendix A of LA Cir 100/2011.

As there is disclaimer attached to report and signed, it should not even be signed by
any official.
SUITABLE PROCEDURE TO CHECK ISSUE OF FALSE CREDIT REPORTS
In case of Local Branch, Telephonic/ Personal confirmation be obtained and
07

In case of outstation Bank Branch, an acknowledgement letter be sent

thanking for issuance of the credit report by Registered Post (To local branch
also).
For Bank giving Report: Report should depict true state of affairs and they
should-refrain from giving false statements.
CIRCULATION OF INFORMATION SUBMITTED BY MEMBER BANKS TO IBA
ON ALLEGED IRREGULARITIES/ MALPRACTICES/ MISDEMEANOURS OF
BANK CUSTOMERS
Branch should move through CO for this. No direct action be taken in this
regard.

Loans & Advances STC, Lucknow Page 51 of 174

 ISSUANCE OF SOLVENCY CERTIFICATES:

Solvency Certificates should be issued after observing the following:

i) Solvency Certificates should be issued on select clients only on merits.

ii) Last 3 years sales, contracts, receipts and profit figures as well as value of
orders on hand should be obtained and kept on record. The trend should
be satisfactory.
iii) Confidential report on the client must be compiled and kept on record.
iv) Availment of facilities by clients and/or associate/allied concern should be
satisfactory without any adverse features being present in any of the
accounts.

Format: of Certificate is as per LA Cir 100/2011 dt 01.10.2011.

Service Charges: are as per L & A Circulars on the subject ‘Service

Charges’.

4
Delegated powers: The delegated powers for issuance of Solvency Certificates are

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as under:
(Rs. In lakh)
Incumbent Incharge CM AGM DGM & above*
19
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JMG-I MMG-II `MMG-III

12 25 80 400 1000 Full powers
* In Circle Offices headed by General Managers, the powers shall be exercised by
20

DGMs (Credit).
/01 09

All Solvency certificates issued be entered in register named as ‘SOLVENCY

CERTIFICATE ISSUE REGISTER’ (For details refer LA 100/2011)
3

GUIDELINES FOR COMPILATION OF CREDIT INFORMATION REPORT:

Various Sources Of Credit Information

1. Borrower: Through Personal Interview, History, Nature of Business, Past,

07

Current and Expected sales/ Profits, Orders in Hand, Degree of competition,

Difficulties faced/ expected in business etc.
2. Borrower's Financial Statements: Peruse Balance Sheet, Trading and PL,
Cash Flow and Fund Flow statement
3. Bank's Old Records: if old customer, Bank’s old record be perused for
information and opinion.
4. Opinion: Opinion on their borrowers should contain full and reliable
records of the character, estimated means and business activities of all
firms and individuals who are under any form of liability to the Bank
whether as direct borrowers or as co-obligants. Full particulars of
parties' immovable properties, where they are situated, whether they are
free from encumbrances and in the case of land, the acreage should be
recorded together with fair estimates of their value. As far as possible,
written statements of their properties should be taken in evaluating
properties owned by parties jointly with others. As a rule such properties
should be disregarded in arriving at the net means.

Loans & Advances STC, Lucknow Page 52 of 174

 5. Means: cut off amount for classifying the net worth/means of the borrower under various levels are
as under as per LA Cir 77 dated 09.09.2015:
When a party's means He should be reported
are estimated at as having

Upto Rs. 1,00,000/- Very small means

Over Rs. 1,00,000/- & upto Rs.4,00,000/- Small means
Over Rs. 4,00,000/- & upto Rs.10,00,000/- Moderate means
Over Rs. 10,00,000/- & upto Rs.25 lakh Fair means
Over Rs. 25 lakh & upto Rs.1 Crore Good means
Over Rs. 1 Crore & upto Rs.10 Crore Very good means
Over Rs. 10 Crore & upto Rs.25 Crore Large means
Over Rs. 25 Crore Very large means

6. Methodology For Computation Of Networth:

Depending upon Type of Borrowers, different methodology is explained
vide LA Cir 100/2011 dt 01.10.2011 for meticulous compliance.

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19
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20
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3
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Loans & Advances STC, Lucknow Page 53 of 174

 14. Validity of Sanction:

In terms of Loaning Powers guidelines vide LA Cir 122/2017, Item 29 of Annexure III,
it has been stipulated that sanctions in respect of working capital and term loan
facilities shall be valid for six months from the date of sanction. Facilities not availed
within the above period should be treated as lapsed and borrower be advised
accordingly. Unless a lapsed sanction is got revalidated by the Competent Authority
within a maximum period of 12 months from the date of sanction, no facility should be
released. Following powers shall be applicable for revalidation of the sanctions:

Sl. Sanctions Competent authority Time period upto which

No. made by to consider re- revalidation can be
validation considered from the date of
sanction
1. Sanctions upto Sanctioning Authority 12 months
HOCAC III

4
3. Sanctions made HOCAC-II/III 12 months

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by MC
19
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Where documents have been executed within a period of 6 months from the date of
sanction, the sanctions shall be valid for next 6 months from the date of
documentation. However, it should be ensured that there are no adverse
developments/ material change in the financials during the intervening period
20

impacting the proposal adversely (LA Cir 122/2017,).

/01 09

However, to safeguard the bank‘s interest, while permitting revalidation, the

3

competent authority shall obtain and study the latest financials of the borrowers/units
and also ensure that the projections submitted at the time of original sanction
continue to hold good.
Details of sanctions lapsed at the level of Circle Head & above be submitted
by all Circle Offices to CPRMD, on half-yearly basis (31st March and 30th
September) as per the format available at Appendix-IV of LA Cir 58/2018.
07

The information will help in compiling relevant data at Head Office and
plakhing the same to higher authorities for information.

Source: LA Cir 122/2017 and LA Cir 58/2018.

Loans & Advances STC, Lucknow Page 54 of 174

 15. Takeover of accounts from Other Banks

1. Borrowal account should be taken over from other banks on selective basis.
2. Prior approval be obtained from the next higher authority of the official under whose
powers the takeover of the account (entire fund based and non-fund based limits) is
proposed.
3. Such approval shall not be necessary in cases where the accounts of other banks
have been adjusted for over 3 months.
4. In case of crop loans/KCC, the prior approval from next higher authority is not
necessary even if the accounts from other banks/FIs have been adjusted within three
months subject to the compliance of other takeover parameters and subject to the
condition that only those accounts be taken over wherein there was no default in
payment of interest/instalment during the last previous one year with the previous
banker.

In all cases of takeover of accounts, it is necessary to do proper due diligence including visit
to the premises of the customer, it is advised that laid down guidelines in the matter of pre-
sanction appraisal and post sanction follow up should be meticulously followed while taking
over borrowal accounts.

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Permission be obtained on the simplified format as per Appendix-IV of LA Cir 64/2016
dated 23.08.2016 19
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Permission not required

1. Where the accounts of other banks have been adjusted for over 3 months.
20

2. In case of crop loans/KCC, the prior approval from next higher authority is not
/01 09

necessary even if the accounts from other banks/FIs have been adjusted within three
months subject to the compliance of other takeover parameters and subject to the
condition that only those accounts be taken over wherein there was no default in
3

payment of interest/instalment during the last previous one year with the previous
banker.
3. Branch heads of specialised MSME branches are authorized to consider takeover of
SME accounts to the extent of 50% of their regular loaning powers without obtaining
prior approval from the next higher authority. The cases of enhancement of 25% and
above in working capital facilities shall be considered by the next higher authority
within his vested loaning powers as mentioned above.
07

4. Circle Heads may permit Branch heads of Trade Finance branches and other
Selective branches (selected on the basis of infrastructure/potential available in the
branch/area) to permit takeover of Traders/SME accounts to the extent of 50% of
their normal loaning powers. The cases of enhancement of 25% and above in
working capital facilities shall be considered by the next higher authority within his
vested loaning powers as mentioned above.

Conditions for Takeover:

1. Account with previous bank adjusted within previous three months.

2. Only those accounts be taken over wherein there was no default in payment of
interest/instalment during the last previous one year with the previous banker.
3. The accounts should be in the `Standard Asset' category of the existing bank and the
borrower should have earned net profit after tax in the immediately preceding 3 years
and have sound financial position.
4. Account should have a rating of ‗B1 & above‘ as per rating scale and should be duly
vetted by Competent Authority

Loans & Advances STC, Lucknow Page 55 of 174

 5. The small loan accounts (aggregate exposure upto and including Rs.5 crore) with
credit risk rating ‗B2 & below‘ are not to be considered for takeover.
6. In respect of accounts, which are in existence for a period of less than three years,
st
the unit should have earned cash profit during 1 year of commercial production and
nd
from the 2 year onwards, unit should have earned net profit after tax. However, in
such cases one audited Balance Sheet should be available before hand.
7. The Unit should be in a position to generate sufficient surplus so as to service the
bank's dues.
8. The current ratio and debt equity ratio (wherever applicable) should be in the
prescribed range.
9. NOC and credit report from the present banker/FIs should be obtained prior to
sanction.
10. In case of working capital limits if enhancement of 25% and above is considered at
the time of takeover, instead of seeking prior approval from the next higher authority,
the proposals shall be sanctioned by the next higher authority on merits of the case
subject to the compliance of the other guidelines.
11. NOC and credit report from the present banker/FIs should be obtained prior to
sanction.

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Takeover of Borrowal Accounts from Financial Institutions

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(FIs)/NBFCs/Private Financiers
1) As regards takeover of accounts from FIs like SFCs and AIFIs and
19
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term loans from other banks, NBFCs, Private Financiers etc. or for
repaying the supplier’s credit in respect of block assets, besides
following the guidelines mentioned above, the borrower must have
20

been repaying the Term Loan instalments of the existing FI/Bank

/01 09

regularly as per original schedule and the repayment schedule should

not be extended further.
2) Payment towards adjustment/liquidation of the dues of the existing
3

FI/Bank should be made directly to them.

3) It should be ensured that there is no default in payment of supplier’s
credit by the borrower.

The accounts where the commercial production has not started or just started
07

Takeover can be considered, if project is found technically feasible and economically viable
subject to the fulfilment of the following conditions:
 The account should be in standard category of the existing bank/FI and running
regular till the date of takeover.
 The Term Loan instalment of existing FI/Bank, if any, must have been paid regularly
as per the original schedule
 Repayment schedule should not be extended further, beyond the period originally
envisaged unless properly justified.
 The Project Appraisal be done independently based on the original projections given
by the borrowing concern with particular attention to cost/time over run and other
developments taken plakhe in implementation of project during the period. If there is
any cost/time over run, justification for the same may be obtained and examined. The
viability of the project should be established/ensured beyond doubt.
 Reasons for non-compliance of major terms and conditions in the matter of security,
margin, repayment, etc. as per the previous sanction should be enquired into and
properly examined.

Loans & Advances STC, Lucknow Page 56 of 174

Takeover Of Housing Loan Account Of Individuals
Permission not required for takeover of Housing Loans. However, sanctioning authority while
taking over such accounts shall ensure that the Housing Loan Accounts with other banks/FIs
are running regular with no defaults in payment of interest/instalment.

Restrictions:
No takeover from under mentioned Banks as our present MD&CEO and EDs have
worked earlier in these Banks (LA 112/2019 dated 03.10.2019)

S. No. Name & designation of the official Names of the banks

1. Sh. Ch S S Mallikarjuna Rao, MD & CEO Allahabad Bank, Syndicate Bank
3. Shri Agyey Kumat Azad, ED Bank of India
4. Shri Lingam Venkata Prabhakar, ED Allahabad Bank

Further, care should be taken at the time of takeover of borrowal accounts particularly from
State Bank of India, ICICI Bank and other new generation banks.

Eligibility Criteria for Take Over of Retail Loans

4
1. Borrowal account should be taken over from other banks on selective basis.

:5
2. The permission from the next higher authority shall not be applicable for taking over of
Retail Loan Accounts from other banks/FIs.
19
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3. However, Loan Accounts with other banks/FIs are running regular with no defaults in
payment of interest/installment.
4. The account should be in the ‗Standard Asset‘ category of the existing Bank/FI.
5. Borrowers should have a rating of ―B1 & above‖ as per credit risk rating models (PNB
20

Trac) as applicable in loans to business concerns. However, for takeover of Retail loans
/01 09

covered under the PNB Score Models, cut-off levels for sanction of all Retail Loans
circulated by Retail Assets Division, HO shall apply mutatis mutandis.
6. Statement of account of minimum 6 months, a certificate with the content that account is
3

running regular with no default and asset classification is standard may be called from
existing banks.
7. Takeover of borrowal accounts from the banks where our present EDs and MD&CEO
have worked earlier need not to be considered, in view of Ministry of Finance restriction
in this regard. However, in exceptional cases where takeover is considered from the
aforesaid banks, the credit proposal, shall be plakhed to Board for consideration and
07

such takeover proposal shall invariably contain the specific reasons justifying the need
for takeover etc.

Source LA Cir 64/2016 dated 23.08.2016, LA Cir 122/2017 Item 26 of Annexure III and LA
11/2019 dated 23.01.2019

Loans & Advances STC, Lucknow Page 57 of 174

 16. Time Norms

Proposals other than Consortium Arrangement-Other Than Retail

Maximum time schedule for disposal is as under:-
Credit Limits Time Schedule (Max.)
Upto Rs. 2 lakhs 2 Weeks
Above Rs. 2 lakhs & Upto Rs. 50 lakhs 4 weeks
Above Rs.50 lakh & upto Rs.100 lakh 5-6 weeks
Above Rs.100 lakh & upto Rs.100 crore 6-7 weeks
Above Rs.100 crore 8-9 weeks

Proposals under Consortium Arrangement

Time schedule prescribed by RBI for processing/sanction of credit/loan proposals
under Consortium arrangement are indicated hereunder:
Export Proposals Other

4
Gold Card Other Proposals

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Holders Exporters
Proposals for sanction of 25 Days 19 45 Days 60 Days
/20 554
Fresh/enhanced credit limits
Proposals for renewal of 15 Days 30 Days 45 Days
existing credit limits
20

Proposals for sanction of 07 Days 15 Days 30 Days

/01 09

Adhoc facilities
3

The stipulated time schedule as mentioned above is the upper time limit. (LA
58/2018, Page-3-4)
Time Norms under Retail: (RAD 50/2015 dt 15.07.2015)
SCHEME Time Norms for Time Norms for
RABs Branches other than
07

RABs
Non mortgaged based viz. 3 days 3 days
Vehicle, Gold, Personal,
Pensioner Loans.
Mortgage based loans 7 days 10 days
(Housing Loan, Adv.
Against IP, Reverse
Mortgage)
Education Loan 1 week - for loans 1 week - for loans falling
falling under Branch under Branch power;
power; 2 weeks – for loans
2 weeks – for loans falling under powers of
falling under powers CH & above.
of CH & above.

The time norm is from date of complete set of papers/ proposal. It is upper time limit.

Loans & Advances STC, Lucknow Page 58 of 174

 17. Loaning Powers:

One of the main functions of banks is dispensing Credit for which certain rules
have been formulated. A responsibility has been casted upon field functionaries
(BHs) in the shape of Loaning Powers which are to be used judicially. No doubt
that

Loaning Power Chart for Officials upto DGM Level is as under

Amt in Lakhs
Sr Nature of facilities Incumbents in the Grade
JMG-I JMG- MMG- SMG- SMG-V TEG-VI
II III IV
1 Aggregate commitment - per 12.00 25.00 80.00 400.00 1000.00 2000.00
borrower/
2 Within (1) above

A) Secured Fund Based 12.00 25.00 80.00 400.00 1000.00 2000.00

4
B) Unsecured Fund based 2.00 5.00 8.00 60.00 250.00 500.00

:5
C) Non fund based* 6.00 10.00 30.00 150.00 500.00 2000.00
Note-1 Term Loan# 19 6.00 12.50 40.00 200.00 500.00 2000.00
/20 554
Note-1 Term Loan Educational ## 3.00 6.25 20.00 100.00 250.00 2000.00
Institute(also see item 44 annex-iii
Note-1 Book Debt$ 3.00 6.25 20.00 100.00 250.00 1000.00
Note-2 Packing Credit against Firm 6.00 12.50 40.00 200.00 500.00 2000.00
20

Orders
/01 09

Note-3 Purchase/advance against 1.80 3.75 12.00 60.00 150.00 2000.00

demand documentary bills
accompanied by MTRs of
3

unapproved transporter
Note-4 Clean OD/Clean Loans (also 0.10 0.25 0.40 3.00 12.50 500.00
see item 31 annex-iii and (iii) of Gen
Notes on Page-5
Note-5 @Clearing Instruments(also 1.00 2.50 4.00 30.00 125.00 500.00
see item 44 annex-iii)
Note-6 @@ Micro, Small & Medium 12.00 80.00 120.00 600.00 1000.00 2000.00
Ent. (Mfg./Ser) under PS
07

All these notes are as per LA Cir 122/2017

* The ceiling is not applicable in case of LC (DA) for capital goods under project financing as per
details given at S.No. (vii) of Notes.

# Term Loan powers upto AGM level are 50% of their secured Fund Based Powers
$ Book Debt Powers upto AGM level are 25% of their secured Fund based Powers
@ Other than Bank drafts, Banker's cheque/pay order, Central & State Govt. cheques and
advances to premium clients
@@ See Note X for details
## As per LA 64/2018, No fresh Exposure to be taken in Branch Power
Also see Notes VI, VII, VIII for Bills, NFB advances and other advances
WCDL can be considered in terms of LA 90/2017 dt 12.10.2017 by VLB and above. (See details) The
Circular stands superseded vide LA 32/2019 dt 28.03.2019 and LA 41/2019 dated 10.04.2019

Loans & Advances STC, Lucknow Page 59 of 174

Other Notes
(IX) For financing to service sector under MSME segment, officials up to AGM level shall exercise
their vested loaning powers (For Scale II, III & IV shall exercise powers at note x ) whereas
such proposals outside MSME segment shall be considered by Chief Manager and above
within their vested loaning powers.
(x) Branch Managers have been vested with higher powers to directly dispose of proposals at branch
level for financing Micro, Small and Medium Enterprises (manufacturing/service) covered under
priority sector as follows:
 Scale - II Managers vested with the powers of Scale - III Managers.
 Scale - III & IV Managers vested with 150% of their vested loaning powers)

All these Powers are read with Notes on Page 3-4 and General Notes on
Page 5-6 of LA Cir 122/2017 along with Annexure III and IV of this circular, .

Temporary Overdrawings (TOD) and Adhoc Limits

Although need based working capital limits may be sanctioned to a business unit using
suitable method but circumstances may arise where the unit may be in need of funds for

4
temporary period. As per L&A Cir. No. 85 dated 10.07.2014 superseded by LA Cir 77 dt

:5
10.10.2016 and further by LA 122/2017, TOD and Adhoc limits have been defined as under:-
Temporary Overdrawings (TOD) - In fund based secured advances overdrawings may be
19
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allowed for payment of statutory dues, salaries, wages or any other justifiable debits for very
short period say 2-3 days but not exceeding 7 days (including roll over, if any) to meet
temporary mismatch of funds in unforeseen circumstances.
20

Adhoc Facilities - Adhoc limit/facility should be granted as regular sanction for fixed period
/01 09

to the borrower after analyzing the financials & requirements of the borrowers only for
unexpected business and subject to the other laid down stipulations for sanction of adhoc
limits. The powers to allow adhoc limits at various levels are contained in L&A Cir.
3

No.122/2017 dated 30.12.2017.

Adhoc Limits:
For Drawing beyond sanc. limit and Reduction in margin Powers upto Scale IV is
NIL ( Details as per Item 3-4, Annexure –I of LA Cir 122/2017
07

For TOD as per Item 5 of LA Cir 122/2017 (10% of sanctioned Lt with outer Lt. of
Rs.5, 10, 25 lakhs for Scale I, II, III respectively and 15% of sanctioned Lt with
outer Lt. of Rs.40 lakhs for Scale IV, whichever is lower). See details and other
conditions also.

These Powers be read with Credit Risk rating in terms of LA 122/2017 (especially
for B2 and lower CRR accounts. Item 49, page 44-45 of Annex III of LA
122/2017)
While permitting adhoc facilities as above to a borrower to whom regular limits have
been sanctioned under their vested loaning powers, the aggregate commitment per
borrower should normally not be exceeded by them, inclusive of such adhoc limits.
However, in deserving cases, the same may be exceeded maximum up to the extent
of 10% of their respective powers under the head ―Aggregate commitment per
borrower‖.

These powers are not to be exercised with a view to regularize an irregular account

Loans & Advances STC, Lucknow Page 60 of 174

 and in case of accounts covered by Selective Credit Control/RBI directives.
In terms of Item 41 of Annexure –III of LA Cir 122/2017, No overdrawings/adhoc
facilities are to be allowed in case of borrowal accounts in operation with the bank for less
than 12 months.
The loaning powers for allowing adhoc facilities should not be exercised in a repetitive and
routine manner

Further, a lower authority should not allow adhoc facilities in FB or NFB limits, till the
adhoc facility permitted earlier by a higher authority in respect of either of these limits
is outstanding.

Loaning Power over and above Aggregate commitment per Borrower:

Details available at Item 6 of LA Cir 122/2017, However, special care needs to be
taken in respect of Purchase of Travelers Cheques, Advances against Govt.
Securities, NSCs, KVPs, LIC Policies, Gold/ Silver Jewellery/ Ornaments etc.,
Shares, debentures, Bank premises (subject to item 9 of annexure III of the circular)

4
Item no. 6.2 of Annexure-I to L&A Circular No. 122/2017 on Negotiation of Bills

:5
drawn under ILC as under:
19
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“Negotiation of DP Bills & DA bills on or before due date drawn under
irrevocable ILC of approved banks circulated by IRMD, HO*.” (List of approved
banks is as per Annexure-V of LA Cir 122/2017). However, as per LA Cir 07/2017
20

dt 30.01.2017, no fresh exposure shall be taken on IOB till the

/01 09

resolution/receipt of funds of overdue buyers’ credit from IOB. (For details refer
LA 07/2017)
3

Advances to members of Staff:

As per guidelines at Item No. 18 and 21 of Annexure-III with Item 7.2 of Annex-I of
LA Cir 122/2017

Other Guidelines (Item 21 of Annex-III of LA Cir 122/2017,)

07

1. Clean advances are not to be made/sanctioned to any member of the staff

except in situation mentioned at Item No. 31 (c) of Annex-III of LA Cir
122/2017, or as per the ‗scheme for grant of clean overdraft facility to staff
members‘.
2. Sanctioning authority should not sanction/set-up any limit in his own favour at
his own office
3. Credit facility should not ordinarily be granted to spouse/close relatives of
bank‘s workmen staff for the purpose of any trade/ business
4. No credit facilities should be granted to the workmen staff for the purpose of
any trade/business.
5. No officer or any committee comprising an officer, as a member shall sanction
any credit facility to his/her relative
6. Credit facilities sanctioned to senior officers (i.e. any officer in Senior
Management in Grade-IV and above) of the Bank are required to be reported
to the Board (Proforma LA 43/2016)

Loans & Advances STC, Lucknow Page 61 of 174

 INTERCHANGE OF LIMITS: Interchangeability of sanctioned limits is allowed
subject to Details as per Item 23 of Annexure-III to LA Cir 122/2017.

Advances against bank Deposits:

Full Powers subject to item 13 of Annex-III as under:
Incumbents (in Scale I and II) of Rural & Semi-Urban branches should seek
administrative clearance from Chief Manager of concerned Circle Office on the
following cut-off limits:
i) Incumbents of Rural Branches: Rs. 25.00 Lakh & above
ii) Incumbents of Semi-Urban Branches: Rs. 100.00 Lakh & above
For Miscellaneous Full Powers, See Item 7 of Annexure I alongwith Item 9 of
Annexure III of LA Cir 122/2017.

Margin Requirement in NFB Facilities: Details as per Item 8 of Annex-I of LA

Cir 122/2017.

4
Loaning Powers to CACs: Details available as per Annexure –II of LA Cir

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122/2017.
19
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Adhoc Loaning Powers of Credit Approval Committees conveyed at item
no. 3 & 4 of Annexure-II to L&A Circular No. 122/2017 dated 30.12.2017.
20

Total Exposure in Fund Based :

/01 09

Total Exposure in = Actual O/s in Term Loan or Limit of TL (If not fully
Fund Based disbursed) + Actual O/S or original Limit, which ever is
3

higher

For Details See Item 10 of Annexure III of LA Cir 122/2017

Insurance: Officers in SMG Scale IV and above may waive insurance of collateral security
in deserving cases (For Details See Item 16 of Annexure III of LA Cir 122/2017.
07

AUTHORITY ON LEAVE OR ON TOUR:

Persons working in officiating arrangements shall be vested powers of the
officers one grade above than the person who is officiating and that such
higher power may also be exercised during the casual leave arrangements of
the permanent Incumbent Incharge. However, Clerical Staff while officiating
as Spl. Asstt./Officer are not allowed to sanction any loan proposal. This is to
be entered in a separate Register and be put up to Permanent I/C on his
joining the branch. (For Details See Item 19 of Annexure III of LA Cir
122/2017.

ALLIED/ASSOCIATE CONCERNS:
1. Ensure that aggregate amount in respect of each facility to be allowed to
parties and their allied/associate concerns does not exceed overall powers
vested in them for a particular facility/aggregate limits per party.

Loans & Advances STC, Lucknow Page 62 of 174

 2. These powers are to be exercised subject to condition that all loans to
Associate allied concerns are in standard category.
3. For purpose of Loaning Powers, concerns shall be allied/associate of another,
if: -
i. Two concerns have one or more common partners/proprietors, OR
ii. Any of the directors of the private limited company is director of another
private limited company, OR
iii. The proprietor/partner of a firm is a director in a Pvt. Ltd. Company, OR
iv. A limited company is subsidiary of another limited company or is closely held
company with substantial interest (i.e. more than 50% of the equity share
capital of the company is owned by the another company), OR
v. Where two or more limited companies belong to the same group having
commonality of management and control.
4. In spite of the above broad based definitions of associate/allied concerns, if
the sanctioning authority still feels that two firms/companies are suspected to
be connected but not covered under the above definition, he should treat
them as associate/allied concerns.
5. Common guarantors are not to be taken into account for defining

4
associate/allied status. However, if the guarantor has sufficient/ substantial

:5
interest in either one or more of the common concerns, they should be treated
as connected accounts and accordingly dealt with as stipulated at (4) above.
(For Details See Item 20 of Annexure III of LA Cir 122/2017.)
19
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TRANSFER OF LOAN FACILITIES:

a) Circle Heads shall have discretion to permit transfer of any loan facility within
20

their respective areas.

/01 09

b) Circle Heads are empowered to permit transfer of limits to other Circles at the
request of the borrower and with the consent of the transferee Circles
provided the account is in standard category.
3

c) ZM shall have discretion to permit transfer of any loan facility within their
respective areas.
d) General Manager at HO shall have full discretion.
e) No permission shall be required for transfer of staff loans and they can be
transferred by the Incumbent Incharge.
(For Details See Item 25 of Annexure III of LA Cir 122/2017)
07

WITHDRAWAL OF POWERS:
Circle Heads and above are authorised to withdraw powers, for reasons to be
specified, of their junior(s) wherever they feel that:
 Powers so delegated are not being exercised judiciously or in Bank's
interest.
 Next senior authority is to be informed in case of such withdrawal of
powers.

(For Details See Item 27 of Annexure III of LA Cir 122/2017)

RESCHEDULEMENT OF TERM LOAN:
(a) Sanctioning authority may reschedule Term Loan upto 1 year subject to total
repayment period not exceeding 7 years.
(b) Authority one step higher may reschedule Term Loan upto total period of 7
years.

Loans & Advances STC, Lucknow Page 63 of 174

 (c) Incumbents of LCBs, COCAC and above have full powers to reschedule
repayment of Term Loans in their own sanctions as well as sanctions by lower
authorities.
(d) In case of sanctions by higher authorities, matter is to be referred to
sanctioning authority for consideration.

(For Details See Item 30 of Annexure III of LA Cir 122/2017)

CLEAN OVERDRAFTS/CLEAN LOANS:

Clean Loan
Clean loan is an unsecured loan where no primary security is available.
Clean OD
Clean OD facility, unsecured in nature, is normally given in the deposit accounts
for very short period against expected future cash flows such as
salary/rent/pension/proceeds of FDR, etc.

Powers to be exercised are as per Details under Item 31 of Annexure III of LA

Cir 122/2017.

:5 4
NON BANKING FINANCE COMPANIES:
All fresh proposals/enhancement/additional/adhoc/temporary facilities to
19
NBFCs shall be considered by ZOCAC and above only. However, the cases
/20 554

for renewal/review of the existing facilities shall be considered by Incumbents

of LCBs/COCAC (headed by DGM) and above.
Fresh exposure should be taken in A & Above externally rated accounts on
20

merits only. In existing accounts no additional/ adhoc/ enhancement etc.

/01 09

should be given in BBB & below rated accounts. However, HOCAC-III &
above may consider cases beyond the aforesaid restriction on merits. (IRMD
L&A 94/2019)
3

I. Internal exposure ceilings for Single NBFC (excluding gold loan companies):
Internal/External Credit Risk Ceilings (% of Tier 1
Rating Capital)
Internal rating „A1‟/„A2‟ and External 15%
rating „AAA/AA‟ and PSUs
07

Internal Rating „A3‟ and External 12%

Rating „A‟
Internal Rating „A4/B1 and External 9%
Rating BBB*
Internal Rating B2 & Below/* and 5%
External Rating BB &
Below*/Unrated

II. Ceiling for single NBFC which is predominantly engaged in lending against
collateral of gold jewellery i.e. gold loan company is fixed to 7.5% of bank‟s capital
fund i.e. Tier I + Tier II. However, the above exposure ceiling may go up by 5% i.e.
upto 12.5% of capital funds if the additional exposure is on account of funds on-lent
by NBFC to the infrastructure sector.
III. Ceiling for bank‟s aggregate exposure to all NBFCs has increased from 9% to
11% of bank‟s gross advances (FB+NFB) as at preceding quarter. Further, the sub-
ceilings within the said ceiling of 11% for NBFC aggregate limit shall be as under:

Loans & Advances STC, Lucknow Page 64 of 174

 (a) 1% to Micro Finance Segment
(b) 1.5% for gold loan companies, having gold loans to the extent of 50% or more of
their total financial assets.
IV. Exposure on HFCs being a real estate exposure, is also covered under overall
exposure ceiling for Real Estate sector of 15% of the total advances as at close of
previous quarter and a sub-ceiling of 5% is fixed for exposure on NHB & HFCs
within the overall real estate ceiling. The aforesaid sub-ceiling for exposure on NHB
& HFCs has increased from 5% to 7% without increasing the overall exposure ceiling
for real estate sector.

(For Details See Item 32 of Annexure III of LA Cir 122/2017)

FACILITY AGAINST 100% MARGIN

(a) A lower authority should not sanction any limit/facility even against 100% cash
margin, where sanction of other related facilities fall within powers of the higher
authorities and/or where sanction of such limits (even against 100% margin)
automatically or impliedly entails sanction of other facilities by higher authorities.
(b) Advance payment guarantee against 100% cash margin should not be

4
sanctioned, where such margins are proposed to be released at a later stage by

:5
sanction of advance payment guarantee limit with lower margins by higher
authorities. Sanction of such limits/ facilities against 100% margin should be
19
linked to party's requirements for related credit facilities and thereafter the
/20 554

concept of sanctioning total credit facilities at one level as laid down under S.No.
8 (a) of Annex-III of LA Cir 122/2017.
20

(For Details See Item 33 of Annexure III of LA Cir 122/2017)

/01 09

REIMBURSEMENT/DISBURSEMENT IN TERM LOAN ACCOUNT:

Reimbursement in Term Loan Account :
3

In emergent circumstances, COCAC & above may permit reimbursement, on

merits, within six months of acquisition of fixed assets to the extent of loan
sanctioned to MSME borrowers within their vested loaning powers and after
ensuring end use of funds.

In other than MSME borrowers also, reimbursement in term loan account for
07

capital expenditure incurred within last six months may be given in highly
deserving cases, on merit of the case.

 It is to be allowed in better rated accounts only.

Disbursement in Term Loan Account:

Part disbursement of term loan may be allowed through current/cash credit
account by the sanctioning authority not below the level of CM subject to
maximum of 25% of the sanctioned limit
Guidelines:
 The disbursement should be made in stages. , End use verification at each stage, In
better rated accounts only.

(For Details See Item 34 of Annexure III of LA Cir 122/2017)

Loans & Advances STC, Lucknow Page 65 of 174

 CREDIT FACILITIES TO DIRECTORS AND THEIR RELATIVES:

Can be sanctioned subject to conditions mentioned under 35 of Annexure III

of LA Cir 122/2017. Detailed guidelines with exemptions are as per LA
67/2018 Dt 30.07.2018.

ADVANCE COVERED BY TANGIBLE COLLATERAL SECURITY:

For advances secured only by Tangible collateral security,

 COCAC (headed by AGM) shall exercise 50% of their loaning powers for
Secured Fund Based limits and 25% of Secured Fund Based limits for
sanction of term loan and overdraft facility respectively.
 COCAC (headed by DGM) and above shall exercise 50% of their ‗Secured
Fund Based‘ powers by way of Term Loan or Overdraft Facility etc.
Must See
 Cash generating capacity of the activity financed,
 Risk Rating of the borrower while determining the loan amount.
 In any case, the collateral offered should be at least 150% of loan amount in

4
case of IP & securities which are liquid in nature like Gold ornaments & Govt.

:5
securities etc.
 For other securities it should be atleast 200% of the loan amount/facility.
19
/20 554
 The above powers be utilized by COCAC (headed by AGM) only and cannot be
utilized by the branches headed by AGMs.
20

(For Details See Item 36 of Annexure III of LA Cir 122/2017)

/01 09

SANCTIONING POWERS PRIOR TO RETIREMENT:

1. Joint powers three months prior to retirement by Branch Heads of
ELB/VLB and submit Limit Sanctioned statement (LSS) at Fortnightly
3

Intervals promptly.
2. Other officials to also submit LSS at Fortnightly Intervals promptly.
3. In 1 and 2 above, controlling office to ensure receipt of LSS, scrutinize the
LSS promptly and effective action initiated wherever warranted.
(For Details See Item 37 of Annexure III of LA Cir 122/2017 & LA Cir
101/2017 dt 21.11.2017 since superseded vide LA 122/2017, Also See LA
07

85/2018)

SANCTIONING UNDER SCHEMATIC ADVANCES:

1. Loaning powers as mentioned in respective schemes are to be
exercised
2. In case of business concerns, Under ‗Scheme for Purchase of Car‘ as
well as the ‗Scheme for Finance against Mortgage of Immovable
Property‘ Loaning powers can be exercised by them even where the
existing facilities have been sanctioned by a higher authority.

(For Details See Item 40 of Annexure III of LA Cir 122/2017)

CASES WHERE NEGOTIATED SETTLEMENT ENTERED EARLIER:

Loaning Powers to be exercised on case to case basis as per guidelines
contained under Item 42 of Annexure III of LA Cir 122/2017).

Loans & Advances STC, Lucknow Page 66 of 174

 LOANING POWERS - AMENDMENT IN TERMS & CONDITION OF
SANCTION
Certain Loaning powers of Branch Heads of LCBs & COCAC to change terms in
sanction of Board/MC/ HOCAC-III/II/I/ ZOCAC have been withdrawn/modified.
ZOCAC & above have been allowed to permit certain changes in terms of sanction by
Board / Management Committee / HOCAC-III/II have been withdrawn/modified.
Branch Head/COCAC loaning power for conversion of unavailed limits
sanctioned by authority other than Board/Management Committee, have been
modified(L&A Cir. No. 143/2019)

ADVANCES TO REAL ESTATE SECTOR:

All real estate proposals including hotel industry (excluding hotels falling under
SME segment), finance against lease rentals and advances under retail lending

4
schemes backed by mortgage of IPs shall require administrative clearance.

:5
ADMINISTRATIVE CLEARANCE- REAL ESTATE- Powers revised vide
LOANS & ADVANCES CIRCULAR NO.74 dt 02.09.2015:
19
/20 554

(For Details See Item 45 of Annexure III of LA Cir 122/2017)

However, as per L & A Circular No. 18/2017 dated 28.02.2017- administrative
20

clearance, as incorporated in L&A Cir No. 122 dated 30.12.2017, shall not be
/01 09

required for advances under the Retail Lending Scheme for Finance Against
Mortgage of Immovable Property. This has also been made clear vide Para
11.2 of RAD Circular No. 99 dated 02.12.2016.
3

SANCTION OF SHORT TERM LOAN/CORPORATE LOAN,

It falls under HOCAC and above powers

(For Details See Item 46 of Annexure III of LA Cir 122/2017)

07

ADVANCES TO CIVIL AVIATION SECTOR, ADVANCES TO CEMENT

INDUSTRY
It fall under ZOCAC and above powers

(For Details See Item 47, 48 of Annexure III of LA Cir 122/2017)

LINKING OF LOANING POWERS WITH CREDIT RISK RATING:

Loaning Powers have been linked with CRR and details are available as per Item 49 of
Annexure III of LA Cir 122/2017 read with LA Cir 26/2018 47/2019 dt 19.04.2018
18.04.2019.

Loaning Powers- Linked to Credit Risk Rating:

CRR of the Loaning Powers

Borrower
„A1‟ & „A2‟ CMs, AGMs, DGMs, COCAC & above shall exercise 125%

Loans & Advances STC, Lucknow Page 67 of 174

 of their normal loaning power*
„A3‟ & „A4‟ CMs, AGMs, DGMs, COCAC & above shall exercise 110%
of their normal loaning power*
„B1‟ Normal Loaning Powers by officials at all levels to the
extent of their vested loaning powers*
* No fresh exposure for unfavourable industry
For details see item no. 49 of Annexure-III to L&A Circular No. 122/2017 and P -15 of LA
26/2018 47/2019).
For B2, B3, C1, C2 & C3 Risk rated Accounts, Powers as per LA Cir 122/2017 dated
30.12.2017 be exercised.

PURCHASE OF DRAFTS OF PRIVATE SECTOR BANKS:

Powers for Category A, B, C bank are given separately.
(For Details See Item 50 of Annexure III of LA Cir 122/2017)

GENERAL:
Incumbent Incharge may process and sanction loan proposal falling within his own
vested loaning powers in following cases even though proposals have not been

4
prepared/recommended by second officer where no other officer is posted or
second man is special assistant at the branch:

:5
 All Priority Sector advances including Govt. sponsored schemes and
19
/20 554
―Loans
 Loans under Retail Lending Schemes‖ upto Rs. 1 lakh each
 For loans upto Rs. 3 lakh under KCC Scheme/other direct agriculture.

20

For Tractor loans, the ceiling on individual loan will be Rs. 3 lakh.

/01 09

For Housing Loans, the ceiling on individual loan will be Rs. 2 lakh.
 Circle Heads are vested with powers to revise ceilings mentioned above
depending upon potential existing in the area
3

(For Details See Item 51 of Annexure III of LA Cir 122/2017)

Classification as Secured and Unsecured Advances

SECURED UNSECURED
Advance against:
 CC (Pledge) including open compound basis
07

 Trust Facility
 CC (Hypothecation) Advance against:
 Book Debts  Clean
 Packing Credit Overdraft/Clean
 Docy. DD accompanied by RR/MTR of Loans
approved/unapproved transport operators/  Usance Bills
post parcel receipts/Bills of Lading/Airway  Clean
Bills where goods have been consigned to Bills/Cheques
overseas branch of approved Banks  Bills accompanied
(including purchase of Docy. DD also). by receipted
 Usance bills co-accepted by Public Sector Challans (other
Banks/All India/State Financial Institutions, than drawn on
Govt./PSUs Supply Bills accompanied by Govt./PSU)
receipted challans  Claims under
 Pledge of documents of title to goods such export incentives
as inward RR/MTR/Shipping documents, schemes

Loans & Advances STC, Lucknow Page 68 of 174

 warehouse receipts and pucca delivery
orders of public sector units/approved mills
Details as per Annexure IV to LA Cir 122/2017

List of Approved Banks for Negotiation of Bills Drawn under ILC

Complete list is as per Annexure-V of LA Cir 122/2017 (Except IOB as per LA
07/2017)

Restrictions & General Instructions: As per LA Cir 86/2014 dated 12.07.2014

No Fresh Priority Sector Advance 

 If Recovery % is below 30%, as per PNB 746, as at March/ Sept. on

annualized basis

Exceptions
 Advance under SGSY, SJSRY, 20 point programme etc.,
 Loans upto Rs.10,000/- under priority sector schemes to all categories of

4
weaker sections

:5
 All Government‘s sponsored programmes.
19
/20 554
Further Exceptions
Purpose Authority
For Hotels including guest houses Chief Manager and above only
20

For setting up of cold storages Circle Heads/DGMs and above only

Construction for preservation and storage of Chief Manager and above only
/01 09

processed agro products, perishable goods such

as fruits, vegetables and flowers including testing
facilities for quality
3

For construction of educational institutions Officials upto AGM level shall exercise 50% of
their vested loaning powers for term loans i.e.
25% of their vested loaning powers for fund
based secured advances
(No fresh Exposure in BM Power-See LA
64/2018)
For construction of hospitals for running the same Normal Vested Loaning Powers
07

by their promoters
Construction of educational institutions and Loaning powers as applicable for financing real
hospitals by companies/individuals engaged in estate
construction or development of real estate
projects
Infrastructure projects i.e. Water Supply Project, COCAC & above
Irrigation Project, Water Treatment System,
Sanitation & Sewerage System or Solid Waste
Management System
All other proposals relating to infrastructure FGMCAC & above (If under restrictive
projects except those mentioned above industries/segments- Take permission from
ED)
All proposals relating to Bridge Loans (within the FGMCAC and above only with prior
vested loaning powers for the unsecured administrative approval/ clearance of ED and
advances). should adopt selective and cautious approach
- Fresh advances to stand alone Sponge Iron
Units,
- All proposals relating to Cement Industry

Loans & Advances STC, Lucknow Page 69 of 174

 -All fresh proposals/ enhancement/ additional/
adhoc/ temporary facilities to NBFCs,
- All proposals related to Civil Aviation Sector
Renewal/review of the existing facilities to NBFCs Incumbents of LCBs/Circle Heads (DGM/GM)
and above
Advances against Diamonds, Gems, Jewellery COCAC & above
and other Precious Stones meant for export
Any advance which would harm the interest of No Power
National Integration or encourage Communalism
and Sectarianism
Part release of the facilities in the cases of all Not to be made, even if it falls under vested
proposals requiring Head Office sanction powers of CH
Co-acceptance of bills limit/clean LC limit DGM and above
Clean overdrafts/DL/TL Incumbents Incharge of large branches and
above
Persons convicted under Income tax / Wealth tax Due consideration be given to this information
act even in case of renewal/ review
Advance against the cheque/pay order/ draft Not allowed
issued by co-operative banks
Further exposure in Tea and Rubber Industry HO Credit Division

4
Adhoc/ additional/ enhancement in Tea Industry Competent authority
Articles banned under Wildlife Protection Act 1972 No Power

:5
Windmill Power Projects COCAC/DGM and above only
Advance to Industries Producing/ Consuming
19 No fresh advance. Existing to be phased ot (Pt-
Ozone Depleting Substances 3, Page-5, LA Cir 86/2014
/20 554
Selective Credit Control No fresh exposure (details- Pt-4, Page-6, LA
Cir 86/2014
For buy back of its securities by companies No finance
20

Soyabean Industry/ Oil Extraction Unit  No Fresh Exposure

 Existing unit to continue
/01 09

 Performance to be closely watched

Associate/ Allied Concerns See detailed guidelines as at Sr.-7, Page- 8 to
10 of LA Cir 86/2014
3

Bills drawn on Allied / Sister Concerns Not to be accepted except Export* (For details
see Pt-8, Page-10 of LA-86/2014
Advances tom Pharmacists/ Druggists/ Chemists Guidelines of Drug Controller to be complied
for Retail with (LA 86/2014)
Advance against Shares, Debentures and Bonds  No Advance against Partly paid shares
 No loan to Partnership/ prop. Concern
against Primary security of shares
07

Term Deposits/ FDRs of other Banks No Advance

Adv. Against Bullion / Primary Gold  No advance for purchase of gold in
any form, including primary gold, gold
bullion, gold jewellery, gold coins, units
of gold Exchange Traded Funds (ETF)
and units of gold Mutual Funds.
 Working capital to Jewellers/ Scheme
of Gold (Metal) Loan allowed
 Desist adv. To Silver Bullion Dealer

Confirmation of action in sanctions exceeding discretionary

powers Vide LOANS & ADVANCES CIRCULAR NO. 08 dt 09.02.2010

INSTANCES OF ADVANCE BEYOND DISCREATIONARY POWERS

 Allowing accommodation beyond sanctioned limit;

 Allowing accommodation against lapsed sanction;

Loans & Advances STC, Lucknow Page 70 of 174

 Shortage in margin;
 Discounting of DDs beyond the sanctioned limit (s);
 Acceptance of MTRs of unapproved transport companies in respect of
DDs, ABC and BD limit(s) without specific sanction;
 Acceptance and allowing of DP against unpaid for stocks in
pledge/hypothecation accounts;
 Opening of LCs without proper authority/margin;
 Amount of returned DDs/ABC/BDs is not immediately recovered from the
borrowers and instead they are kept undisposed of without reporting the
returning to the respective Circle heads;
 Acceptance of fresh bills in adjustment of returned DDs/ABCs;
 Non-compliance of terms and conditions of sanction;
 Allowing advances against Packing Credit, Trust Receipts, bills etc., beyond
the scheduled period;
 Conversion of packing credit into CC (Pledge/ hypothecation).

Procedure, Time schedule, Format and other Instructions for

Branch as well as Controlling office are to be followed explained

4
vide LA Cir 08/2010 (See also LA 51/2016)

:5
Confirmation of action in sanctions exceeding discretionary powers:
19
Action in having exceeded discretionary powers or adhoc sanctioned obtained telephonically
/20 554

be got confirmed within max. period of 7 days. Transgression after 7 days to be treated as
staff side. Further, Proposal for confirmation is not to be linked with the renewal/review/
sanction of facilities.
20
/01 09

(Detail as per Item 28 of Annexure –III of LA Cir 122/2017)

Powers for Confirmation of Action
3

‗Adhoc Loaning Powers for CACs‘ of Annexure II to L&A Cir 122/2017, inter-alia, advising
the powers for confirmation of drawing beyond limits in case of sanctions by higher authority,
own sanctions and by lower authority.

Further ―IN CASE OF OWN SANCTIONS AND BY LOWER AUTHORITY : COCAC

& above may confirm action of a lower Officials/CACs in having exceeded their
07

adhoc loaning powers while permitting `Drawings Beyond Limits' (both Secured and
Unsecured), upto the extent of their respective adhoc loaning powers (quantum and
time period as per 3.1 & 3.2 of Annexure-II of L&A Cir 122 dated 30.12.2017).

CONFIRMATION OF ACTION –TRANSPARENCY IN DECISION MAKING:

Procedure for confirmation of action of Branch explained vide LA Cir No. 71 dt
28.08.2015. (Important Cir)

Adhoc Loaning Powers/ TODs

 No Adhoc loaning powers for drawings beyond sanctioned limits and by way of
reduction in margin for Branch Heads upto Scale IV
 Temporary Overdrawings in SECURED FUND BASED LIMITS in excess of
sanctioned limits, within available DP, may be allowed for 2-3 days but not exceeding
7 days
These are subject to guidelines as per details as at 3.1 and 3.2 of Annexure-II of L&A
Cir 122/2017.

Loans & Advances STC, Lucknow Page 71 of 174

Further Adhoc limit/facility should be granted as regular sanction for fixed period to
the borrower after analyzing the financials & requirements of the borrowers only for
unexpected business and adhering to the following stipulations:
 No Overdrawing/ adhoc in a/cs in operation for period less than 12 months.
 Minimum credit Risk rating should be ―B3)
 Not to exercise powers in repetitive manner
 If requirement is genuine, consider enhancement.
(Details as per Item 41 of Annexure III of LA Cir 122/2017)

Mapping of Previous rating grades against New Grades is as under: LA

84/2014
Previous Rating Grades New Rating Grades
AAA A1
AA A2
A A3 & A4
BB B1
B B2 & B3

4
C C1

:5
D C2 & C3
19
/20 554
LOANS & ADVANCES CIRCULAR NO. 126 dt 30.10.2014: Delegation of Power for
extending BG in NPA a/c:
In NPA accounts, Branch Incumbents may extend the period of bank
guarantee, already issued, within the limitation period of Bank Guarantee
20

even in the sanctions of higher authorities on existing terms and conditions, if

/01 09

the request is received from the borrower.

3

Financing Against Future Lease Rentals (FLR) Refer IRMD L&A 70/2019. Further
amendments w.e.f 26.08.29 (IRMD L&A 97/2019)
i. The Administrative clearance is waived and branches may consider the proposals
within their vested loaning powers as per extant guidelines.
ii. The sanctioning authority may consider the renewal period (option period) along
with the unexpired original period (certain period) of the lease agreement/deed for
07

computing the loan amount subject to the overall tenure of 12 years.

iii. The above said conditions are applicable ONLY when the premises are
exclusively occupied and sole rights shall be exercised by our bank. In other words
no other commercial unit exists for which lease rental facility is proposed.
iv. The branch, after sanctioning the facility within their vested loaning powers, shall
inform the same to Circle Office for necessary noting for monitoring of real estate
quota.

ADMINISTRATIVE CLEARANCE- REAL ESTATE

Be guided vide Loans & Advances Circular No.74 dt 02.09.2015: - Powers revised
Loaning Powers of CACs: As per Annexure II to LA Cir 122/2017, details in the
circular. For Constitution of CACs, Rules and their functions, see LA Cir 62/2016 dt
23.08.2016 and 75/2016 dt 03.10.2016.
Adhoc Loaning Powers of Credit Approval Committees conveyed at item no. 3 &
4 of Annexure-II to L&A Circular No. 122 dated 30.12.2017.
Substitution/Release of Immovable Property- Powers defined vide Loans &

Loans & Advances STC, Lucknow Page 72 of 174

Advances Circular No.75 dt 02.09.2015.
Loaning Powers- Negotiation of Bills drawn under ILC: Vide item no. 6.2 of
Annexure-I to L&A Circular No. 122 dated 30.12.2017,
Interchangeability from NFB facility to FB facility : As per item 23 of Annexure III
of Vide LA Cir 122/2017

Setting up of „New Business Group‟ (NBG (L& A 37/15 dt. 28.05.15)

All fresh credit proposals envisaging total exposure (both fund based and non-fund
based) of above Rs. 50 crore shall be plakhed before NBG. These proposals shall
be submitted to Credit Division in a structured format known as Preliminary
Information Memorandum (PIM) on the prescribed format for plakhing the same
before the NBG.
18. Credit Related Service Charges

Main Circular: LA Cir 89/2016 dt 21.11.2016, read with LA53/2017 (GST to be

replakhed with GST) Processing and Upfront Fee to be recovered Automatically
w.e.f 17.09.2018 as per LA 87/2018 Dt 10.09.2018 and LA 89/2018 Dt 13.09.2018

4
SERVICES RATES
ISSUANCE OF SOLVENCY CERTIFICATE

:5
0.10% of certificate amount with a
minimum of Rs.1000/- and maximum
19 Rs.25000/-.
/20 554
CO-ACCEPTANCE OF BILLS Rs. 150 + 1.00% per quarter or part
thereof for the liability period, per bill.
Processing Fee (Fund based working capital)
Upto Rs. 25000/- NIL
20

Above Rs.25000/- & upto Rs. 2 lakh Rs.500/- *

/01 09

* In case of advances to Micro and Small

Enterprises upto Rs. 5 lakh, no processing
charges are to be recovered, whether
3

sanctioned or not.
- Above Rs.2 lakh Rs.300/- per lakh or part thereof
Advances against deposits, Govt. securities, UTI, Mutual NIL
Fund Units, NSCs, KVPs, IVPs and IRDP cases, PNB
Kalyani Card, PNB Sona Krishi Rin Yojna (PNB Gold
Agri Loan Scheme) and in case of Joint Liability Groups
(JLGs) and Self Help Group Accounts (SHGs) upto
07

Rs.25,000/- per member

Kisan Credit Card against the security of FDR, NSCs, NIL
KVPs or other such liquid securities
Agri Clinics and Agri Business Centres by Agricultural NIL
Graduates under ‗Central Sector Scheme‘ and KCC
limits upto Rs.3.00 lakh
Food & Agro Processing units 50% Concession in Processing and
Upfront as applicable (Valid upto
30.09.2018) details vide page 4 of LA
89/2016 superceded vide LA 82/2017 dt
27.09.2017
MSME Units for online submission of applications 20% discount (LA 89/2016)
For Non-Fund Based Limits At par with fund based working capital
charges
Upfront Fee for Term Loan
Upto Rs. 25000/- NIL
Above Rs.25000/- & upto Rs. 2 lakh Rs. 500/- @
@ In case of following advances, no
upfront fee is to be recovered:

Loans & Advances STC, Lucknow Page 73 of 174

 i) Micro & Small Enterprises upto
Rs. 5 lakh, whether sanctioned
or not
ii) JLGs & Self Help Groups (SHGs)
upto Rs.25,000/- per member
Above Rs. 2 lakh & upto Rs. 50 crore 1.25% of the loan amount @@
@@ Upfront fee @ 0.60%+ST of the loan
amount is to be charged for the
following term loans:
i) Above Rs.5 lakh and upto Rs.
25 lakh to Micro & Small
Enterprises
ii) Above Rs.2 lakh and up to
Rs.25 lakh to Agricultural
activities.
Above Rs. 50 crore & upto Rs. 100 crore 0.90% of loan amount, Minimum Rs. 62.50
Lakh
- Above Rs. 100 crore 0.60% of loan amount, Minimum Rs. 90.00
Lakh
For Schemes where refinance is obtained As specified by refinancing agency. Also
see Sr 4 of LA 89/2016 on P-6

4
Term Loans (under Retail Loan Segment)

:5
Housing Loans including flexi housing loan For Loan Amount upto Rs. 300 lakhs-
0.50% of loan amount, Maximum Rs.
19 20000/- For Loan amount above Rs. 300
/20 554
lakhs- Rs. 50000/-
Earnest Money Deposit (EMD) Scheme NIL
OD to Housing Loan Borrowers for Personal Needs NIL
Pradhan mantra Awas Yojna (Housing for all) NIL
20

Housing Loan/ Car Loan under PNB Pride (for Central NIL
/01 09

Govt/ State Govt employees and Defence/

Paramilitary Forces Personnel)
Car Loans 1.00% of loan amount Maximum
3

Rs.6000/- (Including Documentation

charges)
Two Wheeler Loan Rs.275/-
PNB Power Ride (Two Wheeler Loan Scheme for Rs.500/-
Women)
Loan against Mortgage of IP
i)Term Loan i)0.90% of the loan amount. Maximum
07

Rs.45,000/-
ii)Overdraft ii)Rs.300/- per lakh or part thereof

Education Loan
For studies in India (PNB Saraswati/PNB Pratibha/ PNB NIL
Kaushal/ PNB Honhar)
For studies abroad 9PNB Udaan) 1.00%, Min. Rs.10000/-, which shall be
refundable on availment of loan.
Reverse Mortgage Loan (PNB Baghban) ½ month‘s loan instalment Maximum
Rs.15,000/-
Advance against Jewellery & Ornaments 0.70% of loan amount
Personal Loans 1.80%* of loan amount
*For Defence personnel- NIL
Personal loan to Pensioners NIL
For Term Loans- Other Schemes
Traders/PNB Super Trade, Future Lease Rentals, 0.70% of loan amount.
Doctors, Gramin Chikitsak.
20% discount in processing /upfront fee will be given in case of applications received on-line in

Loans & Advances STC, Lucknow Page 74 of 174

respect of MSME category of borrowers
Documentation Charges
Term Loans (Other than Retail Loan segment)
- Upto Rs. 2 lakh NIL
- Above Rs. 2 lakh Rs.400/- per lakh or part thereof, subject
to maximum of Rs.50,000/-
Term Loans under Retail Segment Schemes
Housing Loans including flexi housing loan Rs. 1350/-
Earnest Money Deposit (EMD) Scheme NIL
OD to Housing Loan Borrowers for Personal Needs Rs. 450/-
Pradhan Mantri Awas Yojna (Housing for all) NIL
Housing Loan/ Car Loan under PNB Pride (for Central NIL
Govt/ State Govt employees and Defence/
Paramilitary Forces Personnel)
Car Loans / PNB Power Ride (2 wheeler loan scheme NIL(clubbed with upfront fee)
for women)
Two Wheeler Loan Rs.275/-
Loan against Mortgage of IP (term Loan and Overdraft) Rs. 1500/-
Education Loan (All variants) For loan upto Rs. 4 lakhs- Rs. 270/-
For loan over Rs. 4 lakhs- Rs. 450/-

4
Reverse Mortgage Loan (PNB Baghban) NIL

:5
Advance against Jewellery & Ornaments For loan upto Rs. 2 lakhs- Rs. 270/-
For loan over Rs. 2 lakhs- Rs. 450/-
Personal Loans 19 For loan upto Rs. 2 lakhs- Rs. 270/-*
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For loan over Rs. 2 lakhs- Rs. 450/-*
*For Defence personnel- NIL
Personal Loan to Pensioners Rs.500/-
For Term Loans Other Schemes
20

Traders/PNB Super Trade, Future Lease Rentals, For loan upto Rs. 2 lakhs- Rs. 270/-
/01 09

Doctors, Gramin Chikitsak For loan over Rs. 2 lakhs- Rs. 450/-
Switch-Over from Base Rate/MCLR to RLLR One time services charges of 0.50% of the
PNB Advantage (HL, Car loan, & Mortgage loan) loan outstanding shall be levied upfront.
3

ANNUAL FEE FOR REVIEW OF TERM LOANS (other than Retail Loans and Loan Against Future
Lease Rentals) with sanctioned limit of Rs. 1 crore & above. Method of calculation as per LA 89/2016
Stage for levy annual fee
During implementation stage 10 paisa per hundred Rupees. Maximum
Rs. 10.00 lakh.
After implementation 05 paisa per hundred Rupees. Maximum
Rs. 5.00 lakh.
07

CASH ORDER/ DRAFT/ RTGS/ NEFT CHARGES NIL

WHILE DISBURSING TERM LOAN
CHANGE IN TERMS & CONDITIONS (including ROI) 0.02% of loan amount (Minimum
except in CDR/restructuring cases Rs.1,000/- and Maximum Rs. 5 lakh)
HANDLING CHARGES (Wherever full waiver of Rs. 15/- per lakh or part thereof, subject to
processing fee or upfront fee is permitted) a maximum of Rs. one lakh (limits of Rs. 1
crore & above, separately in lieu of
processing fee & upfront fee)
LOAN/DEBT SYNDICATION CHARGES
Syndication Fees (Including Project appraisal as a part 0.50% of the total project loan plus
of syndication assignment GST/swatchh bharat cess & Krishi kalyan
cess
Project Appraisal Fees wherever appraisal is shared 0.20% of the total project loan plus GST/
with other banks/SEBI and our bank does not undertake swatchh bharat cess & Krishi kalyan cess
syndication assignment (to be charged in those cases where our
appraisal is being used for sanction of
loan by other Banks/FIs)
Stages for Collection

Loans & Advances STC, Lucknow Page 75 of 174

For payment of Syndication Fees (including project %age of agreed Charges
appraisal, as a part of syndication assignment)
Upon taking up the assignment i.e on giving the 10%
mandate
Completion of appraisal and circulation of information NIL
memorandum
On conveying sanction of our share of Term Loan 45%
At the time of financial closure Balance amount i.e. 45%
Project Appraisal Fees wherever appraisal is shared %age of agreed Charges
with other banks/SEBI and our bank does not
undertake syndication assignment
Upon taking up the assignment 50%
Completion of appraisal and circulation of Information 50%
Memorandum
Fee for Underwriting Assignment 0.25% of Total Debt to be recovered at the
time of conveying our Sanction and is over
and above the syndication fee of 0.50% of
Total Debt
For additional Jobs / responsibilities on behalf of Lender banks under Consortium / Syndication/
Multiple Banking Arrangement are to as per Item 13 of LA Cir 89/2016 which include, Project

4
Implementation and Monitoring Fee, Security Agency Fee, Escrow account Maintenance Fee
Charges for Allocation of limit No Charges

:5
Issue of Balance / Interest Certificate/ No dues For PS Advances: Rs.50/- per certificate
certificate 19 For Others : Rs.150/- per certificate
Special Transactions
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Transfer of Funds from Advance/ Borrowal accounts From account at one centre to another
centre Detail of concessions is as per Sr
16, Page 22-23 of LA Cir 89/2016
20

HONOURABLY RETIRED EX STAFF/WIDOWS OF No Charges for Upfront or Documentation

HONOURABLY RETIRED MEMBERS OF STAFF charges
/01 09

CONSORTIUM ADVANCES/ To be decided separately in each case

LEAD BANK FEE 0.25% p.a. on the assessed fund based
working capital credit limits sanctioned by
3

the consortium
50% on formation of consortium and or
appointment of lead Bank
50% on execution of documents
Pre Payment Charges- Borrowers shifting to other 2% of Outstanding Prepaid
Banks
If pre paid from own sources NIL
07

If shifts to other bank in 30 days of increase in ROI NIL

Shifting as insisted by bank NIL
Housing Loan with Floating Option NIL
Micro Small Enterprises with Floating ROI NIL
Term Loans to Individual on Floating ROI NIL
Any floating ROI TL, for purpose other than business, to NIL
individual ( W.E.F. 02.08.2019)
COMMITMENT CHARGES
Where existing/prospective borrowers do not agree for execution of documents with unconditional
cancellation of limits to be charged as per Item 20 Page 24 of LA Cir 89/2016, read with LA Cir
142/2007 dt 24.09.2007
Out of Pocket expenses Actual- List as per Item 21 of LA Cir
89/2016
TEV Studies Refer LA Cir 05/2016 dt 11.01.2016,
69/2017 & LA Cir 80/2018 dt 21.08.2018
Conducting TEV Studies 0.10% of Project Loan + GST etc
Vetting TEV Studies 0.05% of Project Loan + GST etc
Concessions:

Loans & Advances STC, Lucknow Page 76 of 174

Borrowers with exposure limit (FB+NFB) of above Rs.5 Crore requesting
Concessions on applicable card rate of the bank to be dealt with RAROC (Risk
Adjusted Return on Capital) model as detailed in LA Cir 36/2017 dt.17.04.2017.
This model (RAROC) is not applicable for loans sanctioned at CARD rates. The
various parameters are to be revised on monthly basis.

DISCRETIONARY POWER FOR REFUND OF EXCESS INTEREST/SERVICE

CHARGE CHARGED ON ACCOUNT OF MISTAKE (LA65/2017 dt 29.07.2017)

Amount of Interest and/or Competent Authority

Service Charge to be refunded
Up to Rs.2 lakh Branch Head (Small/Medium/Large)
Up to Rs.5 lakh Branch Head (VLB/ELB)
Up to Rs.10 lakh/Rs.15 lakh COCAC (AGM/DGM Headed)
Up to Rs.10 lakh Branch Head (LCB)
Full Powers ZOCAC

4
Important Instructions:

:5
Processing/upfront fee is to be charged as under:
i) Processing fee  For all loans upto one year

ii) Upfront fee
19
For loans over one year, in case loans are
/20 554
sanctioned to meet capital expenditure
and
Processing fee is to be charged proportionately for the
20

period of sanction in case loans are sanctioned for

/01 09

working capital requirements.

Recovery of Processing Charges (Procedure)
Processing fee is to be recovered as under:-
3

1. In existing accounts To be recovered in April Max upto 31st May for full year
2. In 1st Year  Proportionately for remaining months upto 31st March
3. For fresh proposals  Proportionately for the remaining months upto 31st
March
Note: Charges once recovered by the bank for a particular period for specified limit
07

will remain valid for the entire financial year.

Recovery in Fresh Proposals: In stages

10%  On receipt of Proposal
Min. 50% of applicable fee At the time of Handing over of Sanction letter
Balance 50%  At the time of disbursement

However, in cases, where the processing/upfront fee could not be recovered due to non-availment/
disbursement of limits, CMs/Circle Heads & above may consider waivement of processing/upfront fee,
in full, in such cases, on merits.

In case the loan proposal is declined or the limit sanctioned is not availed by the customer within a
period of six months the processing fee recovered shall be forfeited after giving due notice to the
borrower.

Proportionate Charges for Adhoc Limit to be recovered also.

Upfront fee is to be recovered as a one-time fee

Loans & Advances STC, Lucknow Page 77 of 174

Service Charges for Non Fund Based Facilities:
Please refer item 10 on Page12-14 of LA Cir 89/2016 dt 21.11.2016. This circular be further
read with Loans & Advances Circular No.65 dt 21.07.2018 (Guarantees)

SERVICE CHARGES- INSPECTION CHARGES FOR SECURITY

VERIFICATION IN RETAIL LOANS
Scheme Guidelines with respect to Inspection Charges
Periodicity
Car Loan Where the loan account is running regular the NIL
requirement of periodical inspection, including
obtention of PNB 551 has been done away with.
For irregular accounts and accounts under NPA Rs.100/- + service
category, the inspection to be done on at least Tax
quarterly or at such shorter intervals as the situation
demands and PNB 551 to be obtained on half yearly
basis.
Two Wheeler loan Same as applicable to car loan Rs.50/- + GST
Housing Loan Security verification after creation of security to be Rs.250/- + GST

4
carried out once in two years for regular accounts.
At least on half yearly basis in case of NPA accounts Rs.250/- + GST

:5
Advance against At least once every year for regular accounts;
mortgage of At least once every half year for irregular accounts and
19 Rs.250/- + GST
immovable property At least once in three months for NPA Accounts
/20 554
Education loan At least once in three years (as prescribed in L&A Rs.250/- + GST
where immovable cir.7/2009 dated 09.01.2009)
property has been
20

taken exclusively as
Collateral Security
/01 09

Reverse Mortgage Inspection of the property must be done on an annual NIL (Inspection charges
basis. as stipulated in the
scheme).
3

Source for above: LA 89/2016 dt. 21.11.2016 & LA 53/2017

Inspection Charges- general:

Aggregate Exposure Inspection Charges per annum
Up to Rs.5 lakh Nil
Above Rs.5 lakh & upto 0.10% of loan amount and maximum Rs.2500/-
07

Rs.50 lakh p.a. + GST

Above Rs.50 lakh & Rs.2500 + 0.10% of loan amount above Rs.50
upto lakh &
Rs.1 crore maximum Rs.6000/- p.a. + GST
Above Rs.1 crore & upto Rs.6000 + 0.05% of loan amount above Rs.1 crore
Rs.5 crore & maximum Rs.18000/- p.a. + GST
Above Rs.5 crore to Rs.18000 + 0.01% loan amount above Rs.5 crore
Rs.10 &
Crore maximum Rs.22500/- p.a. + GST
Above Rs.10 crore Rs.22500 + 0.005% loan amount above Rs.10
crore
& maximum Rs.30000/- p.a. + GST
Source for above: LA 89/2016 dt. 21.11.2016

Loans & Advances STC, Lucknow Page 78 of 174

In addition to above, the actual conveyance & out of pocket expenses (if any)
paid to the employee to be recovered from the borrower irrespective of the
exposure.
Existing Loans  Recover in March,
Fresh Proposals  No Inspection charges during disbursement/ before
creation of security (Out of pocket to be recovered at time of Inspection)
These for both General and Retail Advances

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19
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20
/01 09
3
07

Loans & Advances STC, Lucknow Page 79 of 174

 19. Credit Proposal Tracking System (C.P.T.S)

Main Circular: LA 29/2010 dt 12.04.2010 and User manual available at main page of
application

It is compulsory for Bank/ Branch to enter loan applications received and disposed in
Loan application receipt/ disposal register, presently PNB-587. An on Line system on
PNB-Non CBS Page has been introduced for this purpose, whereby all loan
applications received are to be entered, Sanctioning authority wise, then progress till
sanction is to be marked in the system. This helps the Bank in MIS about average
time taken for disposal of loan application till its sanction/ rejection etc. This is clear
and transparent system where applicant is also kept posted about development
regarding his/her loan proposal, till it is sanctioned. On entering the loan application
in system, an email/ SMS is auto generated at pre-given email address/ phone no.
The applicant can keep watch and knows the upto dated status. On entering the
proposal, a Proposal Tracking No. is generated, which is also known as Loan
application number and is to be recorded and used for all future references. The

4
system is Menu driven and very easy to use and requires no expertise.

:5
The application Processing window contains the following details:

19
/20 554
Branch name : Auto Populated
 Proposal number : Auto Populated
 Entry date : Auto Populated

20

Borrower request date

 Name of the borrower
/01 09

 Type of loan
 Email address
3

 Phone No.
 Sanction authority
 Facilities (in lakhks)
 Sector
 Last status
 Pending at- mentions the name of the branch at which the loan is
07

pending : For other than application entering branch

 Status history- status history includes from location(LOC) to location
(LOC) ,Received Date and remark (forward) date, remarks(max 150
characters), remark date change status(sanction, reject ,under
process, forward) ,date of change of status of proposal
 Some other information for HO proposals is also required viz; CIBIL
extraction date, Proposal Tracking control No with rating etc.
Progress is marked for all loan applications entered in the system, through ―Status
Update‖ till it is sanctioned. However, loan application is to be entered on receipt of
complete set of proposal, as Time Norms must be followed and any delay reflects
badly in MIS.

Proposals within BH powers are to marked till its sanction in the branch and
Proposals under Higher Powers viz; RAPC, CO, ZM, HO are to be forwarded to the
sanctioning authority. At the offices other than Branch, Proposals in queue are

Loans & Advances STC, Lucknow Page 80 of 174

tracked and processed till its disposal.

There is MIS available under ―Reports‖ Menu as under for Bank as per requirements:
 Loan / Credit Proposals Receipt / Disposal Register
 Pending Proposals at CO/Hub as on date
 List of Proposals Sanctioned
 List of Proposals Rejected
 Compiled Report
 Summary data of Credit Proposals
 Summary of Proposals as on Date

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19
/20 554
20
/01 09
3
07

Loans & Advances STC, Lucknow Page 81 of 174

 20. DEMAND LOANS/ OVERDRAFTS

Definition

A demand loan is a rare form of loan that can be called for complete repayment
without any prior warning to the borrower. In other words when the lender demands
the money, the borrower must pay it.

A loan with or without a fixed maturity date, but which can be recalled anytime (often
on a 24-hour notice) by the lender and must be paid in full on the date of demand.
Also, the borrower can pay off a demand loan at any time without incurring early-
payment penalties.
Characteristics

 A loan repayable on demand in one shot i.e. Bullet repayment, is a demand

loan.
 A demand loan account is an advance for a fixed amount where no further

4
enhancement is permitted under any circumstances.
 No debits to the account are made subsequent to the initial advance except

:5
for interest, insurance premia and other sundry charges.
 Any amount credited to a demand loan account has the effect of permanently
19
/20 554
reducing the original advance
 Any further drawings permitted in the account will not be secured by the
demand promissory note taken to cover the original loan.
20

 As enhancement is not permitted in demand loan account, a fresh loan

/01 09

account is to be opened for every new advance granted and a new demand
promissory note taken as security.
 Normally, Demand Loans are allowed against the Bank's own deposits,
3

government securities, approved shares and/or debentures of companies, life

insurance policies, pledge of gold/silver ornaments etc.
(BOI)
 Advances made to an HUF concern against the deposits standing in the name
of co-parcener subject to the below mentioned condition.
If the deposit in the name of coparcener is held by him in his capacity
07

as coparcener or such deposit relates to income/ transaction/ business of the

HUF, then such deposit shall be deemed to be own deposit of HUF.
Individual deposit in the name of coparcener be treated as his
individual deposit, i.e. third party deposit vis-a-vis the HUF, unless the
concerned coparcener and the HUF through Karta submit a declaration that
such deposit belongs to the HUF.

OVERDRAFTS
Characteristics

 All overdraft accounts are treated as current accounts.

 Temporary clean overdrafts in current accounts are maintained in the ordinary
current account ledgers.
 Normally, overdrafts are allowed against the Bank's own deposits,
government securities, approved shares and/or debentures of companies, life

Loans & Advances STC, Lucknow Page 82 of 174

 insurance policies, government supply bills, cash incentive and duty
drawbacks, personal security etc.
(BOI)
CLEAN OVERDRAFTS
Branch Head, have discretion to allow temporary clean overdrafts within specified
limits and for short periods. Overdrafts thus allowed should not remain outstanding
for more than one month. Restrictions on exercising loaning powers on allowing
clean overdrafts advised by HO be strictly adhered to. Application on Form No. PNB
306 be obtained for allowing clean OD.
(BOI)

OVERDRAFTS/ DEMAND LOANS AGAINST BANK DEPOSITSs

At the request of customers, Loans & Advances may be granted against deposits
lying to the credit of the borrowers and/or third parties in the books of the branch or
at any other branch of the bank, after getting the lien noted and verification of
signatures.

4
For loan against deposit of other branches, get lien marked, signatures verified,
personally or through Registered post under sealed cover and only after lien has

:5
been marked, loan be disbursed.
19
/20 554
TDS deductable be taken in consideration while permitting Loan/ DO against
deposits. Additional Information as per Appendix-IV of LA Cir 83/2016 be obtained
for submission to CIBIL.
20

No advance to be allowed against deposits of other banks (Sr.17(x) on page 13 of

/01 09

LA 83/2016).
(BOI and LA 83/2016)
3

Following advances be treated as Loans and advances against Borrower‟s

own deposits:
i) Advances made to a depositor against a deposit standing in his name
singly or jointly with other depositor(s).
ii) Advances made to a guardian competent to borrow against a deposit in
the name of his ward for the benefit of the ward.
07

iii) Advances made to a proprietary concern against a deposit in the name of

its proprietor.
iv) Advances made to a partnership firm against a deposit in the name of one
of the partners.
v) Advances made to a partnership firm against a deposit standing in the
name of a partner of the firm jointly with another person who is not a
partner in the firm and who may or may not be related to him.
vi) Advances made to a proprietorship concern against a deposit standing in
the name of the proprietor along with another person who may or may not
be related to the proprietor.
vii) Advances made to an HUF concern against the deposits standing in the
name of co-parcener.
(BOI and Item 1 Page 2 of LA 83/2016)

ADVANCES AGAINST DEPOSITS MADE BY A BANK

Loans & Advances STC, Lucknow Page 83 of 174

Loan and advance against deposit made by a bank (Except Land development
Bank) to be treated as to a depositor and all terms and conditions as applicable to
other borrowers to be followed. However third party advance not allowed.
(BOI and Item 2 Page 3 of LA 83/2016)

ADVANCES AGAINST DEPOSITS IN THE NAME OF MINORS

Advances against deposits standing in the name of minor should be allowed to the
guardian only in his individual capacity for the benefit of the minor only and that
he/she shall indemnify the bank against any claim or loss in consequence of having
allowed the said advances (Undertaking as per Appendix-1 of LA Cir. 83/2016 dt
27.10.2016). Further, no advance be allowed to a partnership concern against
deposit standing in the name of a minor.

ADVANCE AGAINST DEPOSITS TO ILLITERATE PERSONS

Thumb Impression be obtained in presence of Incumbent Incharge, Certificate as per
Appendix-II of LA Cir. 83/2016 dt 27.10.2016 be signed by I/C with Independent
witnesses.

4
Depositor/ Borrower knows only vernacular language:

:5
Signature be obtained in presence of Incumbent Incharge, Certificate as per
Appendix-III of LA Cir. 83/2016 dt 27.10.2016 be signed by I/C with Independent
19
/20 554
witnesses.

ADVANCE AGAINST DEPOSITS TO BLIND PERSONS

20

 Term Deposit be got discharged in presence of Two Witnesses (known to

/01 09

bank) + 1 bank officer.

 If knows only Vernacular Language  Term Deposit discharge in presence of
(Two Witnesses (known to bank) + Incumbent Incharge) + Appendix-III of LA
3

Cir. 83/2016 dt 27.10.2016

 If Illiterate  Term Deposit discharge in presence of (Two Witnesses (known
to bank) + Incumbent Incharge) + Appendix-II of LA Cir. 83/2016 dt
27.10.2016
 Terms and conditions to be read over with Signature of witnesses on AOF
 Cash Payment  Two witnesses.
07

(Item 6 Page 4 of LA Cir 83/2016)

NRE AND FCNR DEPOSITS
Branches to ensure that instructions issued by Exchange Control Department of RBI
from time to time contained in the Exchange Control Manual/Circulars issued by
International Banking Division are complied with. (BOI and Item 7 page 4 of LA
83/2016)

The account holder of NRE Saving Deposits can withdraw saving deposits at any
time, banks should not mark any type of lien, direct or indirect, against these
deposits. Further safeguards as per Sr.8 of LA Cir 83/2016 on Page 4-5 be ensured.

Credit Facilities against Balance held in (Exchange Earners Foreign Currency)

EEFC accounts
No fresh financing allowed. Existing accounts be adjusted on maturity.

Loans & Advances STC, Lucknow Page 84 of 174

Against Balances in Saving/Current Deposit Accounts: Advance permitted. Lien
be marked against Deposit. Margin (75%) and ROI be taken specific care of. (Sr 10
Page-6, LA Cir 83/2016)

Compensation Awarded by Court/ Tribunal: No advance against such deposit till

permitted by competent Court. (Sr 11, Page 6, LA Cir 83/2016).

Margin: LA Cir 83/2016 dated 27.10.2016

Deposits in the name of Borrowers
Maturity period remaining at the time of granting advances Margin % (minimum)
Upto 2 years 5.00
Above 2 years and upto 3 Years 7.50
Above 3 years and upto 4 years 10.00
A b o v e 4 years and upto 5 Years 12.00
Above 5 years 20.00
Advance against third party deposits 25
Staff, Honorably/ Voluntarily retired/ widows of staff

4
(HRDD763/2017 dt 12.10.2017)

:5
Advance up to Rs.10.00 Lakhs with remaining period upto 5 5
years 19
Advance up to Rs.10.00 Lakhs with remaining period more 10
/20 554

than 5 years
Above Rs.10.00 Lakhs As applicable for
Public
20

Non-Resident Deposits (FCNR/NRO) LA 83/2016

/01 09

Advance Against FCNR(B) deposit to Depositor

Upto 1 years 10.00
3

Above 1 years and upto 2 Years 20.00

Above 2 years 30.00
Advances against FCNR(B) Deposit to Third Party LA 83/2016
Upto 2 years 20.00
Above 2 years 30.00
NRO Term Deposits (LA 83/2016) 25.00
07

Margin is to maintained at all the times

Rate of Interest and Penal Rate: As per Loans and Advances Circulars and as per
Resource Mobilization Division Circulars respectively.

Documentation: As per LA Cir 83/2016 at Sr.15 on Page 8-10.

Loaning Powers: All Incumbents in Scale I, II, III, CM, AGM above have full powers
subject to conditions as under:
Branch Heads in Scale I & II, to seek Administrative Clearance, from CM of
concerned CO in case of
Branch Heads of Rural Branches Rs.25.00 Lakh and above
Branch Heads of Semi Urban Branches Rs.100.00 Lakh and above

Loans & Advances STC, Lucknow Page 85 of 174

Misc. Instructions:
In case of advances against joint deposit accounts, the following guidelines be
kept in view:

If revised AOF Pledge portion of the form No. PNB 308 along with FDR/
not obtained for Receipt in RD to be signed/ discharged by all the depositors
the deposit
account
For ―Former or Survivor‖  Advance to Former without
reference to Survivor and pledge portion of PNB-308 may
be signed by Former only along with discharge of FDR/RD
Receipt by Former
If revised AOF
For ―Either or Survivor‖/ ― Any one of us or Survivor‖ 
obtained for the
Advance to Any one during life time of other/s, without
deposit account
reference to Survivor and pledge portion of PNB-308 may

4
be signed by depositor making request for advance along
with discharge of FDR/RD Receipt by depositor making

:5
request for advance
In case No. of A letter of authority signed by all the borrowers to pay the
19
/20 554
borrowers is consideration money to one of them would be obtained.
two/ more
Against Third Application and pronote /PNB727A (for overdraft) to be
20

party deposits signed by Borrower, Pledge portion to be signed by

/01 09

depositor.
BC Letter Not required unless
 Debit balance Exceeds VOS
3

 Pledged deposit matures after two years

 Depositor given mandate for auto renewal of deposit.
In Auto renewal Follow instructions as per LA 83/2016 Sr 17(viii-b) Page 10-
mandate 12. Specially generate report RAUDIT 2/3 and follow.
07

For classification : Refer LA Cir. 105/2016 dt 31.12.2016

ADVANCES AGAINST LIFE POLICIES

Consider advance only after ensuring purpose and repayment capacity of Borrower.
Nature : Demand Loan/OD (LA Cir 95/2014 dt 04.08.2014
Extent of Facility Need Based – Maximum 80% of Surrender Value(SV) [ SV
calculated after 3 years only as per LA 112/2013]of Life Insurance (Margin20%)
In case of Money Back Policies of LIC of India, Consider only if Policies have
completed three years. (LA
95/2014 dt 04.08.2014
Assignment of Policy: Policy to be sent directly to LIC through Regd Post/ Staff
member for getting assignment regd. Along with copy of SV certificate for
authentication. For adv upto Rs.5 lakh,Regd letter seeking confirmation of
assignment be sent  if confirmation not received within 10 days from receipt of

Loans & Advances STC, Lucknow Page 86 of 174

letter, it be treated as confirmed and loan disbursed. (For advance above Rs. 5 Lakh,
loan to be disbursed only after receipt of confirmation of assignment) LA Cir
122/2014 dt 20.10.2014)

Precautions: No advance against LIC policies effected by a married man for the
benefit of his wife and/or children under Section 6 of the Married Women's Property
Act. (LA Cir 112/2013 dt 24.10.2013)
Before financing against Insurance Policies, Please ensure that: (LA Cir
112/2013 dt 24.10.2013)
i) There are no encumbrances on the relative policy,
ii) The age of the assured stands admitted in the books of the LIC of India/ Approved
Private Sector Insurance Companies; and
iii) Premia are paid up to date.
Besides LIC, other approved Insurance companies are as per List vide LA Cir
112/2013 dt 24.10.2013 as amended from time to time.
Other precautions regarding continuation of policy/ payment of premia etc to be as
per LA 112/2013.

4
Money back are to considered for LIC only and not in case of Policies of other
insurance companies( LA Cir. 112/2013). Further in case of Money back, amount be

:5
collected periodically and loan reduced by that amount.
19
/20 554
Against Bima Bachat Policy of LIC of India: 1. Advance after 3 months from
date of cover only. 2. Margin 25%
20

Source: LA Cir 112/2013, 95/2014, 122/2014 and BOI Chapter 2

/01 09

ADVANCE AGAINST GOVERNMENT SECURITIES

3

The details of Govt. Securities and Bonds issued by State/ Central Govt. against
which the advances can be considered are given hereunder:-

G.P. Notes/All Type of Bonds issued by the Central and State Government or Other
Public Bodies duly guaranteed by Central or State Govt. except PSU BONDS (For
PSU Bonds, See guidelines on Advances Against Shares, Debentures and PSU
07

Bonds issued from time to time).

Securities and Bonds issued by Municipalities and Other Bodies bearing the
Guarantee of Central or State Govt. (Tax Saving Bonds issued by Banks/PSUs)
Security: All types of Bonds and Securities as above
Margin: Residual Life upto 48 Months  25%, > 48 Months 35%

Documentation:
Demand Loan PNB728, 334, Payment Voucher in duplicate and Security Trfrd. In
favour of Bank
Overdraft  PNB334, 150, AOF with specimen sign slip, Security Trfrd. In favour of
Bank

Details as per LA Cir 124/2007 dt 15.09.2007.

Loans & Advances STC, Lucknow Page 87 of 174

Advance against NSCs , KVPs
Purpose: Productive and meeting contingencies
Nature: Demand Loan and Overdraft
Security: Pledge of NSCs / KVPs (For KVPs, Issued on or before 30.11.2011 and on
or after 23.09.14)
Margin: For NSCs: (LA Cir 74/2017 dt.30.08.2017)

Period for which NSCs have run at the time of Margin

Advance VIII – IX-
ISSUE ISSUE
(a) Less than 3 years from the date of NSCs 30% 50%
(b)3 years & above but less than 5 years from the date 25% 40%
of NSCs
(c) above 5 years from the date of NSCs 25% 30%

Margin For KVPs issued on or after 23.09.2014 (LA Cir 74/2017 dt.30.08.2017)
Period for which KVPs have run at the time of Advance Margin

4
(a) 2 years from the date of issue of KVPs 40%

:5
(b) Above 2 years & upto 5 years from the date of issue of KVPs 35%
(c) Above 5 years from the date of issue of KVPs
19 25%
/20 554

Margin For KVPs issued on or before 30.11.2011 (LA Cir 74/2017 dt.30.08.2017)
Period for which KVPs have run at the time of Advance Margin
(a) Less than 3 years from the date of issue of KVPs 25%
20

(b) 3 years & above from the date of issue of KVPs 20%
/01 09

Documentation: Demand Loan: PNB-728,334,308 (lien), Payment voucher

3

Overdraft: PNB-727A,334,308 (lien), AOF and Specimen signature slip

Note: Never send NSCs / KVPs through Borrower for pledge. For details, follow
instruction s vide LA Cir 74/2017 dt.30.08.2017.
07

Loans & Advances STC, Lucknow Page 88 of 174

 21. Audit of Annual Accounts of Borrowers by Chartered Accountants

Credit limits of Rs. 20 lakhs and above (except the exempted category) and cases
where accounts are required to be audited under any other law i.e. Income Tax Act,
Company‘s Act, etc. should be duly audited by Chartered Accounts (L & A Cir. No.
89 dated 26.06.04 superseded vide LA 133/2008 dt 30.08.2008 and
LA110/30.07.2008).

In case of Non Corporate Micro Enterprises having annual sales less than Rs. 40
lakhs, annual accounts duly audited by Chartered Accountants shall not be insisted
upon irrespective of the credit limit. However, the key figures (i.e. sales, net profit,
capital etc) be verified from documents like IT returns, sales tax returns
etc.(LA110/2008).

CMA Data Base Forms for Assessment of Working Capital Requirements

Where assessment of working capital limits is done as per Simplified Turnover
method (Nayak Committee) (Details LA 100/2000), information on Credit Monitoring

4
Arrangement (CMA) data base forms shall not be obtained. Sanctioning Authority,

:5
however, may satisfy himself on the projected turnover. (LA 110/2008)
19
LOAN APPLICATION –OTHER THAN PRIORITY SECTOR
/20 554

Loan application- PNB 325 from the borrower.

In following cases, this form need not be taken and a simple application requesting
the Bank to allow a loan/limit upto a specified extent against a stated security, details
20

of which should be given, be taken as loan application:

/01 09

i). Borrowing against the security of bank deposit.

3

ii) Borrowing against government securities and other trust receipts upto
Rs.25,000/-.
iii) Small fixed loans ranging upto Rs.5,000/- against the security of jewellery and
bullion.
iv) Borrowing against the pledge of life policies.
v) Borrowing against shares and debentures of approved companies upto Rs.
07

15,000/- raised by members of staff.

vi) Borrowers to whom purely temporary overdrafts are sanctioned occasionally
by the Incumbents Incharge within their personal powers.

Scheduled margin be specified in the limit proposal form in terms of `percentage'.

(LA133/30.08.2008)
Indicate in proposal as well as in the CR on the guarantors, the actual amount
invested by the guarantors in the shares of the borrower companies.
(LA133/30.08.2008).

Pending Court Cases of the Bank/FIs./Other financiers against borrowers/ partners/

directors containing details of cases and their latest developments/position
Loan proposals should also contain comments on the above aspect under a
separate head. The details of the litigation faced by the companies/firms and their
directors/ partners/ proprietors should invariably be commented upon in the appraisal
note.

Loans & Advances STC, Lucknow Page 89 of 174

 22. COMMAND AREA

Large Borrowal Accounts (availing limits above Rs.3.5 crore)

To be dealt with by a branch office of the bank functioning:

At the plakhe where the registered/head/administrative office of the borrowing

company/firm is located.
OR
At the plakhe where factory/ manufacturing unit of the borrowing
company/firm/project site office (for infrastructure advances) is located.

In case the borrowing company/firm have more than one factory/manufacturing unit,
the responsibility to collect the necessary financial data/other relevant information for
compiling the loan proposal shall rest with the branch where the company/firm
desires to avail the facilities.

4
In case where proposals are sanctioned at an office other than the plakhe of
manufacturing unit/factory, borrowers may be advised to open Current Account or

:5
avail sub-Limits at the branch near to the manufacturing unit/factory for monitoring of
sale proceeds effectively. 19
/20 554

In view of latest developments in technology and other modern infrastructure

available for supervising/monitoring the accounts and to inbuild operational flexibility
20

to preclude the possibility of loss of bankable business opportunity outside the

/01 09

command area, it has been decided that Circle Heads & above and Incumbents of
LCBs may consider cases of large corporate borrowers beyond the purview of
command area guidelines for the proposals falling within their vested loaning
3

powers.

Small & Medium Accounts (upto Rs. 3.5 crore)

Loan proposal may be dealt by that branch office of the bank, which is near to the
factory/commercial establishment (e.g. office/ shop in case of trading accounts). The
07

Controlling Authority may demarcate the command area depending upon the density
of the branches in the area, infrastructure/skills available in the branch, location of
the branch, etc.

The guidelines for priority sector advances shall continue to be followed as per
PS&LB Division circulars issued from time to time.

(LA 133/2008 dated 30.08.2008)

Loans & Advances STC, Lucknow Page 90 of 174

 23. FINANCIAL APPRAISAL

Financial Appraisal is a method for evaluating economic viability of any project. The
appraiser should have sound knowledge of various financial statements for analyzing
them.

As per Section 2 (40) of Companies Act 2013 ―financial statement‖ in relation to a

company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity
not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to
in sub-clause (i) to sub-clause (iv)

4
a) UNDERSTANDING & ANALYSING FINANCIAL STATEMENTS

:5
While analyzing financial statements it is to be ensured that they are as per
19
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provisions of Company Act 2013.

As per Section 129 (1) of Companies Act 2013:-

20
/01 09

―The financial statements shall give a true and fair view of the state of affairs of the
company or companies, comply with the accounting standards notified under section
133 and shall be in the form or forms as may be provided for different class or
3

classes of companies in Schedule III‖.

Further, as per Section 129 (5) of Companies Act 2013:-

―Without prejudice to sub-section (1), where the financial statements of a company

do not comply with the accounting standards referred to in sub-section (1), the
07

company shall disclose in its financial statements, the deviation from the accounting
standards, the reasons for such deviation and the financial effects, if any, arising out
of such deviation.‖

Accounting Standards

As per Section 133 of Companies Act 2013:-

―The Central Government may prescribe the standards of accounting or any

addendum thereto, as recommended by the Institute of Chartered Accountants of
India, constituted under section 3 of the Chartered Accountants Act, 1949, in
consultation with and after examination of the recommendations made by the
National Financial Reporting Authority.‖

Loans & Advances STC, Lucknow Page 91 of 174

Rule 7 of the Companies (Accounts) Rules, 2014 provides that as a transition
provision, the standards of accounting as specified under the Companies Act, 1956
(i.e. the Companies (Accounting Standards) Rules, 2006) shall be deemed to be the
accounting standards until accounting standards are specified by the Central
Government under Section 133.

Formats for Financial Statements

Financial Statements are prepared for a definite period i.e. one year. As per Section
2 (41) of Companies Act 2013

- ―financial year‖, in relation to any company or body corporate, means the period
ending on the 31st day of March every year, and where it has been incorporated on
or after the 1st day of January of a year, the period ending on the 31st day of March
of the following year, in respect whereof financial statement of the company or body
corporate is made up‖

4
GENERAL INSTRUCTIONS AS PER SCHEDULE III OF THE COMPANIES ACT
2013:

:5
1) Additional disclosures specified in the Accounting Standards shall be made in the
19
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notes to accounts or by way of additional statement unless required to be
disclosed on the face of the Financial Statements.
2) Similarly, all other disclosures as required by the Companies Act shall be made in
20

the notes to accounts in addition to the requirements set out in this Schedule.
/01 09

3) (i) Notes to accounts shall contain information in addition to that presented in the
Financial Statements and shall provide where required (a) narrative descriptions
or disaggregations of items recognised in those statements; and (b) information
3

about items that do not qualify for recognition in those statements.

(ii) Each item on the face of the Balance Sheet and Statement of Profit and Loss
shall be cross-referenced to any related information in the notes to accounts. In
preparing the Financial Statements including the notes to accounts, a balance
shall be maintained between providing excessive detail that may not assist users
of financial statements and not providing important information as a result of too
07

much aggregation.
4) (i) Depending upon the turnover of the company, the figures appearing in the
Financial Statements may be rounded off as given below:—

Turnover Rounding off

(a) less than one hundred crore To the nearest hundreds, thousands, lakhs
rupees or millions, or decimals thereof.
(b) one hundred crore rupees or To the nearest lakhs, millions or crores, or
more decimals thereof.
(ii) Once a unit of measurement is used, it shall be used uniformly in the Financial
Statements.

5. Except in the case of the first Financial Statements laid before the Company (after
its incorporation) the corresponding amounts (comparatives) for the immediately

Loans & Advances STC, Lucknow Page 92 of 174

 preceding reporting period for all items shown in the Financial Statements
including notes shall also be given.

6. the terms used herein shall be as per the applicable Accounting Standards.

Note:—This part of Schedule sets out the minimum requirements for disclosure on
the face of the Balance Sheet, and the Statement of Profit and Loss (hereinafter
referred to as ―Financial Statements‖ for the purpose of this Schedule) and Notes.
Line items, sub-line items and sub-totals shall be presented as an addition or
substitution on the face of the Financial Statements when such presentation is
relevant to an understanding of the company‘s financial position or performance or to
cater to industry/sector-specific disclosure requirements or when required for
compliance with the amendments to the Companies Act or under the Accounting
Standards.

PART I — BALANCE SHEET

4
Name of the Company…………………….
Balance Sheet as at ………………………

:5
(Rupees in…………)
Particulars Note 19 Figures as at the Figures as at the
/20 554
No. end of current end of the previous
reporting period reporting period
1 2 3 4
20

I. EQUITY AND LIABILITIES

/01 09

(1) Shareholders’ funds

3

(a) Share capital

(b) Reserves and surplus
(c) Money received against share
warrants

(2) Share application money pending

07

allotment

(3) Non-current liabilities

(a) Long-term borrowings

(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long-term provisions

(4) Current liabilities

(a) Short-term borrowings

(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions

Loans & Advances STC, Lucknow Page 93 of 174

TOTAL
II. ASSETS

Non-current assets

(1) (a) Fixed assets

(i) Tangible assets

(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under
development

(b) Non-current investments

(c) Deferred tax assets (net)
(d) Long-term loans and advances

4
(e) Other non-current assets

:5
(2) Current assets
19
/20 554
(a) Current investments
(b) Inventories
(c) Trade receivables
20

(d) Cash and cash equivalents

/01 09

(e) Short-term loans and advances

(f) Other current assets
TOTAL
3

See accompanying notes to the Financial Statements.

Notes

GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET

07

1. An asset shall be classified as current when it satisfies any of the following

criteria:—
a) it is expected to be realised in, or is intended for sale or consumption in, the
company‘s normal operating cycle;
b) it is held primarily for the purpose of being traded;
c) it is expected to be realised within twelve months after the reporting date; or
d) it is cash or cash equivalent unless it is restricted from being exchanged or to
settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current.

2. An operating cycle is the time between the acquisition of assets for processing
and their realisation in cash or cash equivalents. Where the normal operating
cycle cannot be identified, it is assumed to have a duration of twelve months.

Loans & Advances STC, Lucknow Page 94 of 174

3. A liability shall be classified as current when it satisfies any of the following
criteria:—

a) it is expected to be settled in the company‘s normal operating cycle;

b) it is held primarily for the purpose of being traded;
c) it is due to be settled within twelve months after the reporting date; or
d) the company does not have an unconditional right to defer settlement of the
liability for at least twelve months after the reporting date. Terms of a liability
that could, at the option of the counterparty, result in its settlement by the
issue of equity instruments do not affect its classification.

All other liabilities shall be classified as non-current.

4. A receivable shall be classified as a ―trade receivable‖ if it is in respect of the

amount due on account of goods sold or services rendered in the normal course
of business.

4
5. A payable shall be classified as a ―trade payable‖ if it is in respect of the amount
due on account of goods purchased or services received in the normal course of

:5
business.
19
/20 554
6. A company shall disclose the following in the notes to accounts:

A. Share Capital
20
/01 09

For each class of share capital (different classes of preference shares to be treated
separately):
3

(a) the number and amount of shares authorised;

(b) the number of shares issued, subscribed and fully paid, and subscribed but
not fully paid;
(c) par value per share;
(d) a reconciliation of the number of shares outstanding at the beginning and at
the end of the reporting period;
07

(e) the rights, preferences and restrictions attaching to each class of shares
including restrictions on the distribution of dividends and the repayment of
capital;
(f) shares in respect of each class in the company held by its holding company or
its ultimate holding company including shares held by or by subsidiaries or
associates of the holding company or the ultimate holding company in
aggregate;
(g) shares in the company held by each shareholder holding more than 5 per
cent. shares specifying the number of shares held;
(h) shares reserved for issue under options and contracts/commitments for the
sale of shares /disinvestment, including the terms and amounts;
(i) for the period of five years immediately preceding the date as at which the
Balance Sheet is prepared:

Loans & Advances STC, Lucknow Page 95 of 174

 (A) Aggregate number and class of shares allotted as fully paid-up pursuant to
contract(s) without payment being received in cash.
(B) Aggregate number and class of shares allotted as fully paid-up by way of
bonus shares.
(C) Aggregate number and class of shares bought back.
(j) terms of any securities convertible into equity/preference shares issued along
with the earliest date of conversion in descending order starting from the
farthest such date;
(k) calls unpaid (showing aggregate value of calls unpaid by directors and
officers);
(l) forfeited shares (amount originally paid-up).

B. Reserves and Surplus

(i) Reserves and Surplus shall be classified as:

a) Capital Reserves;

4
b) Capital Redemption Reserve;
c) Securities Premium Reserve;

:5
d) Debenture Redemption Reserve;
e) Revaluation Reserve; 19
/20 554
f) Share Options Outstanding Account;
g) Other Reserves–(specify the nature and purpose of each reserve and the
amount in respect thereof);
20

h) Surplus i.e., balance in Statement of Profit and Loss disclosing allocations

/01 09

and appropriations such as dividend, bonus shares and transfer to/ from
reserves, etc.;
3

(Additions and deductions since last balance sheet to be shown under each of
the specified heads);

(ii) A reserve specifically represented by earmarked investments shall be termed as

a ―fund‖.
(iii) Debit balance of statement of profit and loss shall be shown as a negative figure
07

under the
head ―Surplus‖. Similarly, the balance of ―Reserves and Surplus‖, after adjusting
negative balance of surplus, if any, shall be shown under the head ―Reserves
and Surplus‖ even if the resulting figure is in the negative.

C. Long-Term Borrowings

(i) Long-term borrowings shall be classified as:

(a) Bonds/debentures;
(b) Term loans:

(A) from banks.

(B) from other parties.

Loans & Advances STC, Lucknow Page 96 of 174

(c) Deferred payment liabilities;
(d) Deposits;
(e) Loans and advances from related parties;
(f) Long term maturities of finance lease obligations;
(g) Other loans and advances (specify nature).

(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of

security shall be specified separately in each case.
(iii) Where loans have been guaranteed by directors or others, the aggregate
amount of such loans under each head shall be disclosed.
(iv) Bonds/debentures (along with the rate of interest and particulars of redemption
or conversion, as the case may be) shall be stated in descending order of
maturity or conversion, starting from farthest redemption or conversion date, as
the case may be. Where bonds/ debentures are redeemable by instalments, the
date of maturity for this purpose must be reckoned as the date on which the first
instalment becomes due.
(v) Particulars of any redeemed bonds/debentures which the company has power

4
to reissue shall be disclosed.
(vi) Terms of repayment of term loans and other loans shall be stated.

:5
(vii) Period and amount of continuing default as on the balance sheet date in
repayment of loans and interest, shall be specified separately in each case.
19
/20 554

D. Other Long-term Liabilities

20

Other Long-term Liabilities shall be classified as:

/01 09

(a) Trade payables; (A receivable shall be classified as a ―trade receivable‖ if it is in

respect of the amount due on account of goods sold or services rendered in the
3

normal course of business.)

(b) Others.

E. Long-term provisions

The amounts shall be classified as:

07

(a) Provision for employee benefits;

(b) Others (specify nature).

F. Short-term borrowings

(i) Short-term borrowings shall be classified as:

(a) Loans repayable on demand;

(A) from banks.
(B) from other parties.

(b) Loans and advances from related parties;

(c) Deposits;
(d) Other loans and advances (specify nature).

Loans & Advances STC, Lucknow Page 97 of 174

(ii) Borrowings shall further be sub-classified as secured and unsecured. Nature of
security shall be specified separately in each case.

(iii) Where loans have been guaranteed by directors or others, the aggregate amount
of such loans under each head shall be disclosed.

(iv) Period and amount of default as on the balance sheet date in repayment of loans
and interest, shall be specified separately in each case.

G. Other current liabilities

The amounts shall be classified as:

(a) Current maturities of long-term debt; (for elaboration see Point 3 (c) above)
(b) Current maturities of finance lease obligations;
(c) Interest accrued but not due on borrowings;

4
(d) Interest accrued and due on borrowings;
(e) Income received in advance;

:5
(f) Unpaid dividends;
(g) Application money received for allotment of securities and due for refund and
19
/20 554
interest accrued thereon. Share application money includes advances towards
allotment of share capital. The terms and conditions including the number of
shares proposed to be issued, the amount of premium, if any, and the period
20

before which shares shall be allotted shall be disclosed. It shall also be disclosed
/01 09

whether the company has sufficient authorised capital to cover the share capital
amount resulting from allotment of shares out of such share application money.
3

Further, the period for which the share application money has been pending
beyond the period for allotment as mentioned in the document inviting application
for shares along with the reason for such share application money being pending
shall be disclosed. Share application money not exceeding the issued capital and
to the extent not refundable shall be shown under the head Equity and share
application money to the extent refundable, i.e., the amount in excess of
07

subscription or in case the requirements of minimum subscription are not met,

shall be separately shown under ―Óther current liabilities‖;

(h) Unpaid matured deposits and interest accrued thereon;

(i) Unpaid matured debentures and interest accrued thereon;
(j) Other payables (specify nature).

H. Short-term provisions

The amounts shall be classified as:

(a) Provision for employee benefits.

(b) Others (specify nature).

I. Tangible assets

Loans & Advances STC, Lucknow Page 98 of 174

(i) Classification shall be given as:
(a) Land;
(b) Buildings;
(c) Plant and Equipment;
(d) Furniture and Fixtures;
(e) Vehicles;
(f) Office equipment;
(g) Others (specify nature).
(ii) Assets under lease shall be separately specified under each class of asset.

(iii) A reconciliation of the gross and net carrying amounts of each class of assets at
the beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the
related depreciation and impairment losses/reversals shall be disclosed
separately.

4
(iv) Where sums have been written-off on a reduction of capital or revaluation of
assets or where sums have been added on revaluation of assets, every balance

:5
sheet subsequent to date of such write-off, or addition shall show the reduced or
increased figures as applicable and shall by way of a note also show the amount
19
/20 554
of the reduction or increase as applicable together with the date thereof for the
first five years subsequent to the date of such reduction or increase.
20

J. Intangible assets
/01 09

(i) Classification shall be given as:

3

(a) Goodwill;
(b) Brands /trademarks;
(c) Computer software;
(d) Mastheads and publishing titles;
(e) Mining rights;
(f) Copyrights, and patents and other intellectual property rights, services and
07

operating rights;
(g) Recipes, formulae, models, designs and prototypes;
(h) Licences and franchise;
(i) Others (specify nature).

(ii) A reconciliation of the gross and net carrying amounts of each class of assets at
the beginning and end of the reporting period showing additions, disposals,
acquisitions through business combinations and other adjustments and the related
amortization and impairment losses/reversals shall be disclosed separately.

(iii) Where sums have been written-off on a reduction of capital or revaluation of

assets or where sums have been added on revaluation of assets, every balance
sheet subsequent to date of such write-off, or addition shall show the reduced or
increased figures as applicable and shall by way of a note also show the amount

Loans & Advances STC, Lucknow Page 99 of 174

 of the reduction or increase as applicable together with the date thereof for the
first five years subsequent to the date of such reduction or increase.

K. Non-current investments

(i) Non-current investments shall be classified as trade investments and other

investments and further classified as:

(a) Investment property;

(b) Investments in Equity Instruments;
(c) Investments in preference shares;
(d) Investments in Government or trust securities;
(e) Investments in debentures or bonds;
(f) Investments in Mutual Funds;
(g) Investments in partnership firms;
(h) Other non-current investments (specify nature).

4
Under each classification, details shall be given of names of the bodies corporate
indicating separately whether such bodies are (i) subsidiaries, (ii) associates, (iii)

:5
joint ventures, or (iv) controlled special purpose entities in whom investments have
been made and the nature and extent of the investment so made in each such body
19
/20 554
corporate (showing separately investments which are partly-paid). In regard to
investments in the capital of partnership firms, the names of the firms (with the
names of all their partners, total capital and the shares of each partner) shall be
20

given.
/01 09

(ii) Investments carried at other than at cost should be separately stated specifying
the basis for valuation thereof;
3

(iii) The following shall also be disclosed:

(a) Aggregate amount of quoted investments and market value thereof;

(b) Aggregate amount of unquoted investments;
(c) Aggregate provision for diminution in value of investments.
07

L. Long-term loans and advances

(i) Long-term loans and advances shall be classified as:

(a) Capital Advances;
(b) Security Deposits;
(c) Loans and advances to related parties (giving details thereof);
(d) Other loans and advances (specify nature).

(ii) The above shall also be separately sub-classified as:

(a) Secured, considered good;
(b) Unsecured, considered good;
(c) Doubtful.

Loans & Advances STC, Lucknow Page 100 of 174

(iii) Allowance for bad and doubtful loans and advances shall be disclosed under the
relevant heads separately.
(iv) Loans and advances due by directors or other officers of the company or any of
them either severally or jointly with any other persons or amounts due by firms or
private companies respectively in which any director is a partner or a director or
a member should be separately stated.

M. Other non-current assets

Other non-current assets shall be classified as:

(i) Long-term Trade Receivables (including trade receivables on deferred credit

terms);
(ii) Others (specify nature);
(iii) Long term Trade Receivables, shall be sub-classified as:
(a) Secured, considered good;
(b ) Unsecured, considered good;

4
(c ) Doubtful.

:5
(iv) Allowance for bad and doubtful debts shall be disclosed under the relevant
heads separately. 19
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(v) Debts due by directors or other officers of the company or any of them either
severally or jointly with any other person or debts due by firms or private
companies respectively in which any director is a partner or a director or a
20

member should be separately stated.

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N. Current Investments
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(i) Current investments shall be classified as:

(a) Investments in Equity Instruments;

(b) Investment in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
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(e) Investments in Mutual Funds;

(f) Investments in partnership firms;
(g) Other investments (specify nature).

Under each classification, details shall be given of names of the bodies corporate
[indicating separately whether such bodies are: (i) subsidiaries, (ii) associates, (iii)
joint ventures, or (iv) controlled special purpose entities] in whom investments have
been made and the nature and extent of the investment so made in each such body
corporate (showing separately investments which are partly paid). In regard to
investments in the capital of partnership firms, the names of the firms (with the
names of all their partners, total capital and the shares of each partner) shall be
given.

(ii) The following shall also be disclosed:

Loans & Advances STC, Lucknow Page 101 of 174

(a) The basis of valuation of individual investments;
(b) Aggregate amount of quoted investments and market value thereof;
(c) Aggregate amount of unquoted investments;
(d) Aggregate provision made for diminution in value of investments.

O. Inventories

(i) Inventories shall be classified as:

(a) Raw materials;

(b) Work-in-progress;
(c) Finished goods;
(d) Stock-in-trade (in respect of goods acquired for trading);
(e) Stores and spares;
(f) Loose tools;
(g) Others (specify nature).

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(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
(iii) Mode of valuation shall be stated.

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P. Trade Receivables 19
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(i) Aggregate amount of Trade Receivables outstanding for a period exceeding six
months from the date they are due for payment should be separately stated.
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(ii) Trade receivables shall be sub-classified as:

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(a) Secured, considered good;

(b) Unsecured, considered good;
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(c) Doubtful.

(iii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads
separately.
(iv) Debts due by directors or other officers of the company or any of them either
severally or jointly with any other person or debts due by firms or private
07

companies respectively in which any director is a partner or a director or a

member should be separately stated.

Q. Cash and cash equivalents

(i) Cash and cash equivalents shall be classified as:

(a) Balances with banks;

(b) Cheques, drafts on hand;
(c) Cash on hand;
(d) Others (specify nature).

(ii) Earmarked balances with banks (for example, for unpaid dividend) shall be
separately stated.

Loans & Advances STC, Lucknow Page 102 of 174

(iii) Balances with banks to the extent held as margin money or security against the
borrowings, guarantees, other commitments shall be disclosed separately.
(iv) Repatriation restrictions, if any, in respect of cash and bank balances shall be
separately stated.
(v) Bank deposits with more than twelve months maturity shall be disclosed
separately.

R. Short-term loans and advances

(i) Short-term loans and advances shall be classified as:-

(a) Loans and advances to related parties (giving details thereof);

(b) Others (specify nature).

(ii) The above shall also be sub-classified as:

(a) Secured, considered good;

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(b) Unsecured, considered good;
(c) Doubtful.

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(iii) Allowance for bad and doubtful loans and advances shall be disclosed under the
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relevant heads separately.

(iv) Loans and advances due by directors or other officers of the company or any of
20

them either severally or jointly with any other person or amounts due by firms or
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private companies respectively in which any director is a partner or a director or

a member shall be separately stated.
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S. Other current assets (specify nature)

This is an all-inclusive heading, which incorporates current assets that do not fit into
any other asset categories.

T. Contingent liabilities and commitments (to the extent not provided for)
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(i) Contingent liabilities shall be classified as:

(a) Claims against the company not acknowledged as debt;

(b) Guarantees;
(c) Other money for which the company is contingently liable.

(ii) Commitments shall be classified as:

(a) Estimated amount of contracts remaining to be executed on capital account and

not provided for;
(b) Uncalled liability on shares and other investments partly paid;
(c) Other commitments (specify nature).

Loans & Advances STC, Lucknow Page 103 of 174

U. The amount of dividends proposed to be distributed to equity and preference
shareholders for the period and the related amount per share shall be disclosed
separately. Arrears of fixed cumulative dividends on preference shares shall also
be disclosed separately.

V. Where in respect of an issue of securities made for a specific purpose, the whole
or part of the amount has not been used for the specific purpose at the balance
sheet date, there shall be indicated by way of note how such unutilised amounts
have been used or invested.

W. If, in the opinion of the Board, any of the assets other than fixed assets and non-
current investments do not have a value on realisation in the ordinary course of
business at least equal to the amount at which they are stated, the fact that the
Board is of that opinion, shall be stated.

PART II – STATEMENT OF PROFIT AND LOSS

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Name of the Company…………………….
Profit and loss statement for the year ended ………………………

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(Rupees in…………)
Particulars Note No.
19 Figures as at Figures as at
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the end of the end of the
current previous
reporting reporting
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period period
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1 2 3 4
I Revenue from operations xxx xxx
II Other income xxx xxx
3

III Total Revenue (I + II) xxx xxx

IV Expenses:
Cost of materials Xxx Xxx
consumed
Xxx Xxx
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Purchases of Stock-in-
Trade Xxx Xxx

Changes in inventories
of finished goods Xxx Xxx
work-in-progress and Xxx Xxx
Stock-in-Trade xxx Xxx

Employee benefits
expense

Finance costs

Depreciation and
amortization expense

Loans & Advances STC, Lucknow Page 104 of 174

 Other expenses

Total expenses

V Profit before exceptional Xxx xxx

and extraordinary items
and tax (III - IV)
VI Exceptional items xxx xxx
VII Profit before xxx xxx
extraordinary items and
tax (V - VI)
VIII Extraordinary items xxx xxx
IX Profit before tax (VII- xxx xxx
VIII)
X Tax expense:
(1) Current tax Xxx Xxx
(2) Deferred tax Xxx Xxx

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XI Profit (Loss) for the xxx xxx

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period from continuing
operations (VII-VIII)
XII Profit/(loss) from
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discontinuing operations
XIII Tax expense of xxx xxx
discontinuing operations
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XIV Profit/(loss) from xxx xxx

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Discontinuing operations
(after tax) (XII-XIII)
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XV Profit (Loss) for the xxx xxx

period (XI + XIV)
XVI Earnings per equity
share: Xxx Xxx
(1) Basic xxx xxx
(2) Diluted
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See accompanying notes to the financial statements.

GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF PROFIT

AND LOSS

1. The provisions of this Part shall apply to the income and expenditure account
referred to in sub-clause (ii) of clause (40) of section 2 (of Companies Act 2013)
in like manner as they apply to a statement of profit and loss.

2.(A) In respect of a company other than a finance company revenue from

operations shall disclose separately in the notes revenue from—

(a) Sale of products;

(b) Sale of services;
(c) Other operating revenues;
Less:

Loans & Advances STC, Lucknow Page 105 of 174

 (d) Excise duty.

(B) In respect of a finance company, revenue from operations shall include revenue
from—

(a) Interest; and

(b) Other financial services.

Revenue under each of the above heads shall be disclosed separately by way
of notes to accounts to the extent applicable.

3. Finance Costs

Finance costs shall be classified as:

(a) Interest expense;

(b) Other borrowing costs;

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(c) Applicable net gain/loss on foreign currency transactions and translation.

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4. Other income
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Other income shall be classified as:

(a) Interest Income (in case of a company other than a finance company);
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(b) Dividend Income;

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(c) Net gain/loss on sale of investments;

(d) Other non-operating income (net of expenses directly attributable to such
income).
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5. Additional Information

A Company shall disclose by way of notes additional information regarding

aggregate expenditure and income on the following items:—
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(i) (a) Employee Benefits Expense [showing separately (i) salaries and wages, (ii)
contribution to provident and other funds, (iii) expense on Employee Stock
Option Scheme (ESOP) and Employee Stock Purchase Plan (ESPP), (iv)
staff welfare expenses].
(b) Depreciation and amortisation expense;
(c) Any item of income or expenditure which exceeds one per cent of the
revenue from operations or Rs.1,00,000, whichever is higher;
(d) Interest Income;
(e) Interest expense;
(f) Dividend income;
(g) Net gain/loss on sale of investments;
(h) Adjustments to the carrying amount of investments;
(i) Net gain or loss on foreign currency transaction and translation (other than
considered as finance cost);

Loans & Advances STC, Lucknow Page 106 of 174

 (j) Payments to the auditor as (a) auditor; (b) for taxation matters; (c) for
company law matters; (d) for management services; (e) for other services;
and (f) for reimbursement of expenses;
(k) In case of Companies covered under section 135, amount of expenditure
incurred on corporate social responsibility activities;
(l) Details of items of exceptional and extraordinary nature;
(m) Prior period items;

(ii) (a) In the case of manufacturing companies,—

(1) Raw materials under broad heads.

(2) Goods purchased under broad heads.

(b) In the case of trading companies, purchases in respect of goods traded in

by the company under broad heads.

(c) In the case of companies rendering or supplying services, gross income

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derived from services rendered or supplied under broad heads.

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(d) In the case of a company, which falls under more than one of the
categories mentioned in (a), (b) and (c) above, it shall be sufficient compliance
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with the requirements herein if purchases, sales and consumption of raw
material and the gross income from services rendered is shown under broad
heads.
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(e) In the case of other companies, gross income derived under broad heads.

(iii) In the case of all concerns having works in progress, works-in-progress under
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broad heads.
(iv)(a) The aggregate, if material, of any amounts set aside or proposed to be set
aside, to reserve, but not including provisions made to meet any specific
liability, contingency or commitment known to exist at the date as to which the
balance sheet is made up.
(b) The aggregate, if material, of any amounts withdrawn from such reserves.
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(v) (a) The aggregate, if material, of the amounts set aside to provisions made for
meeting specific liabilities, contingencies or commitments.
(b) The aggregate, if material, of the amounts withdrawn from such provisions,
as no longer required.

(vi) Expenditure incurred on each of the following items, separately for each
item:—
(a) Consumption of stores and spare parts;
(b) Power and fuel;
(c) Rent;
(d) Repairs to buildings;
(e) Repairs to machinery;
(f) Insurance;
(g) Rates and taxes, excluding, taxes on income;

Loans & Advances STC, Lucknow Page 107 of 174

 (h) Miscellaneous expenses,
(vii)(a) Dividends from subsidiary companies.
(b) Provisions for losses of subsidiary companies.

(viii) The profit and loss account shall also contain by way of a note the following
information, namely:—
(a) Value of imports calculated on C.I.F basis by the company during the financial
year in respect of—

I. Raw materials;
II. Components and spare parts;
III. Capital goods;

(b) Expenditure in foreign currency during the financial year on account of royalty,
know-how, professional and consultation fees, interest, and other matters;

(c) Total value if all imported raw materials, spare parts and components consumed

4
during the financial year and the total value of all indigenous raw materials,
spare parts and components similarly consumed and the percentage of each to

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the total consumption;
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(d) The amount remitted during the year in foreign currencies on account of
dividends with a specific mention of the total number of non-resident
shareholders, the total number of shares held by them on which the dividends
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were due and the year to which the dividends related;

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(e) Earnings in foreign exchange classified under the following heads, namely:—
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I. Export of goods calculated on F.O.B. basis;

II. Royalty, know-how, professional and consultation fees;
III. Interest and dividend;
IV. Other income, indicating the nature thereof.

Note:— Broad heads shall be decided taking into account the concept of materiality
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and presentation of true and fair view of financial statements.

As mentioned earlier, as per Section 2(40) of Companies Act 2013 ―financial

statement‖ in relation to a company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity
not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to
in sub-clause (i) to sub-clause (iv):

Loans & Advances STC, Lucknow Page 108 of 174

 Provided that the financial statement, with respect to One Person Company,
small company and dormant company, may not include the cash flow
statement.

Requirement of Audited Balance Sheet: As per Bank‘s internal guidelines, annual

accounts of all borrowers with credit limits of Rs. 20 lakhs and above from the
banking system (except the exempted category) and cases where accounts are
required to be audited under any other law i.e. Income Tax Act, Company‘s Act, etc.
should compulsorily be presented to the Bank duly audited by Chartered Accounts.
(Refer LA Cir 110/2008 dt 30.07.2008)

Also, as per Section 44 AB of Income Tax Act – Every person

(a) carrying on business shall, if his total sales, turnover or gross receipts, as the
case may be, in business exceed or exceeds one crore rupees in any previous
year; or
(b) carrying on profession shall, if his gross receipts in profession exceed [twenty-

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five] lakh rupees in any previous year; or

:5
(c) carrying on the business shall, if the profits and gains from the business are
deemed to be the profits and gains of such person under section 44AE or
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section 44BB or section 44BBB, as the case may be, and he has claimed his
income to be lower than the profits or gains so deemed to be the profits and
gains of his business, as the case may be, in any previous year; or
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(d) carrying on the [business] shall, if the profits and gains from the [business] are
/01 09

deemed to be the profits and gains of such person under [section 44AD] and
he has claimed such income to be lower than the profits and gains so deemed
to be the profits and gains of his [business] and his income exceeds the
3

maximum amount which is not chargeable to income-tax in any [previous year,]

Following clause (e) shall be inserted after clause (d) of section 44AB by
the Finance Act, 2016, w.e.f. 1-4-2017:
(e) carrying on the business shall, if the provisions of sub-section (4) of section
44AD are applicable in his case and his income exceeds the maximum amount
07

which is not chargeable to income-tax in any previous year,

get his accounts of such previous year audited by an accountant before the specified
date and furnish by that date the report of such audit in the prescribed form duly
signed and verified by such accountant and setting forth such particulars as may be
prescribed :
Provided that this section shall not apply to the person, who derives income of the
nature referred to in section 44B or section 44BBA, on and from the 1st day of April,
1985 or, as the case may be, the date on which the relevant section came into force,
whichever is later:
Provided further that in a case where such person is required by or under any other
law to get his accounts audited, it shall be sufficient compliance with the provisions
of this section if such person gets the accounts of such business or profession
audited under such law before the specified date and furnishes by that date the
report of the audit as required under such other law and a further report by an
accountant in the form prescribed under this section.

Loans & Advances STC, Lucknow Page 109 of 174

Auditors‘ are required to comply with Companies (Auditor‘s Report) Order, 2015
[CARO 2015] as per MCA Order dated 10.04.2015, which came into force on the
date of its publication in the Official Gazzette, which set out the guidelines and
specify the area which an auditor is required to look into and comment in his report.

It shall apply to every company including a foreign company as defined in clause

(42) of section 2 of the Companies Act, 2013 (18 of 2013) [hereinafter referred to as
the Companies Act], except -

(i) a banking company as defined in clause (c) of section 5 of the Banking

Regulation Act, 1949 (10 of 1949);
(ii) an insurance company as defined under the Insurance Act,1938 (4 of 1938);
(iii) a company licensed to operate under section 8 of the Companies Act;
(iv) a One Person Company as defined under clause (62) of section 2 of the
Companies Act and a small company as defined under clause (85) of section 2
of the Companies Act; and

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(v) a private limited company with a paid up capital and reserves not more than
rupees fifty lakh and which does not have loan outstanding exceeding rupees

:5
twenty five lakh from any bank or financial institution and does not have a
turnover exceeding rupees five crore at any point of time during the financial
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year.

Accounting Standard (AS)

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Objective: As per Ministry of Corporate Affairs – ―This Standard prescribes the basis
for presentation of general purpose financial statements to ensure comparability both
with the entity‘s financial statements of previous periods and with the financial
3

statements of other entities. It sets out overall requirements for the presentation of
financial statements, guidelines for their structure and minimum requirements for
their content.‖

Formulation: The Accounting Standards Board (ASB) formulate Accounting

Standards with a view to assisting the Council of the ICAI in evolving and
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establishing Accounting Standards in India. It examine how far the relevant

International Accounting Standard/ International Financial Reporting Standard can
be adapted while formulating the Accounting Standard and to adapt the same.

As per Section 133 of Companies Act 2013 – ―The Central Government may
prescribe the standards of accounting or any addendum thereto, as recommended
by the Institute of Chartered Accountants of India, constituted under section 3 of the
Chartered Accountants Act, 1949, in consultation with and after examination of the
recommendations made by the National Financial Reporting Authority.‖

The Accounting Standards have been notified by Ministry of Corporate Affairs (MCA)
through official Gazette.

International Financial Reporting Standards (IFRS) are Standards, Interpretations

and the Framework adopted by the International Accounting Standards Board

Loans & Advances STC, Lucknow Page 110 of 174

(IASB). Many of the standards forming part of IFRS are known by the older name of
International Accounting Standards (IAS). IAS were issued between 1973 and
2001 by the Board of the International Accounting Standards Committee (IASC). On
1 April 2001, the new IASB took over from the IASC the responsibility for setting
International Accounting Standards.

b) Reclassification and Rearrangement of Balance Sheet By Lender:

A banker needs to analyze financial statements of a company while appraising a

proposal to know its repaying capacity and ensuring its liquidity and solvency. While
analyzing these financial statements, reclassification and rearrangement of Balance
Sheet is required.

Balance Sheet is divided into two parts i.e. Assets & Liabilities. From a banker‘s
point of view, a broad classification of assets & liabilities can be as under:-

ASSETS

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 NON-CURRENT ASSETS

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 CURRENT ASSETS
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LIABILITIES

 SHAREHOLDER‟S FUNDS (Net Worth)

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 NON CURRENT LIABILITIES

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 CURRENT LIABILITIES

In a balance sheet of a company assets and liabilities are shown as long term or
3

short term which needs to be reclassified for analysis as per internal Bank
guidelines. As such, it is necessary to be aware of Bank‘s guidelines issued from
time to time on this score.

The items of Balance Sheet and Profit & Loss Accounts are as per Companies Act
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2013 and already discussed above. Reclassification & rearrangement of these items
should be as per Bank guidelines enumerated hereunder:-

1. Treatment of unsecured loans for Balance Sheet analysis

In terms of L&A Cir. No.156 dated 10.10.2007 - In case of Partnership,

Proprietorship and Private Ltd. Companies, the unsecured loans raised from
friends, relatives and Directors etc. which remain in the business on continuous
basis may be treated as quasi capital to the extent not exceeding 100% of
tangible net worth of the party subject to the condition that these loans shall not
be withdrawn during the currency of the loan and shall be subordinate to bank
borrowings.

Amount of unsecured loans over & above the tangible net worth of the party, if
any, should be treated as term liability for calculation of various financial ratios.

Loans & Advances STC, Lucknow Page 111 of 174

 In case of Public Ltd. Company, the unsecured loans should be treated as long
term debts.

2. Treatment of Sundry Creditors for Calculating Drawing Power

In terms of L&A Cir. No.153 dated 16.12.2009 – Sundry creditors to include

outstanding creditors for direct expenses incurred in manufacturing process
such as job work charges etc. in addition to sundry creditors for purchase of
stocks. As such, borrowers to provide, as on date of inventory, complete
statement of stocks, sundry creditors (for purchase of stocks and for job-work
etc.) and sundry debtors (receivables).

Keeping in view the above guidelines, items pertaining to sundry creditors are
to be rearranged while calculating Drawing Power.

3. Treatment of Term Loan Instalments for assessment of MPBF, Current

Ratio and NWC

4
In terms of L&A Cir. No.140 dated 29.11.2014 - Term Loan instalments due

:5
within one year are to be treated as ‗other current liabilities‘, while computing
MPBF, NWC and current ratio to keep with the prevalent industry practice and
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to match with the accounting standards.

4. Treatment of Export Receivables (LA 100/2000 dt 28.09.2000)

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a) For calculating MPBF the amount of export receivables may be excluded

from the current assets as need based limits for export receivables could
be sanctioned and in respect of such receivables borrowers are not
3

required to bring in 25% by way of Net Working Capital (NWC).

b) Where an exporters desires, export receivables may be included in the

total current assets for arriving at MPBF, but the minimum stipulated NWC
(i.e. 25% of total current assets under second method of lending) may be
reckoned after excluding the quantum of export receivables from the total
07

current assets for fixing up the post shipment credit limit.

In the above situation, the sanctioning authority may permit to accept

lower current ratio keeping in view the margin requirement in respect of
limits set up for domestic sales as against normal current ratio 1.33:1
where export receivables are being financed without any margin.

5. Treatment of Margin Money on Account of Letters of Credit/ Bank

Guarantees

Margin Money on LCs/ BGs are taken by Bank to cover risk and is to be treated
as Non Current Assets. As such, Margin Money is to be excluded from
projected build up of Current Assets while assessing working capital credit
needs of the borrower.

Loans & Advances STC, Lucknow Page 112 of 174

 (LA 100/2000 dt 28.09.2000)

6. Treatment of Investment made in Associate/Allied companies/

Subsidiaries Etc.

Investments made in shares, debentures, etc. of a current nature, units of Unit

Trust of India and other Mutual Funds and in associate companies/ subsidiaries
as well as investments made and/ or loan extended as inter corporate deposits
are to be excluded from the build-up of current assets at the time of
assessment of Maximum Permissible Bank Finance. It is also advised that
as far as possible, on account of investments made in
associate/allied/subsidiary concerns and inter corporate deposits, the current
ratio should not slip below the stipulated level.

Investment made in Associate/Allied concerns/Subsidiaries etc. is also to be

excluded for arriving at Adjusted Net Worth.

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7. Treatment of Redeemable Preference Shares

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Preference shares redeemable within one year should be treated as current
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liabilities. However, preference shares redeemable after one year may be
treated as term liabilities
20

8. Treatment of Deferred Tax Liability/ Deferred Tax Asset (DTL / DTA)

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The tax effect of the timing difference originating during a period (Difference
between Accounting Income & Taxable Income) is referred to as Deferred Tax
3

Asset/ Deferred Tax Liability depending on whether the Tax rebate relating to
the current accounting period would be available in the subsequent accounting
periods or the rebate available in the subsequent accounting periods has been
claimed in advance during the current accounting period. DTL/DTA is disclosed
under a separate head in the balance sheet from current assets and current
liabilities. Further the break-up of DTL/DTA in the major components is
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disclosed in the notes to accounts.

DTA is arrived at through increasing the profits/ reducing the loss. The eligible
tax rebate reflected as DTA can be recognised only if it is reasonably certain
that the company will earn adequate profits in the subsequent accounting
period(s). Till such time, it is in the nature of an intangible asset. Therefore, it
should be reduced from the Net Worth to arrive at the TNW.

DTL represents tax benefits claimed in advance and there is no payment

obligation attached to it. Further, its reversal in the subsequent accounting
period(s) will be only by way of transfer to the surplus. Therefore,
notwithstanding the DTL being shown separately, it should be treated as a part
of the Net Worth.

Since DTL & DTA are accounting treatments only, DTL is to be added to, and

Loans & Advances STC, Lucknow Page 113 of 174

 DTA is to be subtracted from, the net profit for arriving at PAT (DTA / DTL for
this purpose would only mean the amount recognized as such during the
accounting year under reference).

In the event there is a reversal in a particular accounting year of DTA/DTL

either in full or in part, in respect of DTA/DTL in an earlier accounting period,
the amount of such reversal should be ignored. As the existence of DTA/DTL is
an indication that the borrower is entitled to tax concessions in subsequent
years / tax concessions relating to subsequent years have been claimed in
advance, this fact needs to be kept in view while deciding upon the estimated /
projected financials.

c) RATIO ANALYSIS

Everything which can be expressed in monetary value is presented in the financial

statements. These statements require analysis in order to make them meaningful.
Analysis of balance sheet not only requires comparison of absolute figures with

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previous periods of the same firm/ company or other firms/ companies but also
requires comparing of various ratios.

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Ratio is a relationship between two accounting figures. Ratio Analysis is an
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important tool in the hands of bankers for the analysis of financial statements of a
business entity. It helps in meaningful summarization of large number of financial
data to provide a qualitative judgement about the financial performance of a
20

business unit. The general standards used by bankers are Time Series
/01 09

Analysis/Trend Analysis and Cross Sectional Analysis.

Time Series Analysis/Trend Analysis

3

The simple way to evaluate the financial performance of a unit is to compare the
current year ratios with that of the past. When the financial ratio of a business
entity is compared with each other over a period of time, it is known as Time
Series Analysis. This type of analysis provides an insight to whether units
performance has improved, deteriorated or remained unchanged over a particular
07

period of time.

Cross Sectional Analysis

The other way of comparison is to compare the ratios of one business entity with
the ratios of other business entities in the same industry at the same point of time.
This type of analysis is called Cross Sectional Analysis and gives the relative
performance of the unit and its standing amongst the competitors.
The commonly used ratios while appraising a proposal are as under:-
 CURRENT RATIO: It is a liquidity ratio. A business entity is expected to have
sufficient short term liquidity to meet out its current obligations that may arise
out of day to day operations. Shortage of liquidity results in poor credit
worthiness, loss of creditors' confidence and short term insolvency which may
ultimately lead to closure of the unit. Current Ratio is arrived as under:-

Loans & Advances STC, Lucknow Page 114 of 174

 Current Assets
Current Ratio =
Current Liabilities

Minimum Current Ratio of a business entity should not be less than 1.33:1
implying that current assets will be reasonably higher than current
liabilities to take care of the business entity's short term liquidity. However,
where PBF is assessed under Nayak Committee Recommendations, current
ratio of 1.25 should be acceptable. (LA 100/2000)
Though healthy current ratio is desirable but unreasonably high current ratio
tends to pull down the profits of the unit indicating inefficient use of current
assets, which are partly financed by costly long term sources. It may also
indicate undesirable build up of inventory or book debts.

 NET WORKING CAPITAL: Though Net Working Capital (NWC) is not a ratio
still it is an important concept for arriving at working capital requirement of a
business entity from financial institutions. It can be worked out by taking
difference of Current Assets & Current Liabilities.

:5 4
Net Working Capital = Current Assets – Current Liabilities
From the view point of a financial analyst, NWC is that part of long term funds
19
/20 554
which is employed in the business for operating activities and is also looked
upon as the margin contributed by the owners towards working capital funds.
As such, NWC is arrived as under:-
20

Net Working Capital = Long Term Sources – Long Term Uses

/01 09

Current Ratio is a popular indicator of short term liquidity position of a

business entity but should always be supplemented by absolute figure of
3

NWC. An increase in Current Ratio by itself does not always mean increased
contribution from long term funds for business operations.
It can be illustrated by taking an example. Suppose a business entity is
having Current Assets of Rs.60 lakh and Current Liabilities of Rs.30 lakh. The
Current Ratio will be 2:1. However, if Current Assets are reduced by Rs.15
07

lakh for paying equivalent amount of Current Liability, Current Ratio will jump
to 3:1, whereas in both the cases NWC remains same at Rs.30 lakh. As
such, NWC should always be used with Current Ratio for analyzing the
financial position of an entity as regards to liquidity and margin contribution.

 DEBT EQUITY RATIO: The ratio indicates long term solvency of a business
entity and it is a measure of long term liabilities with respect to Tangible Net
Worth (TNW). Debt includes all long term liabilities whereas TNW is sum total
of Capital and Reserves & Surplus, net of intangible assets. Reserves for
calculation of TNW denotes free reserves created out of profit and not those
created for meeting specific liabilities or revaluation reserve. A lower ratio
represents higher stake of the promoters in the business and looked upon
favourably by a banker. Higher ratio indicates entity‘s larger dependence on
outside long term liabilities. DER is arrived as under:-

Loans & Advances STC, Lucknow Page 115 of 174

 Long Term Debts
Debt Equity Ratio =
Tangible Net Worth

Long Term Debts include long term unsecured loans raised by a business
entity. However, that portion of unsecured loans which is treated as quasi
equity (in case of Partnership, Proprietorship and Private Ltd. Companies) is
to be deducted from long term debts and it is to be included as part of TNW
for arriving at DER.

Our Bank has in plakhe Policy on DER, contained in L&A Cir. No.09 dated
15.01.2009, wherein level of DER for project financing under different
industries and vested powers with various authorities has been prescribed.

 TOL/ ADJUSTED TNW: It is a measure of a business entity's financial

leverage calculated by dividing the total outside liabilities (i.e. long term
loans, short term loans and current liabilities OR entire liabilities excluding

4
shareholders‘ fund.) by tangible net worth (less investments in associate/
allied/ subsidiary units) of that entity. A high ratio indicates high financial

:5
leverage and banks/ financial institutions prefer to abstain extending further
financial assistance to such entities.
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/20 554

Long Term Debts + Short Term Debts + Current

TOL/ Adjusted TNW = Liabilities
20

Net Owned Funds – Intangible Assets

/01 09

 TERM LIABILITY/ ADJUSTED TNW: It is a measure of Term Liabilities

(liabilities which are expected to be repaid in a definite period) to Adjusted
3

TNW. The ratio supplements other leverage ratios while taking decisions for
extending long term loans to a business entity. A high ratio is not favoured for
extending further long term loan to the concerned party.

Term Liabilities
Term Liability/ Adjusted TNW = Net Owned Funds – Intangible
07

Assets

 OPERATING PROFIT RATIO: It is a profitability ratio signifying margin of

profit on business operations.

Operating Profit
Operating Profit Ratio =
Net Sales

Operating Profit includes profits from operations only. Any secondary income,
extraordinary income and/ or expenditure and taxes are excluded while
arriving at Operating Profits. Net Sales implies Gross Sales Less Excise
Duty. A high ratio indicates good profit margin and is considered favourable.

 DEBT SERVICE COVERAGE RATIO: It indicates the ability of a business

entity to generate cash accruals for repayment of installment and interest.

Loans & Advances STC, Lucknow Page 116 of 174

 PAT + Depreciation + Interest on Term Loan
DSCR =
Annual Installment + Interest on Term Loan

A ratio of 1.5 to 2 is considered reasonable. Lower ratio needs to be looked

into further while a very high ratio may require fixing lower repayment period.

 FIXED ASSET COVERAGE RATIO (FACR): This ratio indicates the degree
of security available to the secured term lenders. It is arrived at by dividing
the Net Fixed Assets by the Term Debt outstanding. All those term liabilities,
which have been secured by charge on fixed assets (e.g. Term Loans,
Debentures, Fixed Deposits from Public etc.), should be reckoned. It is
desired that FACR does not go below unity so that the lent funds are secured
by assets at all times.

 INTERNAL RATE OF RETURN: It is a discount rate which equates the

4
present value of cash inflows with the present value of cash outflows of an
investment. In other words, the internal rate of return equates to the interest

:5
rate, expressed as a percentage that would yield the same return if the funds
had been invested over the same period of time.
19
/20 554

If the internal rate of return for the project is less than the current bank interest
rate it would be more profitable to put the money in the bank than execute the
20

project. For any project to be acceptable, it must meet a minimum IRR

/01 09

requirement. The project would be acceptable only if its IRR is higher than the
opportunity cost of capital (also known as the required rate of return).
3

 BREAK EVEN POINT: BEP is the level of operations (in terms of sales or
production or capacity utilization) at which total revenues are equal to total
operating costs (fixed and variable) or, in other words, the operating profit is
equal to zero. A business entity starts earning operating profits only after the
break-even is reached. At BEP, ―contribution‖ exactly equals the ―fixed costs‖.
07

The value of BEP gives an indication to the margin of safety available while
operating at certain capacity utilization. A high value of BEP indicates that the
entity has to operate on higher capacity utilization to cover its fixed cost
implying low margin of safety. Banker takes calibrated decision for financing
business entities with high BEP considering various factors like past history
(in case of existing unit only), expected business opportunities, managerial
competence, acceptability of the product, level of competition in the market in
that particular industry etc. A low BEP indicates higher margin of safety and
provides comfort to a banker while taking business decisions. However,
various factors having impact on business of a unit should be carefully
scrutinized even in case of units having low BEP.

 SENSITIVITY ANALYSIS: Projects do not always run to plan. Projected

profits may be eroded by an increase in costs or a decrease in revenue.
Sensitivity Analysis involves changing input variable estimates (cost &

Loans & Advances STC, Lucknow Page 117 of 174

 revenue) from an original set of estimates (called the base case) and
determines their impact on a project‘s measured results, such as DSCR.

While conducting sensitivity analysis, values of inputs are varied to work out
viability of the project even in adverse scenarios. There can be three adverse
scenarios i.e. rise in critical input cost which the business unit may not be
able to pass to the consumers, reduction of selling price (say due to
completion) thereby reducing total revenue and in worse conditions it may be
a combination of the two i.e. increase in critical input cost with simultaneous
decrease in selling price. Any of these situations will have impact of reducing
profits of a unit and adverse impact on DSCR.

The input cost or revenues may be increased or decreased respectively

taking some sensitivity factor, say 5% i.e. if input cost is increased, it will be
5% more than projected values and if revenues are decreased, it will be 5%
lesser than projected value. Profits are reworked out after taking impact of
such increase in cost or decrease in revenue and fresh DSCR is worked out

4
for above mentioned situations. In case DSCR remains in acceptable limits
even after considering such adverse movements, the project is considered to

:5
be viable.
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/20 554
d) WORKING CAPITAL ASSESSMENT

Working capital for any unit means the total amount of circulating funds required for
20

meeting day to day requirements of the unit. For proper working a manufacturing unit
/01 09

needs a specific level of current assets such as raw material, stock in process,
finished goods, receivables and other current assets such as cash in hand/ bank and
advances etc. So the working capital means the funds invested in current assets.
3

The trading units need the working capital for holding goods and allowing credit to its
customers. The service units need the working capital for meeting the expenditure,
for making advance payments to its staff and providing credit to its customers. So all
type of units whether in manufacturing or trading or service sector need working
capital.
07

Gross Working Capital and Net Working capital:

Gross Working Capital means total funds required for procuring entire current
assets. Net Working Capital is that part of long term funds which is employed in the
business for operating activities and is also looked upon as the margin contributed
by the owners towards working capital funds.

Role of Banker: The unit should have sufficient amount of working capital. A portion
of it is to be financed from long term sources called the liquid surplus or net working
capital (NWC). The remaining is normally financed by a bank in the form of working
capital limits. Assessment of Working Capital limit is a technique for extending
appropriate limit to the borrowing unit.

Parameters for various stages in computation of working capital:

Loans & Advances STC, Lucknow Page 118 of 174

 Stage Time V a l ue
Raw Material Holding period value of RM consumed during
the period
SIP Time taken in converting the RM + Mfg. Exp. during the period
RM into FG (Cost of production)
FG Holding period of FG before R.M + Mfg. Exp. +Adm
being sold overheads for the period (Cost of
sales)
Receivables Credit allowed to buyer RM+ Mfg. Exp. + Adm. Exp.+
Profit for the period (sales)

For Holding Period in respect of some major Industries please refer (LA Cir
176/2004 dt 31.12.2004)
The assessment of working capital requirement of business unit has been engaging
the attention of the Govt., RBI and a series of committees were set up to suggest
appropriate modalities of financing working capital.

4
At present, common methods for assessing working capital are Turnover Method as

:5
per Nayak Committee recommendations, second method of lending as per Tandon
Committee recommendations and Cash Budgeting Method.
19
/20 554
Cash budgeting method is based on the concept of financing mismatch of inflows
and outflows of funds of a business entity during a year and the method is used
largely in Sugar, Tea, , Film Production, construction industry, service industry,
20

industries based on seasonal activities etc.

/01 09

Working Capital requirement of other business entities are assessed as per Nayak
Committee recommendations and second method of lending as per Tandon
3

Committee recommendations based on quantum of loan. (LA 26/2018 47/2019 dated

19.04.2018 18.04.2019)

NAYAK COMMITTEE RECOMMENDATIONS

To give a comprehensive and straight line method for the assessment of working
07

capital requirement of the borrowers, RBI constituted a working group under the
chairmanship of Shri P.R. Nayak. In terms of extant guidelines units having
aggregate working capital requirement upto Rs.5.00 crore for MSME units and
Rs.2.00 crore for others from the banking system have to be assessed as per
‗Simplified Turn Over Method‘.

Under this method working capital limits are to be computed on the basis of a
minimum of 25% of their Projected Annual Turn-Over (PATO) assessed on realistic
basis for new as well as existing units. Out of this, at least 4/5th(20% of their PATO)
be provided by the bank and the borrower should contribute 1/5 th of this estimated
working capital requirement (5% of PATO) as margin money of working capital.
(Detail as per LA Cir. 100/2000 dt 28.09.2000)

These guidelines have been partially amended as under:

Loans & Advances STC, Lucknow Page 119 of 174

As per MSME Cir. No.14/2017 dated 27.02.2017 (in supersession of Circular
letter No.1 dated 12.01.2017 & Cir. Letter No.3 dated 08.02.2017) & L&A Cir.
No.26/2018 47/2019 dated 19.04.2018 18.04.2019 (Page -80), due to recent
developments on account of demonetization and to encourage the MSE units to
shift to digital mode, it has been decided that WC requirement of MSE units
(availing Fund Based Working Capital requirement upto Rs.5.00 crore) will be
assessed at 31.25% of the projected annual turnover and unit will be sanctioned limit
of a minimum 25% of the projected annual turnover (amount equivalent to minimum
6.25% will be brought in as margin) as also need-based on the production
/processing cycle of the relative units. Further in case of those units which are also
effecting sales through digital mode, the assessment for fixing limits to the extent of
30% of digital part of Sales against existing 20% be considered, keeping the
prescribed margin (37.5% of annual turnover registered digitally, shall be working
capital requirement and 7.5% shall be the margin).

Further as per MSME Cir. No.29/2018 dated 02.05.2018, with introduction of GST,
it has been decided that WC limit of MSE (Micro & Small) units registered under

4
GST (availing Fund Based Working Capital requirement upto Rs.5.00 crore) is to
be fixed to the extent of 30% of Annual Turnover/ Sales* against existing 25%,

:5
keeping the prescribed margin (37.50% of annual turnover, shall be working
capital requirement and 7.5% shall be the margin to be brought in by MSEs).
19
/20 554

*(Sales should be as per GST return & Sales must be duly verified by CA). These
guidelines are in addition to the above guidelines for Micro & Small Enterprises.
20
/01 09

Also, IBA Managing Committee in its meeting held on 27.01.2017 has approved
advisory along with ‗Standard Operating Procedure (SOP)‘ for digital transactions.
3

Standard operating procedure for Digital transactions

Digital transactions:

All sales transactions reflected in the bank books other than cash and paper based
instruments (such as cheques, DDs, POs etc.) should be considered.
07

Eligibility

Units with minimum 25 percent digital portion of projected Turnover should be

considered.

How to fix limits

Assessment of limit on digital portion of projected Turnover should be based on past

and current trends.

TANDON COMM ITTEE RECOMMENDATIONS

RBI constituted a working group under the chairmanship of Shri P.L. Tandon for
assessment of need based working capital limits to various business entities.

Loans & Advances STC, Lucknow Page 120 of 174

The Committee gave three methods of lending, out of which second method of
lending is widely used by bankers for assessing working capital requirement of any
business unit.

As per second method of lending, chargeable current assets are worked out based
on holding period of inventory (raw material, stock-in-process, finished goods) and
receivables. Norms of holding has been specified for some major industries vide LA
Cir 176/2004 dt 31.12.2004. However, where norms are not available, holding period
can be compared with other units of the same industry and also with the past trend
of the same unit. Any major variation needs to be addressed before working out
maximum permissible bank finance (MPBF).

Chargeable current assets are those assets on which Bank can create charge.
Assets on which charge cannot be created e.g. cash are to be taken as ‗Other
Current Assets‘.

4
The working capital requirement of any business entity as per second method of
lending is worked out as under:-

:5
S. No. ITEMS Estimates Accepted for
19 Assessment Year__
/20 554
1. Chargeable Current Assets
2. Other Current Assets
3. Total Current Assets (1 + 2)
20

4. Less: Other Current Liabilities

/01 09

5. Working Capital Gap (3 – 4)

6. NWC at 25% of Total Current Assets (3) Less
Export Receivables
3

7. Projected Net Working Capital

8. Permissible Bank Finance (5 – 6)
9. Permissible Bank Finance (5 – 7)
10. Maximum Permissible Bank Finance
(Lower of 8 and 9)
07

Loans & Advances STC, Lucknow Page 121 of 174

 24. BANK GUARANTEES

(L&A Cir. No. 65 dated 21.07.2018)

DEFINITION

Guarantee is a contract to perform the promise, or discharge the liability of a third

person in case of his default. The guarantees can broadly be classified under two
main heads, namely, Performance and Financial Guarantees. The broad criteria for
classification of performance and financial guarantees are as under:-

A. Performance Guarantees

The guarantees which are essentially transaction-related contingencies that involve

an irrevocable undertaking to pay a third party in the event the counterparty fails to
fulfill or perform a contractual non-financial obligation, are to be classified as
performance guarantees. In such transactions, the risk of loss depends on the event

4
which need not necessarily be related to the creditworthiness of the counterparty

:5
involved. An indicative list of performance guarantees is as under:

i. Bid bonds;
19
/20 554
ii. Performance bonds and export performance guarantees;
iii. Guarantees in lieu of security deposits/ earnest money deposits (EMD) for
participating in tenders;
20

iv. Retention money guarantees;

/01 09

v. Warranties, indemnities and standby letters of credit related to particular

transaction.
3

B. Financial Guarantee

The guarantees which are direct credit substitutes wherein a bank irrevocably
undertakes to guarantee the repayment of a contractual financial obligation, are to
be classified as financial guarantees. Financial guarantees essentially carry the
same credit risk as a direct extension of credit i.e., the risk of loss is directly linked to
07

the creditworthiness of the counterparty against whom a potential claim is acquired.

An indicative list of financial guarantees is as under:

(i) Guarantees for credit facilities;

(ii) Guarantees in lieu of repayment of financial securities;
(iii) Guarantees in lieu of margin requirements of exchanges;
(iv) Guarantees for mobilization advance, advance money before the
commencement of a project and for money to be received in various stages of
project implementation;
(v) Guarantees towards revenue dues, taxes, duties, levies etc. in favour of
Tax/Customs/Port/Excise Authorities and for disputed liabilities for litigation
pending at courts;
(vi) Credit enhancements;
(vii) Liquidity facilities for securitization transactions;
(viii) Acceptances (including endorsements with the character of acceptance);

Loans & Advances STC, Lucknow Page 122 of 174

(ix) Deferred payment guarantees.

In addition to applying the above criteria for classifying the guarantees, the contents
of the guarantee to be issued are required to be gone through carefully and also the
contract entered into between the principal and the beneficiary to decide as to
whether a particular guarantee is a Performance Guarantee or Financial Guarantee.

PERIOD OF GUARANTEE:

1. Guarantees should be issued for a definite period and normally not to run for
more than a year. In special circumstances, these may be issued for periods
exceeding 12 months in terms of delegated powers. The guarantees which
have been issued by branches under guarantee limit sanctioned by higher
authorities can be renewed provided:

- They are within sanctioned limit,

4
- Extension is for a period not exceeding 12 months,

:5
- No adverse feature has been noticed.
19
/20 554
2. In case of guarantees extending over a period of two years, yearly review of
cases be put up to the sanctioning authority.
20

3. Bank Guarantees having maturity period beyond 10 years may be issued at the
/01 09

level of ZOCAC & above within their vested loaning powers.

Since such types of guarantees are generally issued for long duration projects
3

specially infrastructure projects, the complete credit appraisal should be undertaken

strictly in accordance with the laid down guidelines.

EXTENSION OF BANK GUARANTEE IN NPA ACCOUNTS

Bank has decided to delegate the power for extension of Bank Guarantees in NPA
07

accounts as under:

(i) In NPA accounts, Branch Heads may extend the period of bank guarantee,
already issued, within the limitation period of Bank Guarantee even in the
sanctions of higher authorities on existing terms and conditions, if the request is
received from the borrower.

(ii) Commission on the BGs shall be recovered in cash from the account holder at
the time of extension of Bank guarantee. If NPA a/c holder is not in a position to
pay the commission then it should be recorded in memorandum a/c.

(iii) Details of Bank Guarantees extended in NPA accounts, are to be submitted on

monthly basis in the limit sanctioned statement to the next higher authority.

Bank Guarantee issued by various Public Sector Banks (PSBs) in favour of

Loans & Advances STC, Lucknow Page 123 of 174

 President of India

*Upon cancellation/expiry/ extension of Bank guarantees, favouring President

of India, letters should be addressed directly to the concerned Govt.
Department and not to the President of India.

LIMITATION CLAUSE

Limitation clause for fresh as well as extended/renewed ILGs issued as under:

―Notwithstanding anything to the contrary contained herein:-

(i) Our liability under this Guarantee shall not exceed Rs. [……….]/-;
(ii) This Bank Guarantee shall be valid up to (being the date of expiry of the
guarantee);
(iii) We are liable to pay up to the guarantee amount only and only if we receive from
you a written claim or demand not later than 12 months from the said expiry date

4
………….. (Date of expiry of guarantee).‖

:5
Reversal of ILGs:
19
/20 554
(i) For outstanding ILGs issued from 08.01.1997 onwards but before
18.01.2013/ outstanding ILGs issued from 18.01.2013 onwards having claim
period of less than one year:
20
/01 09

In such cases securities and counter indemnities given against such ILGs should not
be discharged till the time original ILG duly discharged along with no claim letter from
beneficiary duly discharging Bank from its liability has been received. On receipt of
3

the same ILG shall be reversed.

However, instead of the prevalent practice of sending notice to the beneficiary and
reversing the guarantee after one month from the date of notice if no reply is
received, a registered acknowledgement due notice should be sent to the beneficiary
when the claim period has begun/when the ILG has expired (in case no claim period
07

is present). It should be incorporated in the notice that the ILG has expired and the
original Letter of Guarantee along with no claim letter should be returned to the bank.

(ii) For ILGs issued from 18.01.2013 onwards with at least one year claim
period:

Upon expiry of the ILG (including outstanding ILGs) i.e. when the claim period has
begun a registered acknowledgement due notice should be sent to the beneficiary
informing that the ILG has expired and the original Letter of Guarantee along with no
claim letter should be returned to the bank. If the same is received, ILG can be
reversed within the claim period.

In such a case, if no reply is received from the beneficiary of the guarantee within the
claim period, the entry should be reversed after the expiry of claim period.

Loans & Advances STC, Lucknow Page 124 of 174

Commission:

S. Particulars Commission
No.
1. Outstanding ILGs issued from Since the Bank‘s liability will remain in its
08.01.1997 onwards but book till the time the guarantee has not been
before 18.01.2013. reversed, the commission shall be charged
for guarantee period plus claim period and
Outstanding ILGs issued from even after expiry of claim period i.e. till the
18.01.2013 onwards having time ILG has been reversed.
claim period of less than one
year

2. ILGs issued w.e.f 18.01.2013 Commission shall be charged for guarantee

having at least one year claim period plus claim period.
period.
Rationale: ILGs issued from 18.01.2013

4
onwards having atleast one year claim
period have to be reversed after expiry of

:5
claim period or on receipt of original Letter of
Guarantee along with no claim letter,
19
/20 554
whichever is earlier.

However, ILGs can be reversed within the validity/claim period on receipt of no claim
20

letter from the beneficiary thereby discharging Bank from its liability under ILG along
/01 09

with original ILG.

COMMISSION FOR INLAND LETTER OF GUARANTEE (ILG) (IRMD L&A

3

92/2019)
ILG Commission should be recovered upfront for the entire period of ILG including
claim period quarter wise. The minimum commission for one quarter will be charged.
In case of extension of validity period of existing ILG, commission for the extended
validity period plus claim period should be charged upfront as applicable for issuance
of fresh guarantee. In such case, commission for claim period should be charged if it
07

has not been recovered earlier.

In case of existing guarantees, where commission for only validity period has been
recovered upfront, recovery of ILG commission for claim period on monthly basis will
continue till the time ILG is reversed. In such exceptional cases, powers for refund of
commission for unexpired claim period shall not be applicable.

Refund of Commission: In case of Inland Guarantees, refund of guarantee

commission is not permissible for the unexpired period, even if purpose is fulfilled.
Further, with a view to increase guarantee business specially in case of
Consortium/Multiple Banking Arrangement and in selective and highly deserving
cases, the commission for unexpired period (for remaining full quarter only) may be
refunded. The period less than a quarter be ignored. The minimum commission for a
period of one quarter will continue to be charged. Such relaxations/refund of
guarantee fee may be considered by the respective sanctioning authority upto
sanctions of ZM level. In case of HO sanctions, relaxations/refund of guarantee fee

Loans & Advances STC, Lucknow Page 125 of 174

may be considered by the HOCAC-I. However, Discretionary power for refund of
unexpired claim period commission is not delegated i.e. commission for claim period
once charged will not be refunded. (See LA 40/2019
dated 10.04.2019)

GUARANTEE COMMISSION & DISCRETIONARY POWERS TO PERMIT

RELAXATION IN ILG COMMISSION

The guarantee commission alongwith powers for relaxation in Commission is given

vide LA Cir 69/2019 dated 13.06.2019.

Loaning Power:
As per extant guidelines, CMs/AGMs may permit issuance of letter of Guarantee
upto a maximum of 5 years and Branch Heads in scale-I, II & III may permit issuance
of LG upto the maximum of 1 year, excluding the claim period of 12 months. DGMs
may permit issuance of Letter of Guarantee up to a maximum of 10 years, excluding
the claim period of 12 months.

4
Issuance of Bank Guarantee fvg. Customs Deptt.

:5
The Public Notice issued by the Customs Department stipulates, inter alia, that all
bank guarantees furnished by an importer should contain a self-renewal clause
19
/20 554
inbuilt in the guarantee itself. The stipulation in the Public Notice issued by the
Customs Department is akin to the notice in the tender form floated by the DGS&D.
Hence, the provision for automatic extension of the guarantee period in the bank
20

guarantees shall also be made applicable to bank guarantees issued favouring the
/01 09

Customs Houses.

Use of Structured Financial Messaging System (SFMS) for sending and

3

receiving amendment in Bank guarantees (BGs) (L&A Cir. No.42 dated

09.06.2016, L&A Cir. No.90 dated 17.09.2018, and L&A Cir. No. 82/2019 dated
24.07.2019)

As per extant Bank guidelines, sending and receiving of bank guarantee message
has been made mandatory w.e.f 27.01.2015 and branches are to issue/receive
07

message of bank guarantee, issued in paper form, electronically using SFMS

platform. Branches are required to process the application, issue bank guarantee
(BG) in physical form after obtaining details of beneficiary’s bank at the time of
issuance of ILG and adopting all procedures mentioned in L&A Cir.no.65 dated
21.07.2018 as amended from time to time and open bank guarantee through OGM
menu in the CBS.

A sum of Rs.100/- + GST is to be recovered by branch officials as charges for each

bank guarantee message originated through SFMS at the time of fresh issuance of
ILG and subsequent amendment, if any vide LA Cir 90/2018 Dt 17.09.2018. These
charges have been customized vide LA Cir 54/2019 dated 04.05.2019 and reports to
be generated have also been customized vide the same circular.

Branches shall henceforth send/receive message for amendments in bank

guarantee, electronically using SFMS platform mandatorily w.e.f.13.07.2015. The

Loans & Advances STC, Lucknow Page 126 of 174

 process flow to be followed by the branches in CBS is given in L&A Cir.42/16 & L&A
90/2018.

ICC Regulations for Bank Guarantee Issuance - Uniform Rules for Demand
Guarantee (URDG) – L&A Cir. No.57 dated 03.08.2016

The International Chamber of Commerce (―ICC‖) published a new guide on

international standards for demand guarantee practice that came into effect on 1 July
2010. The ICC's new Uniform Rules for Demand Guarantees (―URDG758‖), which
comprise a set of contractual rules applicable to demand guarantees and counter
guarantees, supersede the first 1992 rules (―URDG458‖).

At present, issuance of the BG subjecting to ICC rule URDG 758 is in practice

(mostly in FLGs). Foreign Exchange Cir.No.88 dated 07.12.2012 on ICC URDG
revision 2010 publication no.758 issued by IBD may also be referred.

Based on communication received from IBA, MD & CEO has approved that issuance

4
of domestic BGs subjecting to ICC rule URDG 758 can be done as per the business
needs where consent of applicant and beneficiary both are available subject to

:5
compliance of due diligence aspect and other laid down guidelines to ensure bank‘s
interest. In other cases existing process may be continued.
19
/20 554

GUARANTEES FOR EXPORT ADVANCE

20

RBI has advised that banks should adopt a flexible approach in the matter of
/01 09

obtaining cover and earmarking of assets/ credit limits, drawing power, while issuing
bid bonds and performance guarantees for export purposes. RBI has also advised
as under:
3

i) Export Performance Guarantee of Export Credit Guarantee Corporation of India

Ltd. (ECGC) may be taken to safeguard bank‘s interest, wherever considered
necessary.
ii) ECGC would provide 90 percent cover for bid bonds, provided an undertaking
be given by bank not to insist on cash margins.
iii) Bank may not, therefore, ask for any cash margin in respect of bid bonds and
07

guarantees which are counter-guaranteed by ECGC.

iv) In other cases, where such counter-guarantees of ECGC are not available, for
whatever reasons, the bank may stipulate reasonable cash margin only if it is
considered absolutely necessary, for satisfaction about the capacity and
financial position of the exporter while issuing such bid bonds/ guarantees.
v) Separate limits for issuance of bid bonds may be sanctioned. Within the limits
so sanctioned, bid bonds against individual contracts may be issued, subject to
usual considerations.

RBI has also advised banks that while agreeing to give unconditional guarantee in
favour of overseas employers/ importers on behalf of Indian Exporters, an
undertaking should be obtained from the exporter to the effect that when the
guarantee is invoked, the bank would be entitled to make payment, notwithstanding
any dispute between the exporter and the importer.

Loans & Advances STC, Lucknow Page 127 of 174

Although, such an undertaking may not prevent the exporter from approaching the
Court for an injunction order, it might weigh with the Court in taking a view whether
injunction order should be issued. It is therefore advised to keep the above point in
view while issuing unconditional guarantee in future and incorporate suitable clause
in the agreement in consultation with legal advisor. Besides, the guidelines issued in
this regard by IBD, HO from time to time shall be adhered.

REVIVAL OF CONSTRUCTION SECTOR - Release of 75% of the arbitral award

amount to the contractors/ concessionaires against BG

A scheme for revival of construction sector has been announced by NITI Aayog.
Under this scheme, in case of claims where the Arbitration Tribunal has passed an
arbitral award and Govt. Department/ PSU has challenged the Arbitral Award, an
amount equal to 75% of the arbitral award awarded in favour of the Concessionaire/
Contractor may be paid to the Concessionaire/ Contractor against Bank Guarantee
along with interest amount for the tenure of the BG. Further, such releases have to
be made into a designated Escrow account to be opened and established by the

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contractor/ concessionaire with some stipulations. The standard template for Bank
Guarantee for payment of Arbitral Award Amount issued by Department of

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Financial Services (DFS) is given as annexure in the said circular.
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As in present case BG is being issued on account of dispute between the
Concessionaire/ Contractor and Govt. Department/ PSU, all the guidelines w.r.t.
issuance of BG in disputed cases should be strictly adhered to.
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MARGIN ON DISPUTED BANK GUARANTEES

Guarantees in favour of Court or to Govt. or any other person on behalf of party/
borrower relating to payment of taxes, Excise Duty, Custom Duty or other Govt.
3

dues, in dispute should be issued only against 100% cash margin. As such, while
issuing guarantees in case of dispute/arbitration, the aforesaid guidelines on margin
requirement should be meticulously followed.
Performance cum mobilization advance guarantees:
As per L&A cir.no.23/2019 dated 28.02.2019- Page 11, it is advised to ensure end
use of funds. It is also advised that in case of Performance cum mobilization
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advance guarantees, escrow account be opened at the time of sanction of such

limits to monitor the cash flows and amount received as mobilization advance should
be credited in the escrow account.
(Reference is made to LA Circular 65/2018 in LA Cir 23/2019, but same could not be
traced there)

BANK GUARANTEES ISSUED IN JUDICIAL PROCEEDINGS

(IRMD L&A 120/ 2019)
While issuing Bank Guarantees in favour of court under judicial proceeding against
100% cash margin, the following guidelines should be adhered to:
(i) If the Bank Guarantees issued in the Judicial Proceedings cases is open ended
and no time period has been stipulated the BG will be issued for a period of one year
and thereafter renewed yearly till the receipt of specific order from Hon‘ble Court for
discharging the bank guarantee.
(ii) An undertaking (as per Annexure-1) in this regard shall be obtained from the

Loans & Advances STC, Lucknow Page 128 of 174

applicant at the time of BG issuance that he shall submit the request letter for
renewal on or before the date of its expiry till specific order and directions are
received for discharging the Bank Guarantee from the concerned court wherein such
bank guarantee has been submitted as security. In addition, the undertaking shall
also state that in case the borrower fails to submit the request letter for renewal of
BG, then the bank shall have the right to automatically renew the BG for a further
period of one year and thereafter for same period.
(iii) At the time of renewal of BG, branches shall extend the bank guarantee for one
year and commission may be recovered annually either from the deposit account of
the applicant or from the interest earned on 100% FDR submitted by the borrower as
margin for issuance of such BGs. The FDR shall be opened with auto- renewal
facility, till discharge of BG by the court. L&A Cir. No.120/2019
(iv) Fresh/ Existing Bank Guarantees issued in the Judicial Proceedings cases in
favour of ―The Registrar, Court‖ should not be reversed by the bank before the
disposal of the case without specific order of the Hon‘ble Court for discharging the
Bank Guarantee and without seeking directions from the Hon‘ble Court.
(v) All new Judicial Proceeding Bank guarantees issued in favour of ―The Registrar,

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Court‖ shall be issued in the format provided by court as given in Annexure-2.

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SERVICE CHARGES- PROCESSING FEE ON BANK GUARANTEE (L&A 25/15
dt. 01.04.15) 19
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The processing fee is not be levied on Bank Guarantees issued against 100%
margin in the shape of Cash/FDR/other liquid securities, where no regular limit is
20

required to be set up/the regular limit of the borrower has already been exhausted.
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Loans & Advances STC, Lucknow Page 129 of 174

 25. LETTER OF CREDIT

(L&A Cir. No.87 dated 07-08-2019)

Letter of Credit is issued by the Bank at the request of applicant in favour of a

beneficiary. The Bank undertakes to accept the bills drawn under the LC, subject to
the fulfillment of the conditions stipulated therein.

Accordingly, when bank issues a letter of credit, it assumes responsibility to pay its
beneficiary on production of bills drawn in accordance with the terms and conditions
of the letter of credit.

Letter of credits are of various types and are broadly classified as under:

1. Revocable and Irrevocable Letter of Credit: An irrevocable letter of credit

cannot be revoked, cancelled or altered without the consent of all the parties
concerned. But in case of revocable letter of credit, the Bank reserves the right

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to cancel or alter the credit unilaterally by giving notice to all the parties.

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2. With or Without Recourse Letter of Credit: A letter of credit may be with or
without recourse. Where the beneficiary of a letter of credit is the drawer of a
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bill who holds himself liable to the holder of a bill, if dishonoured, the credit is
said to be 'with recourse'. In case he does not hold himself responsible, the
credit is said to be 'without recourse‘.
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3. Documentary and Clean Letter of Credit: Letter of credit which includes a

clause that bill drawn under the credit must accompany Railway Receipts/
Motor Transport Receipts/ Bills of Lading, etc. is known as documentary letter
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of credit. In fact, Bank's undertaking to honour the bills is made conditional on

the submission of such documents by the beneficiary. If the letter of credit does
not contain any such clause, it is called clean letter of credit.

4. Sight & Acceptance Letter of Credit: A letter of credit ordinarily provides for
'sight' payment i.e. immediate payment against the beneficiary's bills (drawn at
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sight). These are usually called sight credits. If the payment is to be made on
the maturity date in terms of a credit, it is an 'acceptance credit' or 'time credit'
or 'term credit' or ‗usance credit‘. An acceptance credit stipulates that the
beneficiary will draw a bill for a particular tenor. It becomes a clean credit
unless the goods purchased by the customer under the credit are charged in
favour of the Bank.

5. Revolving Letter of Credit: A letter of credit can be revolving letter of credit if

its text permits the amount of drawings once made under the credit to be again
available to the beneficiary during the currency of the credit, under certain
conditions mentioned therein.

Letters of credit established by the Bank on behalf of its customers are generally
irrevocable, without recourse and documentary.

Loans & Advances STC, Lucknow Page 130 of 174

Extant guidelines on Inland Letter of Credit, Pre-sanction credit appraisal & Post-
sanction monitoring of loan accounts, inter-alia, provide as under:

1. Assessment of Limit: In cases where actual Trade Cycle is less than the
usance period, the goods received under such LCs are consumed/ sold off and
the proceeds thereof are diverted for other purposes during the intervening
period whereas the bank‘s liability under such LCs remains outstanding.

2. Before setting up LC limits, the trade cycle should be ascertained and utilization
of LC beyond such Trade Cycle should not be allowed.

3. Before establishing the credit, it should be satisfied that the customer would be
in a position to retire the bills when received under the credit and will not
approach the bank for credit facility in this regard. For this purpose, the
financial position of the customer and source of funds, which the customer
would draw upon to retire the bills should be inquired into.

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4. While assessing the non-fund based limits, branches should ensure that
projections and cash flows submitted by the borrowers are realistic and in line

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with the past trend.
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5. Branches should open letters of credit only in respect of genuine, commercial
and trade transactions of their borrower constituents who have been sanctioned
regular credit facilities.
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/01 09

6. RBI has cautioned Banks that they should not discount bills drawn under LCs or
otherwise, for beneficiaries who are not their regular clients.
3

7. All messages pertaining to issue of ILCs including amendments,

reimbursement authorizations etc. should be sent by the branch through SFMS
network only.

8. Only those bills be negotiated, where ILCs are of Public Sector Banks/Banks
approved by CAD (O).
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9. No such bills are to be negotiated under LCs of Cooperative Banks.

10. While negotiating bills under LC, bearing ‗without recourse‘ clause, it be
ensured that the bills are strictly as per the terms of LC and no discrepancy
exists.

11. It is to be ensured that the bills negotiated relate to genuine commercial and
trade transactions.

12. In cases, where the negotiation of LC is restricted to our bank and beneficiary
of the LC is a borrower of another bank, branches may consider negotiation of
such bills, on merits, subject to the compliance of laid down guidelines and
condition that the proceeds be remitted to the regular banker of the beneficiary.

Loans & Advances STC, Lucknow Page 131 of 174

 However, as advised by RBI, the prohibition regarding negotiation of
unrestricted LCs of non-constituents will continue to be in force.

13. Whenever the bills drawn under LC are not paid by the party from its own
resources or out of available DP in the CC account on its due date, the LC is
said to have devolved. Amount in default of devolved LC will be directly debited
to the main operating account of the customer (CC/OD/CA) in the transaction
system (CBS) itself w.e.f. 01.04.2016 and remittance made. The Controlling
Office will be apprised of it and follow up steps/remedial action for
regularization of such accounts will be taken.

14. In case two consecutive bills drawn under LCs opened previously were not
retired by the party from its own resources or out of available DP in the CC
account, further opening of Letter of Credit must not be allowed by the
Incumbents without clearance from their next higher authorities. (Refer LA Cir
72/2013 dt 25.06.2013)

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However, Incumbents may allow further opening of LCs on the regularization of
account, if satisfied that there is no risk/ little risk of default. In case the borrower is

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not able to fully repay the amount of LCs devolved due to mismatch of cash flows
and party deposits the amount outstanding in Due Date Default, fresh LCs may be
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opened upto 90% of the recovery made (10% tagging) without seeking prior
permission from the next higher authority. The incumbents have to record
justification for such a decision on the file.
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INLAND LETTER OF CREDIT – FORMATS

(i) Application for Inland Irrevocable Confirmed Revolving Documentary Credit (To
be stamped as an Agreement) containing the Agreement also for borrowers
3

requesting LCs on one time basis. (PNB-1077)

(ii) Letter of request for Inland Documentary Credit to be given by borrowers every
time they avail sanctioned ILC limit. (PNB-1078)
(iii) Master Agreement for Inland Documentary Credit (To be Stamped as an
Agreement) for borrowers availing sanctioned ILC limit. (PNB-1079)
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RELAXATION IN COMMISSION
COCAC/Branch Heads of LCBs & above are vested with powers for permitting
relaxation in LC charges (negotiation, commitment & usance charges). In case a
relaxation is given to any borrower and upon review it is observed that the credit risk
rating of account is downgraded below B1, Branches may withdraw the concessions
given in commission

SECURITY/ MARGIN
Branches to obtain security by way of cash margin/fixed deposit/earmarking
equivalent drawing power in Cash Credit account, as the case may be and/or a
collateral security by way of charge on the immovable properties and/or
indemnity/guarantees from third person.
In addition, branches to obtain counter indemnity of the clients in order to protect
bank's interest.

Loans & Advances STC, Lucknow Page 132 of 174

 The cash margin should be credited to "Margin money on Letter of Credit" account
maintained as current account in CBS. Fixed Deposit Receipt duly discharged and
accompanied by a letter of lien may also be accepted in lieu of cash margin.
Where the Bank feels that it is sufficient to earmark funds/ drawing power (DP) in the
customer's account instead of taking cash margin, proper safeguards must be
observed. The amount of margin should be earmarked in the account giving
reference to LC No. & date and authenticated.
Chief Managers & above may accept 100% margin in the shape of Govt. securities
like NSCs, KVPs, Relief Bonds, surrender value of LIC. Further, it should be ensured
that prior to opening of LCs, Bank‘s charge by way of pledge/assignment etc. on
these securities is properly created in favour of the Bank and the same is
enforceable.

CHARGES OF ILC
Charges and relaxation in charges has been advised vide L&A cir.no.89 dated
21.11.2016.

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LETTER OF CREDIT – WITHOUT RECOURSE CLAUSE
Branches may permit opening of LCs bearing ‗without recourse‘ clause as

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well as negotiate bills drawn under LCs bearing ‗without recourse‘ clause. However,
while negotiating such bills under LCs having ‗without recourse‘ clause, utmost care
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need to be taken by the negotiating branch especially the following:-
Only those bills be negotiated, where ILCs are of Public Sector Banks/Banks
approved by Credit Division, HO. No such bills are to be negotiated under LCs of
20

Cooperative Banks.
/01 09

While negotiating bills under LC, bearing ‗without recourse‘ clause, it be

ensured that the bills are strictly as per the terms of LC and no discrepancy exists. It
is to be ensured that the bills negotiated relate to genuine commercial and trade
3

transactions.
Besides above, all the existing guidelines stipulated with regard to
opening/negotiation of bills under LCs (other than ‗without recourse‘ clause) should
be followed.
In cases, where the negotiation of LC is restricted to our bank and beneficiary
of the LC is a borrower of another bank, branches may consider negotiation of such
07

bills, on merits, subject to the compliance of laid down guidelines and condition that
the proceeds be remitted to the regular banker of the beneficiary. However, as
advised by RBI, the prohibition regarding negotiation of unrestricted LCs of non-
constituents will continue to be in force.

AMENDMENTS
All requests for amendments must be in writing and when an amendment involves
an increase in the amount of the credit, additional margin money, wherever
applicable, must be taken. Commission and other charges for amendments should
be charged in accordance with the rates prescribed by the Head Office. All
amendments should be properly recorded. Amendments may necessitate an
adjustment in the amounts in the contra accounts. It should be noted by branches
and explained to customers who ask for an irrevocable credit to be amended that
amendments to irrevocable credits cannot become effective unless all parties to the
credit agree to that amendment. Thus, where an amendment is advised, it must be

Loans & Advances STC, Lucknow Page 133 of 174

understood that it will become effective only after it has been accepted by the
beneficiary and if it is not accepted, documents negotiated in accordance with the
previously existing terms of the letter of credit will have to be honoured.

LATEST GUIDELINES ON LCs

Loaning Powers – Restriction on taking fresh exposure on Indian Overseas

Bank
(L&A Cir. No. 7 dated 30.01.2017 since superseded vide LA 122/2017
dt.30.12.2017)

Indian Overseas Bank (IOB) is not an approved bank as per Annexure-V to L&A
Circular No.122 dated 30.12.2017 for negotiation of bills drawn under ILC. As IOB
has not honoured some of the LOU issued in favour of our Dubai branch for issuing
buyers‘ credit, it has been advised that no fresh exposure shall be taken on IOB till
the resolution/receipt of funds of overdue buyers‘ credit.

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Loans & Advances STC, Lucknow Page 134 of 174

 26. CONSORTIUM FINANCING & JOINT LENDING
ARRANGEMENT

A. CONSORTIUM FINANCING

 RBI had withdrawn its earlier guidelines regarding mandatory formation of

consortium where working capital limits are Rs. 50 crores and above from the
banking system.
 As per our bank guidelines, in case of borrowers enjoying aggregate fund-
based limits of Rs.50 crore & above from more than one bank, consortium
arrangement should be considered. In such cases, bank which has extended
the largest share in the credit facilities should be contacted for finalizing the
consortium arrangement and for being the leader of the consortium for that
borrower.
 In case of borrowers enjoying aggregate fund-based credit limits below Rs. 50
crore from more than one bank, further enhancements, which would take the
aggregate limits to Rs.50 crore or more, should be considered jointly by the

4
financing banks concerned and the bank, which takes up the largest share of

:5
the fund-based limits, shall be deemed to be the leader of the formalised
consortium arrangement.

19
Borrowers having multi-division/multi-product companies to be treated as one
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single unit, unless there is more than one published balance sheet.
 It would not be in order, if there is more than one consortium financing each
division of a company with only one published balance sheet.
20

 No ceiling on number of Banks in a Consortium.

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 Share of a Bank as a member of consortium should be minimum of 5 percent of

the fund based credit limits or Rs. 1 crore, whichever is higher. Where such
amount is more than prudential norm for exposure of a bank, lower percentage
3

can also be considered on merits of each case by the consortium. However, as

per L&A Cir. No.27 dated 19.04.2018, as far as possible minimum 10%
share of the exposure should be taken by a lender in the consortium.
 Where 5% of the fund based working capital limit sanctioned/to be sanctioned
to a borrower is more than prudential norm for exposure of a bank, lower
07

percentage can also be considered on merits of each case by the consortium.

 Total term loan exposure should not exceed 75% of the prudential exposure
norms for individual/group of borrowers. The balance of 25% should be kept for
meeting the working capital needs of the borrower.
 It would be open to a borrower to choose his bank(s) for obtaining credit
facilities as also for the bank/(s) to take a credit decision on the borrower.
However, once a consortium is formed, entry of a new member into a
consortium should be in consultation with the consortium.
 Lead bank will be responsible for preparation of appraisal note, its circulation,
arrangement for convening meetings, documentation, etc. The participating
banks should submit their views, if any, on the proposal to the lead bank within
7 to 10 days.
 For various services rendered, lead bank may charge a suitable fee per annum
inclusive of GST and educational cess, to be borne by the borrower. The fee is
to be reckoned with reference to the fund-based working capital credit limits
sanctioned by the consortium.

Loans & Advances STC, Lucknow Page 135 of 174

 Sanction of fresh /ad-hoc /renewal of loans to new/existing borrowers should be
done only after obtaining/sharing necessary information in formats advised in
L&A Circular No. 99 46/2019 dated 27.11.2012 18.04.2019 as prescribed by
RBI for declaration of information by the borrower at the time of applying for a
credit facility to the bank.

 In terms of L&A Cir. No. 27 dated 19.04.2018: Standard Operating Procedure

(SOP) for valuation process may be adopted before release of Drawing Power
(DP). As such, member banks should decide about the valuation process of
stock/ Book Debts with emphasis on following points:

a) Periodicity of inspection of stock/book debts along with unit wise allocation of

borrower‘s office/factory premises/godowns to member banks for inspection.
b) After inspection the inspecting banks may submit the inspection report to the
lead bank and thereafter, the lead bank may calculate the DP and advise the
same to all the member banks.
c) In case a member bank fails to conduct the inspection within one month of

4
allocation, the lead bank may not allocate further DP till submission of
inspection report by the said bank.

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d) Periodicity of stock audit and the stock auditor may be decided in advance
and it may also be ensured that the same stock auditor is not being appointed
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for consecutive audit.
e) In order to avoid overdrawing of limits by the borrower, it may be endeavoured
that the member banks share the information of limit availed and DP with the
20

lead bank so that the consolidated information can be made available to all
/01 09

the member banks by the lead bank at regular intervals, at least at quarterly
intervals.
f) Also, necessary communication such as conduct of account, invocation of
3

LG/devolvement of LC etc. should be communicated to member banks

through the fastest electronic means available e.g. Email/fax, etc.

The above SOP may be got implemented where our bank is lead bank in
consultation with other member banks and where we are a member of the
consortium, the above methodology may be suggested to the lead bank for
07

implementation thereof.

Also, TEV study and Working Capital Assessment is to be discussed invariably in

consortium meetings & minutised prior to sanction of credit facility.

In terms of L&A Cir. No. 27 dated 19.04.2018: for clean & effective post-sanction
follow up in consortiums with credit exposure of more than Rs.250 crore, specialized
monitoring outside agencies may be appointed, if needed, after deliberations with
member banks. Guidelines for utilizing the services of ASMs (Agencies for
Specialized Monitoring) have been approved and the same are given as per
Annexure to LA Cir 85/2019 dated 02.08.2019.
As per L&A Cir. No.124 dated 23.10.2019, Subsequently, some of the agencies
have indicated certain changes in their particulars such as Contact details, Location
served and Main areas of the activity. The updates are given in the Annexure to the
above mentioned circular for information and necessary action.

Loans & Advances STC, Lucknow Page 136 of 174

 In terms of L&A Cir. No. 10 dated 16.01.2014, in case of Consortium/JLA where
we are not the leader, copy of Valuation Reports, NEC of primary/collateral
securities, Search Report of ROC, Stock Audit Report and any other document
that are required for the processing of the proposal should be obtained from the
Lead Bank, analyzed and held on record.
 Officials participating the consortium meetings on behalf of the bank should
make commitment in the consortium only if the facility is within their vested
powers. For any facility beyond their vested powers, they should inform that the
company‘s request for any concession etc. shall be plakhed before the
sanctioning authority for consideration.
 Official who is participating in the consortium meetings should do necessary
ground work like preparation of notes on assessment of credit needs of the
borrower, in principle approval/mandate from the competent authority to accept
the PBF assessment, sharing of limits, take up proportionate share in the credit
facilities etc., before attending the meeting.

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 It is to be ensured that consortium meetings are held regularly and intimation of

:5
the meeting along with agenda is sent in advance to all member banks.
 Diligence Report shall be obtained for the borrowers with aggregate (fund and
19
non fund based) limits of Rs.20 crores and above with our bank. However,
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Public Sector Undertakings/ establishments (Govt. Undertakings) will be
exempted from such Diligence Report, as they are under audit by Comptroller &
Auditor General of India. In respect of Consortium Accounts where our bank is
20

not the leader, the matter be taken up with the lead bank for obtaining the
/01 09

same.
 In case Diligence Report is obtained by the lead bank then bank‘s branches
which are member of the consortium shall not insist upon obtaining Diligence
3

Report afresh.

B. JOINT LENDING ARRANGEMENT

 With a view to inculcate the required financial discipline in the borrowers and
07

enable financing banks to take informed decision on credit matters and as a

risk mitigant, Ministry of Finance has come out with the policy on Joint Lending
Arrangement.
 The policy shall be applicable to all lending arrangements involving more than
one public sector bank with a single borrower with aggregate credit limits (both
fund based and non fund based) of Rs.150 crore and above. All non-investment
grade borrowers (External Commercial Rating below BBB or equivalent) under
multiple banking arrangements shall also come under this policy irrespective of
the amount of exposure.
 New Borrowers: Lending under joint arrangement shall be mandatory for
public sector banks for borrowers seeking credit limits of Rs.150 crore and
above by way of term loan, working capital and non fund based facilities from
multiple banks. The bank from which the borrower has sought the maximum
credit or any other bank, as mutually agreed by member banks, will be
designated lead bank for the JLA.

Loans & Advances STC, Lucknow Page 137 of 174

 There is no ceiling on number of banks in a JLA. It would be open to a borrower
to choose his bank(s) for obtaining credit facilities as also for the bank/(s) to
take a credit decision on the borrower.
 In case of aggregate working capital exposure (both fund based and non fund
based) upto Rs. 1000 crore, our share as a member of the JLA should be at
least 10% of the aggregate limit to ensure meaningful participation in JLA. For
working capital exposures of Rs. 1000 crore and above, the minimum
participation required shall be Rs. 100 crore.
 In capital intensive projects with large term loan component, it would be open to
the banks to have a separate consortium/JLA for term loan and working capital
requirements.
 The issues of entry and exit of member from JLA and sharing of enhanced
exposure are same as in case of consortium advances.
 Sub-committee: It is suggested that a sub-committee, comprising at least two
member banks having a combined exposure of not less than 50% of the total
exposure should be formed, for deciding all matters relating to appraisal,

4
sharing of income and monitoring of the accounts, at the time of initial creation/

:5
formation of the JLA.
 The decisions of the Sub-committee will be binding on all JLA members.

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The existence and roles of Sub-committee is to be formalized in the inter-se
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agreement at the time of documentation. The Inter-se Agreement is to be

stamped as an agreement and also as a general power of attorney.
 Issues referred to the Sub-committee must be decided upon in maximum 30
20

days (at Sub-committee level 10 days, and at a higher level 20 days).

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 The Sub-committee shall be authorized to issue No Objection Certificate (NOC)

on behalf of the JLA for any purpose.
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Loans & Advances STC, Lucknow Page 138 of 174

 27. POST-SANCTION FOLLOW UP & MONITORING

A. DOCUMENTATION (LA 98/2014 dated 09.08.2014, L&A 18/15 dt. 02.03.15)

Documentation of Loans & advances is a critical and important area as the liability of
a borrower/guarantor can be enforced in a court of law mainly on the basis of
documents executed by them and entries made in the Books of Accounts and the
Registers of Bank.

Thus all documents prescribed for various facilities should be correctly executed. (for
documents required, please refer to Knowledge Repository-> Compendium->
Concerned Division( PSLB/ MSME/ RMD etc)..Format of any given document may
be viewed at Knowledge Centre -> Branch Kit -> Forms. (Information regarding Loan
documents required to be taken under various schemes is also available in the
respective Scheme(s) circular and also in Inspection & Audit Division Circular
11/2014 dt.14.03.2014.)

One of the important aspects of proper and accurate documentation is proper filling

4
up of blank spaces provided in the documents and scoring off the alternatives, which
are not applicable under proper authentication.

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It is, therefore, imperative that while executing a loan document, care has to be
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taken to ensure that alternatives are scored off retaining only that which is
applicable.
20

All blanks in the documents should be appropriately filled up. All scorings, cuttings
/01 09

and deletions etc. should also be properly authenticated by the executants (s). Non-
observance of the instructions/guidelines can result in loss to the bank.
3

In the matter of documentation, there are five essential points to be noted:-

1) The person(s) executing the documents should have the legal capacity to do so.
2) The document should be in the prescribed forms of the bank.
3) The document should be properly stamped.
4) The documents are properly witnessed wherever required.
5) The documents are registered wherever required.
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WHO IS COMPETENT TO CONTRACT

According to section 11 of the contract Act, 1872: Every person is competent to
contract who is of the age of majority according to the law to which he is subject, and
who is of sound mind, and is not disqualified from contracting by any law to which he
is subject.
It should be ensured that not only the documents are correctly executed but also that
the persons signing the documents have the legal capacity to do it. A minor, lunatic
or an insolvent has no contractual capacity. The contractual powers of a joint stock
company are determined by its Memorandum and Articles of Association; the
company cannot transgress or overstep these powers.
The following documents, if unstamped or insufficiently stamped, are invalid ab-initio:
(a) promissory note
(b) bill of exchange
(c) acknowledgement of a debt.

Loans & Advances STC, Lucknow Page 139 of 174

The bank‘s suit, if based on such unstamped/under stamped promissory note, bill of
exchange or an acknowledgement of debt would, therefore, fail in law.

DOCUMENTS REQUIRED TO BE WITNESSED;

1. Assignment on the instrument itself, e.g. a life Insurance policy.

2. Assignment by a separate instrument.
3. Mortgage Deed.
4. Guarantee Deed
5. Power of Attorney
6. Conveyance Deed
7. Gift Deed
8. Will.

DOCUMENTS NOT BE WITNESSED:

1. Demand Pronote

4
2. Usance Pronote or Bill of Exchange
3. Letter of lien.

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4. Letter of continuity
5. Letter of set off. 19
/20 554
6. Cash Credit/Over Draft Agreement.
7. Letter/Agreement of Hypothecation:
 Hypothecation of merchandise Goods/Book debts
20

 Hypothecation of goods covered by bill

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 Hypothecation of plant & machinery.

7. Agreement of Pledge.
8. Letter of Assignment.
3

9. Letter of Guarantee.

Information Utility (IU) for Bankruptcy Cases under the Insolvency and Bankruptcy
Code 2016
IBA has advised Model Clauses for incorporating in Bank‟s Loan/ Guarantee/
Security Agreements etc. for giving consent for submitting and authenticating
07

financial information to Information Utilities (IUs). Accordingly, Law Division, HO has

drafted the following Supplementary Agreements/Letter incorporating aforesaid
clauses which are to be obtained from the concerned parties in all existing & fresh
borrowal accounts. (L&A Cir. No. 41/2018)

i Supplementary loan agreement of the Borrower Annexure I

ii Supplementary guarantee agreements executed by the Annexure II
Guarantors
iii Supplementary security creation agreements executed by any Annexure III
person who has not given his guarantee for securing the credit
facilities availed by the Borrower
Iv Letter to be given by Third Party creating Security Interest Annexure IV
without giving guarantee when Security is created by way of
Equitable Mortgage (where no other document is executed)

Loans & Advances STC, Lucknow Page 140 of 174

Bank has entered into an agreement with the first information utility called National e-
Governance Services Ltd. (NeSL) for submission of financial information of borrowers as
part of obligation under IBC, 2016. The submission of financial information of borrower
shall be accompanied by a fee to be paid to NeSL as per LA Cir 50/2019 dated
25.04.2019. An undertaking for debiting fee from the accounts to be obtained in each
account as per Annexure of LA Cir 50/2019 dated 25.04.2019.

B. Central Registry of Securitisation Asset Reconstruction and Security Interest

in India (CERSAI) (MISD 03/2015 dated 01/01/2015 & MISD cir 02/16 dated
02.02.16, MISD Cir. 04/2016 dated 09.06.2016 03/2019 dated 18/03.2019 L&A
19/2016 dt. 30.03.2016 Superseded vide 53/2016 dt 30.07.2016)

The Central Registry has been established vide Government of India notification dated
31.03.2011 under the SARFAESI Act 2002. The object of registering particulars with
the Central Registry is to compile data relating to secured transactions which can
be searched by any person on payment of prescribed fees.

ALL equitable mortgages (irrespective of the mortgage creation date) must be

registered with CERSAI.

:5 4
As per notification, particulars of Immovable Properties (IPs) Equitably Mortgaged to
Bank have to be recorded on CERSAI site within 30 days of creation of charge on an
19
asset (IP), failing which there is provision in the SARFAESI Act 2002 of penalties.
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After verification, branch has to invariably note down the Asset ID/Security Interest ID
created by the system.
20
/01 09

On verification of entry, system gives option for downloading the Challan. Branch should
immediately download the challan and keep it with loan documents.
3

At branches, Checkers are required to verify records entered in CERSAI by Maker with
the application of Digital Signature.

For procurement of Digital Signature, users are required to send request on prescribed
application form to Information Technology Division, HO through their respective Circle
Office.
07

(MISD 04/2016 dated 09.06.2016 03/2019 dated 18/03.2019)

The following types of Security interest are also required to be filed on the CERSAI portal
henceforth:

1. Particulars of creation, modification or satisfaction of security interest in immovable

property by mortgage other than mortgage by deposit of title deeds equitable mortgage)
shall be filled in Form I and Form II, as the case may be and shall be authenticated by a
person specified in the Form for such purpose by use of valid digital signature.
2. Particulars of creation, modification or satisfaction of security interest in hypothecation
of plant and machinery, stocks, debt including book debt or receivables, whether existing
or future shall be filled in Form I or Form II , as the case may be, and shall be
authenticated by a person specified in the Form for such purpose by use of valid digital
signature.
3. Particulars of creation, modification or satisfaction of security interest in intangible
assets being knowhow, patent, copyright, trade mark, license, franchise or any other
business or commercial right of similar nature, shall be filed in Form I or Form II, as the

Loans & Advances STC, Lucknow Page 141 of 174

 case may be, and shall be authenticated by a person specified in form for such purpose
by use of valid signature.
4. Registration of charges relating to motor vehicles are to be made ONLY on the
VAHAN registry and not on the Central Registry (CERSAI). Any vehicle registered with
the VAHAN registry shall be deemed to be registered with the Central Registry for the
purposes of the SARFAESI Act, 2002.(IRMD L&A 121/2019)

CREATION OF RECORD OF CHARGE DETAILS IN CBS (SRM – „C‟ details) AND

BRANCH RECORDS (TITLE DEED REGISTER)

 While filing particulars of mortgages with Central Registry an

acknowledgement /receipt is generated containing Asset ID. Asset ID so
generated is to be recorded in Title deed register along with name &
signatures of the officials filing particulars of IP with Central Registry, so that
inspecting officials during branch inspection can verify that all EMs are filed
with Central Registry and Asset ID & Security Interest ID is recorded in the
title deed register.
 Asset ID number generated as above should also be mentioned in Legal

4
compliance certificate, column 4 (e) of schedule- I under details of mortgages

:5
created (property wise) sent by branches to circle office.
 The collateral security detail be captured in CBS vide LA 14/2017 & 21/2017
19
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In order to ensure compliance of registration of EMs in CERSAI and to facilitate its

monitoring at the appropriate level, dealing officials have to create record of securities,
20

primary as well as collateral, charged to the bank, in CBS system through Menu option
„SRM – Security Register Maintenance‟.( ITD-CBS circular No. 88/2011 dated
/01 09

17.10.2011)

SCHEDULE OF CERSAI FEE PAYMENT.

3

CERSAI, vide their notification dated 01/02/2016, has drastically reduced the fees for
various transactions with effect from 01/02/2016. The revised fee is changed for GST
vide MISD 06/2017 Dt 29.06.2017 03/2019 dated 18/03.2019 as under:

Nature of Transaction to be Amount of Fee payable to Charges

Registered Central Registry including
07

GST
@18%
Particulars of creation or modification of 1) Up to Rs.5 lakh – Rs.64.31
Security Interest in favour of Secured Rs.54.50 Rs.128.62
Creditors 2)Above Rs.5 lakh –
Rs.109/-
Satisfaction of any existing Security Interest NIL NIL
Particulars of securitization or Rs. 545/- Rs.
reconstruction of financial assets 643.10
Particulars of satisfaction of securitization Rs. 54.50 Rs.64.31
Any application for information recorded / Rs. 10.90 Rs. 12.87
maintained in the Register by any person
including online search of records.

Loans & Advances STC, Lucknow Page 142 of 174

Any application for condonation of delay up Not exceeding 10
to 30 days times of the basic fee,
as applicable

As per MISD 12/2017 dt 18.12.2017, CERSAI Recovery menu is as under:

1 CERSAI Recovery Menu MCHRG

2 Income Head 2081002
3 Income Invoice to Customer through Menu CGSTRPT
4 Detail of How to use MCHRG ( Flow Chart Finance Div. Cir. 24/2017 Dt
given and Invoice Printing) 06.10.2017

CERSAI ADDITIONAL FEE CHARGES FOR DELAYED FILING BEYOND 30 DAYS.

SARFAESI Act 2002 has enumerated penalty in committing default in compliance of the
requirements as per the Act. Additional fee is charged for delayed filing in the staggered
manner given below:

S.N Registration on CERSAI No. of Additional Fee to be charged if the loan

4
o after the date of times amount is: (GST Extra)

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transaction i.e. after 30 additional
days fee on
19
Normal fee
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Upto Rs. 5 lakh Above Rs. 5 lakh
1 From 31st to 40th day 2 Rs.100/- Rs.200/-
2 From 41st to 50th day 5 Rs.250/- Rs.500/-
20

3 From 51st to 60th day 10 Rs.500/- Rs.1000/-

/01 09

CERSAI has decided to charge fine (w.e.f. 1.4.2015) on delay in filing of Satisfaction
of Charge with CERSAI beyond the stipulated period of 30 days from the date of
3

satisfaction in full of its charge. Thus,

a) Ensure accuracy of data while filing with CERSAI and undertake a data cleansing
exercise of the data already filed.
b) File satisfaction of charge on CERSAI promptly within 30 days of satisfaction of charge.
c) Create provision for the other members of the consortium / other lenders to register their
charge on the asset in case of Consortium finance / Multiple lending.
07

d) Quickly handover the title deeds of the property mortgaged to the other bank
which has taken over the loan to enable them to file their charge over the property
with CERSAI within the stipulated period.
e) In terms of Sec-27 of the SARFAESI Act, in case of any default in filing of
satisfaction of charge, the appropriate Authority can impose fine on every secured
creditors and every officer of the secured creditors who is in default, which may
extend to Rs.5000/- (Rupees Five Thousand only) for every day during which
default continues.

In order to curb the frauds due to the gap in entering the particulars of mortgages of
deposit of title deeds, it has been decided that particulars of the mortgages created by
deposit of title deeds must be entered in the CERSAI on date of creation of equitable
mortgage of IPs without waiting for 30 days period specified under the Act. Further, the
Incumbent must ensure that in no case disbursement shall be made without entering the
particulars of equitable mortgages by deposit of title deeds in CERSAI site. (L&A 34/15
dt. 22.05.15 superseded vide LA 19/2016, further superseded vide LA 53/2016 dt

Loans & Advances STC, Lucknow Page 143 of 174

31.07.2016)

Guidelines as contained in LA Cir 29/2019 as well as LA Cir 64/2019 must be

adhered to.

C. VETTING OF LOAN DOCUMENTS

All the loan documents in respect of sanctioned limits of Rs. 2 crore & above
(both FB and NFB) vetted from the local approved advocate/solicitor, first before
their execution and again after execution but before disbursement of the
loans.

D. LEGAL COMPLIANCE CERTIFICATE (Format in LA 97/2014) & also in (L&A

19/2016 dt. 30.03.2016) Now latest as per LA 53/2016 Annexure 29

The recommendations of the Mitra Committee on Legal Aspects of Bank frauds

envisaged, inert alia, establishment of an in-house legal compliance certification
process from each desk especially from each management category staff for

4
making them accountable.

:5
Accordingly, based on RBI guidelines, all Branches, including LCBs, are to submit
19
Legal Compliance Certificate for credit limits of Rs. 10 lakhs and above (Fund
/20 554

Based & Non Fund Based) in respect of fresh sanction/enhancement/renewal to

respective controlling office within 7 days from the end of the month in which the
facilities are disbursed certifying the compliance of all the formalities contained
20

therein.
/01 09

Legal Compliance Certificate should also be submitted by branches in case of

3

renewal of credit limits of Rs. 10 lakhs & above (both fund based and non fund
based) provided there are changes in the terms & conditions of the existing sanction,
approved by the competent authority while renewing the limits or otherwise.

The pending formalities, if any, reported in the format of Schedule II should continue
to be submitted in subsequent months till all the formalities are completed. However,
07

after completing all the formalities, a final ‗Nil‘ certificate in Schedule II be submitted.

E. ENSURING END-USE OF FUNDS (LA Cir. 58/2018 dated 30.06.2018-Page-17)

It is necessary that the Bank does not depend entirely on the end-use certificates
issued by the Chartered Accountants but strengthens its internal controls and the
Credit Risk Management System to ensure proper end-use of funds. Some of the
illustrative measures that could be taken by the branches to ensure end-use of
funds are:

i) Meaningful scrutiny of quarterly progress reports/operating statements, balance

sheets of the borrowers;
ii) Regular inspection of borrowers‟ assets charged to the Bank as security;
iii) Periodical scrutiny of borrowers‟ books of accounts:;
iv) Periodical visits to the assisted units;
v) System of periodical stock audit, in case of working capital finance;

Loans & Advances STC, Lucknow Page 144 of 174

vi) The appraising office, i.e. Branch Office/CCPC, as the case may be, should
conduct pre-sanction visit of borrower‟s factory/business premises/IP offered as
security in the loan account/borrower‟s plakhe of work/residence as part of appraisal
and annex the copy of visit report with the proposal.
vii) In order to minimize the instances of selling off of mortgaged IP/multiple
mortgages, etc. a well defined system for periodic visit to the mortgaged site already
in plakhe to ensure that the security remains charged to the bank during the currency
of the loan should be followed.
viii) In order to closely monitor the end use of funds, branches are advised to obtain
necessary certificates from the borrowers, particularly in case of Corporate Loans,
Working Capital Finance, Project Finance, Short Term Loans etc., certifying that the
funds have been used for the purpose for which these were obtained and are not
diverted to Capital Market/some other use.

Guidelines as contained in LA Cir 43/2019 dated 10.04.2019 on end use of funds

must be complied with.

4
Banks must be vigilant as regards to the end use of loans & advances granted to its
customers and the cases where the customer utilized the loans for the purpose of

:5
repaying debt with other entities (without prior approval of the bank), should be
plakhed before the Board of Directors in the ensuing meeting with its salient details
19
/20 554
as soon as it comes to the notice. In this context, bank has advised as under:

a) Branches to submit the information regarding utilization of loans by the customers

20

for purpose of repaying debt with other entities (without prior approval of the Bank) to
/01 09

their Circle Offices on the proforma (Appendix V on page 58 of LA Cir 58/2018)

immediately on occurrence of the event.
3

b) Circle Offices to consolidate the information received from branches & submit the
same to CRMD, HO under a copy to respective ZO.

c) CRMD, HO to consolidate such information received from various Circle Offices

and will plakhe the same to Board in ensuing meeting for information.
07

In case of incorrect certification by the borrowers, prompt action as may be

warranted, may be initiated which may include withdrawal of the facilities sanctioned
and legal recourse as well. In case a specific certification regarding
diversion/siphoning of funds is desired from the auditors of the borrowers, a separate
mandate may be awarded to them and appropriate covenants incorporated in the
loan agreements.

Although the standard loan documents contain clause to cover the above issues,
there may be specific cases where the agreement obtained/to be obtained in respect
of credit facilities does not contain the same. It is advised that in such cases the
Supplemental Agreement as per Appendix-VI on Page 59 of LA Cir 58/2018 may
be obtained to safeguard bank‟s interest. Further, all aspects of diversion of funds in
the borrowal accounts should be duly examined by:

i) Field functionaries at the time of periodical reviews of the limits/credit facilities; and

Loans & Advances STC, Lucknow Page 145 of 174

ii) Inspectors and Auditors during internal audit/inspection.
In the matter of Credit Assessment Monitoring, the confirmation of balances in
deposit/borrowal account should be sent directly to the respective Auditor and the
financial statements/certificates submitted by the borrowers should be reviewed
diligently.

Bank has advised that information with regard to balance confirmation in respect of
various accounts of auditees may be furnished to the Statutory Auditors subject to
the consent of auditee. The said information may be provided on the format as per
Appendix-VII on page 61 of LA Cir 58/2018 or on nearly similar format as sought
by the Statutory Auditors from bank for the purpose of enabling them to certify
balance sheet of the auditees.

From Exporters a stamped undertaking should be obtained that no finance will be

obtained abroad by them against unpaid bills drawn on allied/ sister concerns. (LA
87/09).

4
F. Limit Sanctioned Statement – LSS (LA cir 98/2016, (65,71,90,101)/2017 & 126/2014)

:5
Sanctioning Authorities are required to submit all limits sanctioned, whether
19
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fresh/renewal/reduction/enhancement or adhoc in the prescribed format of Limits Sanctioned
Statement as on the last day of the month to the next higher authority for monitoring as
under:
20

 Incumbents of branches to submit the Statement of Limits Sanctioned to the

/01 09

respective Circle Offices/FGMOs (to whom they are reporting).

 The designated Chief Managers posted in ELBs shall exercise their vested powers
and such cases shall be reported every month to respective controlling Offices along
3

with facilities sanctioned by the Incumbent Incharge.

 Branches may extract the LSS report from the EDW Server and submit the
same to Circle Office after making necessary modification in it wherever
required along with required Annexure/Appendix.
 In case where the LSS is not received within 10 days of the close of the
month to which it relates, the Controlling Offices to generate the LSS report
07

from the EDW Server for overview and thorough scrutiny.

 LSS from EDW Server may be drawn from following folder: PNBEDW CAD
 Monthly Monthly Statement of Limit Sanctioned
(LA 71/2017 dt 23.08.2017)
G. STOCK STATEMENT & INSPECTION OF STOCKS [L&A Cir. 106/2017 dated
24.11.2017]

Stock Statement : Form PNB 938 (Appendix-I) is to be used for obtaining Stock
Statement from all borrowers enjoying Cash Credit (Hypothecation) and Packing
Credit limits. In case such limits have also been sanctioned against Book Debts,
position of the Book Debts is to be obtained from the borrowers in the Form PNB
939 (Appendix-II).

Drawing Power : (IRMD L&A 106/2017 Dated 24.11.2017)

REVISED METHODOLOGY FOR CALCULATION OF DRAWING POWER:

Loans & Advances STC, Lucknow Page 146 of 174

Drawing Power in case of consortium accounts including CDR/bilaterally restructured
accounts would be calculated and allocated based on the method approved by RBI
under the MPBF methodology as under:
Total Value of Stocks (Closing balance of A
stocks, their value as per market rates or cost
price, whichever is lower)
Less: Excess of Sundry Creditors (Stocks) B
Excess of Other Sundry Creditors C
Over the level assumed at the time of
assessment
New Value of Stocks D=A-B-C
Add: Eligible Trade Debtors including advance E
for stocks and expenses as envisaged at the
time of assessment
Less: Outstanding under Bills discounted BD
Net Value of Debtors F=E-BD

4
Total eligible Current Assets G= D+F

:5
Less: Stipulated Margin H
Drawing Power 19 G-H
/20 554

The allocation among the consortium members shall be done by the consortium
leader pro-rata to the exposure assumed by these banks under consortium. The DP
20

allocation advised to the consortium members will be binding on them for conduct of
borrower‘s account. This methodology will also apply in case of facilities under
/01 09

Multiple banking arrangement as well as in case of standalone credit facilities.

Further, at the time of assessment, sundry creditors should be scrutinized with
3

utmost care and no DP should be allowed on goods received under LC unless such
stocks are paid for/till the documents are retired. As such, value of devolved LC/BG
remaining unpaid to the bank and value of other LC/BGs outstanding as at the month
end as well as the value of goods received under Buyers Credit should not be
included in DP.
07

Stock Inspection :
1. Stocks charged to the Bank by way of pledge/hypothecation in various loan
accounts are required to be inspected and physically checked/verified by the
Incumbents once in a month or more often if so required in a particular case
or subject to the stipulations, if any, made by a Competent Authority in the
letter of sanction.
2. Monthly inspection/checking may be carried out alternatively by the
Incumbent Incharge, Manager and the Assistant Manager/Officer.
3. Whereas checking may be entrusted to the Assistant Manager/Officer as
permitted under the instructions, it shall continue to be the personal
responsibility of the Incumbent Incharge to ensure that the checking has been
done in all cases every month or as per stipulations made in the letter of
sanction.
4. During periodical inspections, the Incumbents should satisfy themselves that
the security is intact both qualitatively and quantitatively, is readily marketable,
has not become old or obsolete and has not deteriorated in any way.

Loans & Advances STC, Lucknow Page 147 of 174

5. A report of physical inspection/verification of stocks is to be submitted as per
Inspection Report Form PNB 941 (Appendix-V) in case of all C/C(H) and P/C
accounts with limit of Rs.5 lakhs and above.
6. For accounts below Rs.5 lakhs, there is no need to submit this report and the
existing practice of recording the necessary information about inspection in
the Stock Statement should be recorded on Form PNB 938 (Appendix I)
itself.
7. The reports must not be signed as a matter of routine or mere formality, but
they should be based on inspections actually carried out.
8. Also See Circular FRMD 17/2017 for more details.
9. It is advised that along with the stock statement copy of GST returns
(containing invoice wise/party wise details) shall also be obtained from the
borrower. (See LA 95/2018 dt 04.10.2018)
10. GSTIN Number can also be verified from GST site and it can be ensured
whether upto date GST returns have been filed by the borrower.
(See LA 95/2018 dt 04.10.2018)
11. System of E-way bill has been made mandatory for inter-state movement of

4
goods of more than ₹50,000 in value throughout India, it can be used as an
additional tool to cross check & verify the genuineness of the bills/invoices

:5
received in term loan accounts. Branches are advised to make use of E-way Bill
as a monitoring tool for aforesaid purpose along with bills/invoices, end-use
19
/20 554
certificates issued by Chartered Accountants etc. It is also reiterated that GSTIN
Number can be verified from GST site. Similarly, a QR Code printed on each E
Way Bill and validity of the E-way bill along with all other details can be
20

authenticated by scanning the code from a Smart Phone.

(See LA 38/2019 Dt 08.04.2019)
/01 09

12. In terms of L&A Cir. No. 104 dated 18.10.2018 confirmation has to be
provided in the appraisal note that GSTIN of the borrower is active and up to
3

date GST return has been filed as checked from GST website. If not, the
details along with reason should be given in the note. (LA 59/2019)

H. ANNUAL STOCK AUDIT (LA Cir. 102/2018 dt 16.10.2018 and LA 31/2019 Dt

28.03.2019):
07

Stock audit shall not be a substitute for regular stock inspection. However, in respect
of accounts where Stock Audit is got done, the periodicity of stock inspection by the
Incumbents may be made on quarterly basis as in some large borrowal accounts
monthly verification of stock is not possible.

Applicability
(i) All borrowal accounts enjoying Fund Based & Non Fund Based (NFB) working
capital limits of Rs.5 crores and above from our Bank. All NFB limits, which are
being used for Working Capital Funding like LC, SBLC, BG for purchase of goods for
sale and BGs for mobilization Advances are to be included within threshold limit of
Rs.5 crore for stock credit, but Capex LCs, Bid Bond Guarantees etc. need not be
included in NFB limits for the purpose of conducting stock audit.
(ii) In case of borrowers enjoying fund based working capital limits less than Rs.5 Crore
also, Stock Audit may be got done in emergent cases and/or where bank‘s interests
demand. However, for modalities of stock audit, prior concurrence of the concerned
Circle Head be obtained.

Loans & Advances STC, Lucknow Page 148 of 174

(iii) Annual Stock Audit should be compulsorily conducted in all „B2 to C3‟ risk rated
accounts and NPA accounts enjoying fund based and non fund based working
capital limits of Rs. 3 crore and above.

(iv) Frequency of conducting Stock Audit in NPA Accounts

i. Immediately after an account gets classified as NPA and normal cooling
period of 3 months for up-gradation/rectification of default is over, Stock
Audit be made mandatory within next 3 months.
st
ii. After the 1 Stock Audit during the first year of NPA, subsequent annual
Stock Audits should also be carried out as usual, till such time the Stock
Audit Reports show substantial depletion in value of Stock/Book Debts.
iii. When substantial depletions in the value of Stocks/Book Debts is noticed,
the decision for not conducting Stock Audit subsequently, should be got
approved from the NPA Monitoring Authority of the said account.

Time schedule:
Maximum time taken for such audit varies from 2-4 weeks except in case of

4
noncooperation by borrowers where it may take some more time. Time frame for
completion of such audit should be clearly spelt out. It should be ensured that the

:5
agency conducting Stock Audit submits its report on the prescribed format
immediately after completion of audit but in no case later than two weeks of
19
/20 554
completion of audit.

Time schedule for completion of stock audit every year is as under:

20

S. No. Activity Time schedule

/01 09

1. Completion of the process of appointment of stock 31st August

auditors
2. Completion of stock audit and submission of the 30th November
3

report
3. Compliance of the observations of the stock audit 31st December
report and its closure
The observations/deficiencies pointed out by the Stock Auditors should be
removed/rectified maximum within 90 days.
07

Exemption from annual stock audit, if required, in A1 to B1 risk rated accounts based
on merits and business considerations of each case, should invariably be
incorporated at the time of fresh sanction/renewal/review of the working capital limits.

Charges:

The fee structure for the firms conducting stock audit shall be as under :
Amt of Limit Stock Audit Fee (inclusive of all expenses ,i.e.,
Traveling, Boarding, Lodging and other Misc. Expenses)*
The limit should include Rs. 500/- per Rs. 1 crore value of stock including stock
fund based working imported under LC(DA) and book debts with a minimum
capital limits and LC of Rs.10,000/- and maximum of Rs.50,000/-.
(DA) limit.
Incumbents of LCBs/Circle Heads & above may consider
(While computing the payment of enhanced fee, depending upon the volume of

Loans & Advances STC, Lucknow Page 149 of 174

audit fees the value of work, number of depots, manpower employed, travelling,
book debts should be boarding & lodging expenses. However, the entire fee
added to the value of inclusive of all expenses to be incurred by Auditors for
stocks in cases where stock audit of one borrower including travelling, boarding,
credit facility is allowed lodging etc. will not exceed Rs. 2 lakhs.
against the security of
book debts)
*Fee would be borne by the borrowers. Branches are to obtain concurrence of the
borrowers for bearing the fee.

I. INSURANCE: (LA 46/2014 dated 23.04.2014, 113/15 dt. 26.11.15)

1. All the securities mortgaged or hypothecated to the Bank should be kept fully
insured against fire and other risks, which may be considered necessary. The
insurance policies should be in the joint names of the borrower and the Bank with the
agreed Bank clause and remain in the custody of the Bank.
Under CBS system, the report relating to insurance of securities PNBRPT 3/2 can be

4
generated and monitored on day to day basis. It should be ensured that the policies
are renewed at an appropriate time.

:5
2. The property charged to the bank as security is to be kept fully insured for fire,
riots and wherever required against other appropriate hazards, such as earthquake,
19
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flood, cyclone, etc. by the borrower with usual bank clause as under:

a) Where IP is mortgaged to the Bank as Primary Security

20

In respect of IP mortgaged to the bank as primary security, Risk Coverage

/01 09

Policy equivalent to reconstruction cost of the property excluding land cost

instead of full market value should be obtained.
b) Where IP is mortgaged to the Bank as Collateral Security
3

In respect of IP mortgaged to the bank as collateral security, Risk Coverage

Policy equivalent to full market value excluding land cost should be obtained.

BMs should ascertain by reviewing on an ongoing basis that the adequate coverage
of insurance is available for reconstruction cost/ market value (as the case may be)
at all times as the cost may increase during the period of insurance policy. The value
07

of property for arriving at insurance premium is to be based on rate of construction of

the building as per PWD rates for that particular region and the same is suitably
loaded for extra fittings and fixtures, superior construction and other relevant details.
In fire insurance, building above the plinth and foundation is covered. However,
when the policy is extended to cover the risk of earthquake, then the cost of plinth
and foundation can be included in the sum insured.

 In order to ensure that all assets/securities are got insured and in no account
assets/securities are left uninsured, all insurance policies in respect of assets
th th
charged to the bank shall be renewed on a common date i.e. 15 May, 15
th th
August, 15 November and 15 February.
 In case, common date falls on Sunday/Holiday, insurance policies shall be
renewed on the preceding working day.
 In addition to Life Policies issued by LIC of India and Non-Life Policies issued
by Public Sector General Insurance Companies, Insurance Policies (Life &

Loans & Advances STC, Lucknow Page 150 of 174

 Non-Life) issued by Private Sector Insurance Companies registered with IRDA
as per list given in Appendix of the circular (LA 46/2014 dated 03.04.2014)
may be accepted.
 The insurance of the stocks should be arranged by the borrowers themselves
with an Insurance Co. In cases where the parties concerned neglect or refuse to
effect the insurance, the bank has to exercise the right to insure the stocks.
Ordinarily, therefore, the parties should themselves arrange for insurance with
the usual bank clause and advances against particular stocks should only be
allowed after the insurance has been effected and the necessary cover note or
the insurance policy has been deposited with the bank.
 The entire stock must be insured and not to the extant sufficient to cover our
outstanding/limit.
 In order to safeguard bank‘s interest, it is further advised that whenever the
stocks are shifted from one plakhe to another, the same should be duly intimated
to the bank and insurance cover in respect of new premises should be taken. A
stipulation to this effect should be incorporated in the terms of sanction. Further,
the bank should also take cognizance of the stock at the new officially intimated

4
address.

:5
J. PENAL INTEREST (LA cir 77/2014 dated 30.06.2014) (LA cir 139/2019 dated
24.12.2019) 19
/20 554
In order to instill a sense of credit discipline among the borrowers, RBI has permitted
banks to levy penal interest over and above the sanctioned rate of interest in case
of non compliance of various terms and conditions
20

The broad areas of non compliance where bank charges penal interest are:
/01 09

(a) Default in repayment of loans;

(b) Irregularities in cash credit accounts;
(c) Non-submission of stock statements & other financial data; (penal interest is to
3

be charged on the outstanding after 10 days till submission of next

statement.)
(d) Default in adhering to borrowing covenants;
(e) Non-payment of demand bills on presentation and non- acceptance/non-payment
of usance bills on due dates;
(f) Excess borrowings arising out of excess current assets and
07

(g) Non-submission of information under the Quarterly Information System/ Quarterly

Monitoring System (QIS/QMS).

It is clarified that penal rate of interest for the period of default is to be charged:

On the amount of:

- Default in instalments;
- Excess drawals/borrowings;
- Irregularities in account;
- Overdue bills either not debited in case of ODD or where DP is not reduced in case of ABC
bills.
On the total outstanding for:
- Non-submission of stock statement & other financial data; (penal interest is to be
charged on the outstanding after 10 days till submission of next statement.)
- Default in adhering to borrowing covenants;
- Non-submission of information in QIS/QMS discipline.

Loans & Advances STC, Lucknow Page 151 of 174

RATE OF PENAL INTEREST
 2% above the sanctioned rate where there is irregularity and default and
non-compliance of terms and conditions as given earlier.
 2% above the sanctioned rate where adhoc/temporary limit are sanctioned
to borrower.
 3% above the sanctioned rate in case of non compliance of terms and
conditions in ad-hoc/ temporary limit

EXEMPTIONS FROM CHARGING OF PENAL INTEREST

Penal rates of interest should not be levied in the following areas:

(a) All advances up to Rs.25,000/-.
(b) Advances by way of reconstruction or nursing assistance to sick units for item 1(a) to
1(f) above. Thus, non-submission of QIS/ QMS statements would attract penal
interest.
(c) Sick industrial units which remain closed.
(d) Advances against deposits, life insurance policies & Government securities/gold and

4
jewellery where the drawings are within the available value of the security.
(e) In case of Direct Agriculture Advances, a time of at least 3 months may be given to

:5
the borrowers for repayment of the loans/instalments
(f) Wherever situation warrants for non levying penal rate of interest, Incumbents
19
should seek approval of the sanctioning authority (GM (HO) in respect of HO
/20 554

sanctions] giving proper justifications for the same.

(g) In case of irregularities in CC accounts due to levy of monthly/quarterly/half yearly
interest, time period of 7 days may be given for regularisation of account. If account
20

is not regularised, penal interest is to be charged from first date of default.

/01 09

(h) For minor breach in terms and conditions of sanction, penal rate may not be charged
3

RATE OF PENAL INTEREST/ADDITIONAL INTEREST

(a) In borrowal accounts, where one or more 2% above the normal rate of interest
default/ Irregularity as mentioned above applicable to the respective borrower.

(b) In borrowal accounts, where 2% above the normal rate of interest

07

adhoc/temporary limits are sanctioned. applicable to the respective borrower.

(c) In borrowal accounts, where 3% above the normal rate of interest

adhoc/temporary limits are sanctioned and applicable to the respective borrower.
one or more default/ Irregularity as
mentioned at Item 1 exists.

K. MONITORING THROUGH QUARTERLY REVIEW SHEETS (QRS): [LA Cir.

02/2011, 108/2011 & 107/2012]: Credit Facilities upto Rs.100 Lakh

The review sheets are to be prepared as under:

(i) For the borrowers enjoying credit facilities below Rs. 20 lakh, as per
format given at Appendix-I of the circular.
(ii) For the borrowers enjoying credit facilities of Rs. 20 lakh & above, on PNB
664, format given at Appendix-II of the circular.

Loans & Advances STC, Lucknow Page 152 of 174

For borrowal accounts sanctioned by Incumbents within their vested powers, QRS
shall be prepared and kept on record whereas for sanctions by higher authorities, the
same shall be prepared in duplicate/triplicate/quadruplicate, as the case may be, for
sending the original one to the Sanctioning Authority and copies to the intermediate
controlling offices within 10 days of the close of the quarter. One copy shall be
retained at the Branch for record.

QRS is not applicable in following cases :

A. Where sanction is accorded by the Incumbent In-charge in following
cases:
 Advances to small borrower(s) upto Rs. 25000/-.
 Advances against bullion and jewellery.
 Advances against Govt. Securities, units of UTI,
 Advances to staff members,
 Advances against shares.
B. In following cases irrespective of the Sanctioning Authority:
 Advances to the members of staff in respect of housing loan conveyance

4
loan, consumer loan and festival loan.
 Advances against insurance policies

:5
 Advances against bank's own deposits.
19
 Protested Advances/sick/rehabilitated accounts. (In such cases
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instructions issued by Recovery Division and Industrial Rehabilitation

Deptt., HO should be followed).
20
/01 09

In order to make QRS a more effective tool of monitoring, bank has introduced Score
based QRS in respect of accounts with limit of Rs. 20 lakh and above and upto Rs. 1
3

Crore, which is in line with PMS report , so as to determine the health of the account.
Branches shall assign score for 14 important parameters as per Annexure III of the
circular LA 107/2012. Total score of 14 parameters will decide the rank of the
account ranging from 1 to 4, based on the seriousness of the irregularities:

Rank Category
07

1 Healthy
2 Early Warning
3 Warning
4 Critical

After preparation of QRS in all eligible accounts of Rs. 20 lakh and above and upto
Rs. 1 crore and assigning score as per Annexure III, branch shall prepare two
statements as per Annexure II & Annexure II A in circular

• Annexure II depicts QRS Rank-Wise credit portfolio of the branch for

the current quarter and movement of the same during last 4 (four)
quarters.
• Annexure II A depicts Account-wise analysis of QRS rank 2 and above,
reasons for High QRS rank / Slippage in QRS rank along with actions
taken / proposed to be taken.

Loans & Advances STC, Lucknow Page 153 of 174

Branches are to prepare both the above statements (Annexure II & Annexure
IIA ) for all sanctions (including BM Powers) and submit to Circle Office. LCBs
are to submit a copy of Annexure II to FGMO and HO. Accounts under Annexure
IIA are to be monitored at branch level.

Objective of the introduction of Score Based monitoring of QRS and two

statements (Annexure II & Annexure II A) are:

 To make QRS objective and categorizing the accounts health wise.

 To ensure that Branches prepare QRS reports of all eligible accounts of Rs.
20 lakh up to Rs. 1 crore.
 Branches/Circle Offices will have an idea of QRS Rank wise (Health Wise)
credit portfolio for the quarter as well as movement of the same from quarter
to quarter.
Account wise analysis of the reasons for High QRS Rank/slippage in QRS Rank will
help to indentify the specific problems and to initiate suitable remedial actions
immediately to improve the health of the account and the same can be monitored at

4
Circle Office.

:5
L. QUARTERLY MONITORING SYSTEM (QMS) [L&A Cir. 103 45 dated 12.10.2011
19
18.04.2019]: Credit facilities over 100 lakh
/20 554

The QMS system consists of two sets of formats namely QMS I and QMS II given in
Annexure I & II respectively and provides different set of formats for following
20

categories of borrowers:
/01 09

(i) General category

(ii) Traders/Merchant Exporters
3

 The QMS-I, is to be submitted on quarterly basis within six weeks from the
close of the quarter to which it relates and QMS-II is to be submitted on half
yearly basis within 2 months from the close of the half year to which it relates.

1. Applicability:

07

If the aggregate limits under FB and NFB facilities put together exceed Rs. 1
crore. (Page 1 of LA 45/2019 dated 18.04.2019 stipulates applicability of
QMS-I and QMS-II for 1 Crore and above, where as page 2 stipulates
applicability if exceeds Rs.1 Crore)
 In accounts where borrower is enjoying credit facilities (FB & NFB) under
Multiple Banking arrangement and availing only NFB facilities of Rs.1 crore &
above from our Bank, QMS Forms should be obtained to monitor the
company‘s operating and cash generating position on regular basis.
 In cases where borrowers are enjoying only NFB facilities of Rs.1 crore &
above and do not require working capital assistance in normal course of
business requirement from any Bank/FI, QMS Forms, which includes
operating and fund flow statement should be obtained to keep track of the
borrowers performance/progress and at the same time ensuring end use of
funds. While scrutinizing QMS Forms in case of standalone NFB facilities, the
Branch Heads should take extra care.

Loans & Advances STC, Lucknow Page 154 of 174

  If financial/performance guarantee, ILC/FLC is sanctioned on standalone
basis for fulfillment/specific performance of commitments for project
implementation (new/existing), the similar monitoring as applicable for term
loan accounts is required. Accordingly:
 For NFB limits of Rs. 25 crore and above the information as per PERT Chart II
should be submitted alongwith the QMS Forms.
 For limits of Rs. 1 crore & above but less than Rs. 25 crore, the monitoring
shall be done as per the simplified format for monitoring of term loan as per
Appendix III in circular alongwith the QMS Forms.

2. In case of accounts enjoying aggregate fund based and non fund based working capital
limits of Rs. 1 crore & above from entire banking system and where PBF is computed on
the basis of Simplified Turnover Method, instead of QMS I & II forms, the simplified
QMS Form as per Appendix IV in circular is to be obtained from the borrower within six
weeks of close of every quarter.

3 The borrowers in Tea Industry are exempted from the purview of QMS.
However, the borrowers in tea industry shall submit Cash Flow Statement

4
showing month wise actuals vis-à-vis projections and Stock Statements on

:5
monthly basis. Further, to safeguard Bank‘s interest, physical inspection of
stocks should be conducted by the Officers/ Agricultural Officers and stocks be
19
/20 554
checked with Excise Register.
4. In case of borrowers engaged in Leasing & Hire Purchase/Sugar Industry/ Film
Industry/Service Sector the existing Cash Budget System and formats will
continue.
20

5. In case of consortium advances, system followed by Lead bank may be different

/01 09

from the system adopted by member banks. In such cases it is advised that
where we are member of consortium, monitoring system, as adopted by Lead
3

Bank, may be followed. However, where we are the Lead bank, the Monitoring
System, as applicable in our bank, may be followed.

6. Quarterly Information System (QIS) Form-I for fixing Operative Limits

In order to enable the bank to manage its funds position more effectively and
07

economically, the following system of fixing quarterly operative limits especially in

big borrowal accounts is in vogue:

- For all borrowal accounts availing fund based working capital credit limits of
Rs. 5 crore & above from our bank, Quarterly Information System (QIS) Form-
I may be obtained for fixing up of quarterly operative limits in addition to the
QMS Forms. The QIS Form-I as per Appendix V in circular is to be
submitted in the week preceding the commencement of the quarter to
which it relates.
- In case of consortium advances, where our Bank is leader, the above system
may be followed. In cases where we are member of the consortium, we may
insist for setting up of quarterly operative limits. However, the supervision
system, as adopted by the Lead Bank, may continue to be followed.
- The QIS-I shall be applicable both for general category borrowers as
well as traders and merchant exporters.

Loans & Advances STC, Lucknow Page 155 of 174

In case of new borrowers with aggregate limit of Rs. 25 crore & above, the cash flow
statement should be obtained at half yearly basis duly verified by the Chartered
Accountants as under:(LA Cir.122/2011)

 Till the first review of limits in case of working capital, and

 During the currency of the loan in case of term loan.

In case of sugar industry, Cash Flow Statement (monthly basis) is to be obtained

from the borrowing unit, for proper follow up & to ascertain as to how far the
estimates given in Form C-II (of production, sales, stock levels, cash flows etc. for
the current year as given at the time of assessment of the limits) are realised. This
should be done by calling for the actuals every month and then comparing it with the
estimates.

In case of tea industry, Cash Flow Statement showing month-wise actuals vis-à-vis
projections and stock statements on monthly basis is to be submitted.

4
M. PERIODICAL VISIT TO MORTGAGED IPs (LA Cir 58/2018 on Page-37)

:5
Following periodicity should be observed for inspection visits to the sites (IP)
19
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accepted as security:
Particulars Primary security Collateral security
Value of property mortgaged/ At least on yearly basis At least once in three
20

charged is upto Rs. 20 lakh or as per terms of years

/01 09

or credit facilities are upto Rs. 1sanction, whichever is or as per terms of

crore. earlier. sanction,
whichever
least on isyearly
earlier.
3

Value of property mortgaged/ At least on half yearly At basis

charged is above Rs. 20 lakh basis or
or the credit facilities are of above or as per terms of as per terms of sanction,
Rs. 1 crore. sanction, whichever is earlier.
whichever is earlier.
are above
The visit
Rs.1tocrore,
the site of mortgaged property should also be done at the time of
07

granting additional facilities/enhancement of limits against the extension of

EM on the existing property.
 As regards periodic visits to IPs mortgaged as security for loans under retail
lending schemes, the periodicity as envisaged in the relative scheme should
be followed. In case no periodicity is prescribed for visiting the mortgaged IP,
the above guidelines should be followed for retail loans as well where IP is
accepted as primary/collateral security.
 The official visiting the site of property, should enquire about the possession,
tenancy, construction, dispute if any, ownership of IP, valuation etc.,
 in case some change is observed in respect of aforesaid parameters as
well as any other issue relating to mortgaged IP since the date of last
inspection/visit of the site, proper enquiries should be made locally/from the
borrower to ascertain that the mortgaged IP is properly charged to the bank.
 In case of any doubt, further remedial measures such as obtention of fresh
NEC/valuation report/copy of approved map/mutation etc. should be taken

Loans & Advances STC, Lucknow Page 156 of 174

 to safeguard bank ’s interest.
 Record of all such visits should be maintained in the Unit Inspection Register
as advised at appendix III of LA Cir 58/2018.

N. ANNUAL RENEWAL/ REVIEW OF WORKING CAPITAL LIMITS (LA Cir 58/2018

on Page 21):

The system of Annual Review and Renewal enables the Bank to:
 have a look at the borrower's performance and the end-use of funds granted to
him.
 judge whether the conduct of the account has been satisfactory and whether the
funds made available by the Bank to the borrower are safe
 arrive at a conscious decision about the continued credit worthiness of the
borrower and
 whether need-based credit facilities can continue to be granted to the borrower.

4
It is, therefore, advised to ensure that working capital limits are positively renewed /
reviewed at least once a year without fail. Branches are also advised to treat

:5
borrowers continuing on lapsed sanction as high risk borrowers and should monitor
the operations in such accounts closely for safeguarding bank's interest.
19
/20 554

In order that the renewal proposals with complete financial information are
completed in time by the Branch Managers, they should adopt the following
20

procedure:
/01 09

a) All renewal cases should be diarized at least 4 months in advance and

followed up by Branch / Circle Offices as the case may be so that all the
3

sanctions are renewed in time.

b) Remind the borrowers four months ahead of the due date and collect all
relevant data and information.
c) The proposals, after scrutiny at the branches, should be sent to Controlling
Offices so as to reach them at least two months ahead of due dates.
d) The proposal should be scrutinized speedily at Controlling Offices and must
07

be sent to Head Office, wherever necessary so as to reach Head Office one

month prior to the expiry of the sanction date.

O. ANNUAL REVIEW OF TERM LOANS (L&A Cir. 58/2018 dated 30.06.2018 on

Page-23)
The Term Loan portfolio of the bank primarily consists of long Term Loan to
infrastructure and core sector where the implementation period itself is three years or
more. It has been decided to put in plakhe a system of annual review in case of
Term Loans to ensure effective monitoring. Such review, however, will have no
bearing on asset classification and income recognition of the accounts. The annual
review of term loans is to be carried out during implementation stage and also after
implementation. After implementation period, it is necessary that the position of
regular repayment is monitored by reviewing the achievement of production/sales
vis-à-vis projections given for production/sales. Also, any diversification/ expansion
of the company, which affects its debt serving capacity, needs to be reviewed. Such

Loans & Advances STC, Lucknow Page 157 of 174

a review should incorporate the position of other banks‘ exposure.

Accordingly, for all Term Loans, other than retail loans, with sanctioned limit of
Rs.1 crore & above, annual review should be done as per the format available at
Appendix-IX of LA 99/2011 Since Revised Vide LA 79/2018 Dt 21.08.2018. The
annual fee for review of Term Loans shall be as under:

Stage for levy annual fee Rate

a) During implementation stage 10 paisa per hundred Rupees (no ceiling)
b) After implementation 05 paisa per hundred Rupees (no ceiling)

However, in deserving cases, sanctioning authority may consider concession in the

annual fee up to 50% whereas MD & CEO/ED may allow 100% concession.

It is advised that in case where disbursement is being made in stages, the annual
review fee is to be charged on the sanctioned limit whereas in case the sanctioned

4
amount has been fully disbursed and the repayment has been started, the review
charges shall be levied on the outstanding amount till the account is fully adjusted.

:5
Further, the annual review fee should be charged on the anniversary date.
19
/20 554
The position of eligible Term Loan limits overdue for review as on the last day of
each quarter be prepared by the branches as per the format at Appendix-X of LA
58/2018 and submitted to their controlling offices within 7 days of the close of the
20

quarter. Circle Offices/LCBs shall submit consolidated statement in this regard to

/01 09

Credit Review & Monitoring Division within 15 days of the close of the quarter.

The details of eligible Term Loan sanctions overdue for review above three months
3

should be submitted alongwith the above statement and reasons/ present

status/proposed action plan should invariably be mentioned therein. The monitoring
of MIS at various levels shall be done as under: -
To be submitted by Overdue for Review Monitoring authority
Small/Medium/Large Rs. 1 crore and above Circle Head
Branches to COs
07

ELBs/VLBs/MCBs to COs Rs. 1 crore and above Circle Head

LCBs/COs to Credit Rs. 10 crore and above GM CRMD
Monitoring Division

P. MONITORING OF TERM LOANS UNDER PROJECT FINANCING [L&A Cir.

23/2007]

The aspect of project implementation, commencement of commercial production are

of vital importance at the time of appraisal as well as after disbursement to ensure
that viability of project is intact and also the asset quality of the loan asset is
maintained. Accordingly, for term loans of Rs. 25 crore and above (fresh loans as
well as where project is under implementation), two Project Evaluation and
Review Technique (PERT) charts have been devised. The PERT Chart-I covers the
following activities:

Loans & Advances STC, Lucknow Page 158 of 174

  Conveying terms and conditions of sanction. Zero date to be reckoned from
the date of conveying terms and conditions of the sanction to the borrower.
 Acceptance of terms and conditions.
 Sanction of loan facilities by other banks/term lending institutions (under
consortium/multiple banking arrangement) and complete tie up.
 Financial closure.
 Preparation of document viz. preparation of draft copy, execution of
documents and subsequently vetting thereof.
 Compliance of all terms and conditions of sanction.
 Execution of documents as per sanction.
 Creation of primary security.
 Creation of secondary security.
 Disbursement schedule planned.

PERT Chart-II covers the post-sanction follow up & various stages of

implementation of project as:

:5 4
 Acquisition of land Site development Finalisation of drawings Construction of
building 19

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Plakhement of orders for plant & machinery
 Installation of plant & machinery
 Obtention of various statutory approvals

20

Trial commissioning of the project


/01 09

Commencement of the commercial production

 Overall stage of completion of project
 Position of account along with the disbursement schedule for the remaining
3

amount of the loan.

Each activity mentioned in PERT Charts will be monitored on monthly basis from
Zero date i.e. date of acceptance of sanction. The monitoring shall continue in
individual account till full disbursement of loan/start of commercial production,
whichever is later.
07

For effective monitoring of term loan accounts of Rs. 1 crore but less than Rs. 25
crore, simplified format as per Annexure to L&A Cir. 103/2011 is required to be
submitted alongwith QRS/QMS.

Q. PREVENTIVE MONITORING SYSTEM (IRMD Cir. No. 11/2014 dated 12.03.2014,

27/2014 dated 22.05.2014 & 02/2015 dated)

The New Preventive Monitoring System (PMS) was launched across all the
branches of the bank w.e.f March 2014 on parallel run with the old abridged version
of PMS for 2 quarters. As the new PMS is giving satisfactory results, Credit Risk
management Committee has now decided to discontinue the old version of PMS
immediately w.e.f. quarter ending September 2014. Thus, w.e.f. July 2014, all the
domestic Branches are required to prepare the PMS for all the eligible borrowers on
new system only on monthly basis.

Loans & Advances STC, Lucknow Page 159 of 174

The new PMS model has 3 modules namely, Conduct, Compliance and Project
Implementation which consist of 50 parameters.
The new model is System Driven/ Automated, Comprehensive, Concise, Objective,
User friendly, Analytical, Speedy and also contains module for Monitoring of Project
loans.

The new PMS shall classify the eligible accounts in one of the 5 Ranks based on the
PMS score ranging from 0 to 100. The Compliance module will have 30% weightage
while the conduct module will have 70% weightage in the total score. The Score
under Project Implementation will be added in the Score for Term Loan facility under
Conduct module. The new ranks are as under:

Sr. No. Score Rank Indicator

1 0 to 25 I Healthy
2 >25 to 50 II Satisfactory
3 >50 to 65 III Early Warning
4 >65 to 80 IV Warning

4
5 >80 to 100 V Likely NPA

:5
The new system captures signals emanating from conduct of the borrowal account
and inputs for this module flow automatically from CBS system through EDW.
19
/20 554
PMS Rank is an important constituent of Credit Risk rating of the Company/ Borrower.
Incorrect PMS rank will adversely affect the Credit Risk Rating of the borrower and also the
interest rate charged thereto. A number of deficiencies which have a material impact on the
20

Rank of the Borrower, are listed below :

/01 09

i. The Limit Sanction date, expiry date and stock report receipt date & due date are major
constituents of the new PMS system. Where LNM is maintained the captioned inputs are
derived Customer ID wise from LNM (PTEXP) and SRM (Node wise). In other cases
3

these details are captured account wise from ACLHM and SRM menu options. However,
the concerned dates are not fed in the CBS system correctly, as prescribed vide ITD Cir
no. 27/2013 dated 08.05.2013.
ii. A number of Borrowal accounts are having ZERO or Credit balance. All those accounts
where limits have been adjusted are still operative in the CBS system and need to be
closed to avoid undesirable results from the software.
07

iii. A number of Overdraft & Cash Credit accounts are being operated as Current account
even though the Limits have been adjusted/ cancelled. All such Cash Credit and OD
accounts are required to be closed in CBS. Otherwise the PMS system will evaluate these
accounts and give erroneous/ adverse rank due to non-feeding/ incorrectness of Limit
Expiry Date & Stock Report received date in such accounts.
iv. Non-compliance related to important matters like legal audit, creation of security, stock
audit, insurance cover, annual /quarterly report etc are not specifically entered at the time
of preparation of PMS resulting in lax monitoring and follow-up. Non-compliance which
stands pending for compliance on the part of borrower should be captured mandatorily
under the parameters ―Non-compliance of other important terms and conditions of
sanction‖, and under ―Any Other Adverse Features Observed in The Borrower A/C‖.
(IRMD Cir. No. 26/2019 dated 29.07.19)
v. At times the PMS Rank is incorrect due to Technical Errors including all IT related issues.
In such cases, the errors can be rectified if the matter is brought to the notice of
ITD/CRMD/IRMD before authorization of the PMS report. However, once the report is
authorized by the Checker, it is not possible to rectify the same.

Loans & Advances STC, Lucknow Page 160 of 174

vi. The Checking officials at Branch level are not checking the PMS reports meticulously
before submission.

The new PMS model does not operate on real time basis. Any change/ rectification made in
the CBS system shall be reflected in the system only in the data related to the month in
which the change has been made in CBS. For instance, if any correction is made in CBS
during the month of May, then the change shall be reflected in the PMS system only when
the data pertaining to the month of May is uploaded in it.

PMS report for a borrower has to be generated by the ―Maker‖ and authorized by the
―Checker‖ for viewing and monitoring at administrative and controlling office(s).
To obviate the submission of hard copies of PMS reports to higher offices and to
enable complete automation of the new PMS, role of the branch incumbent is
defined as a new functionality.

As per the new functionality, the reports verified by the checker are to be
“Accepted” by the Incumbent online before they are available at administrative

4
offices for viewing and monitoring. The Incumbent shall have the right to ―Accept‖ or
―Reject‖ the report already verified by the checker.

:5
IRMD 02/2015):
19
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New functionality in the software:

In the existing software, the PMS report for a borrower has to be generated by the
20

―Maker‖ and authorized by the ―Checker‖ for viewing and monitoring at administrative
/01 09

and controlling office(s). The role of the Incumbent In-charge is not explicitly defined
in the existing online reporting system. As such, hard copy of the PMS report is to be
submitted duly signed by the Incumbent In-charge of the branch to the controlling
3

office(s). A need was, therefore, felt to define the role of the Incumbent in the new
PMS. Further, to obviate the submission of hard copies of PMS reports to higher
offices and to enable complete automation of the new PMS, a new functionality has
now been added in the new PMS software defining the role of the branch incumbent.

Role of the Incumbent In-charge in new PMS system:

07

A new role has been defined in the system in addition to ―Maker‖ and ―Checker‖; i.e.
of the ―Incumbent In-charge‖. As per the new functionality, the reports verified by the
checker are to be ―Accepted‖ by the Incumbent online before they are available at
administrative offices for viewing and monitoring. The Incumbent shall have the right
to ―Accept‖ or ―Reject‖ the report already verified by the checker. In case the verified
report is rejected by the Incumbent, it shall move to checker Id for the requisite
modification and re-submission. Further, a new menu option i.e ―View Report Status‖
has also been added to view list of Unverified/ Verified/ Accepted / Incumbent
Rejected reports respectively.

Loans & Advances STC, Lucknow Page 161 of 174

PNB SAJAG - Early Warning Signal+ Preventive Monitoring System :-
Department of Financial Services (GoI) as a part of EASE Agenda has advised for
strengthening Credit Risk Management System and Early Warning Signal Systems to address
the issue of monitoring of causes of build-up of stress in assets. In compliance of above the
existing PMS has been revamped comprehensively to cover 127 early warning signals which
shall also include 42 early warning signals as prescribed by RBI, emanating from various
internal data sources and renamed as PNB-SAJAG (EWS+PMS) system. Detailed guidelines
regarding PNB SAJAG - Early Warning Signal+ Preventive Monitoring System
(EWS+PMS) were issued vide IRMD circular 30/2019 dated 27th Sept 2019.
Under this system if any early warning signals/triggers invoked in borrower account has
propensity to downgrade risk categorization of that borrower, in such case system shall
trigger dynamic review of internal risk rating or re-rating of the account, ahead of annual
review
The functionality has been made operational from 31st Dec 2019 once the data gets uploaded
in PNB-SAJAG for the month of Dec 2019. As per changes made, if PMS rank of the
borrower is downgraded to “4” indicating “Warning” or to rank 5” indicating “Likely
NPA” a message shall be displayed in “Comprehensive EWS Report (IRMD circular

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34/2019)

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R. MONITORING OF WEAK/IRREGULAR ACCOUNTS/Special Mention Accounts
IN EDW (MISD 4/2015 dated 01.01.2015, L&A Cir. 52/15 dt. 20.06.15)
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Based on RBI guidelines on Special Mention Accounts, the concept of weak

accounts was introduced to capture early warning signals in the borrowal accounts.
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An account is considered as ‗weak‘ if (i) It is irregular/overdrawn (except where

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irregularity is due to interest) for more than 60 days, and (ii) If PMS rank is 6 & above
(in cases where preventive monitoring system is applicable). For identification of
‗weak accounts‘ under standard category, adverse features as under should also be
3

kept in view:

Identification of Weak Accounts

 Poor financial performance in terms of declining profits, erosion of net

worth, etc.
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 Delay in completion of documentation resulting in non-creation/

registration of charge/mortgage etc.
 Non-compliance of important terms and conditions of sanction.

Identification of Irregular Accounts

An account is to be treated irregular, where any of the following irregularity

persists in the fund based limits for period of one month and above:
a) Monthly interest and/or installment of principal remains overdue,
b) Overdraft/Cash Credit account remains ‗ out of order ‘,
c) Bill remains overdue in case of bill purchased/discounted,
d) Any amount to be received remains overdue in respect of other
accounts.

Credit Division, HO monitors all weak and irregular loan accounts under standard

Loans & Advances STC, Lucknow Page 162 of 174

category having outstanding of above Rs.10 lakh on monthly basis. Besides, the
position of all weak accounts under standard category with outstanding of above Rs.
10 lakh having weaknesses such as units incurring operating/cash losses and
accounts with ‗C‘ & ‗D‘ risk rating etc. is also monitored at corporate level on
quarterly basis.
At field level, monitoring of all such accounts is done as under:

Irregular Accounts with Monitoring Authority

outstanding balance
Upto Rs. 1 lakh Incumbent Incharge of Small / Medium/ Large
Branch/VLB
Above Rs. 1 lakh & upto Rs. 10 Circle Heads/Incumbent of ELBs/ MCBs/LCBs
lakh
Above Rs.10 lakh & upto Rs. 50 Committee of GMs
lakh
Above Rs. 50 lakh ED/CMD

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Bank has implemented the Enterprise-wide Data Warehouse (EDW) to facilitate

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timely reporting, informed decision making, enhanced statutory compliances and
improved productivity. Data Warehouse is independent of the operational databases
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maintained in the respective source systems.
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User log-in ID & Password - The EDW Users ID has been created centrally for all
Bank employees. The EDW User ID is their PF number (without any initials) and for
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password, users may take up matter with their Circle Office or submit their request
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through banks e-mail at [email protected]. In case your user-id/ password is not

working, contact MIS Division on 011-23705933, 23766782 or email: [email protected]
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Irregular Account Dashboard

Irregular Accounts Dash board has been created with the objective of providing standardised
MIS, meaningful visualisation through charts / graphical representation at various levels, on
Irregular accounts. This dash board provides comprehensive details of every irregular
account including recovery data up to previous day. The main purpose of Irregular Accounts
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Dash board is to facilitate field functionaries to take timely corrective steps and arrest fresh
slippage to NPA.

The irregular Dash Board has many features and provides single point access to
manage the irregular accounts. The major features are:
 Summary of irregular accounts, amount-wise, age-wise, non-financial reason
wise and sector-wise.
 Irregular accounts with irregularity of one day and above.
 Graphic representation to easily identify this critical area and sector.
 Account-wise detail of irregular accounts with colour coding.
 Daily recoveries updated and accounts are highlighted with green band if the
recovery covers the irregular portion.
 Every data can be exported to Excel

It has three parts :

Loans & Advances STC, Lucknow Page 163 of 174

Part I has the summary position of irregular accounts with number of accounts, outstanding
amount and irregular amount. This data can be viewed through 4 tabs:
a) Amount wise (up to 10 lakhs, 10 lakhs to 50 lakhs, 50 lakhs to 1 cr. & above 1 cr)
b) Age wise (viz. 1-30days, 31-60days, 61-90 days, etc.),
c) Non financial reason (like SRM not renewed) summary view.
d) Another tab with an option to view summary report, i.e the FGM wise, Circle wise
summary for any given combination (single page report) with an option to view
amount wise, age wise, sector wise & non financial reason wise is made available for
assessing the impact.

Part II provides graphical view of the summary data. The charts provide the percentage of
various segments of irregular accounts in terms of age, amount, sector and non financial
reasons based on number and amount of irregular accounts. This facilitates the teams to
identify the critical area and draw plan of action for recovery.

Part III provides the list of accounts, which are otherwise regular but is part of one of the
irregular account of the same customer ID. These are referred as percolation accounts. This
feature facilitates the monitoring group to focus on such accounts, which may cause more
impact on fresh slippage.

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Advantages: The major benefit of this Irregular Dash board is ―monitoring made easy‖.

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The progress in regularisation of irregular accounts can be monitored on daily basis. The
analytics view of dashboard enhances the viewer‘s perceptions of situations and enables to
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take faster decision. The data can be exported into the user‘s PC in excel format with an
options to Save and Print. Further, Daily Account-wise detailed master report may be
viewed by FGM/CH in their My Inbox available at Home page of EDW MIS
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Access to Irregular Account Dashboard has been provided to all GM‟s at HO, Field
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General Managers, Circle Heads, other Senior Officials at FGMO and Circle Offices.

Ad-hoc Data – Apart from pre-published MIS reports, EDW is also facilitating HO
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Divisions/FGMOs/COs/Branches by providing ad-hoc data for various activities and business

development. HO Divisions/FGMOs/COs are requesting ad-hoc data from EDW, which is
being provided on demand basis. To demand ad-hoc data, request must be submitted at
email id [email protected]. The ad-hoc data request should contain following:

 Format for required data

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 Time period of data

 Business logic for the data elements
The name, designation, office name and mobile no. of the concerned person

Data Clean - Since, this is a decision support system and the decision may go
wrong if it is based on faulty data. The role of branches is to ensure that proper
code/data is updated in CBS system. The reports relating to data clean are available
under folder Data Clean in EDW which helps the branches in identifying the
flawed fields/data and make necessary corrections in source system.
Monitoring of Cash Credit Accounts through EDW:

A report has been devised „Credit Summation in Cash Credit Accounts‟ and made
available under folder MISD > Cash Credit of EDW on monthly basis. It displays list of all
CC A/Cs (> Rs. 1 lakhs), extracts their limit, credit summations during the month, compares
the actual credit summation in the a/c against a pre-fixed benchmark and grade the account
as per the appropriateness of the credit summation (different grades denoted by different

Loans & Advances STC, Lucknow Page 164 of 174

colors - lowest Credit summations are represented by RED colour). Thus branches, simply
by mouse clicks, get a pre-published report of credit summation activities of their ALL CC
A/Cs in One Single Screen. The actionable accounts are immediately identified through the
Red colour. These are the A/Cs with least Credit summations. FGMOs/COs/Branches to sort
out the red coloured accounts and take suitable remedial actions. The report is a quick
identifier of early illness, based on CBS transaction only for CC a/cs.

Monitoring of Overdue in Standard Term Loan :

Term Loans (Standard asset category) A/Cs amounts about 50% of Bank‘s credit portfolio.
For maintaining asset quality of Bank‘s credit portfolio, monitoring of Term Loans forms a
major task. For monitoring of any Loan portfolio, a pre-requisite is measuring its delinquency.
To monitor and measure the Overdue of the Standard Term Loan A/cs, a report has been
customized „ Monthly TL Overdue – Summary Position‟ under folder Recovery >
Monthly folder of EDW.

This report shows:

a) Amount of Standard TL Overdues
b) In each business unit wise (Branch/Circle/FGMO/Bank)

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c) At each month end

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d) In a portfolio level (i.e., not in account level).
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Small/Medium/Large Branches to Statement of irregular accounts with outstanding of
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Circle Offices above Rs. 1
ELBs/VLBs/MCBs to Circle lakh by 7thof
Statement ofirregular
the closeaccounts
of monthwith outstanding of
Offices above
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Rs.1 0 lakh by 7th of the close of month

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Circle Offices/LCBs to CPMRD Statement of irregular accounts with outstanding of

above
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Rs. 50 lakh by 10th of the close of month

Monitoring of weak accounts:

i) The first Quarterly Statement of all Weak Accounts, in a financial year shall be
submitted to CPMRD after finalization of Annual Accounts, with reference to
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the position of accounts as on 31st March, on the prescribed format.

(ii) The Quarterly Statements are to be submitted to CPMRD, HO within one
month of the close of the quarter.
(iii) If the accounts identified as ‗Weak‘ during 4 quarters continue to be so at the
end of the financial year, fresh Review Report will be again submitted with
reference to the position as at the end of the financial year.

Setting up of Task Force

With the monitoring of irregular and weak accounts above Rs. 50 lakh at HO,
constitution /scope/functions of Task Force at HO have been revised as under:
Level Constitution Scope

Loans & Advances STC, Lucknow Page 165 of 174

HO GM (CPMRD) All irregular accounts and weak
DGM/AGM/Chief (Credit Monitoring accounts under standard category
Division) with outstanding of above Rs. 50
GM/DGM & AGM/Chief (Recovery lakh.
Division).

CGM/GM/DGM (Credit)

Consolidated position of irregular accounts and weak accounts with outstanding

of above Rs. 50 lakh thereof shall be plakhed to CMD/EDs.

Navigation of Irregular Dash Board:

1. Open CBS PAGE &

2. Click on ―Non CBS Application‖ Link.
3. Click on MISD/ EDW under MISD
4. Click on ―EDW Login‖ to open login page of EDW.

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5. Login page will open. Enter your user id and password
6. You will be directed to a screen where you are required to double Click on

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Irregular Dashboard .
7. Click on irregular reports 7 choose the type of report to be extracted.
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8. Report will take some time to open and following screen will appear for all
kind of reports. Report can also be downloaded in Excel format by clicking on
―Export Current report as -> - >Excel 2007‖ link.
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S. LOAN REVIEW MECHANISM (CARD Cir. No. 03/2016 dated 13.04.2016)

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PNB MTOUCH – MOBILE APPLICATION & WEB PORTAL FOR CREDIT

MONITORING & FOLLOW UP (LA 37/2018 Dt 03.05.2018)
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A Digital Mobile Application cum Web Portal has been developed to capture the
records of all field visits made by the Branch Officials for recovery of overdue
amount.

The Mobile APP, PNB M Touch is linked to our existing monitoring mechanism to
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access the data regarding SMAs / Likely Degradations with functionalities to upload
the visit details on real time basis and to download the reports by controlling offices.

Objective of the Application is to strengthen the system of monitoring and

maintaining proper records of field visits of Officials to the Borrower / Guarantor‘s
office / premises for recovery of overdue amount.

The App / Web Portal consist of following functionalities

At BO Level –
 Details of loan accounts can be accessed through Mobile App anytime /anywhere.
 User will have calling facility to the mobile no.(s) listed in A/c details
 Flash Message / Follow up Reminder Reports for due date / promise date made
by Borrower in the Portal / App.

Loans & Advances STC, Lucknow Page 166 of 174

 Search Record Functionality (like Search the Borrowers of same location by using
Pin Code, Irregular for more than 60 days etc.)
(LA 37/2018 Dt 03.05.2018)
Coverage of credit audit: All standard risk rated accounts except:

a) Retail Banking segments (i) Rule Based Lending (housing, vehicles &
personal loan) (ii) Advances against consumer durables,
b) Advances against Bank Deposits, LIC policies, Govt. securities, Gold/silver
jewellery & ornaments, advance against shares, debentures & Mutual Fund).
Eligibility of accounts for credit audit:

The cut off limit for the purpose of credit audit of risk rated standard accounts shall be as
under:
 All rated standard accounts with exposure of Rs.10 cr. & above. In case of accounts
with combined group exposure of Rs.10 cr. and above all the accounts irrespective of
individual limits shall be subjected to credit audit.
 5% of rated standard accounts selected on random basis with exposure between

4
Rs.5 cr. and Rs.10 cr. and outstanding balance of Rs.5 cr. & above (in circles where
auditable accounts are less than 10 in a Financial Year).

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1. Credit audit of taken over accounts:19
In case of taken over borrowal accounts, credit audit is also to be conducted for accounts
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with exposure of Rs.1 crore and above. The first such audit is to be done within three
months of the takeover and the next audit is to be carried out within three months after
completion of one year of first credit audit. On takeover of such accounts the branches are to
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inform CARD, HO through respective Circle Office for ensuring first credit audit within three
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months of takeover.

Frequency:
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The frequency of credit audit will be as under:

All eligible Accounts shall be subjected to credit audit annually.

However in following cases half yearly audit may be conducted in respect of accounts with
exposure of Rs.5 crores and above: where there is decline in Credit Risk Rating by two
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notches, and/or decline in PMS by 2 notches for 2 quarters continuously and /or

Account is persistently in SMA-II category for 2 quarters continuously.

FINANCIAL APPRAISAL

On receipt of a loan application with financial information the banker begins the
process of financial appraisal. To analyze the financial statements, an understanding
of these financial statements is important for the appraiser.

Credit audit for eligible accounts will be conducted as under:

‗All eligible rated standard accounts with exposure of Rs.5 cr. Or Rs.10 cr. & above,
as the case may be.

By Concurrent Auditor------------------ Upto Rs.20 crores

Loans & Advances STC, Lucknow Page 167 of 174

By CARD/ Outsourced Auditor---------Above Rs.20 crores

I. WILFUL DEFAULTERS :( RECOVERY DIVISION CIRCULAR NO-22 /2015 dt.

31.08.2015 &31/2015 dated 23.11.2015)

A "wilful default" would be deemed to have occurred if any of the following events
is noted:-

(a) The unit has defaulted in meeting its payment / repayment obligations to the
lender even when it has the capacity to honour the said obligations.

(b) The unit has defaulted in meeting its payment / repayment obligations to the
lender and has not utilised the finance from the lender for the specific purposes for
which finance was availed of but has diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment / repayment obligations to the
lender and has siphoned off the funds so that the funds have not been utilised for the
specific purpose for which finance was availed of, nor are the funds available with

4
the unit in the form of other assets.

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(d) The unit has defaulted in meeting its payment / repayment obligations to the
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lender and has also disposed off or removed the movable fixed assets or immovable
property given by him or it for the purpose of securing a term loan without the
knowledge of the bank/lender.
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Mechanism for identification of Willful Defaulters

The transparent mechanism generally includes the following:

3

(a) The evidence of willful default on the part of the borrowing company and its
promoter/whole-time director at the relevant time should be examined by a
Committee headed by an Executive Director and consisting of two other senior
officers of the rank of GM/DGM.
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(b) If the Committee concludes that an event of willful default has occurred, it shall
issue a Show Cause Notice to the concerned borrower and the promoter/whole-time
director and call for their submissions and after considering their submissions issue
an order recording the fact of willful default and the reasons for the same. An
opportunity should be given to the borrower and the promoter/whole-time director for
a personal hearing if the Committee feels such an opportunity is necessary.

(c) The Order of the Committee should be reviewed by another Committee headed
by the Chairman / CEO and MD and consisting, in addition, of two independent
directors of the Bank and the Order shall become final only after it is confirmed by
the said Review Committee.

Guidelines On Publication Of Photographs

Loans & Advances STC, Lucknow Page 168 of 174

 1. Branches/Offices may consider publishing of photographs of Wilful Defaulters
with balance outstanding of Rs. 25 lakhs & above, in the Newspapers, in the
States/Union Territories (UTs) where the branch (having the concerned loan
account) is located, subject to the exemption given below.
2. For publication of photographs in the newspapers, the administrative sanction
will be given by the respective Circle Heads and in case of LCBs by the
concerned FGM.

Exceptions to the above guidelines

The photographs of wilful defaulters are not to be published in the newspapers in

the following cases:

(a) Education Loans

(b) In case the concerned branch is located in the States/UTs listed herein below:

1. Andhra Pradesh

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2. Andman & Nicobar Islands
3. Arunachal Pradesh

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4. Assam
5. Karnataka 19
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6. Kerala Note:
7. Lakshdeep
8. Mizoram
20

9. Nagaland
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10. Telengana
11. West Bengal
3

The above list may change from time to time. Before according sanction to publish
the photographs, the Circle Office to check up the status in consultation with the Law
Officer/Panel Lawyer of the respective area, so as to ensure that no adverse order
has been passed by the Court in their area.

3. Once Notice as per para herein below is issued, Circle Head may also permit
07

publishing of photographs of Wilful Defaulters in the Possession/Sale Notice

itself, instead of publishing separately, depending upon the requirement and on
case to case basis.
―As a precautionary measure, branches should send a Notice through Registered
Post and Speed Post as per the format given in Annexure A/B to the Wilful
Defaulters (borrower/guarantor), in the local language, intimating that in case of non-
repayment of outstanding amount in the loan account, within a month‘s time from the
date of Notice, their names and photographs will be published in the newspapers.‖

II. NON COOPERATIVE BORROWER (L&A 24/15 dt. 03.04.2015):

Introduction:
With a view to discourage borrowers/defaulters from being unreasonable and non-
cooperative with lenders in their bonafide resolution/recovery efforts, on the advice of RBI,
the bank may classify such borrowers as non-cooperative borrowers, after giving them due
notice, if satisfactory clarifications are not furnished.

Loans & Advances STC, Lucknow Page 169 of 174

RBI has setup a Central Repository of Information on Large Credits (CRILC) to collect,
store and disseminate credit data of borrowers having Aggregate Exposure (AE) of
Rs.5 crore and above and the Banks are to report classification of such borrowers to
CRILC.

Purpose:
To put in plakhe a system for identification and classification of non-cooperative borrowers
and reporting to CRILC in order to ensure that information of non-cooperative borrowers
should be available with all banks.

Definition of Non Cooperative Borrower (NCB):

A non-cooperative borrower is one who does not engage constructively with his lender by
 Defaulting in timely repayment of dues while having ability to pay,
 Thwarting lenders‘ efforts for recovery of their dues by not providing necessary
information sought,
 Denying access to assets financed / collateral securities,
 Obstructing sale of securities, etc.

In effect, a non-cooperative borrower is a defaulter who deliberately stone walls legitimate

4
efforts of the lenders to recover their dues.

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• A non-cooperative borrower in case of a company will include, besides the company,
its promoters and directors (excluding independent directors and directors nominated
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by the Government and the lending institutions).
• In case of business enterprises (other than companies), non-cooperative borrowers
would include persons who are in-charge and responsible for the management of the
20

affairs of the business enterprise.

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Cut-off Limit for NCB: The cut off limit for classifying borrowers as non-cooperative shall be
those borrowers having aggregate fund-based and non-fund based facilities of Rs. 5 crore
3

and above from our bank.

Identification and Reporting of NCB:
 Incumbent shall inform the identified borrower and other persons about the Bank‘s
intention to classify them as NCB and send them a letter on prescribed format, giving
them 10 days time to clarify their stand and pay the dues or show their cooperation.
07

 If no response is received within 10 days or the response of borrower is not

satisfactory, branches (other than LCBs) shall submit a proposal to Circle Office
(CO) for recommending the identification of the borrower as non-cooperative, in
the prescribed format.

 CO, after proper scrutiny of the case, if agrees, shall send the same with their
recommendations to FGMO who in turn, shall submit the same to Credit
monitoring Division (CRMD), HO with their recommendations. However, LCBs
shall send their proposals directly to FGMO for onward submission to CRMD with
their recommendations.

 CRMD, HO shall scrutinize the proposal and plakhe the same to a committee
named ‗NCB Classification Committee‘ with their recommendation. a Committee
headed by an Executive Director (Incharge- Credit Monitoring) & General

Loans & Advances STC, Lucknow Page 170 of 174

 Manager (Credit Monitoring Division) and all other General managers of Credit
Division, HO as members.

 The order issued by NCB Classification Committee and the minutes of the
meeting shall be plakhed before the NCB Classification Review Committee,
Headed by MD & CEO and two independent Directors of the Bank as members,
for review.

 The decision of the review committee shall be final. The decision of the
committee shall be on majority basis.

ANALYSIS OF FRAUDS IN THE BANKING INDUSTRY (LA 73/2018 Dt

09.08.2018)
Some of the major loopholes/lapses detected by CVC are in the following areas:
 No proper pre sanction Due Diligence of borrowers including KYC
verification.
 No visit by banks officials of borrower plakhe/factories/project site/security.

4
 Authenticity of Financial Statements/Information submitted by the borrowers
not ensured.

:5
 No proper scrutiny/study of stock/debtors statements. No confirmation from
the debtors for ensuring the genuineness of transactions.
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 No proper sharing of information amongst consortium members.
 No check on transactions between associates/ related parties.
 Extensive reliance on information given by outside agencies/professional etc.
20

 No end use verification of funds.

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For Details, See Circular LA 73/2018 & FRMD 80/2018

This has been further analysed Vide LA 99/2018 dt 08.10.2018 on 5 different sectors
3

namely Trading, Information & Technology, Export Business, Demand Loan and Letter of
Comfort under three captions i.e. Modus operandi, Loopholes/lapses and suggestion for
systemic improvement.

Some of the major loopholes/lapses detected by CVC are in the following areas:
 Many related parties/subsidiaries/associates/key management dealings.
07

 Cross transactions of sale/purchase from the same party.

 No record of movement of goods.
 Wrongly certified balance sheets by Chartered Accountants.
 Diversion/siphoning of funds.
 Incorrect and inflated data i.e. sales, stock holding levels, debtors etc.
 Loan liabilities from banks/FIs not reflected in financial statements.
 Discounting of bills against the terms of sanction.
 Withdrawal of proceeds of packing credits, FBPs and export bills.
 SWIFT transactions not linked to CBS of the bank.
 Anti money laundering provisions not adhered.
 Fictitious demand loan, saving bank accounts allowed.
 Large value transactions disproportionate to known source of income allowed.

For Details, See Circular LA 99/2018 dt 08.10.2018

Loans & Advances STC, Lucknow Page 171 of 174

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3
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Loans & Advances STC, Lucknow Page 172 of 174

 28. MISCELLANEOUS

INDUSTRY WISE EXPOSURE LIMITS:

Bank has developed a model for fixing industry wise internal credit exposure limits.
The model evaluates external factors like rating score of an industry by external
agency, nature of industry and its importance in economy as well as internal factors
like level and trend of asset impairment, exposure concentration and quality of
exposure in the industry. As the ceilings proposed are internal ceilings to achieve
diversified growth of portfolio and reduce portfolio concentration, it is provided that
the monitoring against such limits would be based on actual outstanding and
undisbursed term loan amounts in any industry. Bank vide L&A Cir. No.105 dated
31.12.2016 has reviewed industry wise credit exposure ceiling for various industries
and has also consolidated it in LA Cir 57/2017 dated 06.07.2017 and further
explained vide L&A Cir. No.26/2018 47/2019 dated 19.04.2018 18.04.2019.

4
LOAN SYSTEM FOR DELIVERY OF BANK CREDIT:

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L&A Circular 126/2019 19
L&A Circular No. 32 dated 28.03.2019 and subsequent circulars related to Loan system
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for delivery of bank credit for borrowers having aggregate fund based working capital
limit of ₹150 crore and above from the banking system.
20

IBA has informed that RBI has decided to exempt following from the purview of the Loan
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System for Delivery of Bank Credit guidelines:-

a) Credit facilities extended to State Government/ Union Territory agencies and Food
Corporation of India for procurement /price support activities;
3

b) Credit facilities extended to Central Counterparties;

c) Credit facilities extended by overseas branches of Indian banks.

L&A Circular 129/2019:

07

It has been observed by the Statutory Central Auditors (SCAs) that guideline requiring
the working capital loan to be divided in two separate components as WCL and Cash
Credit has not been properly complied with by branches wherever the borrower is
availing aggregate fund based working capital limit of ₹150 crore and above which has
been effective from 01.04.2019. Further, it has also been observed that commitment
charges have not been levied in certain cases.

In this regard, it is advised that the guidelines issued vide aforesaid circular requiring the
working capital loan to be divided in two separate components as WCL and Cash Credit
should be strictly followed in all applicable cases. Further commitment charges
conveyed vide L&A Cir. no 41 dt 10.04.2019 are to be levied in all eligible accounts.

Loans & Advances STC, Lucknow Page 173 of 174

 CHANGES DURING THE LAST WEEK

Changes during week ended 03.01.2020:

IRMD-Integrated Risk Management 33/2019:-

Dynamic Review Rating Model Treatment specified for overdue credit risk ratings
is kept in abeyance till 31.03.2020. However, till such time existing guidelines will
prevail and penal interest @ 2% shall be charged over and above the applicable
interest rate for the default period as specified for overdue credit risk ratings in
existing guidelines issued vide IRMD Circular No. 23/2017 dated 13.12.2017 and
25/2018 dated 14.09.2018 (IRMD 33/2019)

IRMD-Integrated Risk Management 34/2019

PNB SAJAG - Early Warning Signal+ Preventive Monitoring System
Under this system if any early warning signals/triggers invoked in borrower account
has propensity to downgrade risk categorization of that borrower, in such case
system shall trigger dynamic review of internal risk rating or re-rating of the account,

4
ahead of annual review

:5
The functionality has been made operational from 31st Dec 2019 once the data gets
uploaded in PNB-SAJAG for the month of Dec 2019. As per changes made, if PMS
rank of the borrower is downgraded to ―4‖ indicating ―Warning‖ or to rank 5‖
19
/20 554

indicating ―Likely NPA‖ a message shall be displayed in ―Comprehensive EWS

Report‖
20

L&A Cir. No. 143/2019:-

/01 09

LOANING POWERS - AMENDMENT IN TERMS & CONDITION OF SANCTION

Certain Loaning powers of Branch Heads of LCBs & COCAC to change terms in
sanction of Board/MC/ HOCAC-III/II/I/ ZOCAC have been withdrawn/modified.
3

ZOCAC & above have been allowed to permit certain changes in terms of sanction
by Board / Management Committee / HOCAC-III/II have been withdrawn/modified.
Branch Head/COCAC loaning power for conversion of unavailed limits sanctioned by
authority other than Board/Management Committee, have been modified
07

L&A Cir. No. 144/2019:-

Dynamic Review Rating Model (vide IRMD cir No 02/19 & 03/19), in case of
downgrade in Dynamic Review rating, various loan related actions (to be taken),
have been advised. Competent Authority to waive specific loan related actions are
also advised vide aforesaid circular.

L&A Cir. No. 145/2019 :-

In accordance with EASE Reforms for FY 2019-20, the guidelines on benchmark
ratios with desired and acceptable levels for different segments/ industries has been
communicated.

Loans & Advances STC, Lucknow Page 174 of 174