Notes and Briefs on Banking-ver 123

By
A R.Vijayaraghavan
Senior Manager
R IOB RO TRICHY
E Mobile No 94432 48738
A E Mail id-
D [email protected]
I
N Table of Contents
G

O 1
F
Important Banking Statistics 02
2 What is new 08
R 3 Committees 92
E 4 Lending to Priority Sector 94
L 5 Abbreviations& Misc 126
E
v 6 Products/Schemes 129
A 7 FAQ 171
N
C
E

T
O
Disclaimer:
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O of our knowledge and belief, the contents are correct, the Author / IOB ONLINE
accepts no responsibility for authenticity or accuracy. The reading material has
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been provided on free service and volunteer basis, to serve as a reference
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Updation-31.03.10

Prepared by R.Vijayaraghavan May 2010 1

IMPORTANT BANKING STATISTICS % w.e.f
BANK RATE 6.00 30.04.2003
CASH RESERVE RATIO 6.00 24.04.2010
5.75 27.02.2010
Minimum Daily Maintenance of CRR 70% of the required amount. Interest on CRR-
Nil
STATUTORY LIQUIDITY RATIO –SLR 25 07.11.2009
25 % 25.10.97 24 08.11.2008
SAVINGS BANK (PER ANNUM)-Interest on daily 3.50 01.03.2003
products from 01.04.2010
RRB/LAB can pay 0.50% extra on SB deposits (Discretion)
REPO RATE 5.25 20.04.2010
5.00 19.03.2010
REVERSE REPO RATE 3.75 20.04.2010
3.50 19.03.2010
Bench Mark PLR 13.25%-09.04.07 13.50%-01.07.08 14%-16.08.08
13.25%-06.11.08 12.50%17.01.09 12%-01.07.09
Gold BPLR 2.50%-01.03.07 4%-15.11.08
Gold Loan Maximum Period- 180 days only
Bench Mark PLR is left to the discretion of individual Banks and arrived at by each
Bank based on their Competitive strength and Cost Structure , which includes Cost
of funds, spread and operative expenses)
(Maximum spread over BPLR is 3.5%. (Not applicable to consumer credit Special
schemes etc) PLR/PTLR withdrawn. Interest rate for advances over Rs 2 lakhs are
priced taking into account credit risk and term premia, depending upon the risk
profile and other elements of cost)
Prepayment charges- at 1% of prepaid amount in case of term loans and other loans
where the repayment of loan exceeds one year
TERM DEPOSITS-FOR MATURITY 15 DAYS AND ABOVE
(EXCLUDING NONRESIDENT DEPOSITS) FREE 30/04/1998
Minimum Deposit period Seven days (for Deposits of Rs.1.00 lac. and above)
NON-RESIDENT EXTERNAL RUPEE ACCOUNTS
i) SAVINGS DEPOSITS- wef 18.11.05 -At par with domestic SB
ii) TERM DEPOSITS (1 Year AND ABOVE) FREE 13/09/1997
TD-Fixed or Floating Rate-with in the ceiling Rate announced by RBI from time to
time. At present USD LIBOR/Swap rate for USD corresponding Term + 175 Basis
points.
Rate based on LIBOR/Swap as on the last date of previous month
FCNR INTEREST RATE
Banks may fix the interest rate on FCNR deposit on monthly basis.
Ceiling rate
FCNR-fixed-Libor/Swap rate plus 100 basis points for respective currencies for
corresponding maturity.( LIBOR rates quoted in 5 currencies for 6 Maturity periods.)
FCNR-Floating Rate-Swap rate- Reset once in 6 Months.
Ceiling Rate for Export Credit in FC-Libor+200 basis points
Ceilng Rate for Lines of Credit with overseas Banks-6 Months LIBOR+150 basis pts
All in Cost Ceiling for ECBs-avg maturity period-3year-5Y-6 Months LIBOR+300 basis points
More than 5years- 6 Months LIBOR +500 basis points
Maximum Loan agt NRE/FCNR deposits to depositors or to Third parties-Rs100 lacs

Prepared by R.Vijayaraghavan May 2010 2

LENDING RATES (PER ANNUM)
UP TO RS.2, 00,000/- Should not exceed BPLR 29/04/1998.

OVER RS.2, 00,000/- FREE 18/10/1994

DRI ADVANCES 4%
OTHERS FREE
RAM-Risk assessment Model- Internal Rating of Borrowal accounts with Credit
limits of Rs 1 Crore and above. For MSE-Rs2 cr & above. Bank’s scoring model
introduced in1993, rates borrowal accounts in a four point scale A+ .A,B,C. It takes in
to account only financial parameters and compliance of terms of sanction. During
2002, Bank had outsourced to CRISIL a risk assessment Model(RAM) . Some
modules added in 2006.
This model takes into account the diverse risk factors and risk rate credit proposals.
Internal rating model under RAM is applicable to four segments
1 Large Corporate LT 1 to LT 10
2 Traders TR 1 to TR 10
3 SME SME 1 to SME 10
4 Infrastructure(Road and Power) P1 to P7
Large Corporate- Units engaged in Manufacturing services, Contracting and Real
estate development whose turnover is above Rs50 crores .
Trading( whole salers, Retailers, exporters, importers and distributors) having a
turnover greater than Rs75 crore
Interest rate is linked to RAM rating in respect of above borrowal accounts.
Risk/Term premium is to be applied in addition. The exact premium to be charged is
based on RAM rating and Tenor of the facility.
For CC accounts the premium prescribed under “up to 3 Years’ shall be applied.

LIQUDITY AND CALL MONEY

To inject Liquidity RBI uses the following instruments in a sequential order

First-LAF-Liquidity Adjustment facility-Repo
MSF-Market Stabilization Fund-unwinding it
CRR-Reduce CRR
When liquidity is injected Call Money rate will come down.
When Interest rate goes up Yield on Govt securities will come down there by
Treasury Income will also be reduced.
Mark to Market- securities are valued under Mark to market when available for sale,
Held to Maturity- Securities are valued when they are permanent in nature.

COMMERICIAL PAPER
Unsecured Money market Instrument-in the form of Promissory note-Rated
Corporate Borrowers to raise short term borrowers
Minimum Maturity Period 7 days. (Reduced from 15 days) up to 1 Year. Minimum
Tangible Net worth- Not les than Rs4 Crores. Companies should have sanctioned
WC limits and the account should be standard. Rating From
CRISL/ICRA/CARE/FITCH –Minimum P2 from CRISIL or its equivalent.
Size-Minimum Rs5 lac in multiples there of. In the form of Dmat /Promissory Notes-
No grace period. Only a Scheduled Bank can act as IPA-Issuing and Paying Agent.

CERTIFICATE OF DEPOSITS: Can be issued by Scheduled Commercial Bank-

excluding RRBs- in the form of Usance Promissory notes/De mat. No grace period. If
Prepared by R.Vijayaraghavan May 2010 3
matures on a holiday payable on the preceding working day. If issued in Physical
form-Attracts stamp duty. Minimum maturity period- 7 days. Up to 1Year (FIS
Minimum 1 year- Max 3 years) - Minimum size Rs 1 Lakh and in multiples of Rs 1
Lakh. Banks/FIs can not grant loan against CD. Can be issued to NRIs but only on
Non repatriation basis. Banks to maintain CRR/SLR-on issue price. CDs can not be
bought back by banks before maturity. Discount on FV/ on Floating rate basis can be
issued. Transferable by endorsement & Delivery.

EXPORT CREDIT REFINANCE FACILITY

1. Under Sec 17(3A) of RBI act.

2. On Rupee Export Credit-Both pre shipment and post shipment
3. All Such Banks (Excluding RRBs) –Ads in FX can avail.
4. Excludes Export Bills rediscounted with EXIM bank/Other Banks/FIs, Export Credit
agt which refinance obtained from NABARD/EXIM
5. PCFC, Rediscounting of export Bills abroad, overdue export credit, other Export
credit not eligible for refinance to be excluded.
6. Limit-to the extent of 15% of O/S export credit eligible for refinance as at the end
of second preceding fortnight.
7. Int rate-at Repo Rate
8. No margin is required
9. Repayable on demand or on expiry of fixed period not exceeding 180 days.
10. Minimum Rs 1 lac in multiples of Rs 1 lac.
11. O/S export credit to be reported with in 5 days from the relevant date.

CRR
Demand Liabilities: Current Deposit, DL portion of SB, LG/LC Margin, Overdue fixed
Deposit, CC credit Balance, Deposits held as security for Demand Loan
Time Liabilities: Fixed Deposits, RD, Time Liabilities portion of SB, Gold Deposits
ODTL: IA, Bills payable, Unpaid Dividends
CRR to be maintained based on the Bank’s total of Demand and Time liabilities as
on the last Friday of second preceding fortnight
Liabilities not to be included for DTL/NDTL-Paid up capital, Free reserve, Credit
balance in P/L a/c, Provisions for IT, DICGC/ECGC claims settled , Inter Bank Term
Dep/Borrowings( liabilities to the banking System 15 days to 1 Year)
(CRR-Maintained ,in the form of current account with RBI, under Sec 42 of RBI act.
No minimum maintenance requirement. No interest on CRR balances.
CRR on daily basis- Minimum CRR balance upto 70% of CRR requirements on all
days. Int on CRR- Nil wef 31.03.07
Penalty for Shortfall- CRR- In cases of default in maintenance of CRR requirement
on a daily basis which is presently 70 per cent of the total CRR requirement, penal
interest will be recovered for that day at the rate of three per cent per annum above
the Bank Rate on the amount by which the amount actually maintained falls short of
the prescribed minimum on that day and if the shortfall continues on the next
succeeding day/s, penal interest will be recovered at a rate of five per cent per
annum above the Bank Rate.
(ii) In cases of default in maintenance of CRR on average basis during a fort-
night, penal interest will be recovered as envisaged in sub-section (3) of
Section 42 of Reserve Bank of India Act, 1934.
SLR-maintained based on NDTL , as on the last Friday of second preceding fortnight
in accordance with the provisions of Sec24 of Banking Regulation Act 1949.,

Prepared by R.Vijayaraghavan May 2010 4

Penalty for Shortfall-SLR-PI at 3% p.a+ Bank Rate on the shortfall for a day and if
continued on next day-PI at 5% p.a + Bank Rate
Exempted Category:
1. Liabilities to the Banking System in India
2. Credit Balance in ACU (USD) a/cs
3.. Demand & Time liabilities in respect of offshore banking units.

(There is no floor or ceiling rate for CRR. For SLR- ceiling rate is 40%)

M3-MONEY SUPPLY

Currency with public+ Demand Deposits with Banks+ Time deposits with Banks+
Other Deposits with RBI

GILT FUNDS

Gilt Funds are Mutual Fund schemes floated by Asset Management Companies with
exclusive investment in Government securities. The Schemes are referred to as
Mutual Funds dedicated exclusively to investments in Government Securities. Govt
Securities means and include Central Govt State Gove Securities and Treasury Bills.
It provides the investor the safety of investments & better returns.

MUTUAL FUNDS

Mutual Fund is a Trust that pools the savings of a number of investors, who share a
common financial goal. The money thus collected is invested into a variety of
securities including stocks, bonds and Money Market Instruments. Each scheme of a
Mutual fund can have different character and objectives. MF issue units to the
investors which represent which represents an equitable right in the assets of the
Mutual fund. Thus Mutual Fund is the most suitable instrument for the common man
as it offers an opportunity to invest in a diversified professionally managed basket of
securities at a relatively low cost.
Classification of Mutual Fund-By Structure- Open ended Scheme, Closed Ended
Scheme, and Interval Scheme.
By Investment Objective-Growth Scheme, Income Scheme, Balanced Scheme,
Money Market Scheme, Tax Savings Scheme Sector Specific Scheme etc.
Open End Fund- Open for subscription through out the year. They do not have a
fixed maturity. Investors can buy and sell at NAV.
Open End Fund- Open for subscription through out the year. They do not have a
fixed maturity. Investors can buy and sell at NAV.
Close Ended Scheme- Stipulated Maturity-3-15 years-open to subscription only
during a specified period. Investors can invest at the time of initial public issue and
can buy and sell thereafter in the secondary market.
Advantage to the Investors- Safety, Low costs, Liquidity, Variety of Schemes. Return
Potential, Diversified Portfolio, Professional Management, Transparency Flexibility,
well regulated, Tax benefits
Advantage to the Bank-Attractive Commission and regular returns every year.
Advantage to MFs- They can reap the advantage of Net work of Branches and wider
customer base and Banks with their data base can easily market. Customers relay
on Bankers wisdom and advice.

Prepared by R.Vijayaraghavan May 2010 5

 Risk Factors- Investment in MF is always subject to Market risk. Returns cannot be
guaranteed. Returns vary with the nature of the Scheme, Market risk, and
Investment expertise of the AMC- Fund manager.
So this can be sold to those customers who are having the risk appetite and also
aware of the risk associated with investments in mutual funds. Return on any
investment is directly proportional to the risk involved. (When the risk is low the
return is also low)
NAV (Net Asset Value) =per Unit Market Value of the assets of the Scheme=
Market value of the assets of the Scheme Receivables+ Accrued Income-Liabilities –
Accrued expenses
Number of Units out Standing
MIN-Mutual Fund Identification No-Under AML laws, each investor investing Rs50,
000/- or more in MFs need to be KYC compliant. This required to be done by
obtaining MIN.-Unique Id issued by CDSL venture ltd.

Money Market Mutual Funds- To provide Liquidity, Safety and current income. MMFs
invest in Money Market Investments like CP< CD, Call Money, Treasury Bills etc
(Maturity upto 1 year)

DEPOSITORY (NSDL&CDSL) is an organization where the securities of the share

holder are held in the electronic form at the request of the share holder through a
medium called Depository participant. DP can be compared with a Bank. Just like
the Bank , the Depository safe keeps the securities(Shares, Debentures, Bonds ,
units of MF etc) and permit trading in these securities with out having to handle
Physical Securities. The first Depository in our country is NSDL (National Securities
Depository Limited) and this is promoted in 1996 by IDBI, UTI, NSE to provide
electronic Depository facilities for securities traded in the equity & the debt market.
NSDL was registered with SEBI.
CDSL-Central Depository Services(India) Ltd-promoted in 1999 by Bombay Stock
Exchange with SBI, Bank of India, Bank of Baroda, HDFC.
Dematerialization-is a process by which physical Certificates are converted into
electronic form.
Re materialization -is a process of conversion of electronic holding into physical
securities.
Pledge-Depository allows creation of pledge, closure of pledge and invocation of
pledge.
Bank has become a Depository Participant in the National Securities Depositories
Limited.
DP is an agent of Depository.

REVERSE REPO AND REPO (Under Liquidity adjustment facility)

Both are Short term reference rate
Reverse Repo- to mop up liquidity- RBI sells securities with an agreement to
repurchase them at a later date at an agreed rate called reverse Repo rate. In other
words it is the rate at which Banks park their short term funds with RBI.
Repo- to inject liquidity- RBI buys securities with an agreement to sell them at a later
date. It is the rate at which central bank lends short term funds to Banks.

CBLO

It is discounted instrument available in electronic book entry form for the maturity
period ranging from 1 day to 1 year as per RBI guidelines. This involves providing
securities, usually govt. securities as collateral for the funds.

Prepared by R.Vijayaraghavan May 2010 6

CBLO market includes Foreign Banks, Private Sector, PSBs. Preferred instruments
for CBLO by the lenders are T Bills (91 days)

BANK’S EXPOSURE TO CAPITAL MARKET

Maximum aggregate capital market exposure – Should not exceed 40% of its net
worth on solo and consolidated basis.

BCSBI-BANKING CODES AND STANDARDS BOARD OF INDIA.

Registered as a separate Society under Society Registration Act, 1860.Membership-
Scheduled Commercial Banks- Providing RBI necessary supervisory comfort.
With IBA brought out Code of Bank’s Commitment to Customers (wef 01/07/06)-
voluntary code-self imposed standards.\Code revised during 2009.

BIOMETRICS
An identification and authentication device based on physical attributes like
fingerprint, palm print, retina pattern, etc. is called biometric system. Continuous
research and development has led to evolution of various identification and
authentication devices based on physiological or behavioral attributes. Any
identification methodology or technique should be accurate, time efficient and
reliable, and cost as well as memory effective. Besides, it should be acceptable to
users whose attributes would be captured. Signatures / thumb impression /
fingerprints have been an age old mechanism of identifying individuals and well
accepted by law enforcement authorities.
E-MONEY:
Electronic money shall mean monetary value as represented by a claim on the
issuer which is:
(i) stored on an electronic device;
(ii) issued on receipt of funds of an
amount not less in value than the
monetary value issued;
(iii) accepted as means of payment by undertakings other than the issuer"
E-PURSE:
E-Purse holds electronic monetary value on a computer chip on a card,
usually smart card. It records the value of each transaction on the card and the
monetary value is deducted from the computer chip on the card.
E-Purse Advantages
 Convenient mode of carrying money
 Used for Utility bills, telephone services, shopping malls, transport services,
hospitals, educational institutions, toll, parking or even local tax / charges payment
 Preservation of resources in terms of manpower, money, time, less printing and
minting of notes and coins respectively
 an option for a country with limited retail banking infrastructure

Prepared by R.Vijayaraghavan May 2010 7

WHAT IS NEW

BUDGET 2009-10 HIGH LIGHTS

• Additional Rs 1,65,000 Crs for bank re-capitalisation

• Rs 3000 Crs for agricultural impetus
• Farm loan payments to be extended for six months
• Fertiliser subsidy to be reduced
• Rs 100 Cr woman farmer fund scheme
• Coal regulatory authority to be set up
• Clean energy fund to be established
• Interest subvention of 2% to be extended for handicrafts and SMEs

• Economy can achieve GDP growth of 10%

• Interest subvention for housing loans up to 1 lacs
• Allocation to defence raised to Rs 1.47 lac Crs
• Defence capex raised to Rs 60000 Crs
• Hope to implement Direct Tax Code from April 2011
• GST to be implemented from 2011
• Divestment target of Rs 25,000 Crs
• Rs 1200 Crs assistance for drought in Bundelkhand

• Rs 48000 Crs for Bharat Nirman

• NREGA scheme allocation raised to Rs 41000 Crs

• Allocation to health Rs 22,300 Crs

• Allocation for school education up from Rs 26800 Crs to Rs 31036 Crs

• Allocation to power sector at Rs 5130 Crs

• Rs 10,000 Crs allocated for Indira Awaas Yojna

• Social Security Fund to have corpus of over Rs 1000 Crs

• Rs 2400 Crs for MSMEs

• Government to contribute Rs 1000 per month for pension security

• Rs 5400 Crs allocated for urban development

• Rs 66100 Crs allocated for rural development

• Rs 1900 Crs allocated for UID project

• Gross tax receipts Rs 7.46 lac Crs

• Govt to set up National Mission for delivery of justice

• 15% rise in planned expenditure

• Fiscal deficit target of 5.5% in FY11

• Excise on all non smoking tobacco raised

• Televisions,Cement,Refrigerator,Jewellery to be costlier

Prepared by R.Vijayaraghavan May 2010 8

 • Mobile phones,CDs to become cheaper

• Customs duty on Gold and Platinum hiked

• Service Tax rates unchanged

• More services to be brought under tax net

 Clean energy cess of Rs.50 per tonne on coal produced in India

-- Concessional duty of 4 percent for solar power rickshaw developed by

Council of Scientific and Industrial Research

-- Concessional customs duty of 5 percent for cable TV operators for

importing equipment

-- Toys fully exempt from central excise duty

-- Service sector tax retained at 10 percent to aid the introduction of GST;

more services to be taxed

-- Accredited news agencies exempt from service tax

-- Net revenue gain Rs.22,500 crore

-- Taxes on large cars and SUVs increased 2 percent to 22 percent

-- Basic duty of 5 percent on crude oil restored

-- Tax on cigarettes, cigars and chewing tobacco increased

-- Rs. 26,000 crore revenue loss due to reduction of direct taxes

-- Partial roll back of reduction in central excise duty

-- Income up to Rs.1.6 lakh per year exempt from income tax; up to Rs.5 lakh
to be taxed at 10 percent; income of Rs.5-8 lakh to be taxed at 20 percent
and income above Rs.8 lakh to be taxed at 30 percent

-- IT returns forms for individual tax payers to be further simplified

-- Expenditure in 2010-11 estimated at 11,l8,749 crore

-- Fiscal deficit estimated at 5.5 percent in 2010-11; an improvement of 1

percent over 2009-10

-- Two more centralised tax processing centres to be set up in addition to the

one at Bangalore

-- National Social Security Fund created for workers in unorganised sector

with allocation of Rs.1,000 crore

-- Government to give Rs.1,000 for each National Pension Scheme account

opened by workers in the unorganised sector

-- Exclusive skill development programme for the textile sector

-- Fifty percent hike in allocation for schemes for women and child
development

-- Rs.4,500 crore allocated for ministry of social justice and empowerment, a

Prepared by R.Vijayaraghavan May 2010 9
 hike of 80 percent

-- Rs.2,600 crore allocated for ministry of minorities affairs

-- Rs.1,900 crore for Unique Identification Authority of India

-- Rs.147,344 crore allocated for defence

-- 2,000 youth to be recruited in central paramilitary forces

-- Draft Food Security Bill prepared and will be put in the public domain

-- Allocation on primary education raised from Rs.26,800 crore to Rs.31,300

crore

-- Banking facilities to be provided to all habitations with a population of 2,000

and more

-- Rs.66,100 crore allocated for rural development in 2010-11; Rs.40,100

crore for National Rural Employment Scheme; RS.48,000 crore for Bharat
Nirman

-- Rs.1,270 crore allocated for Rajiv Awas Yojana for slum dwellers, up from
Rs.150 crore, an increase of 700 percent with the aim of creating a slum free
India.

-- Forty-six percent of plan allocations in 2010-11 will be for infrastructure

development

-- Coal Regulatory Authority to be set up to benchmark standards of

performance

-- Allocation for new and renewable energy sector increased 61 percent from
Rs.620 crore to Rs.1,000 crore in 2010-11

-- National Clean Energy Fund to be established

-- Rs.200 crore allocated as special package for Goa to prevent erosion and
increase green cover

-- Government committed to growth of SEZs

-- Four-pronged strategy for growth of agricultural sector

-- Rs.200 crore to be provided in 2010-11 for climate-resilient agricultural

initiative

-- Involvement of private sector in grain storage to continue for another two

years

-- In view of drought and floods, debt repayment period extended to June

2010

-- Five more mega food processing projects in addition to 10 existing ones

-- FDI flows in April-December 2009 $20.9 billion

-- FDI policy to be made more user-friendly with one comprehensive

document

Prepared by R.Vijayaraghavan May 2010 10

 -- Apex level financial stability council to be set up for banking sector

-- Indian Banking Association to give additional licences to private players

-- Provision for further capital for regional rural banks

-- Roadmap for reducing public debt in six months

-- Implementation of direct tax code from April 2011

-- Government actively engaged in finalising structure of general sales tax

regime; hopes to implement it from April 2011

-- New fertiliser policy from April 2010; will lead to improved productively and
more income for farmers

-- Economy stabilised in first quarter of 2009-10; strong rebound in second

quarter; overall growth at 7.2 and could be higher when Q3 and Q4 are taken
into account

-- Export figures for January encouraging

-- Hope to breach 10 percent growth mark in not too distant future

-- Government set in motion steps to bring down food inflation

-- Need to review stimulus package; need to make growth more broad-based

-- India has weathered global economic crisis well; Indian economy in far
better position than it was a year ago. In 2009 Indian economy faced grave
uncertainty; delay in southwest monsoon had undermined agricultural
production

-- First challenge now is to quickly revert to 9 percent growth and then aim for
double digit growth; need to make recovery more broadbased

-- Second challenge is to make growth more inclusive; have to strengthen

food security

-- Third challenge is to overcome weakness in government's public delivery

mechanism; a long way to go in this

Annual Policy Statement for the Year 2010-11: Press Statement by Dr. D. Subbarao,
Governor-20.04.2010

Meeting with Banks

Banks welcomed the Reserve Bank’s policy stance. They agreed that the monetary
measures announced by the Reserve Bank today were appropriate given the growth-
inflation dynamics. Apart from monetary policy, discussions centred around three specific
issues: (i) government market borrowing programme; (ii) financial inclusion; and (iii)
infrastructure financing. Banks indicated that the programmed government borrowings may
not crowd out private sector demand given the projected level of resources in the system.
Banks assured the Reserve Bank that they share their commitment to financial inclusion and
indicated that they will work innovatively to promote financial inclusion. Banks were
concerned about their growing exposure to the infrastructure sector. Although they
welcomed the measures initiated by the Reserve Bank to promote infrastructure financing by
banks, they indicated that there is a need to develop alternative sources for financing to
supplement the efforts of the banking sector.
Prepared by R.Vijayaraghavan May 2010 11
Global Context

This monetary policy for 2010-11 is set against a rather complex economic backdrop.
Although the situation is more reassuring than it was a quarter ago, uncertainty about the
shape and pace of global recovery persists. Private spending in advanced economies
continues to be constrained and inflation remains generally subdued making it likely that
fiscal and monetary stimuli in these economies will continue for an extended period.
Emerging market economies (EMEs) are significantly ahead on the recovery curve, but
some of them are also facing inflationary pressures. This has prompted central banks in
some EMEs to begin phasing out their accommodative monetary policies.

Indian Economy

Growth

In India, economic recovery, which began around the second quarter of 2009-10, has since
shown sustained improvement. Industrial recovery has become more broad-based and is
expected to take firmer hold on the back of rising domestic and external demand. After a
continuous decline for nearly a year, exports and imports have expanded since
October/November 2009. Flow of resources to the commercial sector from both bank and
non-bank sources has picked up. Surveys by the RBI as well as others suggest that
business optimism has improved. On balance, under the assumption of a normal monsoon
and sustained good performance of the industry and services sectors, for policy purposes,
the Reserve Bank projects real GDP growth for 2010-11 at 8.0 per cent with an upside bias.

Inflation

The developments on the inflation front are, however, worrisome. Headline wholesale price
index (WPI) inflation accelerated from 1.5 per cent in October 2009 to 9.9 per cent by March
2010. There has been a significant change in the drivers of inflation in recent months. What
was initially a process driven by food prices has now become more generalised. This is
reflected in non-food manufactured products inflation rising from (-) 0.4 per cent in
November 2009 to 4.7 per cent in March 2010.

Going forward, three major uncertainties cloud the outlook for inflation. First, the prospects
of the monsoon in 2010-11 are not yet clear. Second, crude prices continue to be volatile.
Third, there is evidence of demand side pressures building up. On balance, keeping in view
domestic demand-supply balance and the global trend in commodity prices, the baseline
projection for WPI inflation for March 2011 is placed at 5.5 per cent.

Monetary Aggregates

Keeping in view the need to balance the resource demand to meet credit offtake by the
private sector and government borrowings, monetary projections have been made
consistent with the growth and inflation outlook. For policy purposes, money supply (M3)
growth for 2010-11 is placed at 17.0 per cent. Consistent with this, aggregate deposits of
scheduled commercial banks (SCBs) are projected to grow by 18.0 per cent. The growth in
non-food credit of SCBs is placed at 20.0 per cent. As always, these numbers are provided
as indicative projections and not as targets.

Financial Markets

The overall liquidity remained in surplus though it declined towards the end of the year
consistent with the monetary policy stance. Overnight interest rates generally stayed close to
the lower bound of the LAF rate corridor. The large market borrowing by the Government
put upward pressure on the yields on government securities which was contained by active
liquidity management by the Reserve Bank.

Prepared by R.Vijayaraghavan May 2010 12

Market Borrowings

The Union Budget for 2010-11 has begun the process of fiscal consolidation and the net
market borrowing requirement of the Central Government in 2010-11 is budgeted lower than
that in the previous year. However, fresh issuance of securities in 2010-11 will be 36 per
cent higher than last year. Managing the borrowing is going to be more challenging than in
last year for three main reasons.

First, the option for liquidity management through OMO and MSS which we used extensively
last year will be limited this year.

Second, private credit demand will pick up, making crowding out a potential possibility.

Finally, inflation pressures are stronger.

Regardless, the Reserve Bank will ensure that credit requirement of both the government
and the private sector are met.

Risk Factors

Let me turn to risk factors. While the indicative projections of growth and inflation for 2010-
11 may appear reassuring, we need to recognise the major downside risks to growth and
upside risks to inflation:

The prospects of sustaining the global recovery hinge strongly on the revival of private
demand which continues to be weak in major advanced economies. While recovery in India
is expected to be driven predominantly by domestic demand, a sluggish and uncertain global
environment can have an adverse impact.
If the global recovery gains momentum, commodity and energy prices may harden further
which could add to inflationary pressures.
Any unfavourable monsoon rainfall pattern could exacerbate food inflation, and could also
impose a fiscal burden and dampen rural consumer and investment demand.
The continued accomodative monetary policy in advanced economies is expected to
trigger large capital flows into the EMEs, including India. This will pose a challenge for
exchange rate and monetary management.

A few comments on the exchange rate management. Our exchange rate policy is not guided
by a fixed or pre-announced target or band. Our policy has been to retain the flexibility to
intervene in the market to manage excessive volatility and disruptions to the macroeconomic
situation. Recent experience has underscored the issue of large and often volatile capital
flows influencing exchange rate movements against the grain of economic fundamentals and
current account balances. There is, therefore, need to be vigilant against the build-up of
sharp and volatile exchange rate movements and its potentially harmful impact on the real
economy.

Monetary Policy Stance

The monetary policy response in India since October 2009 has been calibrated to India’s
specific macroeconomic conditions. In the wake of the global economic crisis, the Reserve
Bank pursued an accommodative monetary policy beginning mid-September 2008. This
policy instilled confidence in market participants, mitigated the adverse impact of the global
financial crisis on the economy and ensured that the economy started recovering ahead of
most other economies. However, in view of the rising food inflation and the risk of it
impinging on inflationary expectations, the Reserve Bank began the process of exit from the
expansionary monetary policy beginning October 2009.

Our monetary policy stance for 2010-11 has been guided by the following three
considerations. First, despite the increase of 25 basis points each in the repo rate and the
reverse repo rate in mid-March 2010, our real policy rates are still negative. With the
recovery now firmly in place, we need to move in a calibrated manner in the direction of
Prepared by R.Vijayaraghavan May 2010 13
normalising our policy instruments. Second, the current episode of inflation, which was
triggered by supply side factors, is developing into a wider inflationary process. Demand side
pressures are now clearly discernible. There is, therefore, need to ensure that demand side
inflation does not become entrenched. The third consideration that informed our monetary
policy stance is the need to balance the monetary policy imperative of absorbing liquidity
and ensuring that credit is available to both the Government and the private sector.

Against this background, the stance of monetary policy is intended to:

* Anchor inflation expectations, while being prepared to respond appropriately, swiftly and
effectively to further build-up of inflationary pressures.
* Actively manage liquidity to ensure that the growth in demand for credit by both the
private and public sectors is satisfied in a non-disruptive way.
* Maintain an interest rate regime consistent with price, output and financial stability.

Monetary Policy Measures

Our Monetary Policy Statement 2010-11 specifies the following monetary measures:

i) The repo rate has been raised by 25 basis points from 5.0 per cent to 5.25 per cent with
immediate effect.

ii) The reverse repo rate has been raised by 25 basis points from 3.5 per cent to 3.75 per
cent with immediate effect.

iii) The cash reserve ratio (CRR) of scheduled banks has been raised by 25 basis points
from 5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective
the fortnight beginning April 24, 2010.

Expected Outcome

We expect four major outcomes from the above policy action:

i) Inflation will be contained and inflationary expectations will be anchored.

ii) The recovery process will be sustained.

iii) Government borrowing requirements and the private credit demand will be met.

iv) Policy instruments will be further aligned in a manner consistent with the evolving state of
the economy.

Way Forward

The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price
situation, closely and take further action as warranted.

Developmental and Regulatory Policies

Let me now turn to development and regulatory issues. Over the last several years, the
Reserve Bank has undertaken wide ranging financial sector reforms to improve financial
intermediation and maintain financial stability. This process has now become more intensive
with a focus on drawing appropriate lessons from the global financial crisis and putting in
place a regulatory regime that is alert to possible build-up of financial imbalances. The
Reserve Bank will further its efforts to improve the efficiency of the financial sector and
financial markets while maintaining financial stability. Simultaneously, the Reserve Bank will
vigorously pursue the financial inclusion agenda.
I will highlight a few actions we have taken or plan to take in these areas:

Prepared by R.Vijayaraghavan May 2010 14

Financial Stability

* Publishing the Financial Stability Report on a half-yearly basis. The first report released
on March 25, 2010 found that the overall risk to financial stability was limited.

Interest Rates

* Mandating banks to switch over to the system of Base Rate from July 1, 2010 to
facilitate better pricing of loans, enhance transparency in lending rates and improve the
assessment of monetary policy transmission.

Financial Market Products

* Introducing Interest Rate Futures on 5-year and 2-year notional coupon bearing
securities and 91-day Treasury Bills.
*

Permitting the recognised stock exchanges to introduce plain vanilla currency options on
spot US Dollar/Rupee exchange rate for residents.
*

Introducing a reporting platform for secondary market transactions in CDs and CPs.
*

Setting up a Working Group to work out the modalities for an efficient, single-point
reporting mechanism for all OTC interest rate and forex derivative transactions.

Credit Delivery and Financial Inclusion

* Permitting banks to engage any individual as banking correspondents (BCs) subject to

banks’ comfort level and their carrying out suitable due diligence.

* Discussing with individual banks their Financial Inclusion Plans (FIPs) and monitoring
their implementation.

* Mandating banks not to insist on collateral securities in case of loans up to Rs.10 lakhs
as against the present limit of Rs.5 lakhs extended to all units in the MSEs sector.
* Urging banks to keep in view the recommendations made by the High Level Task Force
constituted by the Government of India for increasing the flow of credit to the MSE sector,
particularly to micro enterprises. The Reserve Bank will monitor the performance of banks in
this regard.

* Constituting a Committee to gather information on the working of grassroot level rural

co-operatives for assessing their potential to contribute to financial inclusion.

* Setting up a Committee for studying the advisability of granting new urban co-operative
banking licences.

* Allowing well-managed UCBs to set up off-site ATMs without seeking approval through
the annual business plans.

Regulatory Measures

* Preparation of a discussion paper on the mode of presence of foreign banks through

branch or wholly owned subsidiary by September 2010.
*

Prepared by R.Vijayaraghavan May 2010 15

 Putting out a discussion paper marshalling the international practices, Indian experience
and also the extant ownership and governance guidelines for considering additional banking
licences to private sector players by end-July 2010.
*

Constituting a Working Group to recommend a roadmap for the introduction of a holding

company structure.
*

Treating annuities under build-operate-transfer (BOT) model in respect of road/highway

projects and toll collection rights in some situations as tangible securities subject to certain
conditions.
*

Allowing securitisation companies/reconstruction companies (SCs/RCs) to acquire the

assets either in their own books or directly in the books of the trusts set up by them.
*

Issuing comprehensive guidelines based on Financial Stability Board (FSB) principles on

sound compensation practices by end-June 2010.
*

Entering into bilateral MoU with overseas supervisory authorities within the existing legal
provisions, consistent with the Basel Committee on Banking Supervision (BCBS) principles.
*

Treating Core Investment Companies (CICs) having an asset size of Rs.100 crore and
above as systemically important core investment companies. Such companies be required to
register with the Reserve Bank.

Customer Service

* Setting up a Committee to look into banking services rendered to retail and small
customers.
* Further strengthening the mechanism for implementing the Reserve Bank’s
guidelines on customer service, through on-site and off-site inspections.
* Requiring banks to devote exclusive time in a Board meeting once every six months to
review and deliberate on customer service."

V K SHARMA WORKING GROUP : to Review the Credit Guarantee Scheme of the

Credit Guarantee Fund Trust for MSEs . –(Report released on 6.03. 2010)

A working group was constituted under the Chairmanship of Shri V.K. Sharma,
Executive Director, Reserve Bank of India. The terms of reference of the Group
were: i) to review the working of the Credit Guarantee Scheme and to suggest
measures to enhance its usage and facilitate increased flow of collateral free loans
to MSEs; ii) to make suggestions to simplify the existing procedures and
requirements for obtaining cover and invoking guarantee claims under CGTMSE
Scheme; iii) to examine the feasibility of a whole turnover guarantee for the MSE
portfolio; and iv) any other issues.

Mandatory doubling of the limit for collateral free loans to micro and small
enterprises (MSEs) sector to Rs.10 lakh from the present Rs. 5 lakh, increase in the
extent of guarantee cover, absorption of guarantee fees for the collateral free loans
Prepared by R.Vijayaraghavan May 2010 16
by CGTMSE subject to certain conditions, lower guarantee fees for women
entrepreneurs and enterprises in the North-East, simplification of procedure for filing
claims with CGTMSE and increasing awareness about the scheme are some of the
recommendations of the Working Group set up to review the Credit Guarantee
Scheme of the Credit Guarantee Fund Trust.
The main recommendations of the Group are:

1. Collateral free loans

The limit for collateral free loans to the MSE sector to be increased from the present level of Rs.
5 lakh to Rs.10 lakh and it be made mandatory for banks.

2. Guarantee Fee

a) The guarantee fee for collateral free loans upto Rs.10 lakh to Micro Enterprises to be borne/
absorbed by the CGTMSE

b) CGTMSE may charge composite, all-in guarantee fee of 1% p.a. and appropriately realign
downwards the guarantee fees chargeable to women entrepreneurs, Micro enterprises and units
located in North-Eastern Region including Sikkim.

3. Extent of the Guarantee Cover

Consistent with the recommendation for enhancement of the collateral free loan limit from Rs. 5
lakh to Rs. 10 lakh, the guarantee cover upto 85% of the amount in default to be made
applicable to credit facilities to Micro Enterprises upto Rs 10 lakh. However, the extent of
guarantee cover for credit facilities above Rs.10 lakh upto Rs.50 lakh will be 75% and for credit
facilities in excess of Rs.50 lakh upto Rs.1 crore will be 75% upto Rs. 50 lakh and 50% of the
amount in excess of Rs. 50 lakh, as per the extant provisions of the Scheme.

4.. Simplification of Procedure

a) At present banks have to initiate legal action in all cases before filing claim with the Guarantee
Trust. With a view to simplifying the procedure for filing claims in respect of small loan accounts,
initiation of legal proceedings as a pre-condition for invoking of guarantees to be waived for
credit facilities upto Rs.50,000-.

b) Member Lending Institutions (MLIs) of the Trust may be allowed to invoke guarantee within a
period of two years from the date of classification of the account as NPA instead of the present
prescription of within one year.

c) The final claim to be paid by the Trust to the MLIs after three years of obtention of decree of
recovery instead of the present procedure of releasing the final claim by the Trust only after the
decree of recovery becomes time barred i.e. 12 years after obtaining decree.
The implementation of the Recommendations of the Working Group should result in enhanced
usage of the Guarantee Scheme and facilitate increase in quality and quantity of credit to the
presently included, as well as excluded, MSEs, leading eventually, to sustainable inclusive
growth.

Dr.KP Krishnan Committee on Comprehensive Regulation for Credit Rating

Agencies (CRAs) (March 2010)

The Committee was constituted by the Ministry of Finance at the instance of the High Level
Coordination Committee on Financial Markets (HLCCFM) to revisit the legal and policy
framework for regulating the activities of Credit Rating Agencies (CRAs) in order to take a
larger view of the entire policy with respect to banking, insurance and securities market. The
Committee submitted its report to the HLCCFM on December , 2009. An assessment of the
long term performance of the Credit Rating Agencies in India, undertaken by the National
Institute of Securities Markets (NISM) as part of the terms of reference of the Committee, is
also placed on the website of the RBI.

Prepared by R.Vijayaraghavan May 2010 17

The Committee has observed that although, prima facie there is no immediate concern
about the operations and activities of CRAs in India even in the context of the recent
financial crisis, there is a need to strengthen the existing regulations by learning the
appropriate lessons from the current crisis. The Committee has taken note of international
action in this regard and, inter alia, has recommended that there is a need for enhanced
disclosure, continuation of the issuer-pays model, strengthened process and compliance
audit, reporting of ownership changes, disclosure of default and transition statistics and
strengthening of the regulation of the CRAs in tune with these suggestions

Report of the Working Group on BPLR

(RBI has decided to postpone the implementation of base rate till 01.07.10)

The Reserve Bank released the Report of the Working Group on Benchmark Prime
Lending Rate (BPLR) on October 20, 2009. The Working Group (Chairman: Shri
Deepak Mohanty) was constituted in pursuance of the announcement made in the
Annual Policy Statement of 2009-10 to review the BPLR system and suggest
changes to make credit pricing more transparent.

The main recommendations of the Working Group are:

 Over a period of time, several concerns have been raised about the way the
BPLR system has evolved. These relate to large quantum of sub-BPLR lend-
ing, lack of transparency, downward stickiness of BPLRs and perception of
cross-subsidisation in lending. The Working Group was of the opinion that un-
til the system was modified and/or replaced with some other system, the ten-
dency to extend loans at sub-BPLR rates on a large scale in the market would
continue raising concerns on transparency. The Working Group also noted
that on account of competitive pressures, banks were lending a part of their
portfolio at rates which did not make much commercial sense.

 Having carefully examined the various possible options, the views of various
stakeholders from industry associations and the public, and international best
practices, the Working Group concluded that there was merit in introducing a
system of Base Rate to replace the existing BPLR system.

 The proposed Base Rate will include all those cost elements which can be
clearly identified and are common across borrowers. The constituents of the
Base Rate would include (i) the card interest rate on retail deposits (deposits
below Rs. 15 lakh) with one year maturity (adjusted for current account and
savings account deposits); (ii) adjustment for the negative carry in respect of
cash reserve ratio (CRR) and statutory liquidity ratio (SLR); (iii) unallocatable
overhead cost for banks which would comprise a minimum set of overhead
cost elements; and (iv) average return on net worth.

 The actual lending rates charged to borrowers would be the Base Rate plus
borrower-specific charges, which will include product-specific operating costs,
credit risk premium and tenor premium.

 In order to make the lending rates responsive to the Reserve Bank’s policy
rates, the Working Group has recommended that banks may review and an-
nounce their Base Rate at least once in a calendar quarter with their Board’s
approval. The Base Rate alongside actual minimum and maximum lending
rates may be placed in public domain.

Prepared by R.Vijayaraghavan May 2010 18

  With the proposed system of Base Rate there will not be a need for banks to
lend below the Base Rate as it represents the bare minimum rate below which
it will not be viable for banks to lend. The Working Group, however, also
recognises certain situations when lending below the Base Rate may be ne-
cessitated by market conditions. The Working Group is of the view that the
need for such lending may arise as an exception only for very short-term peri-
ods. Accordingly, the Base Rate system recommended by the Working Group
will be applicable for loans with maturity of one year and above (including all
working capital loans).

 Banks may give loans below one year at fixed or floating rates without refer-
ence to the Base Rate. In order to ensure that sub-Base Rate lending does
not proliferate, the Working Group recommends that such sub-Base Rate
lending in both the priority and non-priority sectors in any financial year should
not exceed 15 per cent of the incremental lending during the financial year. Of
this, non-priority sector sub-Base Rate lending should not exceed 5 per cent.
That is, the overall sub-Base Rate lending during a financial year should not
exceed 15 per cent of their incremental lending, and banks will be free to ex-
tend entire sub-Base Rate lending of up to 15 per cent to the priority sector.

 At present, at least ten categories of loans can be priced without reference to

BPLR. The Group recommends that such categories of loans may be linked to
the Base Rate except interest rates on (a) loans relating to selective credit
control; (b) credit card receivables; (c) loans to banks’ own employees; and
(d) loans under differential rate of interest (DRI) scheme.

 The Working Group suggests that the proposed system would be applicable
for all new loans and for those old loans that come up for renewal. If the exist-
ing borrowers want to switch to the new system before the expiry of the exist-
ing contracts, in such cases, the new/revised rate structure should be mutual-
ly agreed upon by the bank and the borrower.

 The Base Rate could also serve as the reference benchmark rate for floating
rate loan products, apart from the other external market-based benchmark
rates.

 In order to increase the flow of credit to small borrowers, administered lending

rate for loans up to Rs. 2 lakh may be deregulated. Banks should be free to
lend to small borrowers at fixed or floating rates, which would include the
Base Rate and sector-specific operating cost, credit risk premium and tenor
premium as in the case of other borrowers.

 At present, the ceiling on interest rates on pre-shipment rupee export credit up

to 270 days and post-shipment rupee export credit up to 180 days has been
stipulated at BPLR minus 2.5 percentage points. The Working Group recom-
mends that the interest rate on rupee export credit should not exceed the
Base Rate of individual banks.

Prepared by R.Vijayaraghavan May 2010 19

 INTEREST SUBVENTION SCHEME FOR SHORT-TERM CROP LOANS

The subvention of 2% per annum is available to public sector banks(PSBs), rural

co-operative banks and Regional Rural Banks(RRBs) on their own funds used for
short term credit up to Rs 3,00,000/- provided to farmers.

Accordingly, public sector banks would be eligible for interest subvention of 2%

in respect of short-term production credit up to Rs.3 lakh provided to farmers for
the year 2009-10. The amount of subvention is to be calculated on the amount of
the crop loan disbursed from the date of disbursement/drawal up to the date of
repayment or up to the date beyond which the outstanding loan becomes
overdue, whichever is earlier. (ie 31st March 2010,for Kharif,and June30,2010-for
rabi , whichever is earlier, subject to a Max period of 1 year)This subvention is
available to the Banks on the condition that they make available short-term credit
at the ground level at 7% p.a.
Additional subvention of
1 per cent to be paid from this year(2 % budget prosal), as incentive to those farmers
who repay short term crop loans on schedule. Govt will provide addl interest
subvention of 1%pa to PSBs in respect of prompt paying farmers, who repay their short
term production credit with in1 year of disbursement –Max loan-Rs3 lacs-effective int
rate-6%)

INTEREST RATE ON RUPEE EXPORT CREDIT

At present, the ceiling on interest rates on pre-shipment rupee export credit up to
270 days and post-shipment rupee export credit up to 180 days has been stipulated
at BPLR minus 2.5 percentage points. The Working Group on Base Rate
recommends that the interest rate on rupee export credit should not exceed the Base
Rate of individual banks.
Interest Rates will not be exceeding BPLR minus 2.5 percentage points per annum
for the following categories of Export Credit.
Categories of Export Credit
1. Pre-shipment Credit
(a) Up to 270 days
(b)Against incentives receivable from Government covered by ECGC
Guarantee up to 90 days
2. Post-shipment Credit
(a) On demand bills for transit period (as specified by FEDAI)
(b) Usance bills (for total period comprising usance period of export bills,
transit period as specified by FEDAI, and grace period, wherever applicable)
i) Up to 180 days
ii) Up to 365 days for exporters under the Gold Card Scheme.
(c) Against incentives receivable from Govt. (covered by ECGC Guarantee)
up to 90 days

Prepared by R.Vijayaraghavan May 2010 20

 (d) Against undrawn balances (up to 90 days)
(e) Against retention money (for supplies portion only) payable within one year
from the date of shipment (up to 90 days)
Note:
1. Since these are ceiling rates, banks would be free to charge any rate below the
ceiling rates.
2. Interest rates for the above-mentioned categories of export credit beyond the
tenors as prescribed above are deregulated and banks are free to decide the rate of
interest, keeping in view the BPLR and spread guidelines.
Interest rate-Export credit in Foreign Currency-ceiling rate-Libor+350 basis points.

EXPORT CREDIT INTERESTSUBVENTION

EXTENSION TILL 31.03.2010
Interest subvention of 2% wef 1.12.08 on preshipment and post shipment rupee
export credit for certain employment oriented export sections

FINANCIAL INCLUSION

“The process of ensuring access to financial services and timely and adequate credit where
needed by vulnerable groups such as weaker sections and low income groups at an
affordable cost”

The Committee on Financial Inclusion

(Chairman: Dr. C. Rangarajan, 2008)

“The process of ensuring access to appropriate financial products and services needed by
vulnerable groups such as weaker sections and low income groups at an affordable cost in a
fair and transparent manner by mainstream Institutional players.”
Financial Inclusion-Scope
Financial Inclusion should include access to financial products and services like,
Bank accounts – check in account
Immediate Credit
Savings products
Remittances & Payment services
Insurance - Healthcare
Mortgage
Financial advisory services
Entrepreneurial credit

Financial Inclusion-Who are the people

Underprivileged section in rural and urban areas like, Farmers, small vendors, etc.
Agricultural and Industrial Labourers,People engaged in un-organised sectors,Unemployed ,
Women ,Children,Old people,Physically challenged people.

Extent of coverage
Coverage of (Estimates based on various studies and Market Surveys):
Check in accounts - 40%
Life Insurance - 10.0%
Non-Life Insurance - 0.6%
Prepared by R.Vijayaraghavan May 2010 21
Credit Card - 2%
ATM + Debit Card - 13%

Geographical coverage
5.2% villages are having a bank branch

Farmers coverage-
- Out of 119 million farmers, small and marginal farmers are 97.7 million (82.1 %)

Steps taken so far

Co-operative Movement
Setting up of State Bank of India, Nationalisation of banks
Lead Bank Scheme
RRBs
Service Area Approach
Self Help Groups

Still We Failed! - Why?

Why We have failed

Absence of Technology
Absence of reach and coverage
Delivery Mechanism
Not having a Business model
Rich have no compassion for poor

Why are we talking about financial inclusion now?

Focus on Inclusive Growth

Banking Technology has arrived

Realisation that Poor is bankable

RBI'S Role in Financial inclusion

No-Frill Accounts
Overdraft in Saving Bank Accounts
BC / BF Model
KCC / GCC Guidelines
Liberalised branch expansion
Liberalised policy for ATM
Introducing technology products and services
Pre-Paid cards, Mobile Banking etc.
Allowing RRBs’ / Co-operative banks to sell Insurance and Financial Products
Financial Literacy Program
Creation of Special Funds
431 districts identified by the SLBC convenor banks for 100 per cent financial inclusion
across various States/UTs and the target in 204 districts of 21 States and 7 UTs has
reportedly been achieved

Problems/Difficulties
Scaling up of activities
Transaction cost too high
Appropriate business model yet to evolve
BC model too restrictive
Limitation of cash delivery points
Lack of Interest / Involvement of Big Technology Players
Pre Requisite for financial inclusion
Appropriate Technology
Appropriate and Efficient Delivery model
Prepared by R.Vijayaraghavan May 2010 22
Mainstream banks’ determination and involvement
Strong Collaboration among Banks, Technical Service Provider, BC Services
Involvement of all
Especially the state administration at grass-root level
Liberalisation of BC model

Report of the Financial Inclusion in India

(Chairman: Dr. C. Rangarajan, 2008)

Setting up of a National Rural Financial Inclusion Plan with a target of providing access to
financial services to at least 50 per cent (50.77 mn) of excluded rural households by 2012
and the remaining by 2015

Encouraging SHGs in excluded regions, measures for urban micro-finance and separate
category of MFIs

RRBs to extend banking services to unbanked areas

Use of PACS and other co-operatives as BCs and co-operatives to adopt group approach
for financing excluded groups

Global Meltdown - An Opportunity

Focus on Inclusive Growth

Focus on Domestic Consumption and Investment
Focus on increased Social Sector Spending
Emphasis on giving benefits to poor clients
Global (bigger) players looking Inward
Reduction of Cost (?)

Impact of global financial crisis.

Multi-dimensional roles of the RBI

The RBI is entrusted with several functions, one of the most important one being the
monetary authority of the country. As monetary authority, the RBI has as its objectives price
stability, growth and financial stability. The weight and emphasis accorded to each of these
objectives would vary depending on the overall macro economic conditions. In addition to its
role as monetary authority, the RBI has responsibilities for forex management and
government domestic debt management - both national and sub national. It is also the
banking regulator – it regulates commercial banks, cooperative banks (both rural and urban),
financial institutions and non banking financial companies. It has a developmental role to
ensure inclusive growth - thus, policies on rural credit, SME and financial inclusion are an
integral part of its functions.

Impact of the global crisis on India

The direct effect of the global financial crisis on the Indian banking and financial system was
almost negligible, thanks to the limited exposure to riskier assets and derivatives. The
relatively low presence of foreign banks also minimised the impact on the domestic
economy.

However, the crisis did have knock on effects on the country, broadly, in three ways. First,
the reduction in foreign equity flows - especially FII flows - impacted the capital and forex
markets and the availability of funds from these markets to domestic businesses; second,
the shrinking of credit markets overseas had the impact of tightening access to overseas
lines of credit including trade credit for banks and corporates. Both these factors led to

Prepared by R.Vijayaraghavan May 2010 23

pressure on credit and liquidity in the domestic markets with the knock on effects, and third,
the fall in global trade and output had impact on consumption and investment demand. The
cumulative impact of all this was a slowing down of output and employment. Despite the
slowing down, India is still the second fastest growing economy in the world.

AGRICULTURAL ADVANCES-SIMPLIFICATION OF LENDING PROCEDURE

FOR CROP LOANS:
1. Obtention of “No dues” certificates for loans upto Rs 50,000 to small and
marginal farmers, share croppers dispensed with(C.P.Swarnkar Working
group)

2. Agricultural loans to land less labouers, share croppers and oral lessees to be
provided based on the certificate from Local Administration?panchayat
rajInstitution reg the cultivation of crops.For loans up to Rs50,000/- branches
may accept affidavit submitted by land less labourers,share croppers and oral
lessees.(Recommendations of V.S.DAS working group-set up to examine the
recommendations of Radhakrishna committee)

CREDIT DERIVATIVES

These are financial contracts designed to transfer Credit risk on loans and
advances, investments and other assets /exposures from one party (buyer) to
another party (seller) under RBI guidelines. Bank’s exposure to such products will be
guided by their counter Party’s credit exposures, where as primary dealers will have
to maintain 15% of their capital funds or existing counter party risks which ever is
lesser.
Credit derivatives shall be denominated and settled in IRs and banks are not
permitted to enter into credit derivatives transactions where the related parties are
reference entities.

CASH PROCESSING CENTRES

Recommendation of HLG
As per RBI’s directives, banks are to necessarily check/process the notes in the
denomination of Rs. 100 and above through Machines for fitness and authenticity,
confirming to Standards prescribed by the Reserve Bank from time to time, before
their issue through ATM/over counters. The instructions were issued by RBI
pursuant to the recommendations of the High Level Group constituted under DG(UT)
to look into various currency management practices in vogue.
2. The Group, inter alia, has also recommended setting up of Cash Processing
Centres (CPCs) at various key locations with enhanced processing and storage
capacities to tap advantages arising out of economies of scale, minimize overnight
cash risks at bank branches and to benefit from sophisticated logistics techniques.
3. Since banks may find it difficult to install/maintain machines at all their branches
dealing with notes of high denomination, it has been decided to accept the Group's
recommendations with respect to CPC and encourage the banks to set up state of
the art Cash Processing Centres (CPCs) with substantial processing and storage
capacities. This would further RBI's objective of the Clean Note Policy.

Prepared by R.Vijayaraghavan May 2010 24

4. Banks may consider any of the following three types of Cash Processing Centres
(CPCs):
a. A CPC established at an existing currency chest branch in the same location.
b. A CPC attached to an existing/new currency chest branch in different location.
c. A stand alone CPC that provides only fitness sorting and authentication ser-
vices (i.e. they shall collect mixed notes from the bank branches in the morn-
ing and would return the same, after processing/authentication checking/sort-
ing, in the evening as unfit notes, fit/issueable notes (ATM Fit/Counter Fit and
suspect notes).
5. To make the CPCs viable and also to take advantage of capacity built up, the
CPCs may also serve the branches of other banks which may require its services
and charge from them a reasonable fee for the services rendered at mutually agreed
rates. The stand alone CPCs could also render services to others such as merchant
establishments, petrol pumps, etc. handling large volumes of cash against payment
of fees.
6. Machines to be installed at CPC shall confirm to "Note Authentication and Fitness
Sorting Standards" prescribed by RBI (DCM).

BANKING POLICY
Branch Authorisation Policy relaxed
Based on the recommendations of the Working Group to review the extant Branch
Authorisation Policy (Chairman : Shri P.Vijaya Bhaskar), the Reserve Bank of India
has liberalised the Branch Authorisation Policy. Domestic scheduled commercial
banks (other than RRBs) can now, without obtaining the Reserve Bank's prior per-
mission in each case, open branches in -
(i) tier 3 to Tier 6 centres (with population up to 49,999 as per Census 2001); and
(ii) rural, semi-urban and urban centres in North Eastern States and Sikkim.
Domestic scheduled commercial banks (other than RRBs) in Tier 1 and Tier 2 cen-
tres (centres with population of 50,000 and above as per 2001 Census) would con-
tinue to require the Reserve Bank's prior permission, except in the case of North
Eastern States and Sikkim, where the general permission would cover semi-urban
and urban centres also. The number of branches which would be authorised by the
Reserve Bank, based on such applications would inter alia, depend upon (i) the bank
planning its annual branch expansion in such a manner, that at least one-third of the
total number of branches opened in a financial year in Tier 3 to Tier 6 centres are in
underbanked districts of underbanked states; and (ii) a critical assessment of the
bank’s performance in financial inclusion, priority sector lending, customer service,
etc.
Banks are also free to convert their general banking branches into specialised
branches provided, they continue to serve the existing customers of their general
banking branches, which are being converted into specialised branches.
These general permissions would be subject to regulatory/ supervisory comfort in re-
spect of the bank concerned and the Reserve Bank would have the option to with-
hold the general permissions now being granted, on a case-to-case basis, taking into
account all relevant factors.

Prepared by R.Vijayaraghavan May 2010 25

Banks should report to the Reserve Bank, details of branches opened by them under
general/specific permission and general banking branches converted into specialised
branches.

Extension of Banking Services through Business Facilitators/Correspondents

With the objective of extending savings and loan facilities to the underprivileged and
unbanked population, the Reserve Bank has advised banks to use the services of
non-governmental organist ions (NGOs)/self help groups (SHGs), micro finance
institutions (MFIs) and other civil society organizations (CSOs) as intermediaries in
providing financial and banking services. These intermediaries could act as business
facilitators/correspondents.

Business Facilitators
Under the “business facilitator” model, banks may use intermediaries, such as,
NGOs/farmers’ clubs, cooperatives, community based organizations, information
technology enabled rural outlets of corporate entities, post offices, insurance agents,
well functioning panchayats, village knowledge centres, agri-clinics/agri-business
centres, krishi vigyan kendras and Khadi Village Industries Commission
(KVIC)/Khadi & Village Industries Board (KVIB) units, depending on the comfort level
of the bank, for providing facilitation services. Such services may include (i)
identification of borrowers and fitment of activities; (ii) collection and preliminary
processing of loan applications including verification of primary information/data; (iii)
creating awareness about savings and other products and education and advice on
managing money and debt counseling; (iv) processing and submitting applications
to banks; (v) promoting and nurturing SHGs/joint liability groups; (vi) post-sanction
monitoring; (vii) monitoring and handholding of SHGs/joint liability groups/credit
groups/others; and (viii) follow-up for recovery.
As these services do not involve conduct of banking business, the Reserve
Bank’s prior approval is not required for using these intermediaries as business
facilitators.
Business Correspondents
( Recently RBI directed that individuals also can act as BC)
Under the “business correspondent” model, NGOs/MFIs set up under
societies/trust acts, societies registered under Mutually Aided Cooperative Societies
Acts or the Cooperative Societies Acts of States, section 25 companies, registered
non-banking financial companies (NBFCs) not accepting public deposits and post
offices may act as business correspondents. Banks should

Conduct thorough due diligence on such entities before engaging them as business
correspondents and should ensure that they are well established, enjoy good
reputation and have the confidence of the local people. Banks should give wide
publicity in the locality about the intermediary engaged by them as business
correspondent and take measures to avoid being misrepresented.
In addition to the activities listed under the business facilitator model, the business
correspondents would also have to undertake activities, such as, (i) disbursal of
small value credit, (ii) recovery of principal/collection of interest, (iii) collection of
small value deposits, (iv) sale of micro insurance/mutual fund products/pension prod-
ucts/other third party products and (v) receipt and delivery of small value remit-
tances/other payment instruments.

Prepared by R.Vijayaraghavan May 2010 26

Additional Business Correspondents
Pursuant to the recommendation of the Working Group constituted to review the
business correspondent (BC) model and suggest measures to enlarge the category
of persons that can act as BCs, banks have now been permitted to appoint the fol-
lowing entities as BCs, in addition to the entities already permitted:
(i) individual kirana/medical/fair price shop owners;
(ii) individual public call office (PCO) operators;
(iii) agents of small savings schemes of Government of India/ insurance companies;
(iv) individuals who own petrol pumps;
(v) retired teachers; and
(vi) authorised functionaries of well run self help groups (SHGs) linked to banks.
The Reserve Bank has advised that with a view to ensuring the viability of the BC
model, banks (and not BCs) may collect reasonable service charges from cus-
tomers, in a transparent manner, under a Board-approved policy. Considering the
profile of the clientele to whom banking services are being delivered through the BC
model, banks should ensure that the service charges/fees collected from the cus-
tomer for delivery of banking services through the BC model is not only fair and rea-
sonable but also seen to be so. Banks should in particular ensure that, there are no
complaints from customers about the charges being non-transparent/not reasonable.
Any unfair practices adopted by banks in this regard would be viewed seriously by
the Reserve Bank.
Keeping in view the operational and other risks implied, banks have been further ad-
vised to ensure that they carry out suitable due diligence in respect of the entities
proposed to be appointed as BCs and also institute additional safeguards as may be
considered appropriate, to minimise the agency risks. ICT solutions that ensure
proper authentication and other security measures may be adopted to minimise the
risk while upscaling the model. Further, while appointing these entities as BCs,
banks should ensure that the individuals are residents of the area in which they pro-
pose to operate as BCs.
As regards the North Eastern Region, where a local organisation/association not
falling under any of the forms of organisations listed in the Reserve Bank’s guide-
lines, is proposed to be appointed by a bank as a BC after due diligence and is also
recommended by the district consultative committee (DCC), the regional office of the
Reserve Bank would consider proposals for appointing such entities as BCs. In such
cases, banks should approach the Reserve Bank’s Guwahati regional office.
Further, banks have also been permitted to allow, with suitable and adequate safe-
guards, BCs in the North Eastern Region to account for the transactions in the
bank’s books latest by the end of the second working day from the date of the trans-
action.
Regarding cases referred to DCCs for relaxation of criteria in respect of the maxi-
mum distance between the place of business of the BC and the base branch, the
DCCs may give their decision at the earliest and in any case, within a period of three
months from the date of reference to them. In case no decision is conveyed by
DCCs within this period, banks may treat it as a ‘no objection’ for relaxation of the
distance criterion.

Prepared by R.Vijayaraghavan May 2010 27

Commission/Fees
Banks may pay reasonable commission/fee to the business
facilitators/correspondents. The rate and quantum of the commission/fee should be
reviewed periodically. The agreement with the business facilitators/correspondents
should specifically prohibit them from charging any fee to the customers directly for
services rendered by them on behalf of the bank.

Other Terms/Conditions
(i) As the engagement of intermediaries as business facilitators/correspondents
involves significant reputational, legal and operational risks, banks should give due
consideration to those risks. They should also Endeavour to adopt technology-based
solutions for managing the risk, besides increasing the outreach in a cost effective
manner.
(ii) The arrangements with the business correspondents should specify suitable limits
on cash holding by them as also limits on individual customer payments and
receipts.
(iii) All transactions conducted by the business correspondents should be accounted
for and reflected in the bank’s books by the end of the day or the next working day.
(iv) All agreements/contracts with customers should clearly specify that the bank is
responsible to the customer for acts of omission and commission of the business
facilitator/ correspondent.
Grievance Redressal
Banks should constitute internal grievance redressal machinery for redressing
complaints about services rendered by business correspondents and facilitators and
give wide publicity to it through electronic and print media. The name and contact
number of the bank’s designated grievance redressal officer should be made known
and widely publicized. The designated officer should ensure that genuine grievances
of customers are redressed promptly. Banks should place their grievance redressal
procedure and the time frame fixed for responding to complaints on their website.
If a complainant does not get satisfactory response from the bank within 60 days
from the date of his lodging the complaint, he would have the option to approach the
office of the Banking Ombudsman concerned for redressal of his grievance/s.
Compliance with KYC Norms
Compliance with know your customer (KYC) norms would continue to be the
responsibility of banks. Banks may, however, adopt a flexible approach within the
parameters of the KYC guidelines issued from time to time. In addition to
introduction by any person on whom KYC has been done, banks may also rely on
certificates of identification issued by the intermediary being used as banking
correspondent, block development officer, head of village panchayat, post master of
the post office concerned or any other public functionary known to the bank.
RECOVERY AGENTS
Banks should ensure that the agents with in a year of appointment should under go
a certificate course conducted by IBA or by other Banks approved by IBA.IBA
extended time limit up to April 2010.
DRAs who have passed 12th & below graduation-70 Hrs
DRAs-graduate- 50 Hrs.

Prepared by R.Vijayaraghavan May 2010 28

Debt recovery Agents
Can be engaged to recover Doubtful and loss assets(GMs committee empowered to
include unsecured SS)
Fees Structure for Debt Recovery Agents
For fully secured adv For partly secured adv
NPas up to 1 year(SS) Nil 5% of the amount
recovered
More than 1 year-5 years 4% of amt recovered 6%
More than 5 years 5% 7%
Subject to a maximum of Rs5 lacs Rs 7 lacs
( If full contractual dues + updated int recovered Ro can consider addl 10% of the
above)
GM’s Committee can consider on merits up to 25% over the above.
For OTS proposals accepted fee 1% of the amount realized-subject to a Max of Rs
5 lacs.
Time frame for recovery-6 Months from the date of entrustment.(in spl cases can be
extended by another 3 months)
Entrustment of Work to Debt Recovery Agents
Book o/s as on the date of NPA Layer of Authority
Up to Rs 1 crore Regional Head
Above 1 cr-upto 5 cr GM(LAW)
Above 5 cr-10 cr GM’s Committee
Above Rs10 cr ED s through GM’s Committee
SARFAESI ASSISTANT FEE STRUCTURE
No dfirect contact with borrower
Review of performance once in a year.
Taking Physical possession of securities 1% of the amount o/s( Max 1
lac+advocate fee)
Arranging for sale and mobilizing bidders 2% -Max 2 lacs
Any other Misc work Up to Rs 25,000/- for each such action.
(in addition to reimbursement of actual expenditure)
RO SARFAESI Committee will entrust
Grievance redressal-RO will dispose of with in 15 days.
RBI Relaxes Branch Authorisation policy

1. Tier 3-6 centres: Banks can open branches in Tier 3 to tier 6 centres with
out prior permission from RBI, subject to reporting.(Tier3-6 –Population up
to 49,999 as per census 2001)
Prepared by R.Vijayaraghavan May 2010 29
 2. Tier 1 & Tier 2 Centres; -prior permission of RBI is required(population of
50000 and above) except in Northern Eastern States and Sikkim where
the general permission covers semi urban and urban centres also.
3. North-Eastern states-Banks can open branches in Rural,Semi urban and
urban in North Eastern states and Sikkim with out RBI permission,
subject to reporting.
4. Specialized Branches- Banks can convert General banking branches into
Specilaized branches provided that the bank continue to serve their
existing customers.
5. Condition for Tier 1 & 2 centres -Banks may plan their annual branch
expansion in such a manner, that at least one-third of total number of
branches opened in a financial year in Tier 3 to Tier 6 centres are in
underbanked districts of underbanked States .

RBI CLASSIFICATION OF CENTRES -POPULATION 2001 CENSUS

CENTRES-TIER WISE POPULATION GROUP WISE-

Classification of Centres
TIER 1 Centre 100,000& above Rural centre Up to 9,999
TIER 2 Centre 50,000-99,999 Semi Urban 10,000-99,999
TIER 3 Centre 20,000-49,999 Urban 1,00,000-9,99,999
TIER 4 Centre 10,000-19,999 Metro 10,00,000 & above
TIER 5 Centre 5,000- 9,999
TIER 6 Centre Less than 5,000

Total No of Under banked Districts(Dec 09)-292

Classification of Rural area under PMEGP-1)as classified in Revenue record

irrespective of population.2) It will also include any area, even if classified as Town,
provided its population does not exceed 20000.

Gold Card Scheme

(i) Since the number of gold cards issued by banks is low, banks have been advised
to speed up the process of issuing cards to all eligible exporters especially to SME
exporters and ensure that the process is completed within a period of three months.
(ii) The simplified procedure for issue of gold cards as envisaged under the scheme
should be implemented by all banks.
(iii) Banks should consider implementing the instructions mentioned in the gold card
scheme regarding exemption of all deserving gold card holder exporters from the

Prepared by R.Vijayaraghavan May 2010 30

packing credit guarantee - sectoral schemes of the Export Credit Guarantee
Corporation of India Ltd. (ECGC) on the basis of their track record.
Eligibility-Credit rating A+ or A, should have been a standard account for at least 3
years, Should not be in the caution list/-ve list of RBI/ECGC

Export Credit for Non-Star Exporters

Banks should post nodal officers at regional/zonal offices and major branches
having substantial export credit for attending to the credit related problems of SME
exporters.
Other Issues
(i) The interest rates prescribed by the Reserve Bank are ceiling rates. Since banks
are at liberty to charge lesser rates of interest, taking into account the cost of funds,
margin requirements, risk perception etc., banks should consider extending export
credit at rates lesser than the ceiling rates prescribed by the Reserve Bank.
(ii) Banks should give priority to foreign currency export credit requirements of
exporters over foreign currency loans to non-exporter borrowers.

Direct Import of Gold

AD Category – I bank can open Letters of Credit and allow remittances on behalf of EOUs,
units in SEZs in the Gem & Jewellery sector and the nominated agencies / banks, for direct
import of gold, subject to the following

(i) The import of gold should be strictly in accordance with the Foreign Trade Policy.

(ii) Suppliers’ and Buyers’ Credit, including the usance period of LCs opened for direct import
of gold, should not exceed 90 days.

(iiI) Aplication of due diligence ad KYC norms.

(iv) In addition to carrying out the normal due diligence exercise, the credentials of the
supplier should also be ascertained before opening the LCs. The financial standing, line of
business and the net worth of the importer customer should be commensurate with the
volume of business turnover. Apart from the above, in case of such transactions banks
should also make discreet enquiries from other banks to assess the actual position. Further,
in order to establish audit trail of import/export transactions, all documents pertaining to such
transactions must be preserved for at least five years.

(v) AD Category – I bank should follow up submission of the Bill of Entry by the importers as
stipulated.

(vi) Head Offices/International Banking Divisions, of AD Category – I bank undertaking gold

import transactions are required to submit as per the format enclosed at Annex-3, a
monthly statement thereof, to RBI

Gold Loans

(i) Nominated agencies / authorised banks can import gold on loan basis for on lending to
exporters of jewellery under this scheme.

(ii) EOUs and units in SEZ who are in the Gem and Jewellery sector can import gold on loan
basis for manufacturing and export of jewellery on their own account only.

(iii) The maximum tenor of gold loan would be as per the Foreign Trade Policy , or as
notified by the Government of India from time to time in this regard.
Prepared by R.Vijayaraghavan May 2010 31
(iv) AD bank may open Standby Letters of Credit (SBLC), for import of gold on loan basis,
where ever required, as per FEDAI guidelines dated April 1, 2003. The tenor of the SBLC
should be in line with the tenor of the gold loan.

(v) SBLC can be opened only on behalf of entities permitted to import gold on loan basis,
viz. nominated agencies and 100% EOUs/units in SEZ, which are in the Gem and Jewellery
sector.

(vi) SBLC should be in favour of internationally renowned bullion banks only. AD Category –
I bank can obtain a detailed list of internationally renowned bullion banks from the Gem
& Jewellery Export Promotion Council.

(vii) All other existing instructions on import of gold and opening of Letters of Credit, with
usance period not exceeding 90 days, will continue to be applicable.

(viii) AD Category – I banks must maintain adequate documentation with them to uniquely
link all imports with the SBLC issued for the import of gold on loan basis.

Banks provided Additional Options for raising Capital Funds

Basel Classifies Capital under 3 tiers.
Tier 1- Share Holder’s Equity, Perpetual Non cumulative preference shares,
Disclosed reserves, Innovative Capital Instruments
Tier 2- Undisclosed Reserves, Revaluation Reserves, General Provisions,/general
Loan Loss Reserves, Hybrid Debt Capital Instruments( Instruments which combine
equity and debt), Subordinated debt
Tier 3- (at the discretion of National Authority- At present Banks are not allowed to
raise Tier 3 Capital) Short term subordinated debt to meet capital requirements for
Market risks.
Hither to for raising Tier 1 &2 Capital Banks were not allowed to raise capital by
Preference shares, Innovative Capital instruments, Hybrid Debt.
With a view to providing banks additional options for raising capital funds, to
meet both the increasing business requirements as well as the Basel II requirements
within the existing legal framework, it has been decided that banks may augment
their capital funds by issuing additional instruments as indicated below:
(a) Innovative perpetual debt Instruments eligible for inclusion under Tier 1 capital;
(b) Debt capital instruments eligible for inclusion under Upper Tier 2 capital;
(c) Perpetual non-cumulative preference shares eligible for inclusion under Tier 1
capital - subject to laws in force from time to time; and
(d) Redeemable cumulative preference shares eligible for inclusion under Tier 2
capital - subject to laws in force from time to time.
Guide lines for issue of IPDI (Innovative Perpetual Debt Instruments)

1. to be issued in IRS

2. Require RBI prior approval

3. Shall not exceed 15% of tier 1 capital ( in excess of the above can be
considered in tier 2 capital)

4. Maturity period –perpetual

Prepared by R.Vijayaraghavan May 2010 32

 5. Fixed rate or floating rate

6. Cannot be issued at put option. Can be issued with a call option. Call
option can be exercised after minimum period of 10 years.(with
approval of RBI )

7. Step up option-limit 100 basis points-(limit-FIIS=s-49 %( each FII-10%,

NRIs-24%, each NRI-5%)

8. Investment in other Banks IPDI attract 100% risk weight

Guidelines for issue of Upper Tier 2 Capital

1. in IRS 2. Prior approval of RBI is required.3. Limit-Upper tier 2 Instrument

+other components of Tier 2 shall not exceed 100% of tier 1 capital.

2. Upper tier 2-Maturity Minimum 15 years

3. Fixed or floating- Shall not be issued under Put option-Call option only after
10 years.

BRANCH BANKING

Interest on Overdue Deposits(Not renewed):

Banks to pay simple interest at SB rate(prevailing as on date of maturity) from the

date of maturity till the date of payment for the overdue deposits not renewed and
closed.

ATM failed transactions-time limit for settlement

To be settled with in 12 days from the date of receipt of complaint.

No a/c Payee Cheque in Third Party Account

The Reserve Bank has directed banks not to collect account payee cheques for
any person other than the payee constituent. The Reserve Bank has also advised
that where the drawer/payee instructs the bank to credit the proceeds of collection to
any account other than that of the payee, the instruction being contrary to the
intended inherent character of the ‘account payee’ cheque,

The bank should ask the drawer/payee to have the cheque or the account payee
mandate thereon withdrawn by the drawer.

NO FRILLLS BANK ACCOUNTS (effective from 23rd Dec 05)

( Dr Rangarajan Committee on Financial Inclusion-opening of No frill accounts)
RBI has advised Banks to open “No frills Account accessible to vast section of
population.
No frills accounts could either be with Nil or very low Minimum balance /Charges
(Banks to report to RBI the number of such deposits accounts opened)
SB accounts-in Semi Urban & Rural Branches. In urban and metro-Under Special
circumstances.

Prepared by R.Vijayaraghavan May 2010 33

Minimum Balance-Rs5/-
Penalty for non maintenance of Min Bal-Nil.
Withdrawal- only by slip No cheque Book
Balance should not exceed Rs50,000/- and total credit should not exceed Rs1 lac in
a year.
No of transactions: 25 per half year (Max)
Penalty for exceeding number of transactions- No int is payable.
Int-3.50% p.a- No value addition.
TOD-Maximum Rs1,000/- under Branch discretion-to be adjusted with in 3 months.
(RBI Guideline-TOD up to Rs 25,000/- in no frill account will be classified under
Priority Sector)

Financial Inclusion
Dr Rangarajan Committee –Banks to appoint Business Correspondent and collect
reasonable service charges for delivering the services through BC.
Lead Bank to take steps to draw a road map by March 2010 to provide banking
services through Banking outlet in every village having population of over 2000 by
March 2011.

ICT based financial inclusion: SMART CARD BANKING

Information and Communication Technology based financial Inclusion is the mecha-

nism of allowing people to transact basic banking business with out coming to the
bank, through intermediaries like Business Correspondents(BCs) and Business Fa-
cilitator.(BFs) this is done through biometric smart Cards and the POS Machines
which get linked to Central Server through mobile connectivity. This is also called
smart card Banking. The front line device used for reading the smart card is a Hand
Held device(HHD) known as POS machine or Front end terminal. Common model
recommended by IBA and IDRBT.

Our bank has entered into an agreement with TCS-Tata Consultancy Services.
Banks are expected to provide Smart Card Banking facilities in all villages having
population of 2000 or more. SCB is a new business model which will provide low
cost banking services to a vast population.

The transaction size-initial cap will be Rs2,000/- for every deposit or withdrawal.

MICRO ATM

This was originally described at a high level Vision Documentby UIDAI titled “From
Exclusion to Inclusion with Micropayments” .It is a first step towards providing an
online low cost payments platform to every one in the country.. It provides for Smart
Card based solution for financial inclusion. It is meant to be a device that is used by
a million business correspondents to deliver basic banking services even in remote
rural villages. The Micro ATM is deployed by Banks either directly or through service
providers. It is operated by Business Correspondents. The Micro ATM device design
and system are influenced by the design of debit/credit card processing on point of
service (POS) terminal , combined with authentication services that UIDAI(Unique
Identification Authority of India) will provide.

Banking Ombudsman Scheme, 2006

Extends to whole of India.

Prepared by R.Vijayaraghavan May 2010 34

The Banking Ombudsman Scheme, 2006 enables resolution of complaints of bank
customers relating to certain services rendered by banks
The Scheme has come into force from January 1, 2006.
The Banking Ombudsman is person appointed by the Reserve Bank of India to
redress customer complaints against certain deficiency in banking services.
The Banking Ombudsman is a quasi judicial authority. It has power to summon both
the parties - bank and its customer, to facilitate resolution of complaint through
mediation.
As on date, 15 Banking Ombudsmen have been appointed with their offices located
mostly in the State Capitals. The addresses of the Banking Ombudsman offices have
been provided in the RBI website.
All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-
operative Banks are covered under the Scheme.
How is the new Banking Ombudsman Scheme, 2006 different from the Old
Banking Ombudsman Scheme, 2002
The extent and scope of the new Scheme is wider than the earlier Scheme of 2002.
The new Scheme also provides for online submission of complaints. The new
Scheme additionally provides for the institution of an 'appellate authority' for
providing scope for appeal against an award passed by the Ombudsman both by the
bank as well as the complainant.
The Banking Ombudsman can receive and consider any complaint relating to the
following deficiency in banking services:

• non-payment or inordinate delay in the payment or collection of cheques,

drafts, bills, etc.;

• non-acceptance, without sufficient cause, of small denomination notes

tendered for any purpose, and for charging of commission for this service;

• non-acceptance, without sufficient cause, of coins tendered and for charging

of commission for this service;

• non-payment or delay in payment of inward remittances ;

• failure to issue or delay in issue, of drafts, pay orders or bankers’ cheques;

• non-adherence to prescribed working hours;

• failure to honour guarantee or letter of credit commitments ;

• failure to provide or delay in providing a banking facility (other than loans and
advances) promised in writing by a bank or its direct selling agents;

• delays, non-credit of proceeds to parties' accounts, non-payment of deposit or

non-observance of the Reserve Bank directives, if any, applicable to rate of
interest on deposits in any savings, current or other account maintained with a
bank ;

• delays in receipt of export proceeds, handling of export bills, collection of bills

etc., for exporters provided the said complaints pertain to the bank's
operations in India;
Prepared by R.Vijayaraghavan May 2010 35
 • refusal to open deposit accounts without any valid reason for refusal;

• levying of charges without adequate prior notice to the customer;

• non-adherence by the bank or its subsidiaries to the instructions of Reserve

Bank on ATM/debit card operations or credit card operations;

• non-disbursement or delay in disbursement of pension to the extent the

grievance can be attributed to the action on the part of the bank concerned,
(but not with regard to its employees);

• refusal to accept or delay in accepting payment towards taxes, as required by

Reserve Bank/Government;

• refusal to issue or delay in issuing, or failure to service or delay in servicing or

redemption of Government securities;

• forced closure of deposit accounts without due notice or without sufficient

reason;

• refusal to close or delay in closing the accounts;

• non-adherence to the fair practices code as adopted by the bank; and

• any other matter relating to the violation of the directives issued by the
Reserve Bank in relation to banking or other services.
The Complainant can file his complaint before the Banking Ombudsman if the reply
is not received from the bank within a period of one month, after the bank concerned
has received his representation, or the bank rejects the complaint, or the
complainant is not satisfied with the reply given to him by the bank.
To be applied with in 1 year and 1 month from the date of complaint to the bank or
with in 1 year from the date of receipt of reply from the Bank.
The Banking Ombudsman does not charge any fee for resolving customers’
complaints.
The Banking Ombudsman endeavors to promote, through conciliation or mediation,
a settlement of the complaint by agreement between the complaint and the bank
named in the complaint.
If a complaint is not settled by an agreement within a period of one month, the
Banking Ombudsman proceeds further to pass an award. Before passing an award,
the Banking Ombudsman provides reasonable opportunity to the complainant and
the bank, to present their case.
Maximum amount –Rs10 lacs.
After an award is passed, its copy is sent to the complainant and the bank named in
the complaint. It is open to the complainant to accept the award in full and final
settlement of his complaint or to reject it.
If the award is acceptable to the complainant, he is required to send to the bank
concerned, a letter of acceptance of the award in full and final settlement of his
complaint, within a period of 15 days from the date of receipt of the copy of the
award by him.

Prepared by R.Vijayaraghavan May 2010 36

If the Banking Ombudsman is satisfied with the reasons stated by the complainant in
his letter of request for extension of time (for sending his letter of acceptance of the
award), he may grant extension of time up to further period of 15 days for such
compliance.
The award will lapse if letter of acceptance is not given with in 30 days from the date
of receipt of award.
If the bank is satisfied with the award, within a period of one month (from the date of
receipt of letter of acceptance from the complainant of the award in full and final
settlement of his claim in the matter), the bank is required to comply with the award
and intimate the compliance to the Banking Ombudsman.
If the complainant is not satisfied with the award passed by the Banking
Ombudsman, he can approach the appellate authority against the Banking
Ombudsmen’s decision.
The rejection of an award by the complainant does not affect any other recourse
and/or remedies available to him as per the law.
The bank has the option to file an appeal before the appellate authority under the
scheme.
The appellate authority is the Deputy Governor in the Reserve Bank of India.
Time limit for filing an appeal:
Either party aggrieved by the award may, within 30 days of the date of receipt of the
award, appeal against the award before the appellate authority. The appellate
authority may, if he is satisfied that the applicant had sufficient cause for not making
an application for appeal within time, also allow a further period not exceeding 30
days.( Time limit for Banks to appeal- with in 30 days after receipt of acceptance
letter from the party)
The banks can appeal only with the prior sanction of their Chairman or, in his
absence, the Managing Director or the Executive Director or the Chief Executive
Officer or any other officer of equal rank.
The Banking Ombudsman Scheme has been formulated by the Reserve Bank of
India to provide an expeditious grievance redressal mechanism to customers of
banks. It provides for an institutional and legal framework for resolution of complaints
relating to banking services and other matters as specified under the Scheme. The
Scheme has been brought into force by way of direction issued by the Reserve Bank
in terms of Section 35A of the Banking Regulation Act, 1949. The Reserve Bank will
also appoint its serving senior officials as the Banking Ombudsman and will also fully
fund it for better effectiveness.
The Banking Ombudsman Scheme was first introduced in 1995 and was revised in
2002.
RIGHT TO INFORMATION ACT 2005
Applies to Whole of India (Except J&K)
Govt of India enacted the right to information act 2005, comes into effect
13.10.2005.
The Right to Information Act, 2005 confers the right to information for citizens to
secure access to information under the control of public authorities in order to
promote transparency and accountability in the working of every public authority. It
has been made obligatory for every public authority to publish certain information,
Prepared by R.Vijayaraghavan May 2010 37
under Section 4(1) (b) of the Act, besides maintaining all its records computerised
and connected through a network all over the country on different systems so that
access to such records is facilitated. The act under sec 8&9 provide for certain
categories of information to be exempt from disclosure.
The act also provides for appointment of a Chief Public Information Officer to deal
with requests for information.

EXEMPTION

Sec 8(1) d of the Act provides for exemption from disclosure of information which
would harm the competitive position of the third party. Clause (j) of Section 8(1) of
the Act exempts any personal information, the disclosure of which has no
relationship to any public activity or interest or which would cause unwarranted
invasion of the privacy of the individual. Therefore, in regard to obligation of secrecy,
apart from the right to privacy of a borrower of a Bank, the Bank cannot provide
access to information relating to affairs of customers, as disclosure of such
information has no relationship with any public activity or interest which is referred to
in Clause (j) of Sub-section 1 of Sec.8 of the Act.
Whether to sanction a loan or not, is in the absolute discretion of concerned
sanctioning authority of the Bank and such discretion is exercised after taking into
consideration the relevant facts and circumstances of each case. Information
relating to sanction of loans particulars of loan accounts and related information is
exempted from disclosure.

Any citizen can request for information by making an application in writing or through
electronic means in English / Hindi / official language of the areas in which the
application is being made together with the prescribed fees.(Rs10 per
application+Rs2/- for each page(A4/A3),or actual cost if large size paper, For
Inspection of Record-no fee for first hour, Rs5/-for each 15 Minutes or part thereof, in
case of diskette-Rs50 per diskette/floppy- Addl fee for other cost –actual cost-No fee
for below poverty line persons- no charges if the information is not provided with in
time limit)

The Central Public Information Officer(DGM-Law) and the Central Assistant Public
Information Officers( Regional Heads) will provide necessary information to the
public as permitted under the law within 30 days. Any person who does not receive
the decision from the Central Public Information Officers whether by way of
information or rejection within the time frame may within 30 days from the expiry of
period prescribed for furnishing the information or 30 days from the date of receipt of
the decision prefer an appeal to the Appellate Authority (GM-Law).

CORE BANKING :Customer of the Bank will have a Unique Identification

Number(.Minimum 11 digits. In our Bank 15 digits-I Four digits- Branch code, II two
digits -Type of account code, III Nine digits-account number)- Deposit accounts can
be opened at any Branch. SB/CD/CC – Debit/ Credit can be done on line, subject to
ceiling, from any Branch. All Branches of the Bank will be connected to a Central
Server. The Centralized Core Banking System is an inter Branch Net working and
data sharing platform, which makes any time, any where Banking a reality. With the
implementation of CBS, the Customers status changes from Branch Customers to
Bank customers.
CBS will help in Process Re Engineering to facilitate CRM ( Customer Relations
Management, ALM-asset Liability Management, ICRIS( Integrated Credit Information
System) DWH(Data Warehousing) EFT (electronic Funds Transfer ) SEFT( Spl
Electronic Funds Transfer) RTGS( Real Time Gross Settlement System) .
Prepared by R.Vijayaraghavan May 2010 38
Bio- Metric finger Print Solution –Which provide additional Security measures in
addition to the System of User Id and password validation will be implemented in all
CBS Branches.
This facility also enables Smart Card Banking.

Mobile Banking Transactions in India

The Reserve Bank has modified the guidelines on mobile banking transactions in In-
dia. The revised guidelines are -
Transaction Limit : Banks are now permitted to offer mobile banking service to their
customers subject to a daily cap of Rs 50,000 per customer for both, funds transfer
and transactions involving purchase of goods/services. Earlier, such transactions
were subject to separate caps of Rs 5,000 and Rs 10,000, respectively.
Technology and Security Standard : Banks may facilitate transactions up to Rs
1,000 without end-to-end encryption. Banks should address the risk aspects involved
in such transactions through adequate security measures.
Remittance of Funds for Disbursement in Cash: To facilitate the use of mobile
phones for remittance of cash, banks have been permitted to provide fund transfer
services which facilitate transfer of funds from the accounts of their customers for de-
livery in cash to the recipients. The disbursal of funds to recipients of such services
can be facilitated at automated teller machines (ATMs) or through any agent(s) ap-
pointed by the bank as business correspondents. Such fund transfer service can be
provided by banks subject to the conditions that -
(i) The maximum value of such transfers does not exceed Rs 5000 per transaction.
(ii) A suitable cap is placed on the velocity of such transactions, subject to a maxi-
mum value of Rs 25,000 per month, per customer.
(iii) Disbursal of funds at the agent/ATM is permitted only after identification of the re-
cipient.
(iv) Before appointing authorised agents for such services, due diligence of such per-
sons is carried out.
(v) Banks would be responsible as principals for all acts of omission or commission
of their agents.

Electronic Payment Transactions - Directions

With a view to safeguarding the interests of customers and to ensure that the pay-
ments made by them using electronic/ online payment modes are duly accounted for
by the intermediaries receiving such payments and remitted to the accounts of the
merchants who have supplied the goods and services without undue delay, the Re-
serve Bank has framed suitable directions for the safe and orderly conduct of these
transactions. The directions are -
Definitions
Intermediaries: Intermediaries include all entities that collect monies received from
customers for payment to merchants using any electronic/online payment mode, for
Prepared by R.Vijayaraghavan May 2010 39
goods and services availed by them and subsequently facilitate the transfer of these
monies to the merchants in final settlement of the obligations of the paying cus-
tomers.
Explanation: For the purpose of these directions, all intermediaries who facilitate de-
livery of goods/services immediately/simultaneously (e.g. travel tickets/movie tickets,
etc.) on completion of payment by the customer, shall not fall within the definition of
the expression “intermediaries”. These transactions which are akin to a delivery ver-
sus payment (DvP) arrangement would continue to be facilitated as per the contracts
between the merchants and the intermediaries as hitherto, and banks should satisfy
themselves that such intermediaries do not fall within the definition of “intermedi-
aries” when they open accounts other than internal accounts.
Merchants: Merchants include all electronic commerce/mobile commerce service
providers and other persons (including but not limited to utility service providers) who
accept payments for goods and service provided by them, through electronic/online
payment modes.
Maintaining Accounts for Collection of Payments
All accounts opened and maintained by banks for facilitating collection of payments
by intermediaries from customers of merchants, would be treated as banks’ internal
accounts. While banks may decide on the exact nomenclature of such accounts, it
should be ensured that such accounts are not maintained or operated by the inter-
mediaries.
Banks should ensure that the process of converting all the existing accounts main-
tained and operated by intermediaries, for the purpose covered in these directions,
should be completed within three months from November 24, 2009.
The permitted credits/debits in these accounts are:
Credits
• Payments from various persons towards purchase of goods/services.

• Transfers from other banks as per pre-determined agreement into the ac-
count, if this account is the nodal bank account for the intermediary.

• Transfers representing refunds for failed/disputed transactions.

Debits
• Payments to various merchants/service providers.

• Transfers to other banks as per pre-determined agreement into the account, if

that account is the nodal bank account for the intermediary.

• Transfers representing refunds for failed/disputed transactions.

• Commissions to the intermediaries. These amounts should be at pre-deter-

mined rates/frequency
No payment other than commissions, at pre-determined rates/frequency, shall be
payable to the intermediaries. Such transfers should only be effected to a bank ac-
count intimated to the bank by the intermediary during the agreement.
Prepared by R.Vijayaraghavan May 2010 40
Settlement
Banks should implement the following settlement cycle for all final settlements to
merchants, within three months from November 24, 2009.
• All payments to merchants which do not involve transfer of funds to nodal
banks should be effected within a maximum of T+2 settlement cycle (where T
is defined as the day of intimation regarding the completion of transaction).

• All payments to merchants involving nodal banks should be effected within a

maximum of T+3 settlement cycle.
Treatment of Balances
As the funds held in the banks’ internal accounts would be in the nature of outside li-
ability of the bank, the balances in these accounts should be reckoned as 'outside li-
ability' for the purpose of computation of NDTL.
Concurrent Audit
Banks should subject these accounts to concurrent audit and a certificate stating that
these accounts are operated in accordance with the Reserve Bank’s directions
should be submitted on a quarterly basis, to the Reserve Bank’s Department of Pay-
ment and Settlement Systems.

CASH TREE- It is a consortium among Banks to share ATM with other Banks,
connecting to NFS9 National financial Switch) set by IDRBT ( Institute for
Development & Research Technology)to share ATM among other banks.

ATM- Cash withdrawal-

Wef 22.08.06, IOB has joined NFS consortium for ATM sharing ( apart from Cash
tree)
ATM Charges(VISA - Cash Withdrawal -International-Rs 100/-
Balance Enquiry Rs Nil
( Cash drawal through Credit cards, Drawal through ATMs located abroad- Banks
are free to determine the service charges)
Max Cash withdrawal-Rs 10,000/- per transactions-for customers of other banks
SB customers-withdrawals from ATM of other banks- exceeding 5 times in a month
will attract service charges of Rs20/- per transaction.
In case of Non SB other Bank customers-no free withdrawals- Rs20/- per
transactions.
Merchant / Internet Transactions

For usage at Merchant Establishments No Charges

For Internet Payments No Charges

For usage at Petrol Pumps Surcharge of 2.5% of transaction amount or

Rs.10/-(whichever is higher)

For usage at Railway Stations or booking Surcharge of 2.5% of the transaction amount
train tickets through Internet

Prepared by R.Vijayaraghavan May 2010 41

IOB-CROWN
Centralized Resources Over Wide Area Network –Our Core Banking software
package.
NATIONAL PAYMENTS CORPORATION OF INDIA(NPCI)
Paid up Capital-Rs 100 Cr, Authorized Capital-Rs 300 Cr. RBI will be the regulatory
authority. An umbrella organization set by IBA member banks for establishing retail
payment systems. The corporation will take over the management of clearing
houses, MICR Centres, ECS, EFT, SEFT, High value clearing etc.( Working group of
IBA- Sri.S.Natarajan-2005) Payment Systems in India Vision 2005-08 Document
released by RBI in May 2005.(EFT and SEFT managed by RBI so far. ECS-
provided through clearing Houses for Bulk payments/Receipts electronically)

DEBIT CARD

Debit cards are plastic cards connected with electro magnetic identification. Banks
issue such cards to customers who could use them to pay for their purchases at
specified points of sale terminals. Thus the cards facilitate the customers to effect
the transactions on their own accounts remotely. Instead of carrying passbooks and
cheque books the customer would carry a debit card, which will enable online
payments out of his account. It allows one to spend up to the balance available in the
account. Can be used in ATMs and PoS Terminals. For customers- it is easy as it
replaces Cheque Book and there is no burden of carrying cash. For Banks, it
generate revenue in the form of fee based income. Accelerated business growth-
facilitates cross selling.
Issuer- The Bank which issues the card
Acquirer-The Bank which has installed the ATM or PoS terminal, where the card is
swiped.
Merchant Establishments-Hotels, Shops, Hospitals, Petrol bunks etc.
Debit Card contains 16 digit unique no.
CVV- Card Verification Value is the last three digits appearing on the reverse of the
card after the 16 digit no.CVV is required for internet transactions.
Daily limits for IOB Debit card
ATM-Rs15,000/-
At Merchant Establishment-Rs50,000
Internet-Rs50,000/-
Cash withdrawal @POS Terminal-Rs 1,000/- per day.
Visa Debit Cards- Introduction of third factor authentication in e commerce
transaction.-Verified by Visa-VbV-where the users will be required to give a PIN
based authentication.
Wef 01.08.09, it is mandatory to put in place a system to provide addl authentication
/validation for online card not present transactions.
On line alerts to the card holders for all card not present transactions of the value of
Rs5,000/- and above.

MOBILE BANKING
Transaction Limit-Daily cap-Rs50,000/-
Transfer of Funds for delivery in cash-Rs 5,000/- per transaction –Maximum Value –
Rs25,000/- per month.

SMART CARDS(e PURSE)

Smart cards, on the other hand, have an integrated circuit with microprocessor chip
embedded in it so that it could perform calculations, maintain records, and act as an
electronic purse. The cards can either be exhaustible or rechargeable. In either case,
Prepared by R.Vijayaraghavan May 2010 42
they have built-in memory and processor along with an operating system, which
performs financial operations.

IDRBT’S INTEGRATED PAYMENT SYSTEM(IDRBT-Institute for Development &

Research Technology ) an arm of RBI is formulating “National Inter Bank Payment
Gateway Project”. The Gateway will be shared by various Banks in India to handle a
multitude of payment instruments. It will act as abridge between the Merchant’s
website and the financial Institution that process the transaction. It will act as a
encrypted channel , which securely passes the transaction details from the Buyers
computer to Banks for authorization and approval. The Payment gateway sends
back the information to the merchant by completing the order and facilitates secure
funds transfer from Customers Bank to the Merchant account.

PAYMENTS SYSTEM IN INDIA

Mission Relate to Triple S+E
Safety, Security, Soundness, & Efficiency
NDS- Negotiated Dealing System
SFMS-Structured Financial Messaging Services.
EDI-Electronic Data Interchange.
ACH-Automated Clearing Houses
SEFT-Spl Electronic Funds Transfer
SIPS-Systemically Important Payment Systems
NFS-National Financial Switch.
NSS-National Settlement System-(aim to offer customer Credit, nation wide on T+1
basis or even on T+0 basis.
NCTS-National Cheque Truncation System
CPC-Cheque Processing Centre
CFC-Customer Facilitation Centre
NEFT-National EFT
INFINET-Indian Financial Network- Closed user Group Network in the financial
Sector.
SSS-Securities Settlement System
PDO-Public Debt Office.
EFT-Introduced by RBI and now replaced by NEFT.
National EFT –by RBI-only among net worked Branches(RTGS enabled)

RTGS-REAL TIME GROSS SETTLEMENT

RTGS is set up, operated and maintained by RBI , to enable funds settlement on real
time basis across banks in the country.
No institution shall be admitted to RTGS unless it fulfills the following1. member of
INFINET, Member NDS
The RTGS was implemented by RBI on 26.03.04 after comprehensive audit and
review of the software. RTGS is set up , operated and maintained by RBI , to enable
funds settlement on real time basis across banks in the country. The RTGS provides
for an electronic based settlement of Inter Bank and customer based transactions,
with intra-day collateralized liquidity support from RBI to the participants. It has
enabled STP( Straight Through Processing System) of customer transactions with
out manual intervention. Under RTGS , inter Bank transactions, Customer based
inter Bank transactions, and net clearing transactions can be settled. Both high value
and retail payments can be effected through RTGS . It provides for less risk based
funds transfer for both Banks and for their customers , apart from providing for more
efficient funds management at the treasuries of Banks.
DNS- Designated-time Net Settlement System
MLNS-Multi lateral Net Settlement System
Prepared by R.Vijayaraghavan May 2010 43
PKI-Public Key Infrastructure-to protect Information Security.
IFSC-Indian Financial System Code-A unique code for a branch –used in RTGS and
NEFT)

INSTA REMIT-IOB offers , INSTA Remit, a remittance solution in RTGS to both

Corporate & Individual Customers for transfer of funds from their accounts with us to
customers of other Banks which are RTGS enabled . Similarly IOB customers can
also receive funds from RTGS enabled bank Branches . Customers opting to
transfer funds will be required to provide IFSC code ( a number allotted to each
participating Bank Branch) of the Branch where the funds are to be transferred along
with details of the beneficiary name, a/c no etc.
Service Charges
RTGS:
Inward-Nil.
Outward-Up to Rs 5 lacs-Rs25/- Above Rs 5 lacs-Rs50/-+12.36%(STax)
NEFT:
Inward-Nil
Outward-Up to Rs 1 lac-Rs 5/- Above Rs 1 lac-Rs25/- +12.36% (S Tax)

IFSC-INDIAN FINANCIAL SYSTEM CODE- issued as the addressing code in user

to user message transmission through Structured Financial Messaging System
(SFMS)-various other payment systems like RTG, NEFT etc also use IFSC for
routing purpose. to be allotted to each Branch-IFSC will be printed above the MICR
band, above the serial number of cheques.-it is unique code for a branch that can be
used for RTGS/NEFT and other applications.
MICR CODE-Magnetic Character Ink Recognition code-Cheque-6 digits
Centre Code-9 digits-First 3-city, Next three Bank code, Last three Branch code,
Transaction code-2 digits

COMPASS

COMPLETELY AUTOMATED SETTLEMENT SYSTEM-w.e.f. 01/04/1999 to settle

Inter Branch Reconciliation.
e-IBSA
Inter Branch Transactions are settled through IBSA. In e IBSA , instead of physical
transfer of IBSA , IBSA will be transmitted electronically from the originating Branch
to the responding branch if both Branches are in net work.
Net Work Report- Reporting System in TBA Branches
Net work reports are reports of data relating to various modules which are required
to be sent to RO/CO departments on a daily/weekly basis and which are part of the
implemented modules at the Branch. These reports are generated and sent
automatically by the system with out the necessity of user intervention( This
programme is not a visible programme for users)

NEGOTIATED DEALING SYSTEM

NDA is an electronic platform for facilitating dealing in Govt Securities and Money
market instruments. NDS will facilitate electronic submission of bids /application by
members for primary issuance of Govt Securities by RBI through auction and
flotation .NDS will also provide interface to Securities Settlement System(SSS) of
Public Debt Office, RBI , thereby facilitating settlement of transactions in Govt
Prepared by R.Vijayaraghavan May 2010 44
Securities including TBills both outright and Repos . NDA is restricted to members of
INFINET. Settlement System for transactions in Govt Securities will be
standardized to T+1 basis.

NOVATION

Novation is a process (of substitution) by which Govt Securities transactions are

settled through CCIL( Clearing Corporation of India Ltd). Substitution of earlier Debts
and securities is called Novation.

PARA BANKING

Bankers can undertake certain eligible financial services in Para Banking activities,
either departmentally or by setting up subsidiaries. The engagement of Bank for
undertaking these financial services as per RBI guidelines is called Para Banking.
Eg- Equipment leasing, Hire purchase & Factoring Services, MF business, Credit
card(debit Card), Insurance comes under Para Banking.

CONVENIENCE BANKING
Providing Customer Service through Multiple Delivery Channels.

INTERNET PAYMENT GATEWAY

WEF 09.07.09-The first merchant included in the payment gateway-Siddi Vinayak
Temple, Mumbai.
IPG is a Virtual Point of Sale(POS) terminal on the internet. This will enable all card
holders to use our Bank’s gateway, wherever listed, for online transactions.
The services will be extended to debit card holders at a nominal rate, which will be
lower than other bank’s gateway.( Currently our bank card holders are paying 1.65
to 2.45% while using other bank gateways)

BENCH MARKING INDIAN BANKS: It is Technique of evaluating the Performance

IOB ON LINE: Bank’s Intra net site developed and maintained by CPPD.
CRIS IN FAC: Business Intelligence Service . Provides Industry profiles, Economic
analysis, Industrial analysis, and Company analysis.

KYC:The “Know Your Customer” –RBI has issued several guidelines relating to
identification of depositors and advised Banks to put in place systems and
procedures to help control financial frauds, identify money laundering and suspicious
activities and for scrutiny/monitoring of large value cash transactions. KYC
procedure should be the Key Principle for identification of an individual/corporate
opening an account. Banks are required to issue TCs/DDS/MTs/TTs for Rs 50,000
and above only by debit to Customer’s account. Applicants should furnish PAN on
the application for issue of TCs/DDS/MTs/TTs if the amount exceeds Rs50,000/-.
Branches are required to maintain a Register for keeping close watch of cash
withdrawals and deposits of Rs10 lakh and above in deposit/CC accounts and report
the details in a Monthly statement to Controlling office. CDW Ten register modified
and named as CTIB- Cash Transaction Index Book( CTR –Monthly to Ro on 7th day,
RO to Co on 11th day) STIB has to be maintained-Suspicious Transactions Index
Book. STR-suspicious Transaction Report to be sent with in 5 days to CO with a
copy to RO(STEAL dispensed with)
FIU-Ind-(Financial Intelligence Unit-India-New agency to check Money laundering

Prepared by R.Vijayaraghavan May 2010 45

REVISED KYC Guidelines and AML Standards

The ‘Know Your Customer’ (KYC) guidelines have been revisited in the context of the
recommendations made by the Financial Action Task Force on Anti Money
Laundering Standards and on Combating Financing of Terrorism. These standards
have become the international benchmark for framing anti money laundering and
combating financing of terrorism policies by the regulatory authorities. Detailed
guidelines based on the recommendations of the Financial Action Task Force and
the paper issued on Customer Due Diligence for banks by the Basel Committee on
Banking Supervision are indicated below. Banks have been advised to ensure that a
proper policy framework on ‘Know Your Customer’ and anti-money laundering
measures is formulated and put in place with the approval of their board.
The objective of KYC guidelines is to prevent banks from being used, intentionally or
unintentionally, by criminal elements for money laundering activities. KYC
procedures also enable banks to know/ understand their customers and their
financial dealings better which in turn help them manage their risks prudently. Banks
should frame their KYC policies incorporating the following four key elements
-Customer Acceptance Policy, Customer Identification Procedures, Monitoring of
Transactions and Risk Management.
Customer Acceptance Policy
The customer acceptance policy must ensure that explicit guidelines are in place
on the following aspects of customer relationship -
(i) No account is opened in anonymous or fictitious/benami name(s).
(ii) Parameters of risk perception are clearly defined in terms of the nature of
business activity, location of customer and his clients, mode of payments, volume of
turnover, social and financial status etc., to enable categorization of customers into
low, medium and high risk (banks may choose any suitable nomenclature viz., level
I, level II and level III ). Customers requiring very high level of monitoring, e.g.
politically exposed persons may, if considered necessary, be categorized even
higher.

(iii) Documents and other information should be collected in respect of different

categories of customers depending on perceived risk and keeping in mind the
requirements of PML Act, 2002 and guidelines issued by the Reserve Bank from
time to time.
(iv) Not to open an account or close an existing account where the bank is unable to
apply appropriate customer due diligence measures i.e., bank is unable to verify the
identity and/or obtain documents required as per the risk categorization due to non-
cooperation of the customer or non-reliability of the data/ information furnished to the
bank. It may, however, be necessary to have suitable built in safeguards to avoid
harassment of the customer. For example, decision to close an account may be
taken at a reasonably high level after giving due notice to the customer explaining
the reasons for such a decision.
(v) Circumstances in which a customer is permitted to act on behalf of another
person/entity, should be clearly spelt out in conformity with the established law and
practice of banking as there could be occasions when an account is operated by a
mandate holder or where an account may be opened by an intermediary in the
fiduciary capacity.

(vi) Necessary checks should be carried out before opening a new account to ensure
that the identity of the customer does not match with any person with known criminal
background or with banned entities such as individual terrorists or terrorist
organizations, etc.
Prepared by R.Vijayaraghavan May 2010 46
Customer Identification Procedure
The policy approved by the bank’s board should clearly spell out the customer
identification procedure to be carried out at different stages i.e., while establishing a
banking relationship, carrying out a financial transaction or when the bank has a
doubt about the authenticity/veracity or the adequacy of the previously obtained
customer identification data. Customer identification means identifying the customer
and verifying his/her identity by using reliable, independent source documents, data
or information. For customers that are natural persons, banks should obtain sufficient
identification data to verify the identity of the customer, his address/location, and also
his recent photograph. For customers that are legal persons or entities, banks should
(i) verify the legal status of the legal person/entity through proper and relevant
documents (ii) verify that any person purporting to act on behalf of the legal
person/entity is so authorized and identify and verify the identity of that person, (iii)
understand the ownership and control structure of the customer and determine who
are the natural persons who ultimately control the legal person.

Monitoring of Transactions
Ongoing monitoring is an essential element of effective KYC procedures. Banks
can effectively control and reduce their risk if they have an understanding of the
normal and reasonable activity of the customer so that they have the means of
identifying transactions that fall outside the regular pattern of activity. Banks should
pay special attention to all complex, unusually large transactions and all unusual
patterns which have no apparent economic or visible lawful purpose. Banks should
prescribe threshold limits for a particular category of accounts and pay particular
attention to the transactions which exceed these limits. Transactions that involve
large amounts of cash inconsistent with the normal and expected activity of the
customer should particularly attract the attention of the bank. Very high account
turnover inconsistent with the size of the balance maintained may indicate that funds
are being ‘washed’ through the account. High-risk accounts should be subjected to
intensified monitoring. Banks should set key indicators for such accounts, taking note
of the background of the customer, such as the country of origin, sources of funds,
the type of transactions involved and other risk factors. A record of transactions in
the accounts should be maintained and preserved. Transactions of suspicious nature
should be reported to the appropriate law enforcement authority.
Banks should ensure that their branches continue to maintain proper record of all
cash transactions (deposits and withdrawals) of Rs.10 lakh and above. The internal
monitoring system should have an inbuilt procedure for reporting of such
transactions and those of suspicious nature to controlling/head office on a Monthly
basis.

POLICY DOCUMENT ON KYCAND AML PROCEDURES(PDoc KYC AML)

In the light of fresh guidelines received from RBI, a policy document on KYC and
AML Procedures for our Bank was framed and the Policy has been approved by
our Board on 27.12.2005. The policy gives focused direction to
1.The core objectives of rendering quality service to genuine customer.
2. The methodology for verification of genuineness of applicant, creating a robust
data base on profile of each customer, monitoring the transactions for identifying
suspicious transactions/activities
3. The process of picking up warning signals on Money Launders for appropriate
remedial actions
4. The statutory requirements under PML act
5.The process of identification of suspicious transactions/activities.
Prepared by R.Vijayaraghavan May 2010 47
 RBI guidelines on KYC is based on the recommendations of
1) FATF( Financial Action Task Force) on AML( anti money laundering)and on
CFT(Combating Financing Terrorism)
2) The salient features of the Customer Due Diligence (CDD) for Banks
suggested by Basel Committee on Banking Supervision.
The primary objective is to prevent our Bank’s Branches from being used
intentially or unintentially by criminals for money laundering or other dubious
activities. The policy has been framed on the following four components
1.Customer Acceptance Procedure(CAP)
2. Customer Identification Procedure(CIP)
3. Monitoring of transaction
4. Risk management.
Branches should review the risk perception once in a year as of Dec, and refix
the same if necessary. for Low and Medium Risk category .
For High and Exceptional Risk category the periodicity of review has been
revised to once in Six Months-June and Dec
Definition of a Customer- for the purpose of KYC procedures, a Customer of our
Bank stands defined as
1. A person or an entity maintaining an account and /or having a
business with any of our branches
1. One on whose behalf the account is maintained
2. Beneficiaries of transactions conducted by Professional intermediaries
like Stock Brokers, CAs, Liquidator, Solicitors etc.
3. Any person or entity connected with a financial transaction which can
pose significant reputation or other risks to the Bank(eg issue of High
value DD as a single transaction)
CAP-Customer Acceptance Procedure-Parameter for risk perception is defined in
terms of occupation, Nature of business activity, location of customer and his/her
clients, close relatives, mode of payments, volume of turnover, social and
professional status. According to the level of risk perception , each customer shall
be categorized as Low risk, Medium risk and High risk and assigned codes as RIP-
1,RIP-2, RIP-3 respectively.

Turn over in Rs lacs

SB CD
RIP 1 10 40
RIP 2 12 500
RIP 3 18 1000
RIP-EXCEPTIONAL Customers having high risk perception e.g-persons
having large number of case filed against them like
Enforcement Directorate, IT etc

RLTL Mechanism-Risk level Threshold Limit mechanism to monitor the Constituents

running account on ongoing basis, for enforcing discipline among the constituents
and the bank staff and also for combating the menace of Money laundering.
Branches are required to apply revised KYC procedures for all ( Existing and new)
customers( Depositors and borrowers) and confirm compliance . The revised KYC
guidelines shall be applied to all new customers as stipulated by RBI. The Bank shall
apply revised KYC guidelines to the existing customers on the basis of risk
category. RIP- One-Low risk(Individuals whose source of wealth/income cane be
easily identified eg-Salaried class, Small balance accounts, Govt Dept Statutory
bodies etc) RIP-Two- Medium Risk-Individuals and entities with accounts reflecting
large volume of turn over or high value transactions(eg- Share brokers, Real Estate
Prepared by R.Vijayaraghavan May 2010 48
people, Auto Consultants etc) RIP-Three- High Risk-Customers for whom source of
funds ae not clear or are not convincing ( NRis, High Net worth, Trusts, Cos, Firms
,Politically Exposed Persons, Non face to face customers etc) RIP-Exceptional- Very
High risk- Individuals and entities whose public image is poor/ adverse ( persons with
large no of cases against them by Enforcement Directorate, Police, IT CTO etc)
(CDD-Customer Due Diligence, KYC CROP-KYC-Customer’s Record of Profile,
CAP-Customer Acceptance Procedures-,CIP-Customer Identification Procedure,
RIP- risk Perception, STIR- Suspicious Transaction Investigation Report, STEAL-
Suspicious Transaction Enquiry and Lead Report))
RBI has directed to record high value cash Transactions –Suspicious transactions
even if not in cash. Banks are required to submit cash Transactions Report (CTR) &
STR( Suspicious Transaction Report)to Director of Financial Intelligence
Unit(India)(FIU-India) under PMLA 2002 Banks are required to record all cash
transactions of Rs10 lacs or its equivalent in FC., and where such transactions
have taken place with in a month and the aggregate value exceeds Rs10 lacs.
Latest Guide lines on KYC
1. KYC to be obtained for all accounts both existing and
new accounts-
2. Photo with proof of customer identification and proof of
address
3. Number of Individuals in a joint account should be
restricted to 4
4. address of each individual in a joint account to be
recorded along with proof for each address.
5. Branch should send a letter of thanks to all the individual
depositors in the address provided.
6. Low and Medium-Branches to review the Risk perception
once in a year as of Dec and re fix the same if
necessary.
7. High and Exceptional-Periodicity of review has been
revised to once in 6 months.
Updation of Crop Forms: Periodicity of obtaining crop forms changed from every
year to once in 5 years for Low risk customers and once in 2 years for other risk
category.
Retention period of Record:10 years from the date of cessation of transactions.
Between the customer and the bank.
Fine: failure to produce information (AML) –Rs 10,000/- to Rs 1 lac for each failure.

SIMPLIFIED KYC FOR LOW INCOME GROUP

KYC-Applicable to all Deposit accounts

Simplified KYC-( With out insisting for Documents of identity and proof of
address)applicable to Low Income Group- Balances not exceeding Rs50,000/- ( in
all accounts put together) & Total Credits not expected to exceed Rs1 lac in a year.
Banks may open accounts in such cases
1. Introduction from another account holder( who has been
subjected to full KYC & Minimum 6 Months old customer.-Photo
and address of the account holder to be certified by the
introducer.
2. or any other evidence as to the identity and address of the
customer to the satisfaction of the Bank.
If any point of time , balance exceeds Rs50,000 or total credit exceeds Rs 1 lac no
further transaction is permitted till full KYC is completed. ( Bank must notify the
Customer when the Balance Exceeds Rs 40,000/- or total credit reaches Rs80,000/-)
Prepared by R.Vijayaraghavan May 2010 49
PMLA-Prevention of Money Laundry Act -Banks/FIs/Financial Intermediation , would
be required to maintain records of all cash transactions exceeding Rs10 lacs.

CREDIT INFORMATION COMPANIES(REGULATIONS) 2004

To provide support to the business of credit information , to equip Banks to deal with
NPAs , by providing information , regarding credit worthiness of various categories
of customers . It seeks to overcome the absence of adequate , comprehensive and
reliable information on borrowers.

Dun and Bradstreet, with SBI , HDFC is setting up the first Credit Information
Company.( Minimum authorized capital required for Credit information Companies is
Rs30 crores-issued capital Rs20 crores .

ALM-ASSET –LIABILITY MANAGEMENT.

The profit of any business organizations depends on the pattern of purchases and
sales and assets and liabilities. Banks should acquire their liabilities (Deposits-other
resources) at the minimum possible costs and sell their assets at the maximum
possible prices. This would result in the highest possible level of profit. The cost of
funds would come down by accretion in Current a/c, SB a/c, and Float funds. The
yield would go up through build up of bills business.
The Bank would examine each items of liability as to volume, cost, mix and maturity
pattern. Each item of asset with reference to volume, yield -mix, liquidity pattern. The
aim is the attainment of optimum composition of assets and liabilities so that the
profit is maximum. ALM of our Bank covers TBA/ALPM Branches, which covers 70%
of the Bank Business. For the Non-computerized Branches also information system
has been introduced.

SWIFT-SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL

TELECOMMUNICATIONS.

PARA BANKING
Banks can undertake certain eligible financial services or Para Banking activities
either departmentally or by setting up subsidiaries. The undertaking of these financial
services, as per RBI guidelines is called , Para Banking. Eg - Equipment Leasing,
Hire Purchase & Factoring services, Mutual fund business, credit cad, debit card,
Insurance business etc.

FRA-FORWARD RATE AGREEMENT-A forward rate agreement is a financial

contract between two parties to exchange interest payments for a notional principal
amount on settlement date, for a specified period from start date to maturity date.
Accordingly, the parties make the cash payments based on contract (fixed) and the
settlement rate to one another on settlement date. The settlement rate is the agreed
bench mark/reference rate prevailing on the settlement date.

IRS-INTEREST RATE SWAP-An interest rate swap is a financial contract between

two parties exchanging or swapping a stream of interest payments for a notional
principal amount on multiple occasions during a specified period. Such contracts
generally involve exchange of a fixed to floating or floating to fixed rate of interest.

VENTURE CAPITAL: In order to ensure the flow of finance for venture capital, the
overall ceiling of investments by banks in ordinary shares, convertible debentures of
corporate and units of mutual funds etc, which is currently at 5% of their incremental
Prepared by R.Vijayaraghavan May 2010 50
deposits will stand automatically enhanced to the extent of Bank’s investments in
venture capital. wef 01.04.06 it has been decided, not to include, investments in
venture capital, in priority sector lending.

BANKS ENTRY INTO INSURANCE BUSINESS: Banks will be required to obtain

prior approval of RBI. Minimum Net Worth required is Rs 500 Crore. CRAR-not less
than 10%. Net profit for last three consecutive years. Level of NPA-reasonable.

MICRO CREDIT: Micro credit is defined as supply of credit to the poor. It is the
provision o0f thrift, credit, other financial services and products of very small amount
to the poor in rural, semi urban and urban areas for enabling them to raise their
income level and improve living standards. Micro credit institutions are those, which
provide these facilities. Micro credit extended by the Banks to individual borrowers
directly or through intermediary would be reckoned as part of their priority sector
lending.( Credit not exceeding Rs50,000/- Priority Sector Classification)

RBI CREDIT POLICY: RBI has changed its practice of announcing Busy season and
lean season credit policies. Instead Annual monetary credit policy is being released
in the last two weeks of April. It is followed by review during every quarter.

RRA-REGULATIONS REVIEW AUTHORITY- RBI has set up in April 1999-RRA to

provide an opportunity to the public to seek relevant modification of
regulations/circulars/returns issued by RBI. An important contribution of the RRA is
the compilation of subject wise master circulars on important subjects. The RRA has
decentralized service charges of Banks.

CREDIT INFORMATION BUREAU(INDIA) LIMITED-CIBIL- A working Group

appointed by RBI has recommended the setting up of a Credit Information Bureau
for the collection of information relating to Borrowers and the provision of this
information to the entire financial system. It is a composite bureau to service a
closed user group of member credit grantors( commercial Banks/Notified financial
institutions and state financial Corporations) who submit data to it and the members
in turn will be entitled to receive credit reports from the centralized data base of
CIBIL. Our Bank is the member of CIBIL.
CAL A,B,C- To be stamped as an agreement
CAL –A-Consent letter from the Borrower where agreement form exists
CAL -B-Consent letter from the Borrower where no Loan agreement form exists
CAL- C –Consent letter from the Guarantor/s

CREDIT RATING AGENCIES IN INDIA:

CRISIL, ICRA, CARE , SMERA, DUN &Brad Street, ONICRA, Fitch Credit rating
of India etc.

CRISIL-CREDIT RATING INFORMATION SERVICES OF INDIA LIMITED.

Promoted by ICICI AND UTI And others like LIC, GIC AND SOME BANKS
INCLUDING SBI, IOB Etc.
For Debentures-AAA-Denotes Highest safety. For Commercial Paper-P1-Highest
safety.

ICRA :-INVESTMENT INFORMATION AND CREDIT RATING AGENCY OF INDIA

LIMITED. -Promoted by IFCI, UTI AND OTHERS LIKE LIC, GIC, SBI AND OTHER
BANKS INCLUDING IOB.

Prepared by R.Vijayaraghavan May 2010 51

CARE: -CREDIT RESEARCH AND ANALYSIS LIMITED. -Promoted by IDBI.
FITCH Rating India (P) Ltd.

SMERA:SME Rating Agency of India Ltd-a rating agency to rate SMEs-It is a joint
initiative by SIDBI, Dun & Bradstreet Information Services India (P) Ltd(D&B), The
Credit Information Bureau Of India Ltd, (CIBIL)& Several Leading Banks.

ELIGIBLITY NORMS TO DECLARE DIVIDENDS WITH OUT RBI APPROVAL

1) Banks should have CRAR at least 11% for the preceding two years and in the
accounting year.
2) Should have Net NPA of less than 3%(Dividend pay out Ratio-40%)
3) Dividend Pay out Ratio-Dividend per share/EPS
4) EPS-Net earnings/Outstanding Shares
5) Price to Earnings ratio-share price/EPS

OUT SOURCING- Getting certain portion of Banking Operations, managed and

done by external agencies is out Sourcing. International Banks have restriction on
complete Out Sourcing. In India the concept is also slowly catching up. Basle
Committee has recommended that Out Sourcing of key Banking activities like
Internal Auditing should be avoided.

TAKE OUT FINANCE- it is the product emerging in the context of Funding Long
Term infrastructure projects . Under this arrangement, the Institution /Bank financing
Infrastructure projects will have an arrangement with any FI for transferring to the
Latter the O/S in respect of such financing in the books on a pre determined basis.

DOORSTEP BANKING
RBI has permitted Banks to formulate a Scheme for providing services at the
premises of a customer, with in the frame work of SEC 23 of Banking Regulation Act.
Banks may formulate the Scheme with their Board’s approval and submit to RBI for
approval. In the interim Banks may continue to lift cash/credit instruments from the
premises of Central/State Govt departments.

EXTERNAL COMMERCIAL BORROWINGS-

Refers to Commercial Loans in the form of Bank Loans, Buyers Credit, Suppliers
Credit, Securitized Instruments eg- Floating Rate Notes, Fixed rate Bonds availed
from Non Resident Lenders with Minimum average maturity of 3 years. Access to
External Commercial Borrowings is permitted to Corporate by availing Medium term
as well as Short term credits. Automatic route and approval Route govern Medium
term credits with Minimum average maturity of three years and above. RBI prohibits
Banks from providing guarantees in favor of lenders, on behalf of their constituents
for ECBs raised by them. For issue of Guarantee/ Letter of Comfort/ Letter of
Undertaking in favour of overseas lender in respect of short term credit ( by way of
Supplier’s /Buyers credit) Ads are required to obtain prior permission from RBI.
ECB can be availed in Two Routes-Automatic Route, Approval Route.
Automatic Route- Corporate ( Registered under Companies Act) except Financial
Intermediaries like Banks, Fis, HFC, NBFCs are eligible.
Individuals, Trust, Non Profit Organizations are not eligible to raise ECB.
Cost of fund ( all in cost ceiling prescribed by RBI) for average maturity period from 3
years to 5 years- 6 Months LIBOR+300 basis points., Avg maturity period-more than
5 years-6 months LIBOR + 500 basis points.
APPROVAL GRID- 1.FIs-Dealing in Export Finance or Infrastructure Line

Prepared by R.Vijayaraghavan May 2010 52

 2. Banks and FIs- Participating in Textile & Steel sector Restructuring Package.
3. NBFCs-ECBs with Minimum Average Maturity- 5 years
4. HFCs-Minimum Size-USD 100 Million.
Global Depository Receipt- GDR
A certificate issued by a bank representing one or more shares of a stock the bank
holds in trust but that is traded on a foreign stock exchange. The GDR is
denominated in the local currency, and entitles the bearer to any dividends and other
benefits associated with the shares. GDRs can be traded like any other security.
Using GDRs shields the investor from foreign exchange risk and any applicable
tariffs he/she would have had to pay if he/she had bought the stock outright. It also
exempts the investor from any requirements the foreign exchange might have levied.
It also known as an international depository receipt (IDR).

Global depositary receipt (GDR). To raise money in more th an one market, some
corporate use global depositary receipts (GDRs) to sell their stock on markets in
countries other than the one where they have their headquarters.

The GDRs are issued in the currency of the country where the stock is trading. For
example, a Mexican company might offer GDRs priced in pounds in London and in
yen in Tokyo.

Individual investors in the countries where the GDRs are issued buy them to diversify
into international markets.
However, since GDRs are frequently offered by newer or less-known companies, the
prices are often volatile and the stocks may be thinly traded. That makes buying
GDRs riskier than buying domestic stocks.

A GDR is very similar to an American Depositary Receipt.

American Depositary Receipt

A certificate issued by an American bank representing a share of a foreign stock that

the bank holds in trust but that is traded on an American stock exchange. An
American depository receipt is dollar-denominated and entitles the bearer to any
dividends and other benefits associated with the stock underlying it. ADRs can be
traded like any other security. ADRs shield investors from foreign exchange risk and
any applicable tariffs they would have had to pay if they had bought the stock
outright. They also exempt the investor from any other requirements the foreign
exchange authority might have levied.

ADRs are actually receipts issued by US banks that hold actual shares of the
companies' stocks. They let you diversify into international markets without having to
purchase shares on overseas exchanges or through mutual funds.

ADRs are an excellent way to buy shares in a foreign company and realize any
dividends and capital gains in U.S. dollars. However, ADRs do not eliminate the
currency and economic risks for the underlying shares in another country. For
example, dividend payments in a foreign currency would be converted to U.S.
dollars, net of any conversion expenses and foreign taxes. ADRs are listed on the
NYSE, AMEX, or Nasdaq.

Prepared by R.Vijayaraghavan May 2010 53

DIFFERENCE BETWEEN GDR AND ADR
1. Global depository receipt (GDR) is compulsory for foreign company to access in
any other country’s share market for dealing in stock. But American depository
receipt (ADR) is compulsory for non –us companies to trade in stock market of usa .
2. ADRs can get from level -1 to level –III. GDRs are already equal to high
preference receipt of level –II and level –III.
3. Indian companies prefer to get GDR due to its global use for getting foreign
investment for own business projects.
4. GDR is negotiable instrument all over the world but ADR is only negotiable in
USA .
5. Even both GDR and ADR is the proxy way to sell shares in foreign market by
India companies ADRs is not substitute of GDRs but GDRs can use on the place of
ADRs .
6.. Investors of UK can buy GDRs from London stock exchange and luxemberg
stock exchange and invest in Indian companies without any extra responsibilities .
Investors of USA can buy ADRs from New york stock exchange (NYSE) or NASDAQ
(National Association of Securities Dealers Automated Quotation).
7. American investors typically use regular equity trading accounts for buying ADRs
but not for GDRs .
8. The US dollar rate paid to holders of ADRs is calculated by applying the
exchange rate used to convert the foreign dividend payment (net of local withholding
tax) to US dollars, and adjusting the result according to the ordinary share but GDRs
is calculated on numbers of Shares . One GDR's Value may be on two or six shares

INDIAN DEPOSITORY RECEIPTS

IDR -are derivative instruments like Global Depository Receipts (GDRs) and
American depository receipts (ADRs) that have shares as the underlying assets.
Indian companies raise capital overseas through ADRs and GDRs. The IDRs would
allow foreign companies to raise capital in India. Like any other depository receipts
IDRs are negotiable financial instruments, issued by a local depository against the
shares of the foreign company's publicly-traded securities held by it.
The foreign company IDRs will deposit shares to an Indian depository. The depository would
issue receipts to investors in India against these shares. The benefit of the underlying shares
(like bonus, dividends etc) would accrue to the depository receipt holders in India.

Standard Chartered PLC became the first global company to file for an issue of
Indian depository receipts in India.
An IDR is an instrument denominated in Indian Rupees in the form of a depository
receipt created by a Domestic Depository (custodian of securities registered with the
Securities and Exchange Board of India) against the underlying equity of issuing
company to enable foreign companies to raise funds from the Indian securities
Markets.

ORMC-OPERATIONAL RISK MANAGEMENT COMMITTEE-It is high profile body

constituted under the directives of the board of our Bank, which has been vested
with the responsibility of overseeing/reviewing the vigilance related issues. The
Committee headed by our Executive Director and other GMs including CVO of our
Bank, meets periodically and discusses functional issues arising on account of
frauds perpetrated during a given period of time.

Prepared by R.Vijayaraghavan May 2010 54

ACCOUNT WITH TEMPORARY DEFICIENCIES-
4.1. CC A/C- The Outstanding in the account based on DP calculated from
stock statements older than 3 Months would be deemed as irregular. A Working
Borrowal Account will become NPA, if such irregular drawings are permitted in the
account for a continuous period of 90 Days, even though the unit may be working
or the Borrower’s financial position is satisfactory.

4.2 . RENEWAL/REVIEW OF LIMITS- Regular and Adhoc Credit limits need

to be reviewed/Regularized not later than 3 Months from the Due Date/Date of
Adhoc Sanction . In case of constituents, branch should furnish evidence to show
that review of credit limit is already on and would be completed soon. An account
where Regular/Adhoc limits have not been reviewed/renewed with in 180 Days from
the due date will be treated as NPA.

CIBIL-CREDIT INFORMATION BUREAU (INDIA) LIMITED-is a composite bureau

established to service a closed user group of member credit granters( Commercial
Banks/Notified Fis) who submit data on borrowal accounts to it. The members in turn
will be entitled to receive credit reports from the centralized data base of CIBIL.

RISK BASED SUPERVISION(RBS) & PROMPT CORRECTIVE ACTION( PCA )

Earlier Supervision process of RBI is based on CAMELS(Capital Adequacy, Asset
Quality, Management, Earnings, Liquidity, Systems& Control-applicable to all
domestic Banks)
RBS has been introduced in 2003. Based on the recommendations of Price
Waterhouse Coopers, London.
RBS Model consists of
 Development of Risk profile for each Bank
 Designing supervisory action plan for each Bank.
 to maintain objecting and neutrality in application of supervising standards.
It involves four major sub processes
 Risk Profiling
 Risk assessment
 Monitor the action plan
 Prompt corrective action.
PCA- A schedule of PCA has been worked by RBI on 3 Parameters-CRAR, Net
NPA, ROA., Which represent Capital Adequacy, Asset Quality, & Profitability.

TRIGGER POINTS-
1) CRAR-Capital to Risk Asset Ratio-3 Trigger points
1. CRAR IS LESS THAN 9% BUT EQUAL OR MORE THAN 6%
2. CRAR IS LESS THAN 6% BUT EQUAL OR MORE THAN 3%
3. CRAR IS LESS THAN 3%

2) Net NPA –2 trigger points

1. Net NPA over 10% but less than 15%
2. Net NPA 15% & above.
3) ROA-One trigger point
ROA below 0.25%

Prepared by R.Vijayaraghavan May 2010 55

 DIFFERENCE BETWEEN TRADITIONAL INTERNAL AUDITAND RISK BASED
INTERNAL AUDIT
S No Traditional Internal Audit Risk based Internal Audit
1 Transaction/Procedure oriented Risk based/process oriented
2 Internal System/Compliance Risk focused
focused
3 Watch dog function/what was not Effect analysis/Value maximization
done approach
4 May not address the risk involved Risk assessment is the key
5 May not test the adequacy of Control efficacy is the root
control
6 Inspection vs Defense Aims at improving early warning signals
7 Follows a defined/structured audit Audit plan based on assessed risk and
plan its impact study.

PRUDENTIAL NORM FOR AGRI ADVANCES

Wef 30.09.04 , norm for direct agri advances

• A loan granted for short duration crops would be treated as NPA , if the
installment of principal or interest remains overdue for 2 crop seasons
• A loan granted for long duration crops would be treated as NPA , if the
installment of principal or interest there on remains overdue for one crop season(
Long duration crops- Crops with crop season longer than 1 year and other crops
are short duration crops Crop season- will be determined by SLBC in each state)

LONE MECHANISM-Letter Of Non Entitlement- by this mechanism on certain GL

Heads, Branches who are not entitled to operate will not be allowed to operate the
GL heads by Shutting Down the same. This mechanism comes under preventive
vigilance.

FLOATING RATE OF INTEREST ON DOMESTIC TERM DEPOSITS

( amended CO Dep 91 Dt 01.03.05)- Not applicable to Staff. Sr citizens under

floating rate –not eligible for additional interest.
1. RBI has permitted Banks to offer floating rate of Interest on Deposits. Here
interest rate is fixed in relation to an anchor rate and will change as and when
there is change in the anchor rate at pre determined intervals.
2. With effect from 13/01/03 Modified-01.03.05
3. Resident Individuals(single/Joint) , Minor accounts operated by Guardian, HUF,
Trust, Companies, Firms, RRBs can opt for floating rate. It is optional.
4. Minimum period –3 Years up to Maximum of 10 Years.
5. Under SFD(Q) only.
6. Minimum deposit Rs 1 Lakhs in multiples of Rs 10,000/-NO upper ceiling.
7. Interest Rate- For maturity – 3 y-5 y- (6.48%-up to 28.02.10) Int will be 5 year G
sec rate. Above 5 year to 10 Years (6.76%-up to 28.02.10)- 10 year G sec rate.(
will be fixed based on the daily average of G sec rate for the last 6 months-
Interest will be reset once in every 6 Months on Ist March and Ist Sep every
year.
8. For premature closure, Minimum 10 Days notice is required-Deposit should have
completed 3 Years- Foreclosure charges-1% No foreclosure charges for Deposit
of Rs 5 lacs and less.

Prepared by R.Vijayaraghavan May 2010 56

9. Loan against deposit-90% of the deposit amount. Interest –2% over deposit rate-
for self, 3% over deposit rate- for loan to third parties.
Interest Rate on loans will be reset once in 6 Months.
10. Conversion from Fixed Rate to Floating Rate-allowed. Treated as premature
closure appropriate int with out deducting pre closure charges
Floating rate to fixed rate not allowed( New GL code-1068)

Indian Banks’ Association (IBA) is the premier service organization of the banking
industry in India. IBA is a voluntary organization.
IBA’s Vision : “To work proactively for the growth of a healthy, professional and
forward looking banking and financial services industry, in a manner consistent with
public good

Banking Industry Vision 2010

Our vision is to evolve into a strong, sound and globally competitive financial system
, providing integrated services to customers from all segments, leveraging on
technology and human resources, adopting the best accounting and ethical practices
and fulfilling corporate and social responsibilities towards all stakeholders.

THE MICRO,SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT

2006
1) operational wef 02.10.2006-Cntains 32 Sections
2) Classification of enterprises-To facilitate promotion, development and
to enhance the competitiness of Micro, Small and Medium enterprises.
The Concept of “Enterprises” has been introduced as against “Industries”
1. Enterprises engaged in the manufacture/production of goods pertaining to any
industry and
2.Enterprises engaged in providing/rendering of services.

MSME advances are classified into various categories depending upon the original
investment in plant and machinery/equipments as under

SECTOR MANUFACTURING UNITS SERVICE ENTERPRISES

MICRO LEVEL I Investment in Plant and Investment in Plant and

Machinery upto Rs 5 lacs Machinery upto Rs 2 lacs

MICRO LEVEL II Investment in Plant and Investment in Plant and

Machinery >5 lacs to Rs25 lacs Machinery >2 lacs to Rs10
lacs

SMALL > Rs25 lacs to Rs 5 crores > Rs10 lacs to Rs 2 crores

ENTERPRISES

MEDIUM > Rs 5 crores to Rs 10 crores > Rs 2 crores to Rs 5

ENTERPRISES crores

Prepared by R.Vijayaraghavan May 2010 57

It is clarified that in calculating the investment in Plant and Machinery , the cost of
pollution Control, Research and Development , industrial safety devices and such
other iems as may be specified by notification shall be excluded.
All advances to Khadi and Village Industries will be under Small Enterprises and
treated as Priority Sector advances., irrespective of their size ,location and amount of
original investment in P&M.
Memoranda to be filed by MSMEs –Medium enterprises-to the Authority as specified
by Central Govt
Micro or Small Enterprises-to the authority as specified by state Govt.
DELAYED PAYMENTS TO MICRO AND SMALL ENTERPRISES

1. Period of payment to MSEs by the buyers reduced to 30

days( from 45 days)
2. Rate of interest on Outstanding amount is Three times of
Bank rate (compounded on monthly basis)

DEFINITION OF LARGE CORPORATE:

Units engaged in Manufacturing Services, Contracting and real estate development

where turnover is above Rs50 crores and Trading(Wholesalers, Retailers, Exporters,
importers and distributors) having a Turn over greater than Rs75 crores.

TRADER:

Units engaged in Trading(wholesale, Retailer, Exporters and importers)

LOAN POLICY DOCUMENT -2009(valid till next annual review is made)

OBJECTIVES:
1)To comply with RBI guidelines on Capital adequacy, Credit Deposit Ratio,
Prudential Norms, Asset Classification guidelines, Risk Management guidelines
etc.
2) To achieve targets fixed for Priority Sector advances including Exports,
Housing etc.
3) To reduce NPA portfolio
4) Deploying funds in a profitable manner
5) To avail refinance whenever necessary.
6) To take quick decisions in extending credit
7) To have effective post disbursement follow up
8) To have a diversified loan portfolio

Priority Credit-40% of Total Credit. (Net Bank Credit as per RBI guidelines)
Direct and Indirect agricultural Advances-18% of NBC.
(indirect advances not to exceed 4.50% of NBC)
10% of total Credit or 25% of Priority Sector credit should go to weaker sections.
DRI advances- at least 1% of total credit
5% of Net bank Credit should go to women entrepreneurs.

SME Sector units with working capital limits of Rs7.50 Crore – assessment by
Turnover Method( Nayak Committee)
Prepared by R.Vijayaraghavan May 2010 58
CS Murthy Committee- recommendation on priority sector lending. will be followed.
R V Gupta’s Committee recommendations for improving agricultural advances will be
followed.
Adhoc Limit up to 20% in the Fund based and NFB working capital limits(subject to
overall ceiling limit) can be sanctioned by Branch Managers , even though the
original limits were sanctioned by any layer of authority.-for a period not exceeding
90 days.

Valuation Of Securities:
In respect of Agri Advances for more than Rs5 lakhs -valuation report from approved
valuer is required.
For all NPA accounts-irrespective of limits –valuation to be done by once in 3 years.
fFor all advances above the credit limit of Rs5 crores-2 valuation reports from two
different approved valuers, are required.
For advances valuation required to be done by approved valuer, in addition to desk
top valuation to be done once in 3 years.

Agri-
IOB Sampoorna- launched in Tiruvallur and Nagapattinam districts of Tamilnadu, to
achieve total inclusive growth for integrated rural development covering all aspects
of social and economic life people.
Contract Farming-will be given a fillip viz Jatropha Cultivation under tie –up with M/S
Biofuels India (P) Ltd.
Govt of India has fixed a target of 3 % of the total disbursement of Special
Agricultural Credit Plan under Debt Swap Scheme.

Prudential Norms
.Single Borrower limit-20% of capital funds (Max limit with board approval)
Max Limit-by MCB-Individual/Prop./Trust/Society-Rs 100 crore
Partnership firms-Rs400 crore
All Other borrowers-15% of capital funds
NFBCs- by MCB-Rs300 crore- with Board approval-10%/15% of capital fund .
Group exposure limit-MCB-40%(aggregate limit to prop/partnership not to exceed
RS500 crore)
With board approval--45% of capital funds.
For Infrastructure Projects
With Board approval-25%of CFs
By MCB-Individual/Prop/Trust/Society---Rs 100 crore
Partnership firms--Rs 400 crore
All other borrowers-20% of capital funds
NBFCs- by MCB-Rs300 crore-
With board approval-15%/20% of Capital Funds
Group exposure limit by MCB-50% of CFs
Prepared by R.Vijayaraghavan May 2010 59
With Board approval-55% of CFs.
Aggregate Exposure to Indian Joint Ventures-20% of Bank’s unimpaired Capital
Funds( Tier I and Tier II capital )
For Oil Companies-single borrower limit-25% of CFs.9 With Board approval-30%)

Exposure limit is calculated based on the capital funds of the previous year.
Single Borrower Exposure Limit for Individual and Prop-Rs100 crore
For Partnership single borrower limit-Rs400 crore.
In group aggregate exposure to partnership and prop should not exceed Rs 500
cr. (for Infrastructure as well as others)
For Trust/Society Single borrower limit-Rs100 cr
Aggregate exposure to Trust, Society should not exceed 3% of total credit.(
Exceptions-CMD is empowered, State Central Govt, Board exempted accounts)
Substantial Exposure Limit:
Sum total of exposures assumed in respect of those single borrowers enjoying
credit facilities in excess of a threshold limit, say 10% of capital funds does not
exceed 500% of the Bank’s capital funds or 25% of total advances outstanding
which ever is lower.
Foreign Currency Loan against FCNR(B) Deposits-Margin 10% on face value of
deposits.-only to deposit holders
Maximum loan against NRE rupee deposits/FCNR(B) Deposits either to
depositors/third parties-Rs100 lacs(RBI directives)
REAL ESTATE EXPOSURE
Real estate includes Housing finance also
Exposure limit-30% of Gross domestic advances(wef March 2010)
Sub ceiling
Commercial real estate-7%
Liquirent CRE -3%
Total CRE -10%
Housing direct-10%
Housing indirect-4%
Hotels and Hospitals-3%
Liquirent Non CRE -3%
Total non CRE-20%
Total Real Estate-30%

Prepared by R.Vijayaraghavan May 2010 60

 Entry Level Rating equivalent to IOB 6 will be accepted for lending to real estate
sector.
Margin on Cost of land (for public agencies only)-40%-ED-32%-CMD-30%
Margin on cost of construction-30%-ED-24%-CMD-22.50%
Advances against shares for meeting promoter’s contribution to the equity of
new Cos can be granted only to corporate
and not to individuals. Corporate should be in line of business for more than 3
years, earning profit in last 3 years. The CRISIL RAM rating should be LT 1to
LR4, SME 1&2,TR 1&2 and P 1 only.
Bureau of Indian Standards (BIS) has formulated a comprehensive Building code –
National Building Code(NBC) of India 2005, providing guidelines for regulating
building construction activities across the country.
National level Commodity Exchanges-NCDEX- National Commodity and
Derivatives Exchanges, MCX-Multi Commodity exchange of India Limited,
NMCEIL- National Multi Commodity Exchange of India Limited
Bank has banned the advances against IPO
Loan to Individuals against Shares-in Physical form –Rs 10 lacs-In Demat form
-Rs20 lacs(Max) per individual borrower
Minimum Margin-50%
On guarantees issued on behalf of Stock brokers/Commodity Brokers- in favour
of Stock/Commodity exchanges-with in the Margin of 50% cash margin is25%
Statutory Limit-No Banking Co shall hold shares in any co exceeding 30%of paid
up share capital of the CO or 30% of its own paid up capital which ever is less.
Regulatory Limit-The aggregate exposure of the bank to the capital market will
not exceed 40% of its net worth, as of 31st march of previous year.(with in this
over all ceiling Bank’s direct investment in share /bond/debentures and all
exposure to Venture Capital Funds should not exceed 20% of its net worth)
Internal Limit-Aggregate advances to share brokers and market makers shall
not exceed 10% of the net worth of the bank.(Max loan-Rs50 crore, Guarantee
limit for each stock broke-Rs45 crore)
MCC- Minimum Marginis50%-GMs, Corporate Credit can reduce Margin in
deserving cases if 4 out of 7 specified parameter is satisfied.

Loan Delivery System-Since RBI relaxed the guidelines for Working capital Demand
loan( earlier for WC limits of Rs 10 Crore and above WCDL will be in 80:20 ratio)-
Sanctioning authorities are empowered to fix working Capital demand loan and cash
credit in any proportion/ratio on case to case basis.
Prepayment charges at 1% of prepaid amount in case of term loans and other loans
where the repayment of loan exceeds 1 Year.
Submission of QIS I and II waived. QIS –Form III- for WC limits of Rs5 crore and
above.
CSS-Continuous Surveillance statement –Monthly –in respect of Borrowers enjoying
working capital limits of Rs1 Crore and above.
Prepared by R.Vijayaraghavan May 2010 61
Medium Term/Long term/DPG will be considered normally for a maturity period not
exceeding 10 Years, including Moratorium/holiday period. Under specific
circumstances can be extended for longer periods up to 15 Years.,
Term loan exposure limit-40% of total domestic advances( term loan with residual
period of 1 year will not be reckoned for computing 40% limit)
Total exposure to Real Estate sector-30% of total credit for the Bank.
FC Loans against FCNR(B) Deposits at 10% margin on face value of deposits.

Watch Category accounts- where one installment of principal is not paid with in a
month of its due or one Quarter’s /Month’s interest is not paid with in a month of its
debit.

INDUSTRIAL ADVANCES-Bank is subscribing to CRIS INFAC’s industrial

information reports , which are available in IOB ONLINE for gauging the performance
of each industry. Ceiling is prescribed for industry exposure as a percentage of total
industrial credit.( only fund based outstanding are reckoned). In cases where the
exposure to a particular industry is exceeded a maximum of 10% of outstanding in
existing accounts can be considered by the sanctioning authorities.
Ship breaking Industry-a ratio of 10:1 or 5:1 ( taking unsecured loans as quasi-
equity) is prescribed as DER.
Exposure to NBFC-Exposure is restricted to 4% of gross domestic advances.
Total limit to advances to film industry-The fund based outstanding in film industry
should not exceed 1% gross bank credit.
Exposure to single NBFC-Rs 300 crore.
Trade Credit-Balance sheet not insisted up to credit limit of Rs1 lakh
-Sanction based on unaudited balance sheet for limits upto Rs25 Lakhs
-Non insistence of approved valuers’ valuation on collateral securities
for securing limits up to Rs 1 Lakh etc.

APPROVAL GRID:
As per RBI guidelines as part of credit risk management, approval grids are formed
at CO, RO, exceptionally large branches.
Approval grid is only a recommendatory body. Based on the recommendation of
approval grid, the credit proposals will be put up to the sanctioning authority for
disposal.

All new credit proposals falling beyond the powers of GM corporate credit,GM
priority credit, and GM Overseas Credit proposals are referred to an “Approval
Grid” before recommending to sanctioning authorities.
Enhancement proposals , (both FB and Non FB-for both domestic and overseas
Credit) including adhoc limit and for any change in the terms and conditions in
respect of proposals falling under the powers of ED, CMD, and MCB are to be
routed through approval grid.
In RO proposals involving fund based limit of Rs1 crore and above has to be
routed through approval grid.

LOAN REVIEW MECHANISM AND LOAN REVIEW POLICY( part of Risk

management guidelines issued by RBI)
LOAN REVIEW MECHANISM-Bank reviews all borrowal accounts above Rs 1 crore
-with in 3 to 6 Months of sanction/renewal/enhancement.- and suitable action to be
taken to on accounts showing incipient sickness.
Out of accounts reviewed by the Loan Review Committee at Central Office and
vetted by GM (LRM) , accounts with fund based limits of Rs 20 crore and above are
to be put up to MCB for information.

Prepared by R.Vijayaraghavan May 2010 62

 All standard accounts with fund based limits of Rs1 crore and above, sanctioned
by RO shall be reviewed by loan review committee at concerned Inspectorate with
in 3 to 6 months of sanction/renewals/enhancement.
Credit Audit-( On site auditing)-Borrowers with aggregate Limits of Rs5 crore and above
Loan review Mechanism) for standard assets with credit rating LT
6/TR 4/ SME 4/P 3 (Internal Rating-IOB -6) and above.
LRM is an effective mechanism for constantly evaluating the quality of Loan Book
and to bring about Quality of improvement in Credit Administration.
PRICING: Pricing will be done as per Slab system, RAM model developed by
CRISIL,and also based on category/segment of borrowers for credit limits of various
ranges.
Upfront fee for Term Loans-1% of Term Loan Limit(No ceiling or maximum)
Commitment Charges-0.50% for all working capital Fund based , non fund based
limits and Term Loans of Rs50 lack and above from the banking System((Tolerance
level 20%)

STOCK AUDIT:
Stock Audit by CA, shall be conducted on borrowal accounts, including NPA
enjoying working Capital Fund based limits of Rs 5 Crore and above.
NPA accounts with O/S Rs 5 crore and above- Once in a year-as on 31st Dec
New Borrowal accounts( with 2 years and less relationship)-Rs 5 crore fund based
WC-less than Rs10 crore-once in a year as on 31 st Dec
Rs 10 crore fund based WC- and above- Twice in a year as on 30th June &31st Dec
Borrowers with more than 2 years relationship-WC fund based limits of Rs5 Crore
and above- once in a year as on 31st Dec
Watch category borrowal accounts with fund based outstanding of RS 50 lacs and
above ,once in a year as on 31st Dec every year.
Borrowers(standard assets) enjoying WC limit of Rs 3 crores and above and up to
Rs5 crores –once in Two years as on 31st Dec.
( Stock audit not applicable to- Public sector undertakings and in certain cases like
Multiple Banking where Stock audit was conducted by one of the Bankers)

MULTIPLE BANKING- since Consortium is not Mandatory borrowers opt for Multiple
Banking.
1) Appraisal of credit limits to be done independently( other Bank’s appraisal notes
to be obtained)
2) Documents to be taken independently
3) Charges on assets on Pari Passu basis
4) Independent inspection
5) Stock statement should contain O/s with other Banks.
6) Interest and commission as per rating of Individual banks.

REVIEW/RENEWAL OF BORROWAL ACCOUNTS

Review/Renewal to be done with in 3 Months from due
All the credit limits are renewed/reviewed at least once in a year. Review /Renewal
of Term loan-When stand alone TL is extended- review of accounts, even if the
original sanctioned term loan limit is Rs5 lakh and below and the a/c is regular,
should be made as per revised format.
Term Loans accounts are to be reviewed periodically by the authority under whose
powers the DP amount falls at the time of review.

Prepared by R.Vijayaraghavan May 2010 63

COMPULSORY AUDIT OF BORROWAL ACCOUNTS- RBI has given the discretion
to Banks to fix the cut off limit- accordingly in our Bank, all borrowers with credit limit
of above Rs25 lakhs from the Banking system should get themselves audited
compulsorily by Chartered Accountants.
BILL FINANCING- Inland House Bill- Inland bills drawn on Associates/ sister
concerns etc-no finance to be extended.
in all other cases House bill on a single drawee may be permitted up to 10% of the
Bills limit and total of such bills to associates should not exceed 25% of bills limit.

Loan against several term Deposits carrying different rates- based on weighted
average method.

SUB BPLR- RBI has given the freedom to Banks to extend credit facilities at interest
rates below bank’s BPLR, in deserving cases and on transparent & objective
policies. ( Parameters to be approved by the Board)

MARGIN- Advances against shares both in physical and Demat form- 50% margin(
50% of average market price of last 12 months) as per RBI guidelines.
Working Capital Appraisal-
Borrowers with Working capital limits up to Rs 2 Crore ( Rs 7.5 Crore for SME
borrowers) will be assessed as per Nayak Committee recommendation( turn over
Method).
Borrowers enjoying working capital limits of above Rs2 crore and up to Rs 10 crore
will be assessed as per the existing traditional method of arriving at MPBF(Maximum
permissible bank finance) calling for the CMA data.
For borrowers above Rs 10 crore option has been given to borrower to be assessed
as per the cash budget method or as per MPBF method.

Appraisal relating to IT- Limits upto Rs 2 Crore ( Rs 7.5 Crore-SME) –on the basis of
20% of projected turnover, or if the Borrower wishes as per Monthly cash budget.
For above Rs 2 Crore( above Rs 7.5 crore-SME) – assessment based as per Cash
budget and credit would be made available on the basis of deficits.
Bench mark current ratio-1.33:1 ( lower current ratio can be considered in justifiable
cases)
DER-debt Equity Ratio- Desirable yardstick-2:1
DSCR-Net Profit after Tax+Depreciation+ Interest on T/L and other Long term debts
_____________________________________________________________
Instalments of T/L & other long term debts Interest on T/L & other long term
debts

Ideal ratio-above2:1( SSI units in backward areas- Minimum DSCR-1.5:1

can be accepted)

CORPORATE DEBT RESTRUCTURING- RBI guidelines to be followed. Guidelines

of RBI- to restructure the Corporate debt of Rs 10 Crore and above under
Consortium/Multiple Banking arrangement under CDR system have been
implemented by the Bank.

DEBT RESTRUCTURING MECHANISM OF SME’S

All Corporate SMEs which have funded and non funded outstanding up to Rs10
Crore under Multiple/Consortium arrangement , are eligible. Unit should be viable
with in 7 years and repayment period for rest ruction of debt should not exceed 10
years.

Prepared by R.Vijayaraghavan May 2010 64

STOCK STATEMENT- For arriving at DP based on stock statement ,unpaid stock
should be excluded.

QIS- Quarterly Information System- Submission of QIS I and II waived.( However

QIS I is to be called for , which shows estimates for the ensuing quarter for fixing
operative limits for working capital. This will help the borrower to avoid commitment
charges on unavailed portion) QIS III is to be submitted every half year by the
Borrowers enjoying Working Capital facility of Rs 5 Crore and above,
In all cases where working capital limits are Rs2 crore and above CMA data is to be
called, along with audited balance sheets. However in case of accounts falling under
Nayak Committee recommendations, minimum of 20% projected turnover or the
limits arrived as per traditional method which ever is higher is prescribed. Discretion
vests with Territory GM to waive charging of penal interest in case of non submission
of QIS-III

SELECTIVE CREDIT CONTROL- Except levy sugar , all other commodities had
been exempted by RBI from the purview of Selective Credit Control regulations. The
regulations with regard to Margin, and referring to next layer of authority will be
applicable only to sugar and will not be applicable to other commodities.
CSS-Continuous Surveillance Statement to be collected every month –in respect
of Borrowal accounts with fund based working capital limits of Rs1 Crore and above
EXCESS DRAWINGS:
Normally Branch manager is not permitted to allow excess in ay accounts on more
than three occasions in a year.
CIBIL
Credit Information Bureau(India)Limited-It is mandatory to draw reports from CIBIL’s
web on prospective borrowers in the consumer segment before considering of loans
of Rs2 lacs and above.

NPA MANAGEMENT AND RECOVERY POLICY

Will be in force till further notification.
Special Focus on upgrading SS assets.
Modes of recovery to reduce NPA
1. Recovery through Compromise settlements
2. Recovery through close follow up of suit filed/DRT a/cs
3. Recovery through Lok Adalats
4. Recovery through SARFAESI act
5. Recovery through sale of assets to Assets
Reconstruction Companies
Time Limit extended till further notification- for Recovery of NPAs through
Compromise settlement in respect of accounts which are not covered under the
purview of RBI guidelines( NPAs of below & above Rs10 crore, A/cs classified as
NPA after 31.03.2000, all suit decreed/RC issued cases)

OTS/OCS formula should also consider Net Present value of realizable security and
NPV of OTS amount(If paid in future/instalments)

IOB-FPCL- IOB-FAIR PRACTICE CODE FOR LENDERS

Adopted 2003. revised 2007-applicable to all categories of loan
applicants/borrowal accounts irrespective of loan amount.

In order to nurture and strengthen the relationship with the Borrower , the Bank has
compiled and adopted a code known as IOB-FPCL, in tune with the guidelines
received from the RBI. Scheme approved by our Board on 9th August 2003.
Prepared by R.Vijayaraghavan May 2010 65
 Loan application will carry information schedule. Branches to provide
acknowledgement to the applicants. For Loan application upto Rs25,000/-
disposal time is 15 days and above Rs25,000/ up to Rs2lacs-it is four weeks.
Defect in the application shall be notified to the borrower with in 2 days of
acknowledgement.
BOGRA- Borrower’s Grievances Redressal Authority)
BOGRA
Branch Sanction RO
RO Sanction CO
CO Sanction GM/PCD/ED/CMD

Level of compliance in FPCL to be reviewed once in half year in June/Dec.

Sanction advice in the revised format to be given in duplicate(F 568). Under

Consortium arrangement the following is the time limit for disposal of the loan
applications. Export Credit other Limits
Fresh sanction- 45 Days 60 Days
Renewals 30 Days 45 Days
Adhoc 15 Days 30 Days

BANKING CODES & STANDARD BOARD OF INDIA (BCSBI) ( Revised code-

Aug 2009)
RBI set up BCSBI –to ensure that comprehensive code of conduct for fair
treatment to customers is evolved and adhered to. Board was to be evolved on the
model mechanism in UK. The Committee on procedure and performance Audit on
Public services ( SS Tarapore) has recommended setting up of Baking Codes-
Standard & Board of India.
If any increase in fees and charges or for any new charge- Prior Notice period is
One Month
Change in Terms and Conditions-Notice period –One Month.
If any change is made, without notice , the same will be notified within 30 days . If
such change is to customer’s disadvantage, Customer may within 60 days and
without notice close the account or switch it without having to pay any extra
charges or interest.
For Collection of dues normally Bank’s representatives will contact the borrower
between 0700 hrs and 1900 hrs, unless the special circumstances of Borrower’s
business or occupation require otherwise.
Complaints, Grievances and Feedback
If the complaint has been received in writing, Bank will endeavour to send an
acknowledgement/ a response within a week. If the complaint is relayed over phone
Bank shall provide a complaint reference number and keep the customer informed of
the progress within a reasonable period of time.
After examining the matter, Bank will send the final response or explain why Bank
need more time to respond and shall endeavour to do so within 30 days of receipt of
the complaint and will tell how to take the complaint further if still not satisfied.
Banking Ombudsman Service

Within 30 days of lodging a complaint with the Bank, if there is no satisfactory

response from, Customer may approach Banking Ombudsman appointed by Reserve
Bank of India under Banking Ombudsman Scheme, 2006.

Changing of account

Prepared by R.Vijayaraghavan May 2010 66

 If the customer is not happy about the choice of current or savings account (except
for term deposit account) within 14 days of making first payment into the account
,Bank will help in switching to another of our accounts or Bank will give the money
back with any interest earned. Bank will ignore any notice period and any extra
charges.
If the customer decides to close the current/savings account Bank will close the
account within three working days( reduced from 5) of receiving your instructions.

If the customer wants to transfer the account to another branch of the bank Bank
will do so. The account at the new branch will be operationalised within two weeks
of receiving request, subject to compliance of the required KYC formalities at the
new branch. Bank will intimate as soon as the account is operationalised. The new
branch will be provided with information on standing instructions/direct debits if any.
Bank will cancel any bank charges the customer would have to pay as a result of
any mistake or unnecessary delay by the Bank , during the transfer of current
account .
Change in Minimum Balance requirement for SB/Cd-30 days advance notice to be giv-
en.
Changes in Terms and Conditions of the products and services-To be updated immedi-
ately on the website.
Reason to be given for rejection of loan request-to be given irrespective of the loan
amount(earlier up to Rs2 lacs)

Closing Your Account

Under normal circumstances, Bank will not close the account without giving at
least 30 days notice. Examples of circumstances, which are not ‘normal’, include
improper conduct of account etc. In all such cases, the customer will be required to
make alternate arrangements for cheques already issued and desist from issuing
any fresh cheques on such account.

Return of all documents/securities/title deeds- with in 15 days from the repayment

of dues.

Branch closure/ shifting

If we plan to close our branch or if we move our branch, we will give you
notice of three months if there is no other branch of any bank functioning at your
centre and inform you how we will continue to provide banking services to you; no-
tice of two months , if there is a branch of any other bank functioning at your centre.

Settlement of claims in respect of Deceased Account holders

Bank will follow a simplified procedure for settlement of accounts of deceased

accounts holders.
a. Accounts with survivor/nominee clause
In case of a deposit account of a deceased depositor where the depositor had
utilized the nomination facility and
made a valid nomination or where the account was opened with the survivorship
clause ("either or survivor", or "anyone or
survivor", or "former or survivor" or "latter or survivor"), the payment of the balance in
the deposit account to the survivor(s)/nominee of a deceased deposit account holder
will be made provided

Prepared by R.Vijayaraghavan May 2010 67

 i) the identity of the survivor(s)/nominee(s) and the fact of the
death of the account holder, is established through appropriate
documentary evidence;
ii) there is no order from the competent court restraining the bank
from making the payment from the account of the deceased; and
iii) it has been made clear to the survivor(s) / nominee that he would
be receiving the payment from the bank as a trustee of the
legal heirs of the deceased depositor, i.e., such payment to him shall
not affect the right or claim which any person may have against the
survivor(s) / nominee to whom the payment is made.
The payment made to the survivor(s) / nominee, subject to the foregoing conditions,
would constitute a full discharge of the
bank's liability. In such cases, payment to the survivor(s) / nominee of the deceased
depositors will be made without insisting
on production of succession certificate, letter of administration or probate, etc.,or ob-
taining any bond of indemnity or surety from the survivor(s)/nominee, irrespective of
the amount standing to the credit of the deceased account holder.
b. Accounts without the survivor/nominee clause
In case where the deceased depositor had not made any nomination or for the ac-
counts other than those styled as
"either or survivor" (such as single or jointly operated accounts), Bank will adopt a
simplified procedure for repayment to
legal heir(s) of the depositor keeping in view the imperative need to avoid inconve-
nience and undue hardship to the common person.
Keeping in view our risk management systems, Bank will fix a minimum threshold
limit, for the balance in the account of the deceased
depositors, up to which claims in respect of the deceased depositors could be settled
without insisting on production of
any documentation other than a letter of indemnity.
c. Premature Termination of term deposit accounts
In the case of term deposits, Bank will incorporate a clause in the account opening
form itself to the effect that in the event of
the death of the depositor, premature termination of term deposits would be al-
lowed. The conditions subject to which
such premature withdrawal would be permitted would also be specified in the ac-
count opening form. Such premature
withdrawal would not attract any penal charge.
d. Treatment of flows in the name of the deceased depositor
In order to avoid hardship to the survivor(s) / nominee of a deposit account,
Bank will obtain appropriate agreement / authorization from the
survivor(s) / nominee with regard to the treatment of pipeline flows in the
name of the deceased account holder. In this regard, Bank will consider
adopting either of the following two approaches:
i) Bank could be authorized by the survivor(s) / nominee of a de-
ceased account holder to open an account styled as
'Estate of Shri ________________, the Deceased' where all the pipeline
flows in the name of the deceased account holder could be allowed to be
credited, provided no withdrawals are made.
OR
ii) Bank could be authorized by the survivor(s) / nominee to return the
pipeline flows to the remitter with the remark "Account holder deceased"
Prepared by R.Vijayaraghavan May 2010 68
 and to intimate the survivor(s) / nominee accordingly. The survivor(s) /
nominee / legal heir(s) could then approach the remitter to effect payment
through a negotiable instrument or through ECS transfer in the name of
the appropriate beneficiary.
Time limit for settlement of claims
Bank will endeavor to settle the claims in respect of deceased depositors and re-
lease payments to survivor(s) / nominee(s) within a period not exceeding 15 days
from the date of receipt of the claim subject to the production of proof of death of the
depositor and suitable identification of the claim(s), to the bank's satisfaction.

On request from the depositor name of the nominee shall be indicated in pass book
/FD receipt.
Erroneous debits arising out of failed ATM transactions – to be reimbursed with in
12 days of receipt of complaint.. Compensation for the delay-Rs100/- per day.
On line alerts to credit card holders for card not present transactions-Rs5,000/- &
above.
Review of the Code
This Code will be reviewed within a period of three years. The review will be
undertaken in a transparent manner.

GLOSSARY

Customer
A person who has an account [including a joint account with another person or an
account held as an executor or trustee or as a Karta of an HUF, but not including the
accounts of sole traders/ proprietorships , partnerships, companies, clubs and soci-
eties] or who avails of other products/ services from a bank.
Current Account
A form of demand deposit wherefrom withdrawals are allowed any number of times
depending upon the balance in the account or up to a particular agreed amount.

Deceased Account
A Deceased account is a deposit account in which case either the single account
holder has deceased or in case of joint accounts one or more of joint account hold-
ers has/have deceased
Demat Account
A Demat account refers to dematerialised account and is an account in which the
stocks of investors are held in electronic form.

Deposit Accounts:
· "Savings deposits" means a form of demand deposit which is subject to restric-
tions as to the number of withdrawals as also the amounts of withdrawals permitted
by the Bank during any specified period;
· "Term deposit" means a deposit received by the Bank for a fixed period with-
drawable only after the expiry of the fixed period and includes deposits such as Re-
curring / Double Benefit Deposits / Short Deposits / Fixed Deposits /Monthly Income
Certificate /Quarterly Income Certificate etc.
Prepared by R.Vijayaraghavan May 2010 69
 · "Notice Deposit" means term deposit for specific period but withdrawable
on giving at least one complete banking day's notice;

Dormant / Inoperative Account

A dormant/inoperative account is a savings bank or current account which is not op-
erated upon for a period specified by the bank.
Equity
Equity means a part of capital of a corporate entity which is represented by the
shares of the company whether in physical or in dematerialised form
Electronic Clearing System
The Electronic Clearing System (ECS) is an online transmission system which per-
mits the electronic transmission of payment information by the banks / branches to
the Automated Clearing House (ACH) via a communication network.
Guarantee
A promise given by a person
Government Bond
Government bond means a security, created and issued, by the Government for
the purpose of raising a public loan.

Mail
A letter in a physical or electronic form.

'No Frills' Account

'No Frills 'account is a basic banking account. Such account requires either nil mini-
mum balance or very low minimum balance. Charges applicable to such accounts
are low. Services available to such account is limited.

Nomination facility
The nomination facility enables the bank to :
make payment to the nominee of a deceased depositor, of the amount stand-
ing to the credit of the depositor,

return to the nominee, the articles left by a deceased person in the bank's
safe custody,

release to the nominee of the hirer, the contents of a safety locker, in the
event of the death of the hirer.
Originator
An organization, which collects payments from a customer's account in line with cus-
tomer's instructions.

Other security information

A selection of personal facts and information [in an order which the customer knows],
which may be used for identification when using accounts.

Out-of-date [stale] cheque

A cheque, which has not been paid because the date written on the cheque is of a
date exceeding six months from the time of its presentation.
PAN

The Permanent Account Number is an all India unique Number having ten alphanu-
meric Characters allotted by the Income Tax Department, Government of India. It is
Prepared by R.Vijayaraghavan May 2010 70
issued in the form of a laminated card. It is permanent and will not change with
change of address of the assessee or change of Assessing Officer.

Password
A word or numbers or a combination or an access Code, which the customer has
chosen, to allow them to use a phone or Internet banking service. It is also used for
identification.

Payment and Settlement Systems

Payments and Settlement Systems mean financial system creating the means for
transferring money between suppliers and user of funds usually by exchanging deb-
its or credits among financial institutions.
PIN [personal identification number]
A confidential number, use of which along with a card allows customers to pay for ar-
ticles/ services, withdraw cash and use other electronic services offered by the bank.
Security
Represents assets used as support for a loan or other liability.

Senior Citizen
Senior Citizen is a person of over sixty years of age. (for IT it is 65 years of age)
Tariff Schedule
The charges levied by a bank on the products and services offered by it to its cus-
tomers

Unpaid Cheque
This is a cheque, which is returned 'unpaid' [bounced] by the bank.

REVERSE MORTGAGE:
For Senior Citizens.-Senior Citizen who is the owner of a House can avail monthly
stream of Income(lump sum amount also can be received)against Mortgage of the
House, while remaining the owner and occupying the House
through out his/her life time.

IMPORTANT POLICY DOCUMENTS :

1.Information Systems security policy
2.IOB fair practice code for lenders.
3.Committee on procedure and performance audit of public
service(recommendation of Tarapore Committee)
4.Policy Document on Management Information System
5.Deposit policy
6.Policy Document on KYC&AML
7.Operational Risk Management Policy
8.SME Policy
9.Restructuring Borrowal Accounts-Policy Guidelines
10.loan policy Document
11.Credit risk Management Policy
12.IOB FPC for Lenders
13.NPA Management Recovery Policy
14.Compliance Policy.
15. Grievance Redressal Policy,
16.Policy on Collection of Cheques/Instruments
17.Policy on collection of Dues and Repossession of Security.

Prepared by R.Vijayaraghavan May 2010 71

 POLICY ON COLLECTION OF DUES AND REPOSSESSION OF SECURITY

The customer would be contacted ordinarily at the place of his choice, residence,
business/occupation.( in that order normally between 0700hrs and 1900hrs). Bank
would respect the privacy of the borrowers. Bank will not initiate any legal or
recovery measures with out giving notice of 60 days in writing to the borrower and
guarantor. Repossession of security will be done after issuance of demand notice
giving 60 days time and sale will be effected only after issuing another notice giving
30 days time.

CHEQUE COLLECTION POLICY:

Local cheques:
Bank would give credit to the customer’s account on the same day of clearing
settlement. Withdrawal of amounts would be permitted as per the cheque return
schedule.
Outstation Cheques drawn between branches in CBS network –same day credit.
Cheques payable in Foreign Countries: Due date for credit is date of Nostro
credit+15 days for USD cheques and +21 days in case of other currencies .
Immediate credit of local/outstation cheques/instruments-upto Rs15,000/-

GRIEVANCE REDRESSAL POLICY

1.Branches to maintain R 143 , complaint book , in triplicate-II copy to customer, III
copy to RO.
2. Time Norms for resolving Complaints( as per code of commitments time frame
for redressal is with in 30 days)
Category From Period of redressal
Deficiency in Normal 30 days
Banking Service, Non Public
granting of credit facilities, RBI/Govt 10 days
staff attitude
Deficiency in Normal 30 days-in case of need it
Banking Service,which Public may go beyond 30 days
may result in Monetary RBI/Govt 10 days- in case of need it
loss to customers. may go beyond 10 days
Public No time limit-Early
Other Matters RBI/Govt redressal

In case the grievance is not redressed by the branch with in 30 days, the customer is
free to lodge the complaint to RO/CO. If there is no response with in 30 days
customer is free to refer to Banking Ombudsman. Acknowledgement to be sent with
in 2 days.
IOB FPCCS-FAIR PRACTICE CODE FOR CUSTOMER SERVICE
IBA has developed a Bankers’ Fair Practice code for adoption by member Banks.
Our Board has approved IOB-FPCCS. Compliance and Review report( CAR_ to be
sent to CSD , CO at the end of every quarter . Report on test checks at 5 Branches.
Voluntary Code-w e f 03.02.05.
Applicable to all SB/CD/TD /Pension/PPF /Collection/Remittance/Loan/ODs/F
Ex/Card Products etc
Any change in Interest rate should be updated in Bank’s website with in 3 working
days.
Notice for change ( other than interest rate) in charges- 1 month in advance
through Notice Board/website.
Prepared by R.Vijayaraghavan May 2010 72
 If customer feels that it is disadvantageous he can close the account with in 2
Months from the date of Notice(need not pay revised charges)

BEST PRACTICE CODE

RBI has prepared guidelines for Banks to keep in view while preparing BPC

BPC envisaged by Mitra committee relates to detailed procedural rule for entering
into transactional relations. The main objective is that such procedures, especially
in fraud prone areas should be well documented , compared with national &
international best practices, experimented with and improved upon. BPC should be
integrated with overall Risk Management strategy of the Bank. ALOC-BPC to be
reviewed by RO- Qly report to CO.
RBI has highlighted those two primary aspects
1)Provision of well defined System and Procedures by apex body on all functional
areas to the operational staff for their guidance in day to day branch banking.
2)Prime causative factor for frauds is the non adherence of operational
instructions by the field level functionaries.
With a view to enable Ros to fulfill this important role-responsibility an enforcement –
cum- monitoring tool termed as ALOC-BPC was put in place.
Under ALOC-BPC , RO administer ALOC-BPC for each branch at quarterly rests
and shortcomings/deviations/violations ,if any , by the branch are examined for
remedial action.

SYSTEM & PROCEDURES-POLICY DOCUMENT ON MANAGEMENT

INFORMATION SYSTEM(P Doc MIS)

Approved by our Board. It is a document that features , the role function and
responsibilities of Branches , RO s and Departments at CO , in compliance to the
stipulated reporting system & Reporting discipline.

The Managerial functional process is marked by the movement of

The Authority- from top to bottom of hierarchy by way of appropriate
delegation
The Accountability- from bottom to Top by way of structured reporting.
Returns are conduit instruments which carry data /information from Branches to
Controlling offices. The returns are multi various in nature, lay out wise, content
wise.

Bank’s Policy on Acceptance and operations of deposit accounts from

Individuals which contains information with regard to opening of deposit accounts
viz; rupee deposits, NRI Deposits, Foreign Currency accounts, Minors’ Account,
Account of illiterates, minimum balance requirement, interest rates, method of
calculation of interest, method of payment of interest on deposits maturing on a
holiday, rounding off transactions, premature closure, premature renewal of term
deposits, overdue deposits, issue of maturity notices, addition/deletion of names in
deposit accounts, interest on deceased depositors account, advance against term
deposit, Product approval process, inoperative accounts, undesirable accounts,
deposit of senior citizens, information to be furnished to depositors, customer service
for redressal of grievance. (loan against Deposits Margin-10% -for RDP more than 4
years-15%)

Prepared by R.Vijayaraghavan May 2010 73

COMPLIANCE POLICY:

Based on RBI guidelines, High level paper of BCBS(Basel Committee on Banking

supervision) and the requirements of the Bank a compliance policy is prepared by
our Bank.
The process of identifying and mitigating the Compliance risk and the resultant
“Reputational Risk” are addressed in the compliance policy.
Compliance risk: Risk arising out of non compliance of laws, rules and standards. It
is also referred as Integrity risk.
Compliance Committee: ORMC( Operational Risk Management Committee) formed
under Operational Risk Management policy shall also act as compliance committee.
Verification of level of compliance in respect of 53 core aspects considered to be
High and Medium risk.

RETAIL BANKING:
Retail banking would include Exposures
1 .Max aggregate exposure up to Rs5 crores
2. Total annual TO is less than Rs50 cr(average TO of last three years in
case of existing and in case of new –projected TO)
For reckoning exposures Non fund based limit also should be included..

CORPORATE/WHOLE SALE BANKING:

All advances to Trusts/Partnership firms/Cos/statutory bodies which are not included
under Retail Banking. In other words Credit exposure exceeding Rs5 cr.

OTHER BANKING BUSINESS:

All other Banking business not covered in Treasury/Wholesale/Retail Banking-Para
Banking activities

TREASURY
Domestic and Foreign Exchange Treasury operations.

RISK MANAGEMENT

1. Risks are inherent in any financial intermediation and hence the bank is exposed
to certain risks that arise from its business and the environment within which it
operates. Our bank has developed and is implementing various guidelines for
managing risks like setting up exposure limits, systematic internal controls and risk
management systems with consistent approach. We have prescribed adequate
organizational rules, with well-defined responsibilities and discretionary powers
thereby enabling quick lending decisions without impairing credit quality.
2. The Reserve Bank of India has issued guidelines on management of credit,
market and operational risks, for implementation by banks. It has also issued
guidelines on Asset – Liability Management System, which were intended to cover
liquidity and interest rate risks.
3. As a part of Risk Management Systems, different committees have been formed
to oversee the implementation of various guidelines of RBI.
4. The bank has already introduced in all Regional Offices, the Integrated Credit
Information System (ICRIS), which will be of great help to have accurate data and
also provide information for establishing an appropriate risk management structure.

Prepared by R.Vijayaraghavan May 2010 74

5. Credit risk or default risk involves inability or unwillingness of a customer or
counterparty to meet commitments in relation to lending, trading, hedging, settlement
and other financial transactions. The bank is already measuring credit risk through
credit rating / scoring and borrowal accounts with poor rating are followed up
regularly. The rating of borrowers takes into account various factors like current ratio,
DER, achievement of sales projections, compliance with terms and conditions,
submission of stock statements, QIS, CSS etc, timely renewal, current
profit/projected profit, availability of security, regular payment of interest/
installments, submission of financial statements, excess drawings etc. Well defined
system has already been put in place to identify accounts in Standard Assets which
are under Watch Category (i.e., where one installment of principal is not paid within a
month of its due or one quarter’s/month’s interest is not paid within a month of its
debit) . Regional Offices / Territories have been advised to closely monitor such
accounts so that they do not slip down to Sub – Standard asset.
6. The bank has put in place a Credit Risk Management Cell (CRMC) to enforce and
monitor compliance of the risk parameters and prudential limits set by the Credit
Policy Committee.
7. All new credit proposals a)) falling beyond the powers of GMS’ Committee and b)
Overseas credit proposals falling beyond the powers of GM Overseas Credit are
referred to an “ Approval Grid “ before recommending to sanctioning authorities.
Enhancement proposals (coming within the ambit of Approval Grid) involving credit
limits of above Rs 5 crore (both FB and NFB and both for domestic and overseas
credit) are to be routed through “ Approval Grid”. The Approval Grid” concept to
Regional Office level also for credit proposals falling above the powers of
SRM/CRM/GM(s) (Region) and upto the powers of GMS’ Committee is also put in
place.
8. Through Loan Review Mechanism and Loan Review Policy, all borrowal
accounts with limits of RS 1 crore and above should be reviewed within 3 to 6
months of sanction/renewal /enhancement of limits.
9. Exposure limits to various industries are reviewed periodically and reviews on
various industries are also undertaken separately.
10. The maturity profile of loan book is taken care of by the Asset Liability
Information Statement (ALIS) which is being submitted by branches every fortnight.
11. Investments are made by the bank in NCDs only after obtaining appraisal note
from the credit departments on the viability of the project. The Investment
Committee decides the investments to be made by the bank.
12. In respect of forex forward contracts, we have framed guidelines and fixed
discretionary powers for various layers of authority to book forward contracts.
13. The bank is evaluating the liquidity profile by calling for the statement of ALIS
from branches every fortnight. Asset Liability Committee meets periodically to
decide on matters like availing refinance, pricing of assets /liabilities, investing in
securities etc.
14. With clear guidelines on all aspects of operations including financial
transactions, the bank is controlling the risk of operations to a great extent.
15. The Bank is maintaining capital to risk asset ratio as required by RBI. RBI
stipulation of 9% minimum.
16.The exposure limits to various sectors /industries will be reviewed from time to
time from the risk point of view i.e. High, Moderate, and Low risk for each industry /
sector. The following important factors relating to each industry will be taken into
account while classifying the risk.
- sales growth
- growth in % of operating profit to sales
- demand – supply gap

Prepared by R.Vijayaraghavan May 2010 75

- government policies
- external factors like the monsoon
- competition in the Indian & Overseas markets
- change in the technology
- Our past experience with each industry.

CREDIT APPRAISAL, MONITORING AND FOLLOW UP

APPRAISAL : WORKING CAPITAL:- With freedom given to banks in

evolving their own method of lending the bank has evolved its revised lending
policy according to which borrowers with working capital limits upto Rs.2 crore
(Rs.7. 5 crore for SME borrowers) will be assessed as per Nayak Committee
recommendations (Turnover method). Borrowers enjoying working capital
limits of Rs.2 crore and above and upto Rs. 10 crore) will be assessed as per
the existing traditional method of arriving at Maximum Permissible Bank
Finance (MPBF) calling for the CMA data and for borrowers enjoying working
capital limits of Rs 10 crore and above option has been given to the borrower
to be assessed as per the cash budget method or as per MPBF method. For
industries like sugar and tea wherein the pattern of financing the peak cash
deficit(s) is followed all along, the existing system of assessment under the
cash budget method is followed.

APPRAISAL: TERM LOAN/PROJECT FINANCING: Term loans are

extended for acquisition of fixed assets like land, building, plant and
machinery, vehicles, furniture and fixtures. The repayment period ranges from
two to ten years and is extended even beyond 10 years in case of large
project financing. The appraisal of term loan is a one-time exercise, but more
detailed, rigorous and complicated as the repayment ranges over a longer
period. The following four critical factors are looked into in depth.
1. Managerial competence 2. Technical Feasibility
3. Commercial Viability 4. Financial Viability
In term loan appraisal besides other factors, Debt Service Coverage Ratio
(DSCR) and Debt Equity Ratio are given more importance.

Debt Service Coverage Ratio (DSCR) : This ratio is to be computed only after
thoroughly scrutinizing various projected financial statements.

DSCR = Net Profit after Tax + Depreciation + Interest on T/L and other long
term debts

Installments of T/L & other long term debts + Interest on T/L and other
long term debts

While the ideal ratio would be above 2:1, an average DSCR of 2.0 with a
minimum of 1.50 in any year for Medium Enterprises and in case of Small
enterprises located in backward areas, a minimum DSCR of 1.5:1 can be
accepted

DEBT- EQUITY RATIO (DER):

Prepared by R.Vijayaraghavan May 2010 76

 Hitherto for financing long term loans to big projects the Bank was
participating with All India Financial Institutions like IDBI, ICICI etc., and jointly
undertaking appraisal of projects with them. The Bank has been following the
DER adopted and accepted by them. As consortium becomes optional and
banks are given freedom to finance bigger projects say with an investment of
Rs.500 crores it is decided to evolve an appropriate debt – equity ratio for
extending term finance/loans for technically feasible, financially viable and
bankable projects. Towards this purpose the bank desires to have the
following guidelines in general. .

To apply a yardstick of 2:1 as desirable DER and to give relaxation on case to

case basis in the following cases.

a)Technician oriented projects

b) Road Transport operators having National Permit } 5:1
c) Single Vehicle Operators }

d) Small Enterprises upto Rs.10 lakhs long term loan } 3:1

e) High Tech Projects } 2.5:1

f) Infrastructure Projects } 3.5 – 4.0:1

g) Large Projects with project cost exceeding

Rs.500 crore } 3.5 – 4.0:1

DER may be reduced in the following cases.

a) Risky ventures } 1:1

b) Where Civil Construction work is high } 1.5:1

While the above ratios can generally be adopted the lower and higher ratios
can be accepted in deserving cases after ascertaining the viability and profit
earning.

Appraisal of Infrastructure Projects While appraising infrastructure projects, in

addition to assessing industry scenario, experience, past performance of the
promoters it will be ensured that the projects financed by the Bank have
income generation capacity sufficient to repay the loan together with interest.
It will also be ensured that project financed is run on commercial lines
involving commercial considerations such as identifiable activity, cash flow
considerations etc.

It will also be ensured that there is no liquidity mis-match because of

financing to such projects. Identification of various project risks, evaluation of
risk mitigation through appraisal of project contracts and evaluation of credit
worthiness of the contracting entities and their ability to fulfill contractual
obligations will be an integral part of appraisal exercise. While appraising
infrastructure projects longer repayment and longer holiday period will be
considered.(Refer 3.3.5.) Special repayment mechanisms like Escrow and
Trust and Retention a/c and reserves will be insisted. Take out financing will
be considered depending on liquidity position. The desirable debt equity ratio
will generally be in the ratio of 3.5-4:1 and relaxation can be given on case to
case basis. Likewise while the desirable and ideal DSCR ratio would be
Prepared by R.Vijayaraghavan May 2010 77
 above 2:1, an average DSCR of 2.0 with a minimum of 1.50 in any year can
be accepted.

MONITORING AND FOLLOW UP:

The Bank will continue with the existing monitoring and follow up systems like
regular submission of CSS, stock statements, ensuring 100% renewal/
review of borrowal accounts with credit limit of Rs.1 lac and above ,
verification of securities pledged/mortgaged to the Bank, conducting regular
inspection of borrowing units, strengthening our system of internal inspection
of branches, taking immediate action on concurrent audit reports and RBI
inspection reports etc. As part of Risk Management Guidelines issued by RBI
LRM is put in place.

Financing to second hand machinery: Financing for the purchase of second

hand machinery (both indigenous as well as imported ) can be considered subject to
following conditions:
a) The value, working condition and residual life of the existing asset/machinery
should be valued/assessed by our approved valuer, or a reputed valuer.
b) The margin should be sufficient to cover the value , that is decided based on
wear and tear, depreciation, market value etc of the machinery/asset to be
financed against.
c) The repayment of the term loan should be restricted to a maximum period of 5
years or the residual life period of machinery /asset whichever is lower.
d)

FINANCING TO NON-CUSTOMERS:
As per RBI’s instructions vide their Circular dated 24.01.2003, no fund based
(including bills financing) or non fund based facilities like opening of LCs providing
guarantees and acceptances to non-constituent borrower should be extended by the
Bank.

IS AUDIT-

Information System Audit. RBI advised all Banks to adopt an IS audit policy,
appropriate to their level of computerization and review the same at regular
intervals in tune with the industry best practices and guidelines issued by RBI
from time to time. Banks to adopt appropriate System and practice for conducting
IS audit on annual basis covering all the critically important Branches.

EARLY ALERT SYSTEM

RBI has put in place an early alert system and special mention accounts for banks to
battle growing NPAs
This will be part of the risk management model adopted by the Banks. Loans and
advances overdue for less than one quarter and two quarters would come under this
category. Special mention Accounts would not requiring any provisioning.

LOK ADALAT
Lok Adalats are swift, hassle free and cheaper forum of recovering Bank dues.
Every Award made by the Lok Adalat is final and binding on all the parties.Award
Prepared by R.Vijayaraghavan May 2010 78
becomes decree of the court.Could be executed on default. The award passed in
respect of pre-litigative cases is executable by the court of District Judge in which
the lok Adalat is held. OTS proposals sanctioned by the Bank can be put through
Lok Adalats, so that in case of default, the Award/Decree could be executed by filing
EP. Entire court fee paid at the time of filing of suit , shall be refunded in respect of
cases settled in Lok Adalat. Monetary Ceiling of cases referred to Lok Adalat has
been enhanced to Rs 20 lakh .DRT/DRAT can also organize lok adalat for dues Rs
10 lacs and above.

DEBT RECOVERY TRIBUNALS

Debt Recovery Tribunals are established to speed up disposal of cases for claims
exceeding Rs 10 lakhs .
The steps to be taken after issuance of RC
After numbering the RC , the Recovery Officer will issue Demand Notice to the
parties under copy to Branch, directing the parties to pay the dues with in 15 days. If
there is no payment Branch should submit the following to Recovery Officer, Latest
Valuation Report
Non Encumbrance Certificate
The exact location of the Properties to identify and effect attachment.
In case of Movables, details about description and address to be furnished.
RBI Guidelines to SCs/RCs for change in take over of the Management of the
Borrower's under the SARFAESI Act, 2002
The Reserve Bank of India has released the final guidelines to enable securitisation
companies (SCs) and reconstruction companies (RCs) to change or takeover the
management of the business of the borrower in order to realise their dues.
The guidelines have been framed under Section 9 (a) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI) Act.
The objective of these guidelines is to ensure fairness, transparency, non-
discrimination and non-arbitrariness in the action of securitisation companies/
reconstruction companies and to build in a system of checks and balances while
effecting change in or take over of the management of the business of the borrower
by SCs/RCs.
The guidelines lay down the eligibility conditions and grounds based on which
SCs/RCs may exercise powers to effect change in or take over the management of
the business of the borrower for realising their dues. SCs/RCs should frame policy
guidelines in this matter with the approval of their Board of Directors.
The guidelines also provide for setting up of an Independent Advisory Committee
(IAC) to evaluate the proposals of the SCs/RCs, giving compulsory notice of 60 days
to the borrower indicating the intention of the SC/RC of effecting change in or taking
over the management of his business, giving opportunity to the borrowers to file
objections, if any, examining borrowers' objections by IAC/Board of the SC/RC before
a reasoned order is passed by the SC/RC.

RBI changes guidelines for Securitisation Companies and Reconstruction

Companies

Prepared by R.Vijayaraghavan May 2010 79

The Reserve Bank of India has announced changes in the guidelines issued to
securitisation companies and reconstruction companies. The guidelines were
originally issued on April 23, 2003 and September 20, 2006. The changes have
been announced to facilitate such companies in complying with the guidelines.
According to the changed guidelines :
• Securitisation companies (SCs)/reconstruction companies (RCs) can acquire
the assets either in their own books or directly in the books of the trusts set up
by them.
• The period for realisation of assets acquired by SC/RCs can be extended
from five years to eight years by their Board of Directors, subject to condi-
tions.
• Additional avenues for deployment of surplus funds with National Bank for
Agriculture and Rural Development (NABARD) and Small Industries Develop-
ment Bank of India (SIDBI) are provided to securitisation companies and re-
construction companies. An upper limit of 10 per cent of the owned funds has
been stipulated for the investment of SC/RCs in land and buildings for their
own use.
• Any asset/security receipts which remain unresolved/not redeemed as at the
end of five years or eight years would now be treated as loss asset.
• With a view to bringing transparency and market discipline in the functioning
of SC/RCs, additional disclosures related to assets realised during the year,
value of financial assets unresolved as at the end of the year, value of securi-
ty receipts pending for redemption, etc., have been prescribed.
• It is now mandatory for SC/RCs to invest in and continue to hold a minimum
five per cent stake of the outstanding amount of the security receipts issued
by them under each scheme and each class till the redemption of all the se-
curity receipts issued under a particular scheme.

SARFAESI-Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Bill – Supreme Court has upheld the
Constitutional Validity of SARFAESI act. This will have significant positive
implications for the Banking and Financial services Sector. The act has four parts
addressing four separate areas.
1) Facilitates Securitisation-which will enable Banks to sell down secured loans.
T his will improve their ability to manage their portfolios and optimize the risk
return trade off. It will improve their financial Intermediation as it facilitate transfer
of assets from Banks to other Intermediaries like Insurance companies and
Mutual Funds.
2) It provides frame work for the establishment of Asset reconstruction Companies –
the ARC will function as a trustee and buy distressed assets from the Banks.)
This will enable focused and professional management of distressed credit in the
financial system. to maximize its economic value and improve recoveries of
troubled loans.
3) It provides for the establishment of central Registry to register all charges created
on assets and all securitization transactions.
4) Provides enforcement of security interest by secured creditors. It makes much
easier for lenders to enforce the security. Lenders would be able to take steps to
ensure that the assets taken over and productively utilized and yield maximum

Prepared by R.Vijayaraghavan May 2010 80

 value for stake holders, by transferring ownership and/or management of assets
to efficient players.
Latest Amendments:
1) If the borrower makes any objection/representation on receipt of the Demand
Notice under Section 13(2), Bank has to send mandatory reply to the
borrower with in one week conveying the reasons for non acceptance of his
representation. If satisfied, shall modify the notice and serve a revised notice
with in 7 days.
2) A Statutory right is vested in any person (including Borrower) aggrieved by
Bank’s action –to file a petition /Application before DRT with in 45 days.
3) DRT to dispose of Borrower’s application with in 60 days- can be extended up
to 4 Months( inclusive of 60 days)
4) If not disposed off with in 4 months party/Authorized Officer, may approach
DRAT for disposal.
5) Appeal lies before DRAT-for any aggrieved party-to be preferred with in 30
days.Appeal will be entertained only if the Borrower remits 50% of the debt –
DRAT has discretion to reduce it to 25%.When Branch/Authorized officer
receives a notice of appeal- verify that 50%/25% amount is deposited –if not
get directions from DRAT for such deposit.
Simultaneous action under both SARFAESI and DRT is permissible. SARFAESI act
is an additional remedy to the DRT act.
Fees payable to DRT & DRTA
Applicant is Borrower Fees Payable-Rs
1 For debt less than Rs 10 lacs Rs 500/- for every 1lac or part thereof
2 Debt is Rs 10 lacs and above Rs5000& Rs250 for every Rs1 lac in
excess of Rs10 lacs(Max Rs100,000/-
Applicant is other than borrower
1 Debt is less than Rs10 lacs Rs125/-for Rs1 lac or part there of
2 Debt due is Rs 10 lacs and above Rs1250/-+Rs125/- for every Rs1 lac
above Rs10 lacs.(Max Rs50,000/-)
Any other application by any other Rs200/-
person
Appeal to Appellate Authority Same fees as above.

Risk Adjusted Asset- Weighted Aggregate of funded and non funded items.
Degree of credit risk expressed in% weightings have been assigned to Balance
sheet items and conversion factors to off balance sheet items. The value of each
assets is multiplied by relevant weights to produce “Risk Adjusted Value of assets
in on & off balance sheet items.

Risk Management:

Bank has implemented New Capital Adequacy Frame work (Basel-II) wef
31.03.08 as per RBI guidelines.
Bank has adopted Standardized Approach(SA) for credit risks
Basic Indicator Approach(BIA) for Operational Risks .
Bank continues to apply Standardized Duartion Approch(SDA) for computing
Market Risks
For adopting Internal Risk Based approach(IRB) for credit risks in future, Bank has
been using a sophisticated Internal risk rating model for risk rating exposures of
Rs1 crore and above.

Prepared by R.Vijayaraghavan May 2010 81

 For calculating Market Risk by Internal Model Approach(IMA) a sophisticated
Value at Risk(VaR) model is put into use.
For Computing Operational Risk Capital using Advanced Measurement
approach(AMA) loss data are being built up for eventual transition to the advanced
approach.

BASEL-II( New)
Banks overall Minimum Capital requirement will be the sum of
1.Capital Requirement for Credit Risk( Standard Approach) on all credit
exposures on the basis of risk weights
2. Capital requirement for Market risk )
Market risk is defined as Risk of loss in on & off balance sheet items
arising from movement in market prices.

Capital requirement for Operational Risk( Basic Indicator approach)

15% of Gross Income – to be effective from 01.04.2006
Operational Risk- Risk of loss resulting from inadequate or failed internal
process, people and Systems or external events. This definition includes legal
risks but excludes Strategic and reputation risk . The Basle committee has
identified the types of operational risk events which have the potential to result in
substantial losses. These are internal fraud, External fraud, , employment
practices and work place safety, client/products/business practices, damage to
physical assets, business disruption /system failures in execution /delivery
process management.

Time limit prescribed by RBI for banks to submit data relating to Basel II Capital
Computation-with in 21 days from the close of each quarter.

BASEL-II

RBI in April 2003, accepted in principle to adopt the proposed New capital accord
Basel-II.
Banks should earmark 15% of gross income as provision towards operational risk.
The gross income will be calculated as an average of the last three years.
Basel II –Capital requirements are determined based on 3 pillars. 1. Formula
assigning capital needs for different loan type, based on risk2. Supervision by
local/internal regulations3. Public disclosure norms.
Pillar1-Minimum capital requirements
Pillar2-Supervisory review
Pillar3- Market discipline
(Banks to implement Basel-II by end March 2009). To begin with Banks to adopt
Standardized approach for credit risk and Basic indicator approach to operational
risk.(IRB approach-Internal Rating Based approach is preferred –for credit risk)

Implications for Banks-

1) Current CRAR of 9%( International Norms-8%-RBI prescription-9%) is
expected to rise once Basel-II norms are implemented
2) Focus on risk management. Banks to evolve suitable risk management frame
work.
3) Focus on Asset quality instead of looking at it from Capital prospective
4) Banks to evolve systems to rate and monitor these assets.
5) Current 90 days norms for loan impairment could undergo change once Basel-
II norms are in place.
Prepared by R.Vijayaraghavan May 2010 82
 6) Banks to form their CAAP( Capital adequacy Assessment Programme)

OPERATIONAL RISK MANAGEMENT (ORM) POLICY

In the year 1988, the Basel Capital Accord (Basel I) released by Basel Committee on
Banking Supervision (BCBS), had set out the first internationally accepted definition
and a minimum measure for bank capital. The Banks in India adopted Basel I accord
in the year 1992. This accord primarily addressed capital requirement for credit risk,
which was amended in 1996 to cover capital requirement for market risk.
Subsequently, the BCBS has released the document “The International
Convergence of Capital Measurement and Capital Standards: A Revised
Framework” on 26 June 2004, popularly known as “Basel II Framework”. This
framework has introduced a new capital charge for exposures to the risk of loss
caused by operational failures (ie. Operational Risk). Further, the revised framework
seeks to arrive at significantly more risk-sensitive approaches to capital requirement
and provides a menu of options for determining the capital requirement for various
types of risks.

A. Operational Risk and Basel II

Basel II framework defines Operational risk as the risk of loss resulting from
inadequate or failed internal processes, people and systems or from external events.
This definition includes legal risk, but excludes strategic and reputational risk. The
Revised Capital Accord requires banks to maintain capital charge on their
operational risks. It offers following three distinct options for computing capital
requirement for operational risk.
• Basic Indicator Approach
• Standardised Approach
• Advanced Measurement Approaches

These approaches are based on increasing risk sensitivity. For each of the above
approaches, the Basel II document lays down both quantitative and detailed
qualitative prerequisites for banks to comply with in order to qualify to adopt a
particular approach.

B. RBI Guidelines on Implementation of revised Framework

RBI’s association with the BCBS (Basel Committee on Banking Supervision) dates
back to 1997 as India was among the 16 non-member countries that were
consulted in the drafting of the Basel Core Principles. To align Indian Banks’ capital
adequacy structure in line with the international standards, RBI has issued various
guidelines to banks in India on capital requirements from time to time. Consequent
to issue of the Basel II document, RBI has issued the draft guidelines on
implementation of the New Capital Adequacy Framework on February 15, 2005. In
terms of the draft guidelines, the banks in India shall, at a minimum, adopt Basic
Indicator Approach for operational risk with effect from 31.03.2007. With a view to
streamline the systems and strategies, the banks are required to commence a
parallel run of the revised framework with effect from 1st April 2006.

As per the Basic Indicator Approach, the banks will be required to provide capital to
the extent of 15% of the three years Average Gross Income explicitly for operational
risk. The banks may move along the range towards more sophisticated advanced
Prepared by R.Vijayaraghavan May 2010 83
approaches as they develop effective operational risk management systems and
practices which meet the prescribed qualifying criteria (quantitative as well as
qualitative). However, a bank intending to adopt advanced approaches can do so,
only with the prior approval of RBI.

C. Operational Risk Management

Management of operational risk in specific areas of activities is not a new concept in
banks. Our bank has always given prime importance to prevention of frauds and
reduction in transaction errors through effective internal procedure, systems &
controls.

With a view to making the operational risk management in banks a more

comprehensive practice comparable to the management of credit and market risk,
Reserve Bank of India has issued Draft Guidance Note on Management of
Operational Risk Management on March 11’ 2005, followed by the revised Guidance
Note on Management of Operational Risk Management on October 14, 2005. The
steps involved in Operational Risk Management would be:

• Identifying the operational risk loss events

• Assessing (measuring) the risks
• Monitoring the risks and loss events
• Controlling / mitigating of the risks

Measurement or quantification of Operational Risk will be a new concept. Even

though RBI has asked Banks to adopt Basic Indicator Approach, there is a general
feeling in the banking industry that the required capital charge can be reduced
substantially if one shifts from the Basic Indicator Approach (BIA) to the Advanced
Measurement Approaches (AMA). It will be especially true for those banks, which
have robust control mechanisms in place and follow efficient systems and
procedures. But for migrating to AMA, Banks have to collect loss data for at least 5
years. Presently Banks do not have an organized mechanism to collect all loss data
(except frauds and loss related to burglary, theft, robbery etc). So it is essential to
collect data as early as possible, so as to approach RBI to migrate to AMA.
RISK WEIGHT FOR CALCULATION OF CRAR
SNo Category Risk Weight
1 Cash Balance with RBI 0%
2 Balance in Current account with Banks 20%
3 Investment in Govt Securities 2.50%
4 Loans Guaranteed by Central Govt/State Govt 0%
5 Loans to Public Sector of Govt(State/Central) 100%
6 Bills Purchased/Discounted-LC or otherwise – Govt-0%
Under LC not under reserve(With out recourse) Banks-20%
Under LC under reserve Others-100%
7 Advances covered by DICGC/ECGC(limited to 50%
amt guaranteed)
8 SME-CGTSI-up to Guaranteed portion 0%
9 Advances against-TD/LIC/KVP/NSC 0%
10 Loans to Staff( covered by terminal 20%
benefits/Mortgage of assets) Other Loans-75%
11 Housing Loans to Individuals against mortgage
LTV=or<75%Up to Rs30 Lacs 50%
Prepared by R.Vijayaraghavan May 2010 84
 Above Rs 30 Lacs 75%
12 LTV>75%-for all amounts 100%
13 Consumer Credit& Credit Card 125%
14 Other Assets-Premises/Furniture/Fixtures 100%
15 IT(TDS)/Advance Tax paid/Net Provisions 0%
16 All other assets 100%
17 Forex operations/Gold open positions 100%
18 Capital Market 125%
19 Commercial Real Estate Exposure 100%
20 Exposure to Venture Capital 150%
21 Exposure to NBFC ND-SI 100%
22 Loan upto Rs1 lac against Gold & Silver 50%
ornaments
23 NPA Investment purchased from other Banks 100%
24 Bills under LC 20%
25 Educational Loan -Basel-I 100%
Basel-II 75%
Credit Conversion Factor:
To be applied to Off Balance Sheet items- This has to be assigned risk weight
attributable to the relevant counterparty
Category CCF
Guarantee-Financial 100
Guarantee-Performance 50
Documentary Credit 20
Sale& Repurchase Agreement( credit risk 100
remains with the Bank)
Forward Asset purchase 100
FEX Contract-Maturity Less than 1 year 2
For each additional year or part 3
As counterparty exposure determines the risk weight, it will be 100% in all borrowers
and 0% if covered by Govt.Guarantee.

Prepared by R.Vijayaraghavan May 2010 85

 IOB-FINANCIAL INDICATORS
Rs in Crore
S Particulars 31.03.05 31.03.06 31.03.07 31.03.08 31.03.09 30.09.09 31.03.10
NO
1 Global 44,241 50,529 68,740 84,326 100,116 109435 110,795
Deposits
2 Global 26,274 35,759 47,923 61,058 75,810 78,418 80,782
Advances
3 Mix 70,515 86,288 1,16,663 145,384 175,926 187,853 191,577
4 Operating Profit 1336.80 1534.00 1,560 2,002 2,524 983.23 1844.62
5 Net Profit 651.36 783.00 1,008 1,202 1,326 477.82 706.96
CRAR 14.21% 13.04% 13.27% 11.62% 13.20%( 14.65%( BaselI-
6 (Basel- Basel-II) Basel-II) 14.26%
II) 12.70%( 14.27%- Basel-II-
11.93% Basel-I) (Basel-I) 14.78%
(Basel-I)
7 Dividend 24%(14 26% 30% 35% 45%
%+10%)
8 Return on 29.11% 27.91%
average Net
worth
9 Net Int Margin 3.00% 2.84% 2.74%
10 Return on 1.28% 1.32% 1.36% 1.30% 1.17% 0.53%
Assets
11 Weighted 11.96 18.51 22.07 24.34 17.54 12.98
average EPS
12 Book Value Per 8 109.06 113.72 111.89
Share 7.23
13 CD ratio 59.39% 70.80% 66.70% 72.41% 75.72% 71.66% 72.91%
14 Gross NPA to 5.28% 3.43% 2.34% 1.63%( 2.54%(1 2685(3.4 3611.08(
Gross Adv (1388.15 (1227.55 1120.21) 996.95cr 923.41) 2%) 4.47%)
) ) )
15 Net NPA 1.27% 0.65% 0.55% 0.60% 1.33% 1224(1.5 1994.97(
(319.20) (224.33) (257.83) (363.20) (999.14) 9%) 2.52%)

16 Govt share in 61.23% 61.23% 61.23% 61.23% 61.23%

Equity
17 Capital 544.80 544.80 544.80 544.80 544.80
18 Share Of Low 39.50% 33.45% 30.25% 30.80% 32.55%
Cost
Deposits(CASA
)
19 Cost Of 4.82% 4.69 6.50% 6.87%
Deposits
20 Yield on 9.16% 8.81 10.80% 11.13%
Advances
21 Productivity Per 2.69 3.55 4.67 5.82 6.89 7.15 7.12 CR
employee
22 Profit per 2.66 3. 4.04 4.82 5.20 2.68 2.63 lacs
employee Lacs 22 Lacs Lacs lacs lacs lacs

Book value per share- referred as Net Asset Value. It would be the amount of money
that a holder of a common share would get, if the Company were to liquidate.
Prepared by R.Vijayaraghavan May 2010 86
=Total share Holders equity-Preferred equity
__________________________________
Total O/S shares

Bank has taken over Shree Suvarna Sahakari Bank Ltd, Pune(Under Moratorium)
Dividend
CATEGORY OF BRANCHES
Based on business mix of avg dep+avg Adv for last 2 years.(including20% of Non
fund business)
Category Avg Business MIx Incumbency
Small Below Rs5 Crore Scale-I
Medium Rs5 cr-Below Rs20 cr Scale-II
Large Rs 20 Cr-Below75 cr Scale-III
Very Large Rs75 cr-below Rs200 cr Scale-IV
Excep Large Rs200 cr Scale-V
Excep Very Large Rs1500 cr and above(Min adv- Scale-VI
Rs750 cr

SIGNIFIGANT ACCOUNTING POLICIES OF THE BANK

• the financial statements have been prepared on historical cost basis.

• income is recognized on accrual basis on performing assets and on realization
basis in respect of non performing assets. recovery in NPAs is first appropriated
towards interest and the balance, if any, towards principal except in the case of
suit filed accounts.
• interest on bills purchased is accounted for at the time of recovery.
• commission and exchange are recognized on realization basis.
• income from sale of precious metal (whole sale and retail) is accounted for as
other income.
• expenditure is accounted for on accrual basis.
• foreign exchange transactions-balances in Nostro accounts are stated at closing
rate. FCNR/EEFC/RFC/FCA (FC Deposits) PCFC/WCFC/TLFC/FCL (FC
landings) are stated at notional rates. others are stated at the rates as on the
date of transactions. acceptances, endorsements and other obligations are stated
at the rates on the date of commitment.
• gold held on consignment, gold deposits and gold advances are accounted at
notional rates.
• advances have been classified as per RBI guidelines into performing and non
performing assets. further, non performing assets are classified into substandard,
doubtful, and loss assets for income recognition and provisioning. a general
provision of 0.40% on standard assets is made and the same is shown under
other liabilities as per RBI guidelines.( 0.25%, 1%)
• advances have been stated net of provisions except for general provisions.
• fixed assets except revalued premises are stated at historical cost.
• depreciation is provided on straight line method at the rates as under.
premises -2.5%
furniture -10%
vehicles and office equipment -20%
fire extinguisher -100%
computers -33.33%
• depreciation is provided for the full year irrespective of the date of acquisition.
• depreciation on assets on lease has been charged on straight line method.
Prepared by R.Vijayaraghavan May 2010 87
 plant and machinery/computer -25%
vehicles -40%
medical equipments -50%
Empowerment of Women

The Bank and the staff members through their respective organizations have formed a
Trust entitled "Sakthi IOB Chidambaram Chettiar Memorial Trust" to perpetuate the
memory of the Founder of the Bank. The Trust is primarily concerned with
empowerment of women.

CUSTOMER SERVICE:
GOIPORIA COMMITTEE
Out of 66 recommendations Bank has implemented 64 recommendations, except
introduction of single window concept. Core Recommendations-25
IMMEDIATE CREDIT
Immediate credit of outstation as well as local cheques Enhanced to Rs 15,000/-
from Rs.7,500/-
For immediate Credit for outstation cheques-normal collection charges, for local
cheques- Rs 5/-s
Facility to all SB/CD/CC customers. Interest not to be charged. When the instrument
is returned unpaid, Interest , at normal rate, from the date of return of the cheque,
till the reimbursement of money to the Bank.( SB credit- no interest will be payable
on the amount returned)
DUPLICATE DD-Issue of duplicate with out receipt of non-payment advice has been
revised to Rs 5,000/-
Duplicate DD should be issued with in a fortnight from the date of receipt of such
request, subject to the fulfillment of all formalities. For delays beyond the stipulated
date, Bank should pay interest as applicable for fixed deposits.
RBI has asked the Banks to totally withdraw the requirement of obtaining succession
certificate from the legal heirs, irrespective of the amount involved in settling claims
(Earlier limit-Rs 25,000/-)
TC/DD/BC/TT for Rs 50,000/- and above should be issued only to the Debit of
customers account. If the amount exceeds Rs50,000/- PAN no to be furnished.
Banks are required to keep record of Cash Withdrawals and Deposits of Rs 10
Lakhs and above in deposit, Cash Credit or Over Draft A/Cs . Report to be made
once in a Month

BANK’S POLICY ON DEPOSIT ACCOUNTS

1. Bank subscribe to all aspects of IBA code for Banking Practice ( Bankers fair
practice code of IBA)
2. Bank to follow IT Rules in obtaining PAN/GIR/or Form 60 or 61.
3. Minimum 15 days Maximum 10 years( for deposit of Rs1 lakh-Minimum 7 days)-
Maximum period Subject to relaxation by orders of competent courts)
RD-Minimum 6 Months-Maximum-10 years. Senior Citizen- Max- 10 Years
NRE-Minimum 1 Year, Max-Less than 5 years
FCNR-Minimum 1 Year, Maximum 5 Years Only
EEFC- Only Current A/c –GBP,USD, EURO-Minimum Balance USD 500 or=)
Minor- SB a/c Maximum-Rs50,000, Term Deposit-With out any ceiling.
4. Interest on Deceased Depositors account
a. At the contracted rate if paid on mat date.
b. If claimed before maturity, at the appropriate rate for the period run( no
pre closure charges)
Prepared by R.Vijayaraghavan May 2010 88
 c. Death occurred before maturity and claim received after maturity-
Contracted rate till maturity, Simple Interest at the applicable rate,
operative on the date of maturity , for the period after date of maturity.
d. Death after maturity- Contracted rate till maturity, SB int operative on
the date of maturity from maturity till payment.
e. In case of CD, int at SB rate(after 01.05.83)
5. Board approval required for all new products/ for modification of existing
products.
6. In operative SB- Rs23 Service charges per half year.
7. Immediate credit Rs15,000/-(individual Customers-SB/CD/CC- Local/Outstation
cheques)-not available to Minor/NRIs- Banks will charge Rs 5 for local cheques
8. Minimum balance
SB With Cheque Without cheque
Rural &Semi Urban Rs 500 Rs100
Urban & Metro Rs1,000 Rs 500
Pensioners Rs250 Rs 5
Senior Citizen-R/SU Rs 250 Rs 5
Urban/Metro Rs 500 Rs 5
CD Urban & Metro Rural & SU Village & Cottage
Ind
Rs2,000 Rs 1,000 Rs1,000
Charges where Minimum balance requirements are not met
SB Rural & Semi Urban- Rs 6 per Month
Urban & Metro -Rs11 p.m
CD For all Branches -Rs 56per Month

Deposits Minimum amount-

FD/SDR/RDP/VAY Rs1,000
SFD Rs3,000
EASY/MULTIPLE/MIS Rs100(Easy Max-Rs10,000/- 6m-120m)
WD Rs50 p.m with increase every year by the
amount of initial deposit
ED Rs250/-p.m for 63 Months, Rs350p.m for
84 Months-reducing1/5,1/7
Multiple Deposit with unit Concept Rs10,000

Duplicate Pass book-Rs22(NR) Rs18( R )

Ledger Folio Charges-CD –Rs45 per folio-Rural, Rs56 per folio-Others

MICR-SB CD- Rs2.25per MICR Cheque leaf-SB 3X20 Leaves free in a calendar
year)

Delayed Collection Compensation in respect of ECS/EFT/SEFT

At SB rate for the period of delay beyond 2 days for credit of SB/CD/CC/Loan from
the date of receipt of proceeds ( P&L code-5108)

Prepared by R.Vijayaraghavan May 2010 89

SME POLICY GUIDELINES

GOI & RBI DIRECTIVES: Banks should achieve a minimum of 20% year on year
growth in credit to SME Sector with an objective to double the flow of credit to SME
sector with in a period of 5 years.
SME 5- application form for credit facilities up to Rs 10 lakh.
SME 6-application form -over Rs 10 lakh-up to Rs50 lakh
SME 7-application form-over Rs 50 lakh and up to Rs 200 lakh
SME 8-application form –over Rs200 lakh.
Should be disposed off
Credit up to Rs25000/ 2 weeks
Over Rs25000 up to Rs 5 lakh- 4 Weeks
Above Rs 5 lakh- 8-9 Weeks.
Assessment : For fund based working capital limits upto Rs 7.50 Crore-20% of
projected Turnover
Over Rs7.50 Crore up to Rs10 Crore-MPBF based on CMA data
Over Rs 10 Crore- Cash budget or MPBF at the option of the borrower.
Margin-Up to Rs50,000/- Nil
Over Rs50000-depending on the policy guidelines
Security
No Collateral up to Rs 5 lakh
On case to case basis and on merits- No Collateral up to Rs 100 Lakh
All fund based limits up to Rs 25 Lakh to SSI units with out Collateral or third party
guarantee should be covered Under Credit Guarantee Fund Scheme For Small
Industries .
Composite Loans up to Rs 1 Crore –SME units
Pricing
SME Limit of Rs 2 lakh and up to Rs 1 crore- not based on rating- ( for Credit limit of
2 lakh and up to Rs 1 crore will be rated by Internal Credit Scoring Model- But
Pricing will not be based on rating.
For limit of above Rs 1 crore rating will be on CRISIL RAM rating module., by
RO/CO and pricing will be based on the rating.
Rating by RAM Scoring
SME 10, SME 9 & SME 8 NPA
SME 7 C
SME 6 & SME 5 B
SME 4 & SME 3 A
SME 2 & SME 1 A+

Advances to Micro under PS- 40% -to Units with investment in Plant and Machinery
up to Rs5 Lakh
20%-to Micro Enterprises units to Units with investment in Plant and Machinery
between Rs5 Lakh to Rs 25 lakh
40% -to Small enterprises to Units with investment in Plant and Machinery above Rs
25 Lakh

For SME borrowers- Branch managers have the discretion to grant adhoc facilities
up to 20% of Working Capital Limits sanctioned to SME borrowers., irrespective of
the layer of authority sanctioned the limit
Banks to provide Credit to at least 5 new Small/Medium enterprises at each of their
SU/Urban Branches per year.

Prepared by R.Vijayaraghavan May 2010 90

MOU WITH SMERA FOR CREDIT RATING:
1.SME Units will have the benefit of credit rating at concessional rates,
2.SMERA is the only dedicated rating agencies for SMe in India.
3.SMERA-SME Rating Agency of India Ltd is a joint venture of SIDBI,CIBIL<Dun-
Brad Street and several other Banks in public and private sector was launched
on05.09.05.
4. The main objective of MOU is to enable SME units to have an early access to
quality credit rating at concessional rates.
5.SMERA shall offer discount@ 20%(subject to conditions) on the card rates in
respect of clients referred by IOB.
6.Time limit for SMERA to provide rating on receipt of all documents-15 business
days.

CDR-CORPORATE DEBT RESTRUCTURING MECHANISM

To facilitate timely restructuring of debts of viable corporate entities affected by
internal and external factors , out side the purview of BIFR, DRT and other legal
proceedings. Based on the guidelines Corporate entities falling under the asset
category viz standard, substandard as also doubtful cases ( with the permission of
RBI) were restructured under CDR.
Main feature of revised guidelines was introduction of two types of restructuring
under CDR. Standard and Sub standard accounts –I category, Accounts classified
as Doubtful under Second category.
The Scheme is applicable to entities with Outstanding exposure of Rs 10 crore and
above
Requirement of support of 60% of the Creditors by numbers in addition to the
support of 75% of Creditors by value.
OTS can be allowed as part of CDR mechanism to make the exit option more
flexible.

REVISED GUIDELINES FOR AWARDING RATINGS ON CO INSPECTION

Ratings will be awarded on the following six parameters:
1. Business Growth
2. Profits and Profitability
3. Quality of NPA Management
4. Quality of Credit Management
5. Quality of House Keeping
6. Branch Image
And the overall rating thereafter. The level of rating marks are given based on
performance in each parameter. The salient revised features are as follows:

Max Marks Max Marks

Parameters
(Small / Medium / Large) (Very Large / Exceptional Large)
Business Growth 200 150
Profit & Profitability 150 100
NPA Management 150 200
Quality of credit 150 200
management
Quality of house keeping 150 150
Branch Image 100 100
Total 900 900

Score Chart
Achievement of 85% and above full mark.
Achievement of 35% and above and less then 85% Pro rata marks
Less than 35% no marks
Prepared by R.Vijayaraghavan May 2010 91
 BANK'S RATING RBIA PERCEPTIONS
GOOD "A" LOW RISK
SATISFACTORY "B" MEDIUM RISK
UNSATISFACTORY "C" HIGH RISK
POOR "D" VERY HIGH RISK
EXTREMELY HIGH RISK

Branch performance will be rated based on overall performance in various parameters and
in case of fraud, malafide intentions which may result in financial/image loss of the Bank, the
rating of the branch will be lowered ONE NOTCH below the secured rating under the
respective parameter (viz., Quality of Credit Management and Quality of House
Keeping) alone and not in overall rating.

Marks will be awarded according to pro-rata basis of the percentage of achievement

under each category.
COMMITTEES:

P.Vijaya Baskar WG: On Branch authorization policy .

Deepak Mohanty Working Group:Oct 09- to review the existing BPLR system to
make credit pricing transparent. Recommended Base Rate for replacing BPLR.

Usha Throat: Oct 09-High level Group on Currency Management. Emphasized the
importance of using modern technology and security system for stocking,
processing and distribution of currency to ensure availability of genuine clean
notes to the members of the public. GM is the nodal officer.

Prabhakar Committee:

To review the Customer Service provided by the banks to pensioners and on

Government accounts.

C P SWARNKAR:
Working group to suggest measure to simplify the procedure and processes, there
by reducing the time and cost for agricultural loan especially small and marginal
farmers.
Banks were advised to dispense with the requirement of No due certificate for small
loan upto Rs50, 000/- to small and marginal farmers, share-croppers (to obtain self
declaration from the borrower)
Setting up of Credit Counseling centres
Banks to accept certificate issued by local administration/panchayat Raj Institutions
reg the cultivation of crops in case of loans to landless labourers, share croppers
&oral lessees in absence of documents to verify their identity and status.

Tarapore Committee- Road map for capital account convertibility.

H R Khan- working group on rural credit and Micro finance services of
NGOs/SHGs/MFIs/CSOs(Civil Society Organizations), Post offices and
intermediaries in providing Financial and banking services/Business
facilitator/correspondent model
PL Mitra-Committee on inspection and audit to address issues relating to systems
and procedures in conducting regular inspection, concurrent audit and related policy
issues
MBN Rao-Committee on IT and Business process reengineering
Prepared by R.Vijayaraghavan May 2010 92
 CS Murthy- Working group to review the existing policy on priority sector lending
N.Sadasivan working group to formulate a scheme for ensuring reasonable
banking charges-enumerated 27 services- Defined low value transactions- collection
and remittance up to Rs10,000/-(Fex USD 500)
Dr.Rakesh Mohan- Committee on Financial Sector assessment

CS MURTHY COMMITTEE-Report on internal working group to review guidelines on

credit flow to SME sector- suggested appropriate terms for restructuring sick ssi-
banks to open specialized SME branches

VYAS COMMITTEE- On raising the flow of credit to Agricultural Sector. On

agricultural credit and RRB restructuring. RBI accepted some recommendations of
the interim report
1) loans for storage facilities under Priority Sector.
2) Waiving Margin/Security norms up to a certain limit for agri loans.
3) NPA norms for crop loans aligned to Crop seasons.
4) Removal of restrictive provisions of SAA except for Govt. Sponsored Schemes.

Dr.A.S.Ganguly –flow of credit to SSI sector. And cluster approach.

H N SINOR- RBI working Group on “Interest Rate on Deposits and Procedures.

Recommendations accepted. Freedom given to Banks to determine interest rate on
renewal of overdue deposits, Margin on Term deposits, Interest on deceased
depositors account etc.

S.S.Tarapore Committee- CPPAPS) –Committee on Procedures and Performance

Audit on Public Services.-recommended
1) Cheque drop box facility or issue of acknowledgement for tendering
cheques
2) sending statement at Monthly intervals. Intelligible particulars to be
recorded in Pass Books/ Statements.
R.V.GUPTA COMMITTEE: APRIL 1998.AGRICULTURAL FINANCE-
Recommendations given. Banks to set interest rates on farm loans independently.
RBI advised banks to follow 20 recommendations.

S.H.KHAN WORKING GROUP-APRIL 1998-UNIVERSAL BANKING. Working

group in harmonizing the operations of term lending institutions with Banks.

S.S.TARAPOER COMMITTEE-NARROW BANKING-Suggestions for the Weak

Banks to do narrow banking suggested.

JILANI WORKING GROUP: To review the internal control and inspection system in
Banks.
GHOSH COMMITTEE: To enquire into various aspects relating to frauds and mal
practices in banks.
K.R.RAMAMURTHY-OCTOBER 2000-Working group on Bills Discounting by
Banks was Constituted. To examine inter alia the possibility of extending Bills
Discounting facility especially to service sector.

S.S.KOHLI- Working Group on Wilful Defaulters.(June-02)

-Working Group on Rehabilitation of sick SSI units.

VEPA KAMESAM-Working group on CDR-Corporate Debt Restructuring.

Prepared by R.Vijayaraghavan May 2010 93

NAYAK COMMITTEE-Prescribed Turn Over Method for assessing Working Capital
Requirements for SSI Borrowers.
R.V.GUPTA COMMITTEE-Committee on Agricultural Credit.
KAPUR COMMITTEE- Committee on SSI Credit.

N L MITRA COMMITTEE-Committee on Bank Frauds. Recommended BPC for

Banks.

M S VERMA COMMITTEE-Committee on restructuring weak Public Sector Banks.

Advocated uniform quality of Corporate Governance.

APRACA Seminar 1986-87 and Agricultural Credit Review Committee(1989) –

Formation of SHG recommended..
M.NARASIMHAM WORKING GROUP- Formation of RRB recommended.
CRAFICARD OR B.SHIVARAM COMMITTEE-Formation of NABARAD
Recommended.
TIWARI COMMITTEE-Instrumental in passing Recovery of Debts due to Banks and
financial Institutions act.
( Ghosh Committee and Mitra Committee-on bank frauds)
ANDHUYA&ARJUNA COMMITTEE- recommended SARFAESI act
KHALIA WORKING GROUP-On Bank finance to SHGs

Contents of RBI Master Circular Date: Jul 01, 2009 on Lending to Micro, Small &
Medium Enterprises (MSME) Sector

LENDING TO MSME SECTOR

Section I

Micro, Small & Medium Enterprises Development (MSMED) Act, 2006

The Government of India has enacted the Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006 on June 16, 2006 which was notified on October
2, 2006. With the enactment of MSMED Act 2006, the paradigm shift that has taken
place is the inclusion of the services sector in the definition of Micro, Small &
Medium enterprises, apart from extending the scope to medium enterprises. The
MSMED Act, 2006 has modified the definition of micro, small and medium
enterprises engaged in manufacturing or production and providing or rendering of
services. The Reserve Bank has notified the changes to all scheduled commercial
banks. Further, the definition, as per the Act, has been adopted for purposes of bank
credit vide RBI circular ref. RPCD.PLNFS. BC.No.63/ 06.02.31/ 2006-07 dated April
4, 2007.

1. Definition of Micro, Small and Medium Enterprises

(a) Enterprises engaged in the manufacture or production, processing or

preservation of goods as specified below:

i) A micro enterprise is an enterprise where investment in plant and machinery does

not exceed Rs. 25 lakh;

ii) A small enterprise is an enterprise where the investment in plant and machinery is
more than Rs. 25 lakh but does not exceed Rs. 5 crore; and

Prepared by R.Vijayaraghavan May 2010 94

iii) A medium enterprise is an enterprise where the investment in plant and
machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

In case of the above enterprises, investment in plant and machinery is the original
cost excluding land and building and the items specified by the Ministry of Small
Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006 (Annex
1).

1.(b) Enterprises engaged in providing or rendering of services and whose

investment in equipment (original cost excluding land and building and furniture,
fittings and other items not directly related to the service rendered or as may be
notified under the MSMED Act, 2006) are specified below.

(i) A micro enterprise is an enterprise where the investment in equipment does not
exceed Rs. 10 lakh;

(ii) A small enterprise is an enterprise where the investment in equipment is more

than Rs.10 lakh but does not exceed Rs. 2 crore; and

(iii) A medium enterprise is an enterprise where the investment in equipment is more

than Rs. 2 crore but does not exceed Rs. 5 crore.

These will include small road & water transport operators, small business,
professional & self-employed persons and all other service enterprises.

Bank’s lending to medium enterprises will not be included for the purpose of
reckoning under the priority sector.

1.1 Khadi and Village Industries Sector (KVI)

All advances granted to units in the KVI sector, irrespective of their size of
operations, location and amount of original investment in plant and machinery will be
covered under priority sector advances and will be eligible for consideration under
the sub-target (60 per cent) of the small enterprises segment within the priority
sector.

1.2 INDIRECT FINANCE

1.2.1 Persons involved in assisting the decentralised sector in the supply of inputs
and marketing of outputs of artisans, village and cottage industries.

1.2.2 Advances to cooperatives of producers in the decentralised sector viz.

artisans, village and cottage industries.

1.2.3 Existing investments as on March 31, 2007, made by banks in special bonds
issued by NABARD with the objective of financing exclusively non- farm sector may
be classified as indirect finance to Small Enterprises sector till the date of maturity of
such bonds or as on March 31, 2010, whichever is earlier. Investments in such
special bonds made subsequent to March 31, 2007 will, however, not be eligible for
such classification.

1.2.4 Deposits placed with SIDBI by foreign banks, having offices in India, on
account of non-achievement of priority sector lending targets/sub-targets and
outstanding as on April 30, 2007 would be eligible for classification as indirect
Prepared by R.Vijayaraghavan May 2010 95
finance to Small Enterprises sector till the date of maturity of such deposits or March
31, 2010, whichever is earlier. However, fresh deposits placed by banks on or after
April 30, 2007 with SIDBI on account of non-achievement of priority sector lending
targets/sub-targets would not be eligible for classification as indirect finance to Small
Enterprises Sector.

1.2.5 Loans granted by banks to NBFCs for on-lending to small and micro
enterprises (manufacturing as well as service)

1.2 SECTION II

Certain types of funds deployment eligible as priority sector advances

1. INVESTMENTS

1.1 SECURITIZED ASSETS

Investments made by banks in securitised assets, representing loans to various

categories of priority sector, shall be eligible for classification under respective
categories of priority sector (direct or indirect) depending on the underlying assets,
provided the securitised assets are originated by banks and financial institutions and
fulfil the Reserve Bank of India guidelines on securitisation. This would mean that the
bank's investments in the above categories of securitised assets shall be eligible for
classification under the respective categories of priority sector only if the securitised
advances were eligible to be classified as priority sector advances before their
securitisation.

1.2 Outright purchases of any loan asset eligible to be categorised under priority
sector, shall be eligible for classification under the respective categories of priority
sector (direct or indirect), provided the loans purchased are eligible to be categorised
under priority sector; the loan assets are purchased (after due diligence and at fair
value) from banks and financial institutions, without any recourse to the seller; and
the eligible loan assets are not disposed of, other than by way of repayment, within a
period of six months from the date of purchase.

1.3 Investments by banks in Inter Bank Participation Certificates (IBPCs), on a risk

sharing basis, shall be eligible for classification under respective categories of
priority sector, provided the underlying assets are eligible to be categorised under
the respective categories of priority sector and are held for at least 180 days from the
date of investment.

2. SCHEME OF SMALL ENTERPRISES FINANCIAL CENTRES (SEFCs):

As per announcement made by the Governor in the Annual Policy Statement 2005-
06, a scheme for strategic alliance between branches of banks and SIDBI located in
clusters, named as “Small Enterprises Financial Centres” has been formulated in
consultation with the Ministry of SSI and Banking Division, Ministry of Finance,
Government of India,SIDBI, IBA and select banks and circulated to all scheduled
commercial banks on May 20, 2005 for implementation. SIDBI has so far executed
MoU with 15 banks so far (Bank of India, UCO Bank, YES Bank, Bank of Baroda,
Oriental Bank of Commerce, Punjab National Bank, Dena Bank, Andhra Bank,
Indian Bank, Corporation Bank, IDBI Bank, Indian Overseas Bank, Union Bank of
India, State Bank of India and Federal Bank). List of SME clusters covered by
existing SIDBI branches is furnised in Annex II .

Prepared by R.Vijayaraghavan May 2010 96

SECTION III

Targets for priority sector lending by Domestic Commercial Banks (excluding

RRBs)

1.Targets for Domestic Commercial Banks

1.1 The domestic commercial banks are expected to enlarge credit to priority sector
and ensure that priority sector advances (which includes the small enterprises
sector) constitute 40 per cent of Adjusted Net Bank Credit (ANBC) and (60% for
RRBs) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher. RRBs will have a target of 60 per cent of their outstanding advances for
priority sector lending.

1.2 While there is no sub-target fixed for lending to small enterprises sector, as per
the policy package announced by the Government of India for stepping up credit to
MSME sector, banks may fix self set target for growth in advances to SME sector in
order to achieve a minimum 20% year on year growth in credit to MSMEs with the
objective to double the flow of credit to the MSME sector within a period of 5 years
i.e. from 2005-06 to 2009-10.

1.3 In order to ensure that credit is available to all segments of the Small Enterprises
sector, banks should ensure that :-

(a) 40 per cent of the total advances to small enterprises sector should go to micro
(manufacturing) enterprises having investment in plant and machinery up to Rs. 5
lakh and micro (service) enterprises having investment in equipment up to Rs. 2
lakh;

(b) 20 per cent of the total advances to small enterprises sector should go to micro
(manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh
and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment
above Rs. 2 lakh and up to Rs. 10 lakh. (Thus 60 per cent of small enterprises
advances should go to the micro enterprises)

2. Targets for Foreign Banks

2.1.1 Foreign banks are expected to enlarge credit to priority sector and ensure that
priority sector advances (which includes the Small Enterprises sector) constitute 32
per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-
Balance Sheet Exposure, whichever is higher.

2.1.2 Within the overall target of 32 per cent to be achieved by foreign banks, the
advances to small enterprises sector should not be less than 10 per cent of the
adjusted net bank credit (ANBC) or credit equivalent amount of Off-Balance Sheet
Exposure, whichever is higher.

2.1.3 In order to ensure that credit is available to all segments of the Small
Enterprises sector, banks should ensure that :-

(a) 40 per cent of the total advances to small enterprises sector should go to micro
(manufacturing) enterprises having investment in plant and machinery up to Rs. 5
lakh and micro (service ) enterprises having investment in equipment up to Rs. 2
lakh;

Prepared by R.Vijayaraghavan May 2010 97

(b) 20 per cent of the total advances to small enterprises sector should go to micro
(manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh
and up to Rs. 25 lakh, and micro (service) enterprises with investment in equipment
above Rs. 2 lakh and up to Rs. 10 lakh. (Thus 60 per cent of small enterprises
advances should go to the micro enterprises)

3. Deposit by Foreign Banks with SIDBI towards shortfall in priority sector lending

3.1 The foreign banks having shortfall in lending to stipulated priority sector targets
/sub-targets will be required to contribute to Small Enterprises Development Fund
(SEDF) to be set up by Small Industries Development Bank of India (SIDBI), or for
such other purpose as may be stipulated by Reserve bank of India.

3.2 For the purpose of such allocation, the achievement level of priority sector
lending as on the last reporting Friday of March of the immediately preceding
financial year will be taken into account.

3.3 The corpus of SEDF shall be decided by Reserve Bank of India on a year-to-year
basis. The tenor of the deposits shall be for a period of three years or as decided by
Reserve Bank from time to time. Fifty percent of the corpus shall be contributed by
foreign banks having shortfall in lending to priority sector target of 32 per cent of
ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, on a pro-rata basis. The balance fifty per cent of the corpus shall be
contributed by foreign banks having aggregate shortfall in lending to Small
Enterprises sector and export sector of 10 per cent and 12 per cent respectively, of
ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, on a pro-rata basis. The contribution required to be made by foreign banks
would, however, not be more than the amount of shortfall in priority sector lending
target/sub-target of the foreign banks.

3.4 The concerned foreign banks will be called upon by SIDBI/or such other
institution as may be decided by Reserve Bank, as and when funds are required by
them, after giving one month's notice.

3.5 The interest rates on foreign banks' contribution, period of deposits, etc. shall be
fixed by Reserve Bank of India from time to time.

3.6 Non-achievement of priority sector targets and sub-targets will be taken into
account while granting regulatory clearances / approvals for various purposes.

[ANBC or credit equivalent of Off-Balance Sheet Exposures (as defined by

Department of Banking Operations and Development of Reserve Bank of India from
time to time) will be computed with reference to the outstanding as on March 31 of
the previous year. For this purpose, outstanding FCNR (B) and NRNR deposits
balances will no longer be deducted for computation of ANBC for priority sector
lending purposes For the purpose of priority sector lending, ANBC denotes NBC plus
investments made by banks in non-SLR bonds held in HTM category. Investments
made by banks in the Recapitalisation Bonds floated by Government of India will not
be taken into account for the purpose of calculation of ANBC. Existing investments,
as on the date of circular RPCD.No.Plan. BC.84/04.09.01/2006-07 dated April 30,
2007, made by banks in non-SLR bonds held in HTM category will not be taken into
account for calculation of ANBC, up to March 31, 2010. However, fresh. investments
by banks in non-SLR bonds held in HTM category will be taken into account for the
purpose. Deposits placed with NABARD/SIDBI, as the case may be, in lieu of non-
achievement of priority sector lending targets/sub-targets, though shown under
Prepared by R.Vijayaraghavan May 2010 98
Schedule 8 –'Investments' in the Balance Sheet at item I (vi)- 'Others', will not be
treated as investment in non-SLR bonds held under HTM category. For the purpose
of calculation of credit equivalent of off-balance sheet exposures, banks may use
current exposure method. Inter-bank exposures will not be taken into account for the
purpose of priority sector lending targets/sub-targets.]

SECTION IV

Common guidelines / Instructions for Lending to Small Enterprises Sector

1. Disposal of Applications

All loan applications for MSE units upto a credit limit of Rs. 25000/- should be
disposed of within 2 weeks and those upto Rs. 5 lakh within 4 weeks provided , the
loan applications are complete in all respects and accompanied by a " check list".

2. Collateral

The exemption limit for all MSME borrowal accounts for obtention of collateral
security (both manufacturing or production and providing or rendering of services) is
Rs 5 lakh. Banks may on the basis of good track record and financial position of the
MSME units, increase the limit of dispensation of collateral requirement for loans up
to Rs.25 lakh (with the approval of the appropriate authority). Instructions were
reiterated to banks to extend collateral-free loans upto Rs. 5 lakh to all new loans to
the MSE sector (both manufacturing and service enterprises) including those units
financed under the Prime Minister Employment Generation Programme of KVIC.

3. Composite loan

A composite loan limit of Rs.1crore can be sanctioned by banks to enable the MSME
entrepreneurs to avail of their working capital and term loan requirement through
Single Window.

4. Specialised SME branches

Public sector banks have been advised to open at least one Specialised branch in
each district. Further, banks have been permitted to categorise their SME general
banking branches having 60% or more of their advances to SME sector in order to
encourage them to open more specialised SME branches for providing better service
to this sector as a whole. As per the policy package announced by the Government
of India for stepping up credit to SME sector, the public sector banks will ensure
specialized SME branches in identified clusters/centres with preponderance of small
enterprises to enable the entrepreneurs to have easy access to the bank credit and
to equip bank personnel to develop requisite expertise. The existing specialised SSI
branches may be also be re designated as SME branches. Though their core
competence will be utilized for extending finance and other services to SME sector,
they will have operational flexibility to extend finance/render other services to other
sectors/borrowers

5. Delayed Payment

Under the Amendment Act, 1998 of Interest on Delayed Payment to Small Scale and
Ancillary Industrial Undertakings, penal provisions have been incorporated to take
care of delayed payments to MSME units which inter-alia stipulates

Prepared by R.Vijayaraghavan May 2010 99

a) agreement between seller and buyer shall not exceed more than 120 days

b) payment of interest by the buyers at the rate of one and a half times the prime
lending rate (PLR) of SBI for any delay beyond the agreed period not exceeding 120
days. Further, banks have been advised to fix sub-limits within the overall working
capital limits to the large borrowers specifically for meeting the payment obligation in
respect of purchases from SSI.

After the enactment of the Micro, Small and Medium Enterprises Development
(MSMED), Act 2006, the existing provisions of the Interest on Delayed Payment Act,
1998 to Small Scale and Ancillary Industrial Undertakings, have been strengthened
as under:

(i) In case the buyer to make payment on or before the date agreed on between him
and the supplier in writing or, in case of no agreement before the appointed day. The
agreement between seller and buyer shall not exceed more than 45 days.

(ii) In case the buyer fails to make payment of the amount to the supplier, he shall be
liable to pay compound interest with monthly rests to the supplier on the amount
from the appointed day or, on the date agreed on, at three times of the Bank Rate
notified by Reserve Bank.

(iii) For any goods supplied or services rendered by the supplier, the buyer shall be
liable to pay the interest as advised at (ii) above.

(iv) In case of dispute with regard to any amount due, a reference shall be made to
the Micro and Small Enterprises Facilitation Council, constituted by the respective
State Government.

6. Guidelines on rehabilitation of sick SSI units (based on Kohli Working Group

recommendations)

As per the definition, a unit is considered as sick when any of the borrowal account
of the unit remains substandard for more than 6 months or there is erosion in the net
worth due to accumulated cash losses to the extent of 50% of its net worth during
the previous accounting year and the unit has been in commercial production for at
least two years.The criteria will enable banks to detect sickness at an early stage
and facilitate corrective action for revival of the unit. As per the guidelines, the
rehabilitation package should be fully implemented within six months from the date
the unit is declared as potentially viable / viable .During this six months period of
identifying and implementing rehabilitation package banks/FIs are required to do
“holding operation” which will allow the sick unit to draw funds from the cash credit
account at least to the extent of deposit of sale proceeds

Following are broad parameters for grant of relief and concessions for revival of
potentially viable sick SSI units:

(i) Interest on Working Capital - Interest 1.5% below the prevailing fixed/ prime
lending rate, wherever applicable

(ii) Funded Interest Term Loan - Interest Free

(iii) Working Capital Term Loan - Interest to be charged 1.5% below the prevailing
fixed / prime lending rate,wherever applicable

Prepared by R.Vijayaraghavan May 2010 100

(iv) Term Loan - Concessions in the interest to be given not more than 2 % (not more
than 3 % in the case of tiny / decentralised sector units) below the document rate.

(v) Contingency Loan Assistance The Concessional rate allowed for Working Capital
Assistance

A circular was issued to all scheduled commercial banks vide RPCD.No.

PLNFS.BC.57/06.04.01/2001-02 dated January 16, 2002 thereby advising
implementation of the Kohli Committee Recommendations.

7.State Level Inter Institutional Committee

In order to deal with the problems of co-ordination for rehabilitation of sick micro and
small units, State Level Inter-Institutional Committees (SLIICs) have been set up in
all the States.The meetings of these Committees are convened by Regional Offices
of RBI and presided over by the Secretary, Industry of the concerned State
Government.It provides a useful forum for adequate interfacing between the State
Government Officials and State Level Institutions on the one side and the term
lending institutions and banks on the other.It closely monitors timely sanction of
working capital to units which have been provided term loans by SFCs,
implementation of special schemes such as Margin Money Scheme of State
Government, National Equity Fund Scheme of SIDBI, and reviews general problems
faced by industries and sickness in MSE sector based on the data furnished by
banks. Among others, the representatives of the local state level MSE associations
are invited to the meetings of SLIIC which are held quarterly. A sub-committee of
SLIIC looks into the problems of individual sick MSE unit and submits its
recommendations to the forum of SLIIC for consideration.

8. Empowered Committee on MSMEs

As part of the announcement made by the Union Finance Minister, at the Regional
Offices of Reserve Bank of India, Empowered Committees on MSMEs have been
constituted under the Chairmanship of the Regional Directors with the
representatives of SLBC Convenor, senior level officers from two banks having
predominant share in MSME financing in the state, representative of SIDBI Regional
Office, the Director of Industries of the State Government, one or two senior level
representatives from the MSME/SSI Associations in the state, and a senior level
officer from SFC/SIDC as members. The Committee will meet periodically and
review the progress in MSME financing as also rehabilitation of sick Micro, Small and
Medium units. It will also coordinate with other banks/financial institutions and the
state government in removing bottlenecks, if any, to ensure smooth flow of credit to
the sector. The committees may decide the need to have similar committees at
cluster/district levels.

9. Debt Restructuring Mechanism for SMEs

i) As part of announcement made by the Hon'ble Finance Minister for stepping up

credit to small and medium enterprises, a debt restructuring mechanism for units in
SME sector has been formulated by Department of Banking Operations &
Development of Reserve Bank of India and advised all commercial banks vide
circular DBOD. BP. BC. No. 34 / 21.04.132/ 2005-06 dated September 8, 2005.
These detailed guidelines have been issued to ensure restructuring of debt of all
eligible small and medium enterprises. These guidelines would be applicable to the
following entities, which are viable or potentially viable:

Prepared by R.Vijayaraghavan May 2010 101

a) All non-corporate SMEs irrespective of the level of dues to banks.

b) All corporate SMEs, which are enjoying banking facilities from a single bank,
irrespective of the level of dues to the bank.

c) All corporate SMEs, which have funded and non-funded outstanding up to Rs.10
crore under multiple/ consortium banking arrangement.

d) Accounts involving wilful default, fraud and malfeasance will not be eligible for
restructuring under these guidelines.

e) Accounts classified by banks as “Loss Assets” will not be eligible for restructuring.

For all corporate including SMEs, which have funded and non-funded outstanding of
Rs.10 crore and above, Department of Banking Operations & Development has
issued separate guidelines on Corporate Debt Restructuring Mechanism vide circular
DBOD. No.BP. BC.45/ 21.04. 132/2005-06 dated November 10, 2005.

ii. In the light of the recommendations of the Working Group on Rehabilitation of Sick
MSEs (Chairman: Dr. K.C. Chakrabarty), all commercial banks were advised vide
our circular ref. RPCD. SME & NFS.BC.No. 102/06.04.01/ 2008-09 dated May 4,
2009 to

a) put in place loan policies governing extension of credit facilities,

Restructuring/Rehabilitation policy for revival of potentially viable sick
units/enterprises and non- discretionary One Time Settlement scheme for recovery
of non-performing loans for the MSE sector, with the approval of the Board of
Directors and

b) implement recommendations with regard to timely and adequate flow of credit to

the MSE sector.

10. Cluster Approach

i) 60 clusters have been identified by the Ministry of Micro, Small and Medium
Enterprises, Government of India for focused development of Small Enterprises
sector. All SLBC Convenor banks have been advised to incorporate in their Annual
Credit Plans, the credit requirement in the clusters identified by the Ministry of Micro,
Small and Medium Enterprises, Government of India.

As per Ganguly Committee recommendations banks have been advised that a full-
service approach to cater to the diverse needs of the MSE sector may be achieved
through extending banking services to recognized MSE clusters by adopting a 4-C
approach namely, Customer focus, Cost control, Cross sell and Contain risk. A
cluster based approach to lending may be more beneficial:

a) in dealing with well-defined and recognized groups;

b) availability of appropriate information for risk assessment and

c) monitoring by the lending institutions.

Clusters may be identified based on factors such as trade record, competitiveness

and growth prospects and/or other cluster specific data.

Prepared by R.Vijayaraghavan May 2010 102

ii) As per announcement made by the Governor in paragraph 157 of the Annual
Policy Statement 2007-08, all SLBC Convenor banks have been advised vide letter
RPCD.PLNFS.No. 10416/06.02.31/ 2006-07 dated May 8, 2007 to review their
institutional arrangements for delivering credit to the MSME sector, especially in 388
clusters identified by United Nations Industrial Development Organisation (UNIDO)
spread over 21 states in various parts of the country. A list of SME clusters as
identified by UNIDO has been furnished in Annex III.

iii) The Ministry of Micro, Small and Medium Enterprises has approved a list of
clusters under the Scheme of Fund for Regeneration of Traditional Industries
(SFURTI) and Micro and Small Enterprises Cluster Development Programme (MSE-
CDP) located in 121 Minority Concentration Districts. Accordingly, appropriate
measures have been taken to improve the credit flow to the identified clusters of
micro and small entrepreneurs from the Minorities Communities residing in the
minority concentrated districts of the country.

11 Government of India, Ministry of Micro, Small and Medium Enterprises has

conveyed their approval for continuation of the Credit Linked Capital Subsidy
Scheme ( CLSS) for Technology Upgradation of Micro and Small Enterprises from X
Plan to XI Plan ( 2007-12) subject to the following terms and conditions:

(i) Ceiling on the loan under the scheme is Rs. 1 crore.

(ii) The rate of subsidy is 15% for all units of micro and small enterprises up to loan
ceiling at Sr. No. (i) above.

(iii) Calculation of admissible subsidy will be done with reference to the purchase
price of plant and machinery instead of term loan disbursed to the beneficiary unit.

(iv) SIDBI and NABARD will continue to be implementing agencies of the scheme.

12. Committees on flow of Credit to MSE sector

12.1 Report of the Committee to Examine the Adequacy of Institutional Credit to SSI
Sector and Related Aspects ( Nayak Comm -ittee)

The Committee was constituted by Reserve Bank of India in December 1991 under
the Chairmanship of Shri P. R. Nayak, the then Deputy Governor to examine the
issues confronting SSIs in the matter of obtaining finance. The Committee
submitted its report in 1992. All the major recommendations of the Committee have
been accepted and the banks have been inter-alia advised to:

i) give preference to village industries, tiny industries and other small scale units in
that order, while meeting the credit requirements of the small scale sector;

ii) grant working capital credit limits to SSI units computed on the basis of minimum
20% of their estimated annual turnover whose credit limit in individual cases is upto
Rs.2 crore [ since raised to Rs.5 crore ];

iii) prepare annual credit budget on the `bottom-up’ basis to ensure that the
legitimate requirements of SSI sector are met in full;

iv) extend ‘Single Window Scheme’ of SIDBI to all districts to meet the financial
requirements (both working capital and term loan) of SSIs;

Prepared by R.Vijayaraghavan May 2010 103

v) ensure that there should not be any delay in sanctioning and disbursal of credit.
In case of rejection/curtailment of credit limit of the loan proposal, a reference to
higher authorities should be made;

vi) not to insist on compulsory deposit as a `quid pro-quo’ for sanctioning the credit;

vii) open specialised SSI bank branches or convert those branches which have a
fairly large number of SSI borrowal accounts, into specialised SSI branches;

viii) identify sick SSI units and take urgent action to put them on nursing
programmes;

ix) standardise loan application forms for SSI borrowers; and

x) impart training to staff working at specialised branches to bring about attitudinal

change in them.

A circular was issued to all scheduled commercial banks vide RPCD. PLNFS/ BC.
No. 61/06.0262/ 2000-01 dated March 2, 2001 thereby advising implementation of
the Nayak Committee Recommendations.

12.2 Report of the High Level Committee on Credit to SSI (Kapur Committee)

Reserve Bank of India had appointed a one-man High Level Committee headed by
Shri S.L.Kapur, (IAS, Retd.), Former Secretary, Government of India, Ministry of
Industry to suggest measures for improving the delivery system and simplification of
procedures for credit to SSI sector.The Committee made 126 recommendations
covering wide range of areas pertaining to financing of SSI sector. These
recommendations have been examined by the RBI and it has been decided to
accept 88 recommendations which include the following important
recommendations:

i) Delegation of more powers to branch managers to grant ad-hoc limits;

ii) Simplification of application forms;

iii) Freedom to banks to decide their own norms for assessment of credit
requirements;

iv) Opening of more specialised SSI branches;

v) Enhancement in the limit for composite loans to Rs. 5 lakh.(since enhanced to

Rs.1 crore);

vi) Strengthening the recovery mechanism;

vi) Banks to pay more attention to the backward states;

viii) Special programmes for training branch managers for appraising small projects;

ix) Banks to make customers grievance machinery more transparent and simplify the
procedures for handling complaints and monitoring thereof.

Prepared by R.Vijayaraghavan May 2010 104

A circular was issued to all scheduled commercial banks vide RPCD.No.
PLNFS.BC.22/06.02.31/98-99 dated August 28, 1998 thereby advising
implementation of the Kapur Committee Recommendations.

12.3 Report of the Working Group on Flow of Credit to SSI Sector (Ganguly
Committee)

As per the announcement made by the Governor, Reserve Bank of India, in the Mid-
Term Review of the Monetary and Credit Policy 2003-2004, a “Working Group on
Flow of Credit to SSI sector” was constituted under the Chairmanship of
Dr.A.S.Ganguly.

The Committee made 31 recommendations covering wide range of areas pertaining

to financing of SSI sector. The recommendations pertaining to RBI and banks have
been examined and RBI has accepted 8 recommendations so far and commended
to banks for implementation vide circular RPCD.PLNFS.BC.28/06.02.31(WG)/ 2004-
05 dated September 4, 2004 which are as under:

i) adoption of cluster based approach for financing MSME sector;

ii) sponsoring specific projects as well as widely publicising successful working

models of NGOs by Lead Banks which service small and tiny industries and
individual entrepreneurs;

iii) sanctioning of higher working capital limits by banks operating in the North East
region to SSIs, based on their commercial judgement due to the peculiar situation of
hilly terrain and frequent floods causing hindrance in the transportation system;

iv) exploring new instruments by banks for promoting rural industry and to improve
the flow of credit to rural artisans, rural industries and rural entrepreneurs, and

v) revision of tenure as also interest rate structure of deposits kept by foreign banks
with SIDBI for their shortfall in priority sector lending.

13. (i) Policy Package for Stepping up Credit to Small and Medium Enterprises-
Announcements made by the Union Finance Minister on August 10, 2005

The Hon'ble Finance Minister, Government of India had announced on August 10,
2005, a Policy Package for stepping up credit flow to Small and Medium enterprises.
Some of the salient features of the policy package are as under:

• Definition of Small and Medium Enterprises (SMEs)

• Fixing of self-targets for financing to SME sector by banks

• Measures to rationalize the cost of loans to SME sector

• Measures to increase the outreach of formal credit to the SME sector

• Cluster based approach for financing SME sector

• Constitution of Empowered Committees for SMEs in the Regional Offices of

Reserve Bank

Prepared by R.Vijayaraghavan May 2010 105

• Steps to rationalize the cost of loans to SME sector by adopting a transparent
rating system with cost of credit being linked to the credit rating of enterprise.

• Banks to consider taking advantage of Credit Appraisal & Rating Tool (CART), Risk
Assessment Model (RAM) and the comprehensive rating model for risk assessment
of SME proposals, developed by SIDBI for reduction of their transaction costs.

• Banks to consider the ratings of MSE units carried out through reputed credit rating
agencies under the Credit Rating Scheme introduced by National Small Industries
Corporation.

• Wider dissemination and easy accessibility of the policy guidelines formulated by

Boards of banks as well as instructions /guidelines issued by Reserve Bank by
displaying them on the respective banks’ web sites as well as web site of SIDBI and
also prominently displaying them at the bank branches.

(ii) Major Instructions issued to Public Sector banks subsequent to the policy
announcements

On the basis of the Policy Package as announced by the Union Finance Minister,
some of the major instructions issued by Reserve Bank to all public sector banks
were as under:

• Public sector banks were advised to fix their own targets for funding SMEs in order
to achieve a minimum 20% year on year growth in credit to SMEs.The objective is to
double the flow of credit from Rs. 67,600 crore in 2004-05 to Rs. 135,200 crore to
the SME sector by 2009-10, i.e. within a period of 5 years.

• Public sector banks were advised to follow a transparent rating system with cost of
credit being linked to the credit rating of the enterprise.

• All banks, including Regional Rural banks may make concerted efforts to provide
credit cover on an average to at least 5 new small/ medium enterprises at each of
their semi-urban/ urban branches per year.

• The banks may ensure specialized SME branches in identified clusters/ centres
with preponderance of small Enterprises to enable the entrepreneurs to have easy
access to the bank credit.

(The circulars issued by Reserve Bank in this regard are vide RPCD.PLNFS.
BC.No.31/ 06.02.31/200506 dated August 19, 2005 and RPCD .PLNFS. BC.No.35/
06.02.31 / 2005 -06 dated August 25, 2005)) .

14. Banking Codes and Standard Board of India (BCSBI)

The Banking Codes and Standard Board of India (BCSBI) has formulated a Code of
Bank's Commitment to Micro and Small Enterprises. This is a voluntary Code, which
sets minimum standards of banking practices for banks to follow when they are
dealing with Micro and Small Enterprises (MSEs) as defined in the Micro Small and
Medium Enterprises Development (MSMED) Act, 2006. It provides protection to
MSE and explains how banks are expected to deal with MSE for their day to-day
operations and in times of financial difficulty.

Prepared by R.Vijayaraghavan May 2010 106

The Code does not replace or supersede regulatory or supervisory instructions
issued by the Reserve Bank of India (RBI) and banks will comply with such
instructions /directions issued by the RBI from time to time.

14.1 Objectives of the BCSBI Code

The Code has been developed to

a. Give a positive thrust to the MSE sector by providing easy access to efficient
banking services.

b. Promote good and fair banking practices by setting minimum standards in dealing
with MSE.

c. Increase transparency so that a better understanding of what can reasonably

expected of the services.

d. Improve understanding of business through effective communication.

e. Encourage market forces, through competition, to achieve higher operating

standards.

f. Promote a fair and cordial relationship between MSE and banks and also ensure
timely and quick response to banking needs.

g. Foster confidence in the banking system.

LENDING TO PRIORITY SECTOR

At a meeting of the National Credit Council held in July 1968, it was emphasised that
commercial banks should increase their involvement in the financing of priority
sectors, viz., agriculture and small scale industries. The description of the priority
sectors was later formalised in 1972 on the basis of the report submitted by the
Informal Study Group on Statistics relating to advances to the Priority Sectors
constituted by the Reserve Bank in May 1971. On the basis of this report, the
Reserve Bank prescribed a modified return for reporting priority sector advances and
certain guidelines were issued in this connection indicating the scope of the items to
be included under the various categories of priority sector. Although initially there
was no specific target fixed in respect of priority sector lending, in November 1974
the banks were advised to raise the share of these sectors in their aggregate
advances to the level of 33 1/3 per cent by March 1979.

At a meeting of the Union Finance Minister with the Chief Executive Officers of public
sector banks held in March 1980, it was agreed that banks should aim at raising the
proportion of their advances to priority sector to 40 per cent by March 1985.
Subsequently, on the basis of the recommendations of the Working Group on the
Modalities of Implementation of Priority Sector Lending and the Twenty Point
Economic Programme by Banks (Chairman: Dr. K. S. Krishnaswamy), all
commercial banks were advised to achieve the target of priority sector lending at 40
per cent of aggregate bank advances by 1985. Sub-targets were also specified for
lending to agriculture and the weaker sections within the priority sector. Since then,
there have been several changes in the scope of priority sector lending and the
targets and sub-targets applicable to various bank groups.

Prepared by R.Vijayaraghavan May 2010 107

On the basis of the recommendations made in September 2005 by the Internal
Working Group (Chairman: Shri C. S. Murthy), set up in Reserve Bank to examine,
review and recommend changes, if any, in the existing policy on priority sector
lending including the segments constituting the priority sector, targets and sub-
targets, etc. and the comments/suggestions received thereon from banks, financial
institutions, public and the Indian Banks’ Association (IBA), it was decided to include
only those sectors as part of the priority sector, that impact large sections of the
population, the weaker sections and the sectors which are employment-intensive
such as agriculture, and tiny and small enterprises.

Presently, the broad categories of priority sector for all scheduled commercial banks
are as under:

I. CATEGORIES OF PRIORITY SECTOR

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall
include short, medium and long term loans given for agriculture and allied activities
(dairy, fishery, piggery, poultry, bee-keeping, etc.) directly to individual farmers, Self-
Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without
limit and to others (such as corporates, partnership firms and institutions) up to the
limits indicated in Section I, for taking up agriculture/allied activities.

Indirect finance to agriculture shall include loans given for agriculture and allied
activities as specified in Section I, appended.

(ii) Small Enterprises (Direct and Indirect Finance) : Direct finance to small
enterprises shall include all loans given to micro and small (manufacturing)
enterprises engaged in manufacture/ production, processing or preservation of
goods, and micro and small (service) enterprises engaged in providing or rendering
of services, and whose investment in plant and machinery and equipment (original
cost excluding land and building and such items as mentioned therein) respectively,
does not exceed the amounts specified in Section I, appended. The micro and small
(service) enterprises shall include small road & water transport operators, small
business, professional & self-employed persons, and all other service enterprises, as
per the definition given in Section I appended.

Indirect finance to small enterprises shall include finance to any person providing
inputs to or marketing the output of artisans, village and cottage industries,
handlooms and to cooperatives of producers in this sector.

(iii) Retail Trade shall include retail traders/private retail traders dealing in essential
commodities (fair price shops), and consumer co-operative stores, as per the
definition given in Section I appended.

(iv) Micro Credit : Provision of credit and other financial services and products of
very small amounts not exceeding Rs. 50,000 per borrower, either directly or
indirectly through a SHG/JLG mechanism or to NBFC/MFI for on-lending up to Rs.
50,000 per borrower, will constitute micro credit.

(v) Education loans : Education loans include loans and advances granted to only
individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20
lakh for studies abroad, and do not include those granted to institutions;

(vi) Housing loans: Loans up to Rs. 20 lakh to individuals for purchase/construction

of dwelling unit per family, (excluding loans granted by banks to their own
Prepared by R.Vijayaraghavan May 2010 108
employees)and loans given for repairs to the damaged dwelling units of families up
to Rs. 1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban and
metropolitan areas.

II. OTHER IMPORTANT FEATURES OF THE GUIDELINES

(i) Investments by banks in securitised assets, representing loans to various

categories of priority sector, shall be eligible for classification under respective
categories of priority sector (direct or indirect) depending on the underlying assets,
provided the securitised assets are originated by banks and financial institutions and
fulfil the Reserve Bank of India guidelines on securitisation. This would mean that the
banks' investments in the above categories of securitised assets shall be eligible for
classification under the respective categories of priority sector only if the securitised
advances were eligible to be classified as priority sector advances before their
securitisation.

(ii) Outright purchases of any loan asset eligible to be categorised under priority
sector, shall be eligible for classification under the respective categories of priority
sector (direct or indirect), provided the loans purchased are eligible to be categorized
under priority sector; the loan assets are purchased (after due diligence and at fair
value) from banks and financial institutions, without any recourse to the seller; and
the eligible loan assets are not disposed of, other than by way of repayment, within a
period of six months from the date of purchase.

(iii) Investments by banks in Inter Bank Participation Certificates (IBPCs), on a risk

sharing basis, shall be eligible for classification under respective categories of
priority sector, provided the underlying assets are eligible to be categorised under
the respective categories of priority sector and are held for at least 180 days from the
date of investment.

(iv) The targets and sub-targets under priority sector lending would be linked to
Adjusted Net Bank Credit (ANBC) (Net Bank Credit plusinvestments made by banks
in non-SLR bonds held in HTM category) or Credit Equivalent amount of Off-Balance
Sheet Exposures (OBE), whichever is higher, as on March 31 of the previous year.
The outstanding FCNR (B) and NRNR deposits balances will no longer be deducted
for computation of ANBC for priority sector lending purposes.Investments made by
banks in the Recapitalization Bonds floated by Government of India will not be taken
into account for the purpose. Existing investments, as on April 30, 2007, made by
banks in non-SLR bonds held in HTM category will not be taken into account for
calculation of ANBC, up to March 31, 2010. However, fresh investments by banks in
non-SLR bonds held in HTM category will be taken into account for the purpose.
Deposits placed by banks with NABARD/SIDBI, as the case may be, in lieu of non-
achievement of priority sector lending targets/sub-targets, though shown under
Schedule 8 – 'Investments' in the Balance Sheet at item I (vi) – 'Others', will not be
treated as investment in non-SLR bonds held under HTM category. For the purpose
of calculation of credit equivalent of off-balance sheet exposures, banks may use
current exposure method. Inter-bank exposures will not be taken into account for the
purpose of priority sector lending targets/sub-targets.

(v) Fresh deposits placed by banks' on or after April 30, 2007 with NABARD/SIDBI
on account of non-achievement of priority sector lending targets/sub-targets would
not be eligible for classification as indirect finance to agriculture/Small Enterprises
Sector, as the case may be. However, the deposits placed with NABARD/SIDBI by
banks on the above account and outstanding as on April 30, 2007 would be eligible
for classification as indirect finance to agriculture/Small Enterprises sector, as the
Prepared by R.Vijayaraghavan May 2010 109
case may be, till the date of maturity of such deposits or March 31, 2010, whichever
is earlier.

III. TARGETS/SUB-TARGETS

The targets and sub-targets set under priority sector lending for domestic and foreign
banks operating in India are furnished below:

Domestic commercial banks Foreign banks

Total Priority40 per cent of Adjusted Net Bank Credit32 per cent of ANBC
Sector (ANBC) or credit equivalent amount of Off-or credit equivalent
advances Balance Sheet Exposure, whichever isamount of Off-
higher. Balance Sheet
Exposure, whichever
is higher.

Total 18 per cent of ANBC or credit equivalentNo target.

agricultural amount of Off-Balance Sheet Exposure,
advances whichever is higher.
Of this, indirect lending in excess of 4.5% of
ANBC or credit equivalent amount of Off-
Balance Sheet Exposure, whichever is
higher, will not be reckoned for computing
performance under 18 per cent target.
However, all agricultural advances under the
categories 'direct' and 'indirect' will be
reckoned in computing performance under
the overall priority sector target of 40 per
cent of ANBC or credit equivalent amount of
Off-Balance Sheet Exposure, whichever is
higher.

Small Advances to small enterprises sector will be10 per cent of ANBC
Enterprise reckoned in computing performance underor credit equivalent
advances the overall priority sector target of 40 peramount of Off-
cent of ANBC or credit equivalent amount ofBalance Sheet
Off-Balance Sheet Exposure, whichever isExposure, whichever
higher. is higher.

Micro 1. 40 per cent of total advances to smallSame as for domestic

enterprises enterprises sector should go to microbanks.
within Small (manufacturing) enterprises having in-
Enterprises vestment in plant and machinery up to
sector Rs 5 lakh and micro (service) enter-
prises having investment in equip-
ment up to Rs. 2 lakh;
2. 20 per cent of total advances to small
enterprises sector should go to micro
(manufacturing) enterprises with in-
vestment in plant and machinery
above Rs 5 lakh and up to Rs. 25
lakh, and micro (service) enterprises
with investment in equipment above
Prepared by R.Vijayaraghavan May 2010 110
 Rs. 2 lakh and up to Rs. 10 lakh.
(Thus, 60 per cent of small enterpris-
es advances should go to the micro
enterprises).

Export credit Export credit is not a part of priority sector12 per cent of ANBC
for domestic commercial banks. or credit equivalent
amount of Off-
Balance Sheet
Exposure, whichever
is higher.

Advances to10 per cent of ANBC or credit equivalentNo target.

weaker amount of Off-Balance Sheet Exposure,
sections whichever is higher.

Differential 1 per cent of total advances outstanding asNo target.

Rate ofat the end of the previous year. It should be
Interest ensured that not less than 40 per cent of the
Scheme total advances granted under DRI scheme
go to scheduled caste/scheduled tribes.
At least two third of DRI advances should be
granted through rural and semi-urban
branches.

[ANBC or credit equivalent of Off-Balance Sheet Exposures (as defined by

Department of Banking Operations and Development of Reserve Bank of India
from time to time) will be computed with reference to the outstanding as on
March 31 of the previous year. For this purpose, outstanding FCNR (B) and
NRNR deposits balances will no longer be deducted for computation of ANBC
for priority sector lending purposes. For the purpose of priority sector lending,
ANBC denotes NBC plus investments made by banks in non-SLR bonds held
in HTM category. Investments made by banks in the Recapitalization Bonds
floated by Government of India will not be taken into account for the purpose
of calculation of ANBC. Existing investments, as on the date of this circular,
made by banks in non-SLR bonds held in HTM category will not be taken into
account for calculation of ANBC, up to March 31, 2010. However, fresh
investments by banks in non-SLR bonds held in HTM category will be taken
into account for the purpose. Deposits placed by banks with NABARD/SIDBI,
as the case may be, in lieu of non-achievement of priority sector lending
targets/sub-targets, though shown under Schedule 8 – 'Investments' in the
Balance Sheet at item I (vi) – 'Others', will not be treated as investment in non-
SLR bonds held under HTM category. For the purpose of calculation of credit
equivalent of off-balance sheet exposures, banks may use current exposure
method. Inter-bank exposures will not be taken into account for the purpose of
priority sector lending targets/sub-targets.]
[The net bank credit (NBC) should tally with the figures reported in the
fortnightly return submitted under section 42(2) of the Reserve Bank of India
Act, 1934.]
The detailed guidelines in this regard are given hereunder.
SECTION I
1. AGRICULTURE
Prepared by R.Vijayaraghavan May 2010 111
DIRECT FINANCE

1.1 Finance to individual farmers [including Self Help Groups (SHGs) or Joint
Liability Groups (JLGs), i.e. groups of individual farmers, provided banks
maintain disaggregated data on such finance] for Agriculture and Allied
Activities (dairy, fishery, piggery, poultry, bee-keeping, etc.)

1.1.1 Short-term loans for raising crops, i.e. for crop loans. This will include
traditional/non-traditional plantations and horticulture.

1.1.2 Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural

produce (including warehouse receipts) for a period not exceeding 12
months, irrespective of whether the farmers were given crop loans for
raising the produce or not.

1.1.3 Working capital and term loans for financing production and investment
requirements for agriculture and allied activities.

1.1.4 Loans to small and marginal farmers for purchase of land for agricultural
purposes.
1.1.5 Loans to distressed farmers indebted to non-institutional lenders, against
appropriate collateral or group security.

1.1.6 Loans granted for pre-harvest and post-harvest activities such as

spraying, weeding, harvesting, grading, sorting, processing and
transporting undertaken by individuals, SHGs and cooperatives in rural
areas.

1.2 Finance to others [such as corporates, partnership firms and institutions]

for Agriculture and Allied Activities (dairy, fishery, piggery, poultry, bee-
keeping, etc.)

1.2.1 Loans granted for pre-harvest and post harvest activities such as spraying,
weeding, harvesting, grading, sorting and transporting.

1.2.2 Finance up to an aggregate amount of Rs. one crore per borrower for the
purposes listed at 1.1.1, 1.1.2, 1.1.3 and 1.2.1 above.
Prepared by R.Vijayaraghavan May 2010 112
 1.2.3 One-third of loans in excess of Rs. one crore in aggregate per borrower for
agriculture and allied activities.

INDIRECT FINANCE

1.3 Finance for Agriculture and Allied Activities

1.3.1 Two-third of loans to entities covered under 1.2 above in excess of Rs. one
crore in aggregate per borrower for agriculture and allied activities.

1.3.2 Loans to food and agro-based processing units with investments in plant
and machinery up to Rs. 10 crore, undertaken by those other than 1.1.6 above.

1.3.3 (i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc.

(ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs
for the allied activities such as cattle feed, poultry feed, etc.

1.3.4 Finance for setting up of Agriclinics and Agribusiness Centres.

1.3.5 Finance for hire-purchase schemes for distribution of agricultural

machinery and implements.

1.3.6 Loans to farmers through Primary Agricultural Credit Societies (PACS),

Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi Purpose
Societies (LAMPS).

1.3.7 Loans to cooperative societies of farmers for disposing of the produce of

members.

1.3.8 Financing the farmers indirectly through the co-operative system

(otherwise than by subscription to bonds and debenture issues).

1.3.9 Existing investments as on March 31, 2007, made by banks in special

bonds issued by NABARD with the objective of financing exclusively
agriculture/allied activities may be classified as indirect finance to
Prepared by R.Vijayaraghavan May 2010 113
 agriculture till the date of maturity of such bonds or March 31, 2010,
whichever is earlier. Fresh investments in such special bonds made
subsequent to March 31, 2007 will, however, not be eligible for such
classification.

1.3.10Loans for construction and running of storage facilities (warehouse,

market yards, godowns, and silos), including cold storage units designed
to store agriculture produce/products, irrespective of their location.

If the storage unit is registered as SSI unit/micro or small enterprise, the

loans granted to such units may be classified under advances to Small
Enterprises sector.

1.3.11Advances to Custom Service Units managed by individuals, institutions or

organisations who maintain a fleet of tractors, bulldozers, well-boring
equipment, threshers, combines, etc., and undertake work for farmers on
contract basis.

1.3.12Finance extended to dealers in drip irrigation/sprinkler irrigation

system/agricultural machinery, irrespective of their location, subject to the
following conditions:

(a) The dealer should be dealing exclusively in such items or if dealing in

other products, should be maintaining separate and distinct records in
respect of such items.

(b) A ceiling of up to Rs. 30 lakh per dealer should be observed.

1.3.13Loans to Arthias (commission agents in rural/semi-urban areas functioning

in markets/mandies) for extending credit to farmers, for supply of inputs as
also for buying the output from the individual farmers/ SHGs/ JLGs.

1.3.14Credit outstanding under loans for general purposes under General Credit
Cards (GCC).

1.3.15The deposits placed in RIDF with NABARD by banks on account of non-

achievement of priority sector lending targets/sub-targets and
outstanding as on April 30, 2007 would be eligible for classification as
indirect finance to agriculture sector till the date of maturity of such
deposits or March 31, 2010, whichever is earlier.

Prepared by R.Vijayaraghavan May 2010 114

 1.3.16Loans already disbursed and outstanding as on April 30, 2007 to State
Electricity Boards (SEBs) and power distribution corporations/companies,
emerging out of bifurcation/restructuring of SEBs, for reimbursing the
expenditure already incurred by them for providing low tension connection
from step-down point to individual farmers for energising their wells and
for Systems Improvement Scheme under Special Project Agriculture (SI-
SPA), are eligible for classification as indirect finance till the dates of their
maturity/repayment or March 31, 2010, whichever is earlier. Fresh
advances will, however, not be eligible for classification as indirect finance
to agriculture.

1.3.17Loans to National Co-operative Development Corporation (NCDC) for on-

lending to the co-operative sector for purposes coming under the priority
sector will be treated as indirect finance to agriculture till March 31, 2010.

1.3.18Loans to Non-Banking Financial Companies (NBFCs) for on lending to

individual farmers or their SHGs/JLGs.

1.3.19Loans granted to NGOs/MFIs for on-lending to individual farmers or their

SHGs/JLGs.

1.3.20Loans granted to RRBs for on-lending to agriculture and allied activities

sector.

1.3.21Overdrafts, up to Rs. 25,000 (per account), granted against ‘no-frills’

accounts in rural and semi-urban areas.

2 SMALL l ENTERPRISES

DIRECT FINANCE

2.1 Direct Finance in the small enterprises sector will include credit to:

2.1.1 Manufacturing Enterprises

(a) Small (manufacturing) Enterprises

Enterprises engaged in the manufacture/production, processing or preservation of

goods and whose investment in plant and machinery [original cost excluding land
Prepared by R.Vijayaraghavan May 2010 115
and building and the items specified by the Ministry of Small Scale Industries vide its
notification no. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs. 5 crore.

(b) Micro (manufacturing) Enterprises

Enterprises engaged in the manufacture/production, processing or preservation of

goods and whose investment in plant and machinery [original cost excluding land
and building and such items as in 2.1.1 (a)] does not exceed Rs. 25 lakh,
irrespective of the location of the unit.

2.1.2 Service Enterprises

(a) Small (service) Enterprises

Enterprises engaged in providing/rendering of services and whose investment in

equipment (original cost excluding land and building and furniture, fittings and other
items not directly related to the service rendered or as may be notified under the
MSMED Act, 2006) does not exceed Rs. 2 crore.

(b) Micro (service) Enterprises

Enterprises engaged in providing/rendering of services and whose investment in

equipment [original cost excluding land and building and furniture, fittings and such
items as in 2.1.2 (a)] does not exceed Rs. 10 lakh.

(c) The small and micro (service) enterprises shall include small road & water
transport operators, small business, professional & self-employed persons, and all
other service enterprises.

2.1.3 Khadi and Village Industries Sector (KVI)

All advances granted to units in the KVI sector, irrespective of their size of
operations, location and amount of original investment in plant and machinery. Such
advances will be eligible for consideration under the sub-target (60 per cent) of the
small enterprises segment within the priority sector.

INDIRECT FINANCE

2.2 Indirect finance to the small (manufacturing as well as service) enterprises

sector will include credit to:

Prepared by R.Vijayaraghavan May 2010 116

 2.2.1 Persons involved in assisting the decentralised sector in the supply of
inputs to and marketing of outputs of artisans, village and cottage
industries.

2.2.2 Advances to cooperatives of producers in the decentralised sector viz.

artisans village and cottage industries.

2.2.3 Existing investments as on March 31, 2007, made by banks in special

bonds issued by NABARD with the objective of financing exclusively non-
farm sector may be classified as indirect finance to Small Enterprises
sector till the date of maturity of such bonds or March 31, 2010, whichever
is earlier. Investments in such special bonds made subsequent to March
31, 2007 will, however, not be eligible for such classification.

2.2.4 The deposits placed with SIDBI by foreign banks, having offices in India,
on account of non-achievement of priority sector lending targets/sub-
targets and outstanding as on April 30, 2007 would be eligible for
classification as indirect finance to Small Enterprises sector till the date of
maturity of such deposits or March 31, 2010, whichever is earlier.
2.2.5 Loans granted by banks to NBFCs for on-lending to small and micro
enterprises (manufacturing as well as service).

3. RETAIL TRADE

3.1 Advances granted to retail traders dealing in essential commodities (fair

price shops), consumer co-operative stores, and;

3.2 Advances granted to private retail traders with credit limits not exceeding Rs.
20 lakh.

4. MICRO CREDIT

4.1 Loans of very small amount not exceeding Rs. 50,000 per borrower provided
by banks either directly or indirectly through a SHG/JLG mechanism or to
NBFC/MFI for on-lending up to Rs. 50,000 per borrower.

4.2 Loans to poor indebted to informal sector

Prepared by R.Vijayaraghavan May 2010 117

 Loans to distressed persons (other than farmers) to prepay their debt to non-
institutional lenders, against appropriate collateral or group security, would be
eligible for classification under priority sector.

5. State Sponsored Organizations for Scheduled Castes/Scheduled Tribes

Advances sanctioned to State Sponsored Organisations for Scheduled Castes/

Scheduled Tribes for the specific purpose of purchase and supply of inputs to
and/or the marketing of the outputs of the beneficiaries of these organisations.

6. Education

6.1 Educational loans granted to individuals for educational purposes up to Rs.

10 lakh for studies in India and Rs. 20 lakh for studies abroad. Loans granted to
institutions will not be eligible to be classified as priority sector advances.

6.2 Loans granted by banks to NBFCs for on-lending to individuals for

educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for
studies abroad.

7. Housing

7.1 Loans up to Rs. 20 lakh, irrespective of location, to individuals for

purchase/construction of a dwelling unit per family, excluding loans
granted by banks to their own employees.

7.2 Loans given for repairs to the damaged dwelling units of families up to Rs.
1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban and
metropolitan areas.

7.3 Assistance given to any governmental agency for construction of dwelling

units or for slum clearance and rehabilitation of slum dwellers, subject to a
ceiling of Rs. 5 lakh of loan amount per dwelling unit.

7.4 Assistance given to a non-governmental agency approved by the NHB for

the purpose of refinance for construction/reconstruction of dwelling units
or for slum clearance and rehabilitation of slum dwellers, subject to a
ceiling of loan component of Rs. 5 lakh per dwelling unit.

Prepared by R.Vijayaraghavan May 2010 118

 7.5 (i) Loans granted to Housing Finance Companies (HFCs), approved by
National Housing Bank for the purpose of refinance, for on-lending to
individuals for purchase/construction of dwelling units, provided the
housing loans granted by HFCs do not exceed Rs.20 lakh per dwelling
unit per family.

(ii) The eligibility under this measure shall be restricted to five per cent of
the individual bank’s total priority sector lending, on an ongoing basis.

(iii) The above special dispensation shall apply to loans granted by banks
to HFCs up to March 31, 2010. Such loans granted till March 31, 2010 will
continue to be classified under priority sector till they are repaid.

8. Weaker Sections

The weaker sections under priority sector shall include the following:
(a) Small and marginal farmers with land holding of 5 acres and less, and
landless labourers, tenant farmers and share croppers;
(b) Artisans, village and cottage industries where individual credit limits do not
exceed Rs. 50,000;
(c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY);
(d) Scheduled Castes and Scheduled Tribes;
(e) Beneficiaries of Differential Rate of Interest (DRI) scheme;
(f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);
(g) Beneficiaries under the Scheme for Liberation and Rehabilitation of
Scavengers (SLRS);
(h) Advances to Self Help Groups;
(i) Loans to distressed poor to prepay their debt to informal sector, against
appropriate collateral or group security.
(j) Loans granted under (a) to (i) above to persons from minority communities as
may be notified by Government of India from time to time.

In States, where one of the minority communities notified is, in fact, in majority,
item (j) will cover only the other notified minorities. These States/Union
Territories are Jammu & Kashmir, Punjab, Meghalaya, Mizoram, Nagaland and
Lakshadweep.

9. Export Credit

Prepared by R.Vijayaraghavan May 2010 119

 This category will form part of priority sector for foreign banks only.
SECTION II
PENALTIES for NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING
TARGET / SUB-TARGETS

1. Domestic scheduled commercial banks – Contribution by banks to Rural

Infrastructure Development Fund (RIDF) or Funds with other Financial
Institutions, as specified by the Reserve Bank:

1.1 Domestic scheduled commercial banks having shortfall in lending to priority

sector lending target (40 per cent of ANBC or credit equivalent amount of Off-
Balance Sheet Exposure, whichever is higher) and / or agriculture lending target
(18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher) and / or weaker sections lending target (10 per cent of ANBC
or credit equivalent amount of Off-Balance Sheet Exposures, whichever is higher)
shall be allocated amounts for contribution to the Rural Infrastructure Development
Fund (RIDF) established with NABARD or Funds with other Financial Institutions,
as specified by the Reserve Bank. The achievement level of banks in weaker
sections lending target will be taken into account for the purpose of allocations in
RIDF or any other Fund with effect from April 2009. For the purpose of allocation
of RIDF tranche or any other Fund, as decided by Reserve Bank from time to time,
the achievement level of priority sector lending as on the last reporting Friday of
March of the immediately preceding financial year will be taken into account (i.e.
For allocation in RIDF or any other Fund in the year 2009-2010, the achievement
level of priority sector lending as on the last reporting Friday of March 2009 will be
taken into account). The concerned banks will be called upon by NABARD or such
other Financial Institution as may be decided by Reserve Bank, as and when
funds are required by them, after giving one month’s notice.

1.2 The corpus of a particular tranche of RIDF is decided by Government of India

every year. The amount of contribution by banks to a particular tranche of RIDF or
any other Fund will be decided in the beginning of the financial year.

1.3 The interest rates on banks’ contribution to RIDF or any other Fund, periods of
deposits, etc. shall be fixed by Reserve Bank of India from time to time.

1.4 Details regarding operationalisation of the RIDF or any other Fund, such as the
amounts to be deposited by banks, interest rates on deposits, period of deposits,
etc., will be communicated to the concerned banks separately by August of each
year to enable them to plan their deployment of funds.

2. Foreign Banks – Deposit by Foreign Banks with SIDBI or Funds with other
Financial Institutions, as specified by the Reserve Bank

Prepared by R.Vijayaraghavan May 2010 120

 2.1 The foreign banks having shortfall in lending to stipulated priority sector
lending target/sub-targets will be required to contribute to Funds to be set up with
Small Industries Development Bank of India (SIDBI) or with other Financial
Institutions, for such other purpose as may be stipulated by Reserve Bank of India
from time to time.

2.2 For the purpose of such allocation, the achievement level of priority sector
lending as on the last reporting Friday of March of the immediately preceding
financial year will be taken into account (i.e. For allocation in Funds with SIDBI or
any other Financial Institutions in the year 2009-2010, the achievement level of
priority sector lending target/sub-targets as on the last reporting Friday of March
2009 will be taken into account).

2.3 The corpus of Funds shall be decided by Government of India / Reserve Bank
of India on a year-to-year basis. The tenor of the deposits shall be for a period of
three years or as decided by Reserve Bank from time to time. The contribution
required to be made by foreign banks would not be more than the amount of
shortfall in priority sector lending target/sub-targets of the foreign banks.

2.4 The concerned foreign banks will be called upon by SIDBI/or such other
Financial Institution as may be decided by Reserve Bank, as and when funds are
required by them, after giving one month’s notice.

2.5 The interest rates on foreign banks’ contribution, period of deposits, etc. shall
be fixed by Reserve Bank of India from time to time.

3. Non-achievement of priority sector targets and sub-targets will be taken into

account while granting regulatory clearances/approvals for various purposes.
SECTION III
common guidelines for priority sector advances

1 Banks should follow the following common guidelines prescribed by the Reserve
Bank for all categories of advances under the priority sector.

2 Processing of Applications

2.1Completion of Application Forms

In case of Government sponsored schemes such as SGSY, the concerned

project authorities like DRDAs, DICs, etc. should arrange for completion of
Prepared by R.Vijayaraghavan May 2010 121
 application forms received from borrowers. In other areas, the bank staff should
help the borrowers for this purpose.

2.2Issue of Acknowledgement of Loan Applications

Banks should give acknowledgement for loan applications received from weaker
sections. Towards this purpose, it may be ensured that all loan application forms
have perforated portion for acknowledgement to be completed and issued by the
receiving branch. Each branch may affix on the main application form as well as
the corresponding portion for acknowledgement, a running serial number. While
using the existing stock of application forms which do not have a perforated
portion for acknowledgement separately given, care should be taken to ensure
that the serial number given on the acknowledgement is also recorded on the
main application. The loan applications should have a check list of documents
required for guidance of the prospective borrowers.

2.3Disposal of Applications

(i) All loan applications up to a credit limit of Rs. 25,000 should be disposed of
within a fortnight and those for over Rs. 25,000, within 8 to 9 weeks.
(ii) All loan applications for Small Enterprises up to a credit limit of Rs. 25,000
should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks,
provided the loan applications are complete in all respects and are accompanied
by a 'check list'.

2.4Rejection of Proposals

Branch Managers may reject applications (except in respect of SC/ST) provided

the cases of rejection are verified subsequently by the Divisional/Regional
Managers. In the case of proposals from SC/ST, rejection should be at a level
higher than that of Branch Manager.

2.5Register of Rejected Applications

A register should be maintained at the branch, wherein the date of receipt,

sanction/rejection/disbursement with reasons therefor, etc., should be recorded.
The register should be made available to all inspecting agencies.

3 Mode of Disbursement of Loan

With a view to providing farmers wider choice as also eliminating undesirable

practices, banks may disburse all loans for agricultural purposes in cash which
will facilitate dealer choice to borrowers and foster an environment of trust.
Prepared by R.Vijayaraghavan May 2010 122
 However, banks may continue the practice of obtaining receipts from borrowers.

4 Repayment Schedule

4.1Repayment programme should be fixed taking into account the sustenance

requirements, surplus generating capacity, the break-even point, the life of the
asset, etc., and not in an "ad hoc" manner. In respect of composite loans,
repayment schedule may be fixed for term loan component only.

4.2As the repaying capacity of the people affected by natural calamities gets
severely impaired due to the damage to the economic pursuits and loss of
economic assets, the benefits such as restructuring of existing loans, etc. as
envisaged under our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07
dated August 9, 2006 may be extended to the affected borrowers.

5 Rates of Interest

5.1The rates of interest on various categories of priority sector advances will be as

per RBI directives issued from time to time.

5.2(a) In respect of direct agricultural advances, banks should not compound the
interest in the case of current dues, i.e. crop loans and instalments not fallen due
in respect of term loans, as the agriculturists do not have any regular source of
income other than sale proceeds of their crops.

(b) When crop loans or instalments under term loans become overdue, banks can
add interest to the principal.

(c) Where the default is due to genuine reasons banks should extend the period
of loan or reschedule the instalments under term loan. Once such a relief has
been extended, the overdues become current dues and banks should not
compound interest.

(d) Banks should charge interest on agricultural advances in respect of long

duration crops, at annual rests instead of quarterly or longer rests, and could
compound the interest, if the loan/instalment becomes overdue.

6 Penal Interest

6.1.1 The issue of charging penal interests that should be levied for reasons such
Prepared by R.Vijayaraghavan May 2010 123
 as default in repayment, non-submission of financial statements, etc. has
been left to the Board of each bank. Banks have been advised to formulate
policy for charging such penal interest with the approval of their Boards, to
be governed by well accepted principles of transparency, fairness, incentive
to service the debt and due regard to difficulties of customers.

6.1.2 No penal interest should be charged by banks for loans under priority
sector up to Rs 25,000 as hitherto. However, banks will be free to levy
penal interest for loans exceeding Rs 25,000, in terms of the above
guidelines.

7. SERVICE CHARGES / INSPECTION CHARGES

7.1.1 No service charges/inspection charges should be levied on priority sector

loans up to Rs. 25,000.

7.1.2 For loans above Rs. 25,000/- banks will be free to prescribe service
charges with the prior approval of their Boards, in terms of circular No.
DBOD.Dir.BC.86/03.01.00/99-2000 dated September 7, 1999.

8. Insurance against Fire and Other Risks

8.1Banks may waive insurance of assets financed by bank credit in the

following cases:

No. Category Type of Risk Type of Assets

(a) All categories of priority sector advancesFire & otherEquipment and

up to and inclusive of Rs. 10,000 risks current assets

(b) Advances to Small Enterprises up to and

inclusive of Rs. 25,000 by way of -

• Composite loans to artisans, villageFire Equipment and

and cottage industries current assets

• All term loans Fire Equipment

• Working capital where these areFire Current Assets

against non-hazardous goods

8.2 Where, however, insurance of vehicle or machinery or other equipment/assets is

compulsory under the provisions of any law or where such a requirement is
stipulated in the refinance scheme of any refinancing agency or as part of a
Government-sponsored programmes such as SGSY, insurance should not be
waived even if the relative credit facility does not exceed Rs. 10,000 or Rs.
Prepared by R.Vijayaraghavan May 2010 124
 25,000, as the case may be.

9. Photographs of Borrowers

While there is no objection to taking photographs of the borrowers for purposes

of identification, banks themselves should make arrangements for the
photographs and also bear the cost of photographs of borrowers falling in the
category of Weaker Sections. It should also be ensured that the procedure does
not involve any delay in loan disbursement.

10 Discretionary Powers

All Branch Managers of banks should be vested with discretionary powers to

sanction proposals from weaker sections without reference to any higher
authority. If there are difficulties in extending such discretionary powers to all the
Branch Managers, such powers should exist at least at the district level and
arrangements be ensured that credit proposals on weaker sections are cleared
promptly.

11 Machinery to look into Complaints

11.1.1There should be machinery at the regional offices to entertain complaints

from the borrowers if the branches do not follow these guidelines, and to
verify periodically that these guidelines are scrupulously implemented by
the branches.

11.1.2The names and addresses of the officer with whom complaints can be
lodged should be displayed on the notice board of every branch.

12 Amendments

These guidelines are subject to any instructions that may be issued by the RBI
from time to time.

Prepared by R.Vijayaraghavan May 2010 125

ABBREVIATIONS

1) KYC : Know your Customer

2) KYC CROP : know Your Customer- Customers’ Record of Profile
3) NODCIP : Notice to Depositors on Certain Important
Provisions
4) AML : Anti Money Laundering
5) AML-CAP : anti Money Laundering- Concised Action Points
6) ORMC : Operational Risk Management Committee
7) SICDAC : System of Issuance of Circulars by Departments at C O
8) COMLET : Common Letter to all Regional Offices by Central Office
9) IOB-FPCL : IOB Fair Practice Code For Lenders
10) FPCL CAR : Compliance and Review Report on FPCL.
11) BOGRA : Borrowers’ Grievances Redressal Authority
12) CGFTS : Credit Guarantee Fund Trust Scheme for SSI units
13) COMPASS : Completely Automated Settlement System
14) IBSA : Inter Branch Settlement Advice
15) AFI : Annual Financial Inspection.
16) DGFT : Director General of Foreign Trade
17) UCPDC : Uniform customs and procedures for Documentary
Credits.
18) SWIFT : Society for Worldwide Inter Bank Financial
Telecommunication.
19) HAWB : House Air Way Bill
20) SDF : Statutory Declaration Form
21) EDI : Electronic Data Interchange
22) EEFC : Exchange Earners Foreign Currency Accounts
23) SARFAESI : Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest. (Act 2002)
24) DRT : Debt Recovery Tribunal
25) OTS : One time Settlement
26) OCS : Out of Court Settlement
27) RTGS : Real time Gross Settlement
28) CIBIL : Credit Information Bureau of India Ltd.,
29) CAL (ABC) : Consent cum authorisation Letter
30) ICRIS : Integrated Credit Information System
31) LONE : Letter of Non Entitlement
32) STAR : Speedy Transfer and Realization
33) COPRA : Consumer Protection Act

34) ALOC BPC : Assessment level of compliance of Best Practices Code

35) CAMELS : Capital Adequacy, Asset Quality, Management,
Earnings, Liquidity, System and Procedure.
36) V-SAT : Very Small Aperture terminal
37) IFR : Investment Fluctuation Reserve.
38) DWCRA : Development Women and Children in Rural Areas.
39) OLTAS :On Line Tax accounting System
40) BPC : Best Practice Code
41) RAPLE :Revised Accounting Procedure for Legal expenses for
Suit filed a/cs
42) ISBP :International Standard Banking Practice
Prepared by R.Vijayaraghavan May 2010 126
43) CRAR :Capital to Risk Weighted Asset Ratio.
44)SACP :Spl. Agricultural Credit Plan
45) CCIL :Clearing Corporation Of India Limited
46) CBLO : Collaterarised Borrowing and Lending Obligation(
Money Market Instrument designed by CCIL)
47) IRDA :Insurance Regulatory Development Authority
48) ORMC : Operational risk Management Committee
49) CAAP- Capital Adequacy assessment Programme
50) NAIS- National Agricultural Insurance Scheme
51) FSQ-Fraud Sensitivity Questionnaire
52) SME-Small & Medium Enterprises
53) INCOTERMS- International Commercial Terms

54) PURA-Providing Urban Amenities in Rural Areas.

55) EHTS- Electronic Hardware Technology park
STP-Software Technology Park
BTP-Bio Technology park
56) ASIDE- Assistant to States for Infrastructure Development of exports
57) OSMOS- Off site monitoring System
58) CART- Credit Appraisal and Rating Tool.
59)FSI-Fraud Sensitivity Index.
60) FETREM-Foreign Exchange Transactions Reporting Through Electronic Medium
61)ICTS-Inter City Transactions settlement account
62)EPR-Electronic Product Reconcilation account
63)MCPR-Multi city Cheques paid and reimbursement account
64)ACABC-agri clinics &agri Business centres
65) CTR-cash Transaction Reports
66) STR-suspicious Transactions Report
67) CIR-credit Information report
68)SRIP-System of Reporting an Irregular Practice
69) STRIPS-It is a Debt Instrument—Separately Traded Registered Interest and
Principal Securities.
70)RTP-Reserve Tranche Position (in IMF)

Prepared by R.Vijayaraghavan May 2010 127

RATE OF INTEREST FOR DOMESTIC&NRO DEPOSITS( SB -3.50% p.a)
PERIOD 15.03.10
Up to
Rs25 lacs
7 D-14D( 1 la 2.50
15D-29 D 2.50
30 D-45 D 3.00
46D-60 D 3.50
61 D-90 D 3.50
91 D-120 D 3.50
121 D-179 D 4.00
180 D-269 D 5.50
270D-L 1Year 6.00
1Y- L 2 Y 6.75
2Y- 3 Y 6.75
A 3Y-L 5 Y 7.25
5Y & above 7.50%
Vardhan Scheme for Sr Citizens-Addl Int 0.75%- for deposits up to10 Years.-not
exceeding Rs 25 lacs. IOB Tax saver-7.50%
RATE OF INTEREST FOR NRE DEPOSITS( NRE SB-3.50% P.A WEF 18.11.05)
PERIOD Apr 10 Gold Notional Rates-17.09.09-per gram
1 Y-l 2 Y 2.67 Gold Bars 1700
2 Y-L 3 Y 2.99 Gold Deposit 1750
3 Y-L 5Y 3.59 Gold D Loan 1700
Advances against gold ornaments- advance rate per gram
JLO-Wef AJL/Staff -24.01.07 JLO/AJL/Staff-11.03.09
07.12.2009 Ordinary Hall marked Ordinary Hall Marked
20&21 carat Rs 900 900 900 900 900
fineness
22 carat fineness Rs 1050 1050 1100 1050 1100
(should not remain overdue for more than 90 days-To be repaid with in 12 Months-
Loan O/s should be less than 80% of market value)

IT rates-2009-Edu cess-3% SC above Rs10 lacs-10%

Slab Others women Sr citizen
Up to1,60,000 Nil Nil Nil
Ab160000-3 lacs 10% Ab1.90L-3L- Ab-2.35 L-3 L-10%
10%
Ab 3 lacs-5 lacs 14000+20% 11000+20% 6500+20%
Ab 5 lacs 54000+30% 51000+20% 46500+30%

SCHEMES DISCONTINUED:
Agri Bike, Personal Loan, Alankar and Subha yatra.

NEW TRANSFER PRICE MECHANISM: From April 09

All Deposits-8.00%
All Advances-9.00%
Agricultural advances-5.00%

Prepared by R.Vijayaraghavan May 2010 128

PRODUCTS:

GOLD RECURRING DEPOSIT SCHEME

Value addition to the RD/Easy deposit customers( Bank Portfolio- less thanRs400
crores in these schemes)
RD/Easy deposit customers can get Gold coins , equivalent to the maturity amount
of such deposits .Min Rs250/- in multiples of Rs 50/-pm
Period-Min 12 Months, Max-24 Months
RD-Int compounded quarterly
Easy Deposit- Int calculated every six months as in case of SB deposit(Min Bal
method-10th and last day bal)
Delayed pay charges-RD- Rs1.50 for Rs 100/- per month
EASY-Min 10 instalments during a year, failing which Rs 10/- per year will be levied.
Min Maturity value should be equal to or more than the price of 2 grams of gold coin.
The price for gold coins will be as prevailing as on the date of mat of RD/EASY .
Concession of Rs25 pergarm. Rs 1 lac free accidental Insurance cover.
IOB- CD CLASSIC
1. Name of the scheme: ” IOB- CD CLASSIC “
2. Target group: Proprietary concern, Partnership firm, HUF, Limited companies,
corporations, SMEs, Trusts, Societies, clubs, Association, Local Bodies, Govt.
Departments subject to RBI directives
3. Type of deposit: Current account.
4. Minimum balance requirement: The average daily balance in the account over
the last three months should not be less than Rs.1 lac.
5. Special features / concessions:
a. Internet banking ,e mail and SMS alerts, anywhere Banking
b. Transfer of funds thro’ NEFT free.
d. Personal accident Cover for Rs. One lac free of cost.
e. Waiver of D.mat account opening charges.
f. International Debit Card without charges to all employees and owners.
g. Online Tax payment facility
h. Customised Multi city cheques issued at MICR enters at 50% concession.
i. Name printed cheque books with free of cost up to 100 leaves.
j. Issue of Demand drafts @ 50% concession.
k. Folio charges @ 50% concession.
l. Outstation cheque collection charges @25% concession.
m. Transfer of funds thro’ RTGS @ 25% concession.
n. Utility Bills payment facility
Prepared by R.Vijayaraghavan May 2010 129
o. Online trading facility
p. PAN and TAN facilitation facility
q. Salary and incentives payment facility to Companies/firms etc. – single debit and
multiple credits.
IOB- CD SUPER *
1. Name of the scheme: ” IOB- CD SUPER "
2. Target group: Proprietary concern, Partnership firm, HUF, Limited companies,
corporations, SMEs, Trusts, Societies, clubs, Association, Local Bodies, Govt.
Departments subject to RBI directives
3. Type of deposit: Current account.
4. Minimum balance requirement: The average daily balance in the current account
during last three months should not be less than Rs.5 lac.
5. Special features / concessions:
a. Internet banking ,e mail alerts, sms alerts, anywhere banking
b. Transfer of funds thro' NEFT free.
d. Personal accident Cover for Rs. Five lacs free of cost.
e. Name printed cheque books free of cost.
f. Customised Multi city cheques issued at MICR centres free.
g. Waiver of D.mat account opening charges.
h. Folio charges free.
i. International Debit Card without charges to all employees and owners.
j. Online Tax payment facility.
k. Transfer of funds thro' RTGS @ 50% concession.
l. Issue of Demand drafts @ 50% concession.
m. Outstation cheque collection charges @50% concession.
n. Utility bills payment facility.
o. Online trading facility.
p. PAN / TAN facilitation.
q. Salary and incentives payment facility to Companies/firms etc. – Single debit
and multiple credits.

Prepared by R.Vijayaraghavan May 2010 130

 IOB- SB SILVER - I
1. Name of the scheme: 'IOB- SB Silver'
2. Target group: Individuals including those employed in reputed companies,
among Software, Public /Private sector, Govt.
3. Type of deposits: Savings Bank account.
4. Minimum balance requirement: While opening the account, the account can be
opened with '0' balance. The account provides certain concessions and in order
to be eligible for the concession, average daily balance in the account during the
last three months should not be less than Rs.5,000.
5. Special features / concessions:
a. ATM cards on day one
b. International Debit Card without charges.
c. Internet banking (E see banking).
d. Monthly account statements over E-mail
e. SMS alerts for daily transactions.
f. Transfer of funds thro' NEFT free of cost
g. Personal Accident insurance cover of Rs. one lac free of cost.
h. Anywhere Banking in CBS/TBA branches.
i. ATM usage at any Bank free.
j. RTGS free of charges.
k. Online Tax payment facility.
l. Overdraft facility up to one month salary in case of salary earners.
m. Utility Bill payment facility – Rent/school fees/college fees/ donations/ IOB credit
card bills/utility bills/ Telephone bills
n. Facility for family Health Insurance – IOB-healthcare Plus.
o. PAN / TAN facilitation
IOB SB Silver II-
with all the facilities as above+ Liquideposit facility
Qrly avg balance to be maintained Min-Rs25,000/-.when the balance exceeds
Rs35,000/- will be swept to Deposits in units of Rs2,000/-)

Prepared by R.Vijayaraghavan May 2010 131

IOB-SB GOLD - I
1. Name of the scheme: ” IOB- S.B. GOLD "
2. Target group: All individuals including professionals such as doctors, lawyers,
C.A.s; Executives working in MNC, software companies, Public/private sector
and business people, High Net Worth individuals, CEOs, IAS and IPS.
3. Minimum balance requirement: The average daily balance over the last three
months should not be less than Rs.50000.
4. Special features / concessions:
a. ATM cards on day one
b. International Debit Card without charges.
c. Internet banking (E see banking).
d. Personalised Multi city cheques issued at MICR centres free.
e. Monthly account statements over E-mail
f. SMS alerts for daily transactions.
g. Transfer of funds through RTGS without charges.
h. Transfer of funds thro' NEFT without charges
i. Facility for automatic transfer of balance over a prescribed limit of Rs.50,000in
S.B. account to term deposit account and retransfer to S.B. ( Liquideposit fa-
cility under SB Gold-II).
j. Personalised cheque books with name printed free of cost.
k. Personal Accident insurance covers of Rs. Five lacs free of cost.
l. Anywhere Banking in CBS/TBA branches.
m. Preferential rate for gold coins.
n. ATM usage at any Bank free
o. D.mat account opening charges free
p. Online Tax payment free of charge.
q. Facility for family Health Insurance – IOB-healthcare Plus.
r. PAN / TAN facilitation
s. On line bill payment
IOB SB GOLD II-
with all the facilities as above+ Liquideposit facility
Qrly avg balance to be maintained Min-Rs1,00,000/-.when the balance exceeds
Rs1,25,000/- will be swept to Deposits in units of Rs2,000/-)= the following
additional facilities- Overseas Travel Card free of charge )

Prepared by R.Vijayaraghavan May 2010 132

ON LINE TRADING THROUGH MF GLOBAL:
Man Financial, the brokerage division of Man Group plc. has become an indepen-
dent corporate entity known as MF Global. MF Global will continue as a leading
participant in the major securities and futures exchanges world-wide, providing inter-
mediary and matched principal broking and other related services to a huge existing
client base. For the world leaders in Futures & CFDs, this will be a step into the fu-
ture.

E PAYMENT OF DIRECT TAXES AND INDIRECT TAXES:

collection of direct taxes and indirect taxes(cbec) over internet. Customers (Both
Corporate and Individual)can make payment of Direct and Indirect taxes through in-
ternet.
SAMPOORNA:-
A innovative Rural Development Project aiming at Total Village Development .
Village adoption scheme with financial inclusion.The project earlier implemented in
Koothampakkam and Padur in Thiruvallur District had brought about overall socio
economic development of the villagers. It aimed at bringing about Total village de-
velopment, right from providing overall health care and hygiene for the villagers to
empowering the youth with special skills. Training the youths on Business Process
Outsourcing is a special feature of the project. It is planned to implement the project
in at least 100 villages across the country. Bank would utilize the Technology Sup-
port System and the villages would be developed on a scientific Strategy. IOB Sam-
poorna comprises of the following credit and non credit components
1. IT enabled banking operations with bio-metric smart cadrds through Business
Correspondent model.
2. Tree planting and social forestry.
3. .Cleaning Water bodies.
4. Health care.
5. .Skill training for youth in Computer and BPO.
6. rural Business Process Outsourcing.
7. Promotion of non conventional energy.
IOB SME ADVANCE TERM LOAN SANCTION SCHEME
To facilitate SMe borrowers to procure the new/additional machinery with out delay
or hassle.It is stand by credit facility . Borrower is required to make an advance esti-
mate of the term loan requirement for purchase of machinery during the next one
year and apply for the same at the time of submission of renewal proposal.Quantum
of limit: 10% of original cost of existing plant and machinery or cost f machinery to
be purchased less margin or Rs25 lacs which ever is least.wherever the amount has
already been incurred, the advance could be granted by way of reimbursement also.-
To be covered under CGTMSE for eligible accounts.

Prepared by R.Vijayaraghavan May 2010 133

IOB INSTA INVEST:
On line trading facility for shares , commodities in tie up with Man Financial and Sify
Securities Pvt Ltd.

OVERSEAS CASH: Launched on Sep 06-pre paid Foreign Travel card Replaces
Foreign currency TCs-in USD (presently) –it is a prepaid, stored value card
supported by magnetic strip band, with 16 digit card no.usable at ATMs and POS. It
has an expiry date. No interest will be paid on the credit balance. Can not be used in
India, Nepal and Bhutan.

IOB TAX SAVER

New Term Deposit Scheme-Tax Saving under 80 C of It Act 1961.Maximum
investment eligible for deduction under 80 C-Rs 1 lac- Minimum Deposit Rs10,000/
Max Rs 1 lac-Minimum period 5 years-Maximum period 10 years--.Sr Citizen add
lint is payable.. Addl interest of 1% applicable to Staff is payable on Staff deposits-
Personal accident Insurance Cover up to Rs 1 lac-premium will be borne by the
Bank.- Deposits in the name of Individual or in the name of Karta of HUF- Tax
benefits to the first named in case of joint accounts-Deposit receipt should contain
PAN No and signature of the Depositor-Deposit cannot be pledged-cannot be closed
before maturity. Interest is subject to Tax- TDS as per IT rules-GL 1069

NRI SHIELD
Provides Insurance cover for NRIs and their families when on a visit to
India.Maximum cover Rs 50 lacs- Age-5 years- 65 years. Covers available for the
actual period of visit to India, not exceeding 180 days. Insurance cover includes
Personal accident, Partial and total disability, loss of baggage and passport
Plan A-sum assured Rs1 lac to Rs50 lacs. Covers personal accident,, loss of
package and passport, delay in receiving checked in paggage, fire and other perils
for house property in India.
Plan b- Health Insurance cover –Rs50,000-Rs5 lacs.

FINE GOLD
Retail sale of gold coins(Ap 2006). Bank has launched its bullion business on 20 th
Nov 1997, -Gold Deposits, Demand Gold Loans, Consignment sale of gold.
To augment fee based income, to improve brand image, to expand clientele base, to
provide additional investment option to customers-Retail sale of gold coins launched.
available in 4,8,20,50,100 grams tamper proof certicards.(duly assayed)
Fineness-999.9
A concession of Rs25 per gram over the card rate for staff members-for purchase of
4 grams and eight grams coins only-Maximum amount per A/c year-Rs1 lac-to be
made through staff account –only for personal use.

IOB VISA INTERNATIONAL CREDIT CARD

IOB Visa International Credit Card(Classic and Gold) in affiliation with Visa
International wef 01.04.06.. Valid not only in India and Nepal but also through out
the world.
Branches on receipt of application should assign application serial number (9 digits-
Two parts-I part- 4 digits-Branch Code, II part-5 digits serial no starting from 1001).
Two billing Cycle-10th-30th-5th of next month, 20th-10th-15th
Vendor-Yelamanchili Consultancy services (p) ltd, Sakthi Towers, Floor II, 766, Anna
Salai, Chennai- 600002
FEATURES
Prepared by R.Vijayaraghavan May 2010 134
Payment in instalment is possible.
Add on card facility available. Maximum-4
Reward points for usage
Life time free card
Insurance cover for death on account of accident
Spouse insurance
Baggage insurance-up to Rs25,000/-( for inland travel)
Cash withdrawal through VISA ATM net work all over the world.
Classic-Rs10,000,Rs25000,Rs50000
Gold Cards-Rs60,000,75000,1 lacs&5 lacs
Photo embossing-Addl photo required-+Rs100 chargeable.
Value addition-Purchase protection- Rs 25,000/- up to 30 days
Personal accident Insurance cover
Death due to Gold Card Classic
a. Road /Rail accident
Self 2 lacs 2 lacs
Spouse 1 lac 1 lac
b.Air crash
Self 10 lacs 4 lacs
Spouse 2 lacs 2 lacs

IOB JEEVAN

A value addition product for our Customers-Group Life Insurance Scheme with LIC-
cover all individual SB/CD a/c holders of our Bank aged between 18-55 years-Life
Cover Rs1 lac-Premium payable annually-period-July to June. Corporate agent
commission 25% on premium+Rs33 from a/c holder. Premium depending upon the
age nearer to Birth day on the date of joining. Subsequent premium depends on the
age nearer to birth day on the annual renewal date viz 1st July every year.
No medical examination. Income tax benefit for the premium paid under 80C .
Premium collected should be sent by IBSA to RO every month.
JOINT VENTURE WITH UNIVERSAL SOMPO GENERAL INSURANCE CO LTD

Our bank is a part of joint venture Non Life Insurance Co-USGI-(Other partners-
Allahabad Bank, Karnataka bank, Dabur Investment and SOMPO Japan Insurance
Inc.) with an equity holding of 19%. Corporate Agency arrangement for covering
Non life Insurance business starts from 20.12.08.

IOB HEALTH CARE PLUS-( New Scheme) In association with Universal Sompo
General Insurance Company Ltd—covers a/c holder, spouse and two dependent
children-( Male children-21 years-Female children-25 years or marriage which ever
is earlier)-Parents of the account holder also covered by paying additional premium-
.Maximum age for entry is 65 years- continuous renewals can be made till 80 years-
Minimum age for entry into scheme-3 months- minimum floater cover for the family –
Rs 50,000- Maximum Rs 5,00,000/- - premium payable every year from the date of
joining the scheme.- Pre existing diseases would be covered after 3 years
continued no claim policy years. – Covers NRIs also- for treatment in India-
Corporate agent commission for the Bank 15% on premium + Rs55 from a/c holder..
Income tax benefit for premium paid –under 80 D .
Inclusion of spouse or children can also be done at the time of renewal- dependent
son -exceeding 21 years of age, daughter –exceeding 25 years of age not eligible .
Dependent daughter if married not eligible, Parents exceeding 80 not eligible).
Prepared by R.Vijayaraghavan May 2010 135
Personal Accident Insurance Death benefit(optional) for the family is available on
payment of additional premium.
IOB SHG FAMILY INSURANCE:

1. Members of SHG having account with us.

2. age 18 Years to 59 Years
3. Yearly premium Rs200/-(Member share-Rs100)Balance
by Central Govt. –to be paid for a minimum 500 members
once a month.
4. additional premium Rs40/- to cover Husband.
5. Period of cover-1 year.
6. Natural death cover-Rs30,000/-Accidential death-
Rs75000, Permanent disability-RS75,000/-Husbands
death-Rs10,000/-

MUTUAL FUND PRODUCTS

As Corporate agent IOB is having arrangements ,to sell the products specific , with
the following MFs

Sundaram Mutual Fund

Principal PNB Asset Management.
TATA Asset Management Ltd ( Tata Tax advantage fund)
Chola mutual fund-(Chola Contra Fund)
Kotak Mutual Fund(Kotak Life style)
Franklin Templeton Asset Management India Pvt Ltd
UTI Asset Management Company Pvt Ltd.

MULTI CITY CHEQUES-- Eligibility of customers :-

• All Individual/Corporate customers of the Bank maintaining SB/Current
Account / Cash Credit accounts with the Bank’s branches

• The operations in the account of the customer must be Satisfactory. The

application should be forwarded by the Branch with recommendations to
Regional Office.Sanctioning authority-RO.
Features:
• Distinctly designed with the Bank’s Building as Backdrop and printed on top
right corner as Multi City Cheque.

• Personalized by the Bank at the time of issue with details like A/c number,
Name of the company, Authorized signatory designation, Name of the branch
( with branch code).

• Separate series allotted for this cheque facility.(MC/SB – MC/CA – MC/CC )

• MICR band will have only Bank code (000020000).

• Transaction Code on MICR-CD-29,CC-30

• Cheques are issued to ORDER only.

• Payment :

• No cash payment is allowed.

Prepared by R.Vijayaraghavan May 2010 136
 • Where more than one branch is situated, Regional Office will designate One
branch as the Facilitator Branch who will make the payments for the particular
centre.

• Payable in both ONLINE and OFFLINE mode.

• Maximum amount- CD-Rs10 lacs, , CC/SB-Rs5 Lacs

• Putting an end to the time consuming conventional cheque collection process.

• Payees at other centres can receive payment through networked branches of

our Bank in local clearing.

• ICTS entry to be eliminated with in 5 working days

• Features- Payable to order only, MICR band will have only Bank code
000020000, No cash payment,

• Service Charges-Minimum 50/100 leaves in book form –Rs2.50 per leaf

In computer Compatible continuous stationery print Minimum 1000 leaves-Rs10

per leaf, more than 1000 leaves-Rs 8 per leaf(to be recovered at the time of
request-no refund is possible)

VIDYA SURAKSHA

Student welfare Scheme-Insurance product for uninterrupted education. Life

Insurance scheme, designed for the students studying in Degree/ Professional
Colleges. The Scheme is designed to provide life cover for the student and the
Parent( Father/Mother). The Insurance cover of parent will enable the student to
have unhindered education, in case of any adverse eventualities. The Scheme will
be under Master policy and through Educational Institutions. Vidya Jyothi with
Suraksha Scheme can take care of the Premium, by including the same in the
loan amount. While Vidya Suraksha can be sold through Educational Institutions
only, Vidya Surakasha with Jyothi will cover our Educational Loan Borrowers and
their parent.Student age- over 16 years-Parent age 50years(Maximum maturity age
for the parent 60 years)Maximum cover Rs10.00lacs(inland studies) Rs20
lacs(foreign studies)-Premium to be sent to CO directly

LIABILITY INSURANCE FOR RETAIL LOANS

In association with LIC. Value addition to our Housing and other Retail loan
schemes(Where mortgage of property is involved)-Mortgage Redemption Assurance
Scheme
-18-59 years of age ( existing as well as new-Existing to join the scheme
before15.03.2006). Single premium to cover the entire duration of the loan is payable
up front at the time of disbursement of the loan. Premium to be loaded on the loan
amount and recovered in EMI-( option is available to Borrower to pay the premium
separately)Premium depends on Age, Loan amount and repayment period. In case
of death of the Borrower LIC will pay the outstanding liability as per repayment
schedule. Tax benefits as applicable under IT act.

Prepared by R.Vijayaraghavan May 2010 137

 In case of Joint Borrowers First named Borrower’s life is covered.
Maximum maturity age is 65 years.-Minimum Period 3 years-Maximum cover –Rs50
lacs or Sanctioned limit or outstanding liability whichever is lower.
1.No Medical exam- only declaration of good health-loan upto Rs10 lacs-age up to
45 years& Loan upto Rs 5 lacs-age 46-50 years.
2.Above Rs10 lacs-up to 45 years and above Rs5 lacs-46-50 Years up to Rs20 lacs-
Only a simple Medical Report is required.( No special reports)
3. Above Rs20 lacs-Medical exam by Divl Medical examiner of LIC with Special
reports.
In case of foreclosure-proportionate premium refund by LIC.
Service Charge-Rs55 per applicant.
Corporate agent commission-10% of premium collected.

EASY TRADE FINANCE:

Ind/Prop/Partnership in Retail Trade. Pvt Ltd Co,Working Capital+Term Loan

Minimum-Rs1 lac
Repayment- TL-48 EMI, CC-to be renewed every year.
Metro, Urban, Maximum-Rs100 lacs, SU-Max Rs 50lacs,Rural-Max Rs10 lacs
Margin on Security-Liquid assets-Life Policies,TDs-10%,KVP-20%,Immovable
property-Urban/Metro-30%
Immovable security value on loan amount-Urban/Metro-143% of loan amount,SU-
167%,R-200% of loan amount
SU-40%, Rural-50%( Max loan should not exceed the FSV- Margin)
Periodical submission of Stock Stt/Financial Stt not insisted)
GL-CC-4145,TL-4146
Term Loan-75% of invoice amount
WC-25% of TO

INSTA REMIT:
IOB offers, Insta Remit, a remittance solution in RTGS to both Corporate and
Individual Customers for transfer of funds from their accounts with and to Customers
of other Banks which are RTGs enabled. Similarly, IOB customers can also receive
funds from RTGS enabled Bank Branches –Customers . Customers to provide IFSC
code( a number allotted to each participating Bank Branch) of the Branch where the
funds are to be transferred along with details of beneficiary name a/c no etc.
A web based remittance product.(in addition to Xpress Money Service and Money
Gram)

ELECTRONIC MONEY TRANSFER

Web based remittance products
EZ Remit- Under arrangement with BFC Forex & Financial Services Ltd(promoted
by Bahrain Finance CO

Money Gram –Under arrangement with UAE Exchange & Financial Services Ltd

X press Money Service- Under arrangement with Xpress Money service.

Ffor remittance from UAE, thro select private exchange House.

Besides existing on line Remittance products, Money Home and e cash home one
more value added service- The remitter in UAE should go to select Exchange centre
Prepared by R.Vijayaraghavan May 2010 138
in his country . The remitter is provided with X pin No. The beneficiary has to submit
RN form( receive now) to the designated Branches for claiming the amount and shall
prove his identity by producing Photo identity . No charges to beneficiary. Trade
related remittances/remittances towards purchase of property , investments or credit
to NRE/FCNR a/cs, donation/contribution to charitable organization are not
permitted.
Single Remittance-Max-USD 2500/-
Not more than 12 remittances per beneficiary in a year.
Payment in IRS- payments of Rs50,000 and above- by DD/BC/account( exceptional
cases for foreign tourists higher amount may be paid in cash.)
FIRC should not be issued to beneficiary./recipient
MONEY HOME: ( Lock Box facility launched in May 2003) Lock Box service to NRIs
and others in US. Deposit slip and the cheque to be mailed to our Mail Box in USA.
Money reaches home in 5 working days, from the date of clearing. Instruments of
value up to USD 2000 will be cleared

e- Cash Home : ( Launched in April 04)The most efficient way to remit money to
India ( from USA only at present). Remittance proceeds can be credited not only to
our Customer accounts but also to accounts with other Banks. Maximum amount of
remittance for the time being-USD 5,000/ per Month.- Log in facility will be available
to the remitter 24 Hours and 365 Days. On line status tracking facility is available to
the remitter to know each stage of the process till final credit. When the remitter
authorizes the debit through his bank account the debit is carried through
Automated Clearing House( ACH) platform in USA and our NOSTRO account is
credited.
Credit effected with in 5 working days.

GOLD DEPOSIT SCHEME- (FX/76 DT.28/4/2000)( Branches to obtain prior

permission from PMS Section before accepting fresh deposits in gold, irrespective
of the quantity)-Scheme suspended-08.02.07-Acceptace and renewal of deposits
under Gold deposit scheme suspended

SENIOR CITIZEN’S SAVINGS SCHEME-2004

 Govt. Scheme
 Tenure 5 years. Can be extended by 3 more years.
 Interest Rate – 9% annum
 Maximum amount Rs.15 lacs (in multiples of Rs.1000)
 Minimum Age is 60 years (for VRS 55 years)
 Premature withdrawal available after one year with penalty.

OPS-SCHEME FOR FINANCING OF DISTRESSED URBAN POOR

 Urban poor include those who are below poverty line /members of SHG/Joint
Liability Group
 Loan-Max Rs5,000/-in Municipal Areas, and Rs10,000 in Corporation areas or
actual debt burden whichever is lesser.
 Loans to be classified under Advances to Weaker sections .
 To repay their debt to Non Institutional Lenders against appropriate collateral or
group security. Loan liability to Non Institutional Lenders should not exceed Rs
5,000/- in municipal and Rs10,000 in corporation areas.
 Joint Liability Group- is an assembly of 5 (4-10 )members from the same socio
economic background/environment informally registered as a group and
recognized by the Bank.
 Definition of SHG
Prepared by R.Vijayaraghavan May 2010 139
SHG is a homogenous group of rural poor, voluntarily formed to save small amounts
out of their earnings, which is convenient to all the members and agreed upon by all
to form a common fund/ corpus of the group to be lent to the members for meeting
their productive and emergent credit needs.
 Should be a resident of urban area for at least 3 years
 Identification of beneficiaries based on the recommendation of SHG and in
coordination with the civic bodies/women development corporation.
 Security-Group guarantee of SHG/JLG members.
 Rate of interest-BPLR-2%
 Repayment-Maximum 60 Months.
 Poverty Line- Rural-Rs307.64 per capita Income, Urban-Rs475.60 per capita
Income
HOUSING FINANCE-NEW CREDIT CUM SUBSIDY SCHEME FOR RURAL
HOUSING.

• W.E.F 01/04/1999
• Annual income-Rs 32,000/-
• 60% -should be utilized for SC/ST/Bonded labour.

• 20 KM away from Metro/Large towns, 5 Km away from small/medium towns.

• Subsidy share-75: 25:central: state

• Ceiling of subsidy-Rs 10,000/-per household.

• Upper limit for loan-Rs 40,000/-Per household.

SCHEME FOR FINANCING FARMERS FOR PURCHASE OF LAND FOR AGRI

PURPOSE
• Maximum loan-Rs2 lacs-RM discretion
• Eligibility-Small and Marginal Farmers-Maximum 5 acres Non irrigated land
2.50 acres irrigated land, including land purchased under the scheme, Share
croppers, and Tenant farmers.
• Margin-Minimum 20%, Security-Land
• Quantum-Depends on area of land and valuation of land-(to be cross checked
with 5 years average registration value)
• Reapyment-7-10 years Half yearly/yearly instalment-Moratorium-Max 24
months
• NABARD refinance-90%

MCC FACILITY AGAINST IMMOVABLE PROPERTIES

• For borrowers may not have adequate infrastructure to submit detailed financial
statements and stock statements. Also for borrowers who could submit financial
statements but could not submit stock statements to arrive at D.P.

• Margin 50% of the value of the properties.

Prepared by R.Vijayaraghavan May 2010 140

• In case of Trade based advances, sales tax assessment of the borrowing unit are
to be studied and accordingly suitable limits may be fixed as per VAZ committee
norms (Turn over method)

GOLD LOAN:

RBI ( Sep 05) has permitted banks to extend Gold( Metal ) loans to domestic jewelry
manufacturers who are not exporters of Jewelry
1. The tenor of the gold loan should not exceed 180 days
2. Int Linked to International Gold Int rate
3.Subject to normal reserve requirements
4.Subject to Capital adequacy and other prudential requirements.
5..End use to be verified
6..Bank’s overall ceiling , in respect of aggregate Borrowing for non export
purposes-25% of Tier -1 Capital should not be exceeded for any Gold loan
Borrowings by the Bank.. Gold loan extended to exporters of Jewelry would
continue be out of the25% ceiling.
7. Minimum Quantity-5 Kgs in multiples of 5 kgs.
8.ROI-Gold PLR+Spread.

GOLD LOAN SCHEME

As per traditional Banking extension of credit facilities against Bullion and also
extension of credit facilities against the guarantee of other Banks is specifically not
permitted. RBI has permitted extension of gold loans to Domestic Jewelery Industry
in respect of Gold mobilized under Gold Deposit Scheme/and out of Imported Gold.
RBI has also permitted granting of such loans against guarantee of other Banks, to
enable customers of other Banks to avail of such metal loans.

• Need based-only Demand Loan not CC-Assessment by turn over method or by

balance sheet method or by cash budget method.

• Period- maximum- 180 days-

• Gold PLR-3.00%-Interest 360 days a year.

• Interest-cash margin-Gold PLR+1%, Deposit Margin-Gold PLR+1.5% Others-

+2%

• Documentation-Similar to FC loan.

• Sanction for Demand Gold Loan will be denominated in IRs.

• Actual lending rate Gold BPLR+ Term Premia +Risk Premia based on the risk
profile of the Borrower.
ADVANTAGE TO THE BORROWER
Low interest rate. Price of Gold Borrowed can be fixed at the time of sale of the
resultant Gold Jewelary. Hedging the price risk available. The Borrower can take
delivery of the Gold and pay at the time of sale.

Prepared by R.Vijayaraghavan May 2010 141

ADVANTAGES TO THE BANK: Gold loans-additional Revenue. Addl spin off
business at the time of closure. Opportunity to sell Gold. Hedging measure for our
Gold Deposit Scheme.

LOAN SCHEME FOR FINANCING TAX RETURN PREPARER

TRPS-Eligibility NIIT Certificate for TRP course
Quantum-Max-Rs1 lac

Repayment-36 EMIs-Moratorium-6 Months

Under OPS=P&SE

IOB TOOLS
SME Advances –MOU with MICO-BOSCH
1. All loans to be covered under CGFSMSE
2. Loan to eligible artisans for purchase of hi-tech power tools
manufactured by MICO-BOSCH.
3. Composite Loan-Max Rs50,000/-
4. Margin-Nil
5. For Group Loan Rs1 lac per group-Margin 10%
6. Application form SME
7. Repayment-36 EMI
8. No collateral
9. Processing charges-Nil
10. Guarantee fee of 1.50% and ASF of 0.75% of the limit to be borne by
the borrower.
11. SA- as per existing per borrower limit

LIQUIRENT-LOAN AGAINST RENT RECEIVABLES (Adv 505/14/11/2000) to

finance against rent receivables for the unexpired period of lease/tenancy. Maximum
of 75% of rent due and receivable for the un expired of lease/tenancy less TDS and
advance rent taken subject to a ceiling of 84 months rent receivables.(unexpired of
current lease should not be less than 36 Months)Processing Charges-
0.85%(Minimum-Rs1,130/-)

HOME DÉCOR SCHEME (Adv 491/26/9/2000) –To furnish the house/flat with
furniture, kitchen equipment, Air-conditioners, Room coolers, curtains, cots, sink,
bathtubs, showcase, cupboards, carpets etc. Applicants should be below 50 Years of
age. Quantum of loan depends upon the gross monthly income and security. Max
Rs 5 lacs. 5 times gross monthly income or 2 lacs which ever is less.If III party
guarantee is offered. 10 times the gross monthly income or Rs5 lacs which ever is
less , if collateral security equal to the loan amount is offered. Repayable in 60 Equal
monthly installments. No holiday period. Margin 25%on total cost of furnishing. The
margin may be kept in term deposits. Processing Charge 0.57%

HOUSING LOAN SCHEME- We have Subha Gruha Housing loan scheme, Home
Improvement Scheme, NRI Home Loan Scheme, Home Loans to close relatives of
NRIs and Home Décor Scheme.
SUBHA GRUHA HOUSING LOAN SCHEME-Minimum 3 years service or standing.
Age should not exceed 60 years.( to be repaid before 65 years) Margin-
20%(inclusive of cost of land). Repayment –Max 20 years. Maximum loan Rs 50

Prepared by R.Vijayaraghavan May 2010 142

lakhs. Repayment should not exceed normal retirement age of 60Years in case of
employed and 65 Years in case of Business and self employed category.

Depending upon the repaying capacity. Take home pay not less than 40 % of the
gross monthly income.
Obtaining Post dated cheques , for new and existing accounts mandatory (36
PDCs). Should be stated in the sanction endorsement. An irrevocable undertaking
letter to be obtained not to close the SB/CD a/c on which post dated cheque s are
drawn , until closure of HL account.( wherever Undertaking from employer is
available for recovery from salary /terminal benefits –post dated cheques need not
be obtained.
Fixed or Floating rate option . Minimum lock in period 3 years for floating rate option.
Pre Payment Charges-1% on O/S for loan closed prematurely or on such amount
remitted in excess of DP.
Rewriting Fee- 1% on O/S or DP whichever is higher for switching over to floating
rate option.
Fixed rate option-Maximum 10 years repayment period only.
Floating rate on Housing Loans- Spread over BPLR fixed at the time of sanction
remains through out the term of loan. Any variation in applicable rate of Interest can
occur only with the change in BPLR. The periodical revision of interest rate is
applicable to Fresh advances only. Minimum lock in period – 3 years – no migration
to fixed rate is permitted till 3 years-levy of 1% of the outstanding for loans prepaid
or amounts remitted in excess of DP. A rewriting fee of 1% of the outstanding or DP
which ever is higher is to be levied for those who opt for floating rate option after
31.03.04
Direct Housing Finance- Acceptance of post dated cheques (PDCS – 36 Post dated
cheques from new and existing Housing loan Borrowers- it is mandatory – should be
stated in sanction advice(F 568) – exceptions- Where ever Undertaking from
employer for recovery from Salary/ Terminal benefits is available)
Should maintain Salary account or business account . If not the applicant should
give irrecovable Standing Instructions to his present ban where salary account is
maintained. To transfer the entire proceeds of salary to our branch.
Processing Charges on all Housing Loans-1.50% of the loan amount-Max Rs
30000/-(wef 16.08.08).This is inclusive of service Tax and education cess.
Loans under Personal Segment:
Should maintain Salary account or business account . If not the applicant
should give irrevocable Standing Instructions to his present bank where
salary account is maintained, to transfer the entire proceeds of salary to our
branch SB account.

NRI HOME LOAN-Minimum 3 years continuous overseas service need not be

insisted.
1) Minimum monthly salary equivalent to Rs10,000 up to 20times of gross salary .
Maximum Rs50 lacs for construction and Rs5 lacs for repair and renovation.
Margin-20 % repayment-180 months /60 months. Repayment can be out of local
sources also.( by a close relative) Home Loan Scheme-NRIs- The repayment of
the loan installment/interest and other charges can also be made by close
relatives of the NRI borrower in India.

HOUSING LOAN SCHEME FOR HIGH NETWORTH INDIVIDUALS

Loan amount-Above Rs 50 lakhs up to a maximum of Rs 2 Crores( Loan above Rs
2 Crores can be considered by GM’S Committee). Margin –20% Repayment-10
years( up to 15 years can be considered by ED/CMD). Only fixed rate option is

Prepared by R.Vijayaraghavan May 2010 143

available. Discretion to reduce 1.5% to 2% vests with ED/CMD. Processing
charges-Rs11,300/-

SANJEEVINI SCHEME( Maximum loan-Rs200 lacs)

Scheme for Medical Practioniers
Max-Rs 200 Lakhs-Metro/Urban
Rs 50 Lakhs-Semi Urban
Rs 10 Lakhs- Rural
Working capital-20% of project cost
Repayment-5 to 7 Years
Margin-15% to 25%-For Equipments
25% to 30% -For Construction
Processing Charges 0.85% minimum Rs1130/- )

SUBHAYATRA- withdrawn

IOB AKSHAY-
In the form of DL/TOD/CC
Ready Money Against Insurance Policies(Endowment/Money Back/Postal life
Insurance/ Policies of IRDA approved Insurance Companies)
Margin-10% of SV
ROI -BPLR+0.25% Repayment-3 Years.

SISHU VIHAR YOJANA -Withdrawn

RETAIL GEM
Scheme withdrawn 15.09.05.Reintroduced wef Feb 06. Again withdrawn-Sep 07
IOB AGRI-BIKE SCHEME
Now included in Agri Transport.
IOB ROSHNI.
Scheme for financing LPG connection in rural areas. –Women between 18 to 55
years of age from Rural House holds-To pay deposit for LPG connection and
purchase of gas stove- Maximum of Rs5,000/- Margin-Nil.- to be repaid with in 60
Months in EMIs--ROI(BPLR-3%) floating

INSTA FUND
High net worth Corporate with continuous profit earning for past 3 years-Minimum
credit rating-A for all type of borrowers or borrowers rated LT 1 to LT4 as per
CRISIL ‘s Risk assessment model
To augment long term resources for working capital management /acquisition and or
refinance of fixed assets/prepayment of high cost loans etc( for any business activity
of the borrower)-Minimum of Rs5 Crore- Maximum of Rs 50 Crore-duration of
repayment- 3 to 5 years- Interest to be paid monthly .Principal to be repaid in half
yearly installments-Margin-Minimum 10% - Nil if all parameters are fulfilled-ROI-
BPLR+ tenor premium + risk premium- Current Ratio-Minimum 1.15 if loan is for
augmenting NWC 1.33 for all other cases
DER-2.5:1, DSCR-1.5:1

GOLD CARD SCHEME FOR EXPORTERS-IOB EXPO GOLD CARD-

Card will be issued by CSSD (CO) with in a period of seven days on
receiving complete particulars
enables faster sanction of credit limits on liberal terms including
concessional int

Prepared by R.Vijayaraghavan May 2010 144

 1. In principle limit for 3 years with facility to step up or down –stand in facility of
20% assessed limit
2. Preference in granting PCFC
3. Will be eligible for FC/Corporate credit cards
4. Exporters whose accounts are standard for the last three years with good
track record are eligible-credit rating A+ or A
5. Time limit for disposal of applications-Fresh-25 days, renewal-15 days0
adhoc-7 days
6. Gold Card Scheme should not be made available to those exporters who
are in Watch category, RBI defaulters/caution list, ECGC black list, making
losses in last 3 years, with overdue export bill in excess of 10% of previous
year .
7. WTPCG-premium to be borne by the exporters. WTPSG-By bank
8. Concession in Service Charges-10%

GOVERNMENT SPONSORED SCHEMES.

Of various Government sponsored schemes three prominent schemes are SHGs,

SGSY, and SJSRY.

1. SHG: Self-Help Group is a voluntary association of persons with common

interests. Its main objective is to improve the economic and social status of its
members with thrust on thrift and credit management. SHG plays the role of a
Development Bank in so far as making available small production/investment
credit to the poor for their economic up liftment.

2. SGSY: SWARN JAYANTI GRAM SWAROZGAR YOJANA. A new program

known as SGSY has been launched from April 1999 by the Government. The
program covers all aspects of self-employment such as organization of the poor
into Self Help Group, training, credit, technology, infrastructure and marketing.
SGSY will be funded by
The Central and the State Governments in the ratio of 75:25. With the coming in
to force of SGSY, the earlier program IRDP, TRYSEM, DWCRA, SITRA, GKY,
MWS are no longer in operation. SGSY will focus on the vulnerable groups
among the rural poor. Accordingly, the SC/ST will account for at least 50%,
women for 40% and disabled for 3%.
Maximum Age-60years-for availing group insurance coverage. Collateral
Exempted-Ind-Rs50,000/- Group-Rs5 lacs.

3. SJSRY: SWARNA JAYANTI SHAHARI ROZGAR YOJANA. The Government of

India has launched this rationalized poverty alleviation programmme in the year
1997. The new scheme is in operation with effect from 01.12.1997 in all urban
towns in India, This scheme replaces Nehru Rozgar Yojana, Urban Basic
Services for the poor (UBSP) and Prime Minister’s Integrated Urban Poverty
Eradication Programme (PMIUPEP). The scheme consists of two special
schemes.

a. The Urban self-employment Program (USEP).

b. The Urban Wage Employment Program (UWEP).

Among the other components of the scheme, the following are the two
components of USEP, where credits from Banks are involved.

Prepared by R.Vijayaraghavan May 2010 145

1) Underemployed and unemployed youth whose annual family income is below
poverty line and with Assistance to individual urban poor for setting up gainful
self-employment ventures. education up to 9th standard shall be assisted with
Banks loan and subsidy. Project cost up to Rs.50,000/-are to be financed with a
maximum subsidy of Rs.7500/- and a margin of 5%.
2) Development of Women and Children in Urban Areas. (DWCUA). The program
envisages special incentive to Urban Poor Women who decide to set up self
employed ventures in a group. They may take up any economic activity suited to
their skill, learning aptitude and local condition. The group should consist of at
least 10 persons who will be entitled to a subsidy of Rs.125000/-or 50%of the
cost of the project which ever is less. Every effort will be made to encourage the
group to set itself up as a thrift and credit society. The percentage of women
beneficiaries under SJSRY scheme shall not be less than 30%.

PMEGP- Prime Minister’ Employment Generation Scheme:

1. PMRY & REGP merged.
2. Central Sector Scheme by Ministry of MSME.
3. The Govt subsidy will be routed through KVIC.
4. To generate employment opportunities in Rural as well as Urban
areas.
5. Max project cost in Manufacturing sector is Rs25 lacs, and in
Business/Service sector is Rs 10 lacs.
6. Quantum of subsidy ranges from 15% to 35%
7. Repayment schedule -3 to 7 years after an initial moratorium
period.
To cover rural as well as urban-No income ceiling – For setting up project above
Rs10 lacs in the Manufacturing Sector and above Rs 5 lacs in the
business/manufacturing sector, the beneficiaries should possess atleast Min VIII std
passed qualification.
Age- above 18 Years
ROI- Normal
SHGS also can be financed under PMEGP.
Quantum of Assistance
Category Beneficiary’s Rate of Subsidy(of project Cost)
Contribution (of
project cost)
Area(location) Urban Rural
General Category 10% 15% 25%
Special(including 25% 35%
SC/ST/OBC/Minorities/Women/ 5%
Ex-Servicemen/Physically
handicapped/NER/Hill and
border areas

Rural Area:1. as classified in Revenue record irrespective of population

2.It will also include any area, even if classified as Town, provided its
population does not exceed 20000 persons.

SWAROJGAR CREDIT CARD SCHEME:

It is new Credit Card facility for Fishermen, Rickshaw owners, Self employed
persons, etc. The Scheme has been prepared by NABARD and approved by Ministry
of Finance. The scheme aims to provide adequate and timely credit ie Working
Prepared by R.Vijayaraghavan May 2010 146
Capital or Block capital or both to small artisans, Handloom weavers, Service sector,
fishermen, self employed ,rickshaw owners , other Micro-entrepreneurs etc. from the
Banking system in a flexible, hassle free and cost effective manner. The facility may
also include a reasonable component for consumption needs. The facility would be
in the nature of a Composite loan including term loan/revolving CC. The term loan is
repayable with in 5 years. Ceiling per borrower for composite loan is Rs 25,000/-
.The SCC would be valid for 5 years. Fees towards issue of card/ card processing
should not exceed Rs 50/-The beneficiaries under the Scheme would be covered by
the Group Insurance scheme and the premium would be shared by the bank and the
Borrower equally. A target of 40 lakh cards to be achieved before the end of Tenth
five-year plan.

IOB’S ARTISAN CREDIT CARD SCHEME-All artisans and existing artisan

borrowers who are having satisfactory dealings with the Bank are eligible.
Maximum credit limit under the Scheme-Rs2 Lakhs. Limit will be utilized as a
revolving Cash Credit. Margin –as per RBI Norms. (NIL margin upto Rs25,000) .
Card is valid for 3 Years. Submission of Stock statements and other financial
statements waived.

REVISED KCC SCHEME

NABARD has revised the scheme.
1) To meet investment and credit requirements of farmers.
2) To cover term loan for agriculture and allied activities( including short term credit
needs and a reasonable component for consumption needs)
3) Would be in the nature of Term Loan and revolving cash credit for agriculture and
allied activities.
4) Banks may fix the quantum of credit for Term loan and working capital limit for
agricultural and allied activities etc, based on the unit cost of the assets
proposed to be acquired , allied activities already undertaken , the Banks
judgment on the repaying capacity.
5) The working capital/ recurring expenditure limit in the form of revolving cash
credit.
6) Banks may at discretion build in a component of consumption credit keeping in
view family labour ,while fixing overall ceiling.
7) The total limit would be related to the projected net earnings and the repayment
capacity of the borrower.
8) Security, Margin and Rate of Interest-as per RBI /NABARD stipulations.
9) Repayment-Short term credit/Revolving CC-repayable in 12 Months. Term Loan-
Max period-5 years
10)Validity of KCC-5 years.
11)NABARD refinance- Short term credit—Only to Coop Banks and RRB
Term loan Component-Coop ,RRB, commercial Banks under ARF scheme
Consumption Credit-Nil refinance.

VARADHAN SCHEME:
1) For individuals who have completed 60 Years of age
2) Joint accounts allowed
3) Age proof-SSLC/LIC/VOTER CARD/PPO/PASSPORT/BIRTH
CERTIFICATE/DRIVING LICENSE
4) Minimum Rs5,000/- Term, RD-Rs100/-
5) Minimum-15 Days-Maximum-120 Months
Prepared by R.Vijayaraghavan May 2010 147
6) IN case of deposit upto Rs5 lacs- no foreclosure charges( int to be paid at
applicable rate including SR Citizen Rate, Dep Rate for the period run+0.75%)
7) Foreclosure -Above Rs5 lacs- 1% less than the applicable rate( addl 0.75% for
vardhan –not allowed)
VALUE ADDITIONS:
1) Free ATM/ABB card
2) Collection of ODB-RS 10,000/- per Month-Max-2 Instruments per Month
Not applicable for NRIs
ADDITIONAL INTEREST: 0.75% extra int.-Up to Aggregate Deposit of Rs 25 Lakhs

IOB CROWN

Our Bank’s Core Banking solution- IOB Crown-A Centralized Resources Over wide Area
Net Work -–Our In House Core Banking Software Package.

AGRI BUSINESS CONSULTANCY SERVICES (ABC SERVICES)

The ABC Services offers consultancy for Hi-Tech projects in Agriculture, Horticulture,
Allied
Activities like Dairy, Poultry, Agro Processing, and Agro Forestry etc.

The scope of services includes the following:

Feasibility Studies, Preparation of Detailed Project Reports, Project Appraisal,
Market Research, Monitoring & Evaluation Studies.

PRIORITY SECTOR

SELF EMPLOYMENT SCHEME FOR REHABILITATION OF MANUAL SCAVANGERS

(SRMS)

Eligibility: Each Scavenger or his/her children who are 18 years of age and above, who are
not employed.NS FDC or other identified agency will provide interest subsidy to Banks thro
State channelising agencies(SCAs)
Quantum:maximum-Rs5 lacs.
ROI-for projects upto Rs25,000/-4%p.a(women),5%p.a(others)
for projects above Rs25,000/-6% p.a
Int:0.50%p.a(difference is int subsidy will be given to Banks)
Repayment:For projects uptoRs25,000/--3 Years
Above Rs25,000-5 years(moratorium-6 months)
Capital Subsidy: Credit linked Capital subsidy-For projects upto Rs25,000/-@50% of Project
cost
Above Rs25,000/--25% of PC(Minimum –Rs12,500/- Max-Rs20,000/-)

Prepared by R.Vijayaraghavan May 2010 148

IOB WAREHOUSERECEIPT FINANCE SCHEME:
-Loan scheme UNDER Agricultural advances-in order to facilitate appropriate and
remunerative price to the farmers/growers and to enable them to get the benefits of
improved practices of hygienic storage, pest control management, insurance etc.

S Details Features
NO
1 Target Group All categories(Loanee/Non Loanee)Farmers/Members
of SHG/JLG/Partnership firm/Corporate.
Ware houses must be
Accredited and reputed agencies like
FCI,CWC,NAFED etc. Pvt ware Houses –RO should
approve.. Maximum desirable period of storage product
wise –to be advised to branches by RO.
2 Purpose For storing farm produce in private/GOvt ware houses.
3 Facility Demand Loan/CC
4 Quantum 60% of the value of produce..(Market price register
should be maintained at RO)
Ind/SHG/JLG-Max Rs 10 lacs
Partnership/Corporate-Min Rs 10 lacs-Max-Rs100 lacs
5 Age -
6 Period Not exceeding 12 months
7 Eligibility All Farmers
8 Rate of Interest
9 Security Against pledge of ware House Receipt.
10 Margin 40% of the value of produce.
11 Repayment
12 Holiday period Nil
13 Priority Status Direct Finance to Agriculture.
14 Discretion
15 Documents 12A,application, F 375, Discharged ware house receipt,
F374,Lr of Insurance amount

Prepared by R.Vijayaraghavan May 2010 149

 CLEAN LOAN-MODIFIED SCHEME

1 Purpose For any domestic purpose-social financial commitments

2 Eligibility Salaried class employed in Government, PSU, reputed private firms,
Companies etc. Confirmed in service and take home pay of
employee after deducting the proposed instalments towards clean
loan should be more than 50% of gross pay.
3 Quantum of Loan a.10 times of monthly salary or Rs 5 lacs which ever is lower-to the
employees of central/State/PSU and reputed Private Sector(highly
rated and in existence for more than 10 years)-provided employers
undertake to deduct loan instalments from salary and remit directly
to the Bank or to route the salary through the Bank till the loan is
liquidated.
b. For other Employees- where the employer is not willing to give
the undertaking letter – 5 times of the salary or Rs1 lac which ever
is lower.
4 For LIC Agents c.10 times of average commission receipt per Month with a
maximum of Rs1.00 lakh.
5 Maximum 60 months for category a & c
Repayment 36 Months for category b
Period
6 Security Two Guarantees
7 Other Conditions 1.Employee should have a SB account with the loan sanctioning
Branch.
2.Salary is to be routed through that SB account.
3.Undetaking letter from the employer to deduct the loan
instalments from the salary every month and remit to the bank.
4.Underatking Letter from the Employer, to recover the dues from
the terminal benefits in case of death
/retirement/resignation/termination to be produced.
8 Processing Fee One time processing fee up to Rs170/-per lac or part there of.
9 Relaxation of Corporate Credit General Managers and GMs heading the Region
Norms can waive the condition of obtaining undertaking letter from the
employer.
10 Discretionary Scale-I-0.05 lacs, II-0.10 Lacs, III-0.30 lacs, IV-0.50 lacs
Powers AGM/SRM_5.00 lacs, DGM/CRM-5 lacs, GM-5.00 lacs.

Prepared by R.Vijayaraghavan May 2010 150

 HOME IMPROVEMENT SCHEME-MODIFIED SCHEME

1 Target Group Individuals (salary/Business/Professionals) owning a

Flat/House.(there is no restriction on the number of houses owned)
2 Purpose For Repair /Renovation/ upgradation of existing House/flat in the
name of the borrower
3 Eligibility Salaried class –Must be in confirmed Service in a reputed
organization.
Take Home Pay should be more than 50% of gross salary
Should have balance service equal to or more than the
repayment period.
Proof of any other source of income.
Professionals & Business people
Should be in the line of activity for a minimum period of 3
years.
Should be an Income Tax assessee.
4 Quantum of Loan Minimum-Rs 25,000/-, Maximum-Rs10 lacs only.
5 Margin 50% of Market value of the property .
6 Maximum Maximum 120 EMI with a holiday period of 3 Months.
Repayment
Period
7 Rate of Interest Fixed Rate-9.50% for 10 Years repayment, Floating rate-
8.50%(BPLR-3.50%) for 10 years repayment.
8 Security Either equitable mortgage of the House/flat to be Improved and the
land or any other immovable property in the name of the borrower
unencumbered with a market value twice the loan amount.
9 Processing Fee One time up front fee-1.50% of the Loan amount ( Maximum-Rs
30,000/-)
10 Discretionary Scale-I-2 lacs, II- 3 Lacs, III- 5 lacs, IV- 5 lacs
Powers AGM/SRM-onwards-Full.

Prepared by R.Vijayaraghavan May 2010 151

 SAHAYIKA SCHEME-MODIFIED SCHEME

1 Target Group Individuals (salary/Business/Professionals/Self employment) having

regular income.
2 Purpose For meeting any social personal, financial commitments. End use is
not verified.
3 Eligibility Salaried class –Must be in confirmed Service.
Take Home Pay should be more than 40% of gross salary
After reckoning the installment of the proposed
loan. Income of the spouse/ any other source of income
can be taken into account for calculating 40% norm.
Professionals, Self Employed & Business people
Should be in the line of activity for a minimum period of 3
years. With assessable income during the three year
period and should be an Income Tax assessee.
4 Quantum of Loan a. Maximum-Rs 5 lacs only. For salaried class based on repaying
capacity, after including the loan installment, take home pay
should not be less than 40% of gross income inclusive of in-
come of spouse or any other income such as rent.
b. For businessmen, professionals, self employed persons the
loan amount will be subject to a ceiling of total annual income of
the previous year declared in IT returns or Assessment Order
but not excluding Rs 5 lac.
5 Margin • NSC/Units,KVP,IVP,ULIP –25%
• Life policies (on surrender Value) –10%
• Immovable property .-50%
6 Maximum Maximum 48 EMI without holiday period .
Repayment
Period
7 Rate of Interest Fixed Rate-11.75% .
8 Security Immovable property in the name of the borrower or third party
securities such as NSC, KVP, Units, LIC and other private
insurance companies approved by IRDA. ( in case of 3rd party
guarantee also to be held)
9 Processing Fee One time up front fee-1% of the Loan amount + one time Mortgage
Charges in case of Mortgage of immovable properties-0.56% of the
loan amount(Minimum-Rs560/- Maximum-Rs5600/-)
10 Discretionary Scale-I- 0.50 lacs, II- 0.50 Lacs, III- 1 lacs, IV- 2 lacs
Powers AGM/SRM-onwards-Full.

Prepared by R.Vijayaraghavan May 2010 152

 IOB’s DEBT SWAP SCHEME FOR FARMERS

1 Target Group Farmers .

2 SCHEME Aim of the Scheme is to provide Institutional Credit to the indebted
farmers to repay loans taken from Non Institutional lenders.
3 Eligibility Existing farmer borrowers, who are prompt in repayment of earlier
loans( except on account of factors beyond their control)., Non
Borrower farmers in the service area of the bank. The scheme to be
implemented in Service area villages only Borrowers with multiple
banking borrowings will not be covered.
4 Quantum of Loan Existing Borrowers:
In addition to regular crop loan limit, 50% of crop loan( Kisan Credit
Card) sanctioned limit subject to a maximum of Rs50,000/-(or) to
the extent of debt which ever is lower to be considered as
Additional term Loan to repay debts to Non Institutional Lenders.
A maximum loan amount of Rs50,000 is fixed for the existing loanee
farmers and Rs25,000/- for non loanee farmers.
Non borrower farmers(New Loanees)
Kisan Credit Card limit based on cropping pattern and scale of
finance is arrived first.
In addition to the regular crop loan limit to be sanctioned, 50% of
crop loan(KCC) to be sanctioned subject to a maximum of
Rs25,000/- or to the extent of debt which ever is lower.

5 Mode of payment The amount to be paid to creditors directly against transfer of

security held by them in favour of the Bank.
6 Maximum Term Loan is repayable in 5 Years( half Yearly /annual Instalments
Repayment coinciding with harvesting season)
Period The repayment period will be fixed , considering the present and
future income of the farmers.
7 Rate of Interest Fixed Rate-12.00%
8 Security Hypothecation of crops /third party guarantee/collateral Security .
Existing Borrower-
Upto Rs50,000/- hypothecation of crops only.
Debt Swap Term Loan up to Rs50,000/--underlying security for the
loans taken over.
Crop Loan/KCC +Term Loan uoto Rs 1 lac & above Rs1 lac-
Hypothecation of Crop & Third party guarantee + Underlying
security.
Non Borrower Farmers-
TL up to Rs25,000/-Underlying Security.
Up to Rs 75,000/- & above Rs75,000/Hy of Crops/asset & collateral
security in addition to underlying security.

9 Insurance Crops and collateral securities to be comprehensively insured.

coverage
10 Discretionary To be sanctioned by SRM/CRM.
Powers
11 others KYC norms to be followed. Applicable processing fees to be
collected.

Prepared by R.Vijayaraghavan May 2010 153

 IOB’s DEBT SWAP SCHEME FOR SHGs

1 Target Group SHG members.

2 SCHEME Aim of the Scheme is to free the SHG members from the clutches
of money lenders/non institutional lenders who are charging
exorbitant rate of interest.
Objective
3 Eligibility All eligible SHG members .
Existing members of SHg who are linked to banks.
New SHgs which have completed at least 6 months of the
existence .
To be implemented in service area villages only.
Not to be extended to such borrowers who have multiple bank
borrowings.
4 Quantum of Loan Existing SHGs:
Regular Loan Limit-Eligibility as per the corpus and /or Micro Credit
plan-MCP(MCP includes the following components)
1.Investment Credit needs for economic activities
2.social needs like Health, Education, Marriage<house repair etc,
which is subject toa maximum of 10% of investment credit as
calculated above.
50% of the eligible loan amount as calculated above or to the extent
of debt which ever is lower, as additional term loan.total Limits of
both the regular loan and additional loan are subject to a maximum
of Rs5 lacs per SHG.
New SHGs
Regular loan eligibility is 4 times of savings/corpus or Rs 50,000/-
which ever is higher.
50% of the eligible loan amount as above or to the extent of debt
which ever is lower as term loan.
Total limits of both the loan are subject to a maximum of Rs2.50
lacs per SHG.
The loan is given to SHG only –not to individual members.
5 Mode of payment The amount to be paid to money lenders directly. Group has to
ensure that the repayment of outside debt taken by its members is
liquidated.
6 Maximum Term Loan is repayable in 3-5 Years( Monthly Instalments with
Repayment gestation period of 6 months)
Period The repayment period will be fixed , considering the present and
future income of the farmers.
7 Rate of Interest BPLR-3.00(10.50%). Interest to the ultimate member to be decided
by SHG.
Margin Nil.
8 Security Hypothecation of Book debts/assets created out of loan..
No collateral up to Rs 5 lacs. per group.=Underlying security if any.
Above Rs 5 lacs as per usual norms.
Group Guarantee/MOus.
9 Insurance Individual SHG members to be covered with Janashree Bima
coverage Policies. Or
With Swasthya Bima Policies which covers their health.
10 Discretionary To be sanctioned by SRM/CRM.
Powers
11 others KYC norms to be followed. Applicable processing fees to be
collected.
Prepared by R.Vijayaraghavan May 2010 154
 IOB GREEN CREDIT SCHEME

1 Target Group FARMERS. Existing Kisan Credit card is modified .(Kisan Green
Card Scheme withdrawn)
2 Purpose To meet both short term production needs and long term
development needs of the farming community.
3 Eligibility Any farmer owning cultivable land in his own name will be eligible
for the facility.
4 Quantum of Loan Will be 50% of the value of the farm land mortgaged to the Bank
subject to a minimum of Rs1 lacs and maximum of Rs10 lacs.(agri
term Loan)
5 Margin
6 Disbursement Loan amount should be credited to borrower’s account and
subsequent payments favourng the dealers should be made to the
debit of borrower’s account.
7 Maximum 7 Years in Monthly , half-yearly or annual Instalments depending
Repayment upon the cropping pattern.
Period
8 Rate of Interest As applicable to Agri Term Loans.
9 Security Mortgage of agricultural land at least twice the loan amount
Hypothecation of Crop and Hypothecation of any asset created out
of loan amount.
10 Insurance As applicable to Agri Term Loans
11 Processing Fee As applicable to Agri Term Loans
12 Discretionary As applicable to Agri Term Loan. Scale I-Rs2.50 lacs, II and III-Rs
Powers 3.50 lacs, IV-Rs 4.00 lacs.
13 Remarks Non agricultural property or liquid security can also be accepted-to
supplement the value of mortgage land or where the title deeds of
the farm land not available. But doc proof to be obtained to ensure
availability of cultivable land.

IOB AGRI TRANSPORT SCHEME

1 Target Group FARMERS. (Agri Bike and scheme for financing Jeeps and trucks
integrated.)
2 Purpose To purchase Two wheelers, three wheelers and four wheelers to be
used for agri purpose only.
3 Eligibility Any farmer owning viable land holding or carrying out any other
agri or allied activities having adequate income to meet the
repayment commitments.
4 Quantum of Loan Rs 5,00,000/- or 85% of the cost whichever is less
5 Margin No margin is required for loan up to Rs5 lacs, as per RBI guidelines.
6 Disbursement Loan amount should be credited to borrower’s account and
subsequent payments favourng the dealers should be made to the
debit of borrower’s account.
7 Maximum 10 Years in Monthly , half-yearly or annual Instalments depending
Repayment upon the crop harvest time.
Period
8 Rate of Interest As applicable to Agri Tractors
9 Security For loans up to Rs50,000/-(i)hypothecation of crops and vehicles.
Above Rs50,000/-(i)+Collateral valued at least 50% of the loan
amount in any form.(land, Building, FDR,LIC policy, NSC etc)
Prepared by R.Vijayaraghavan May 2010 155
10 Insurance Comprehensive Insurance of the vehicle.+ other assets.
11 Processing Fee As applicable to Agri Term Loans
12 Discretionary As applicable to Agri Term Loan. Scale I-Rs2.50 lacs, II and III-Rs
Powers 3.50 lacs, IV-Rs 4.00 lacs.
13 Remarks Purchase of II hand bike and 3 wheelers not allowed. Second hand
four wheelers can be considered.
Banks name as financier in RC book. Vehicles for commercial
Transport and Luxury vehicles can not be financed.

IOB URBAN HORTICULTURE SCHEME

1 Target Group Salaried persons, Professionals and business men having study
income .
2 Purpose To raise Kitchen garden, flower garden , small orchards and roof
gardens.
3 Eligibility Shd possess independent House –at least 500 sq .ft of open space
for gardening. Salary certificate of employees and ITAO of others to
be obtained. Privately owned Schools, Offices, Guest houses,
Hospitals and Hotels having at least 1000 sq ft of open space for
gardening are also eligible.( long term lease rights at least 5 years)
Take home pay norm 40% should be observed for individuals. For
others EMI should be fixed based on cash flow.
4 Quantum of Loan Loan amount should not exceed Rs 10,000/- for every 1000 sq feet.
Max amount Rs1 lac for individuals and Rs10 lacs for
institutions,Minimum-Rs10,000/-.
5 Margin
6 Disbursement Disbursed as Term Loan under Direct Agri Advances.
7 Maximum 12 To 24 months for individuals
Repayment 12 To 36 Months for Institutions.
Period
8 Rate of Interest As applicable to Agri Term Loans.
9 Security For salary class, undertaking lr fr employer or routing salary through
branch account. For others- III party guarantee-up to Rs25,000/- for
loans above RS25,000/- Guarantee+ Collateral to cover at least
50% of loan amount.
For Institutions-Collateral at least 50% of loan amount + Personal
guarantee of partners/promoters/trustees.
Prime security hypothecation.
10 Insurance To cover hypothecated assets + other eligible assets.
11 Processing Fee As applicable to Agri Term Loans
12 Discretionary Scale I-Rs0.50 lacs, II and III-Rs 1.00 lacs, IV-Rs 2.50 lacs.
Powers
13 Remarks Loans can be granted by Rural, Semi Urban, urban and Metro
Branches.

Prepared by R.Vijayaraghavan May 2010 156

 IOB ROSHNI
1 Target Group WOMEN
2 Purpose To pay deposit for LPG connection and purchase of gas stove and
other accessories.
3 Eligibility Women between 18 to 55 years of age from Rural house holds
4 Quantum of Loan .Actual cost of stove and accessories and the deposit payable-
Maximum Rs 5,000/- per LPG connection.
5 Margin Nil.
6 Disbursement To be paid directly to the dealer/supplier.
7 Repayment 60 Months. In EMIs
Period-Max
8 Rate of Interest BPLR-3%-Floating.
9 Security Hypothecation of gas stove and other accessories.
10 Insurance Nil.
11 Processing Fee Nil.
12 Discretionary Under the Branch manager powers.
Powers
13 Remarks Lr to be sent to the dealer, with a copy to RO oil co stating that LPG
connection is financed by our bank.

IOB ARTHIAS YOJANA

1 Target Group Commission agents- In direct Finance to Agriculture.
2 Purpose Providing loans to commission agents for
a. extending credit to farmers/SHGs/JLGs
b. .supply of inputs to farmers/SHGs/JLGs
c. Buying produce from farmers/SHGs/JLGs
3 Eligibility Arthias or Commission agents(individuals,firms,limited Cos, or
registered Co-operative societies, fulfilling the following conditions
a. Stationed at Any Centre , but field of operation should be
Rural/semi Urban area.
b.Functioning in Markets/mandies
c. Having receivables from farmers/SHGs/JLGs
d.Buying agricultural produce from farmers/SHGs/JLGs
4 Quantum of Loan .60% of the value of book debts subject to a maximum of Rs100
lacs.
5 Margin 40% of Book debts.
6 Disbursement CC Limit-CC against book debts
7 Repayment CC limit to be renewed annually.
Period
8 Rate of Interest BPLR
9 Security Prime-a. Hypothecation of receivables from farmers.
b.trade related stock of produce and equipments, if any.
Collateral-Mortgage of immovable properties other than agri land/
commercial properties., and or cash securities Worth at least 150%
of the loan amount.

10 Insurance
11 Processing Fee As applicable
12 Discr Powers As applicable to secured fund based limits
13 Remarks All branches can sanction.Beneficiary must be operating in
rural/semi urban areas only.
Arthias should not be dealers of agri inputs like fertilizer etc.

Prepared by R.Vijayaraghavan May 2010 157

 COMMERCIAL CASH CREDIT AGAINST JEWELLERY

1 Target Group Individuals engaged in business /trade/professional and self

employed.
2 Purpose To meet the business needs for running a commercial activity
against the prime security of jewels.
3 Eligibility Individuals who own jewels
4 Quantum of Loan Minimum Rs50,000/- Max-Rs10 lacs.
5 Margin Advance rate fixed by the bank take care of margin.
6 Disbursement Cc or Overdraft
7 Repayment CC to be renewed every year.
Period
8 Rate of Interest Fixed rate
9 Security By pledge of gold jewellery. fineness 20-22 ct
10 Insurance
11 Processing Fee Rs202(Rs180+ STaxRs 22) per lakh. appraiser commission Max
Rs300 per limit.
12 Discr Powers Scale I – 1 l;ac, II -2, III -3, IV -5, AGM /RM- 10 lacs.
13 Remarks End use to be verified by regular inspection of stocks.. Submission
of stock statement and insurance not insisted upon.
Registration Certificate with DIC,/Sales Tax RC to be obtained.
For limits up to Rs 3 lacs, based on quantum of jewels. No Balance
sheet required.
For limits above Rs 3 lacs , un audited Balance sheet to be
obtained. Amount of loan-20% of projected Turn over or advance
value of jewels or Rs 10 lacs which ever is lower.

IOB SME ADVANCE TERM LOAN SANCTION SCHEME

1 Target Group Existing SME borrowers with good track record.

2 Purpose A stand by Credit facility for SME borrows to meet urgent
requirements to buy machinery/equipment.
3 Eligibility As per requirement, cash generation and repayment capacity.
4 Quantum of Loan 10% of original cost of existing plant and machinery or cost of
machinery to be purchased less stipulated margin or Rs25 lacs
which ever is less.
5 Margin As per usual norms
6 Disbursement Direct payment.
Appraisal DSCR to be worked out at previous year’s level.
7 Repayment
Period
8 Rate of Interest As per usual norms
9 Security As per usual norms
10 Insurance As per usual norms
11 Processing Fee As per usual norms
12 Discr Powers Over all limit to be taken for exercising DP
13 Remarks Where the amount has already been incurred, the advance could be
granted by way of reimbursement.
eligible accounts to be covered under CGTMSE.

Prepared by R.Vijayaraghavan May 2010 158

Personal Banking

Loan Schemes

NRI Home Loan Scheme, Personal Loan, Home Improvement Scheme, Subha
Yatra, Suba Graha Scheme, Vidhya Jyoti Scheme, Liquirent, Home Décor,
Sanjeevini, Retail Gem, Sahayika, Akshay and clean loan.

Deposit Schemes

Savings Bank Deposit, No frill account, current account, Fixed Deposit,

Reinvestment Deposit, Multiple Investment Scheme, Cumulative Benefit Deposit,
Multiple Deposit Account I, Multiple Deposit Account II, Permanent Income Plan,
Wedding Deposit, Varshik Aai Yojana, Sanjeevi Deposit, Floating Rate Deposit,
Vardhan – Senior Citizen Deposit
(Cumulative Benefit Deposit Scheme and Golden Jubillee Cash Certificates
Schemes withdrawn)
PIP-RD+SFD-Minimum Rs50/--Max period-10 years-5+5,6+4,7+3,8+2,9+1
MIS-RD+RDP-Min Rs100/--12M -120 M-No rigid Monthly instalments-Invest any
amount any time-pre determined Maturity Date
MDA I – Min Rs100/-6M-120M-Spl pass Book-Each deposit has separate maturity
Date
MDA II-Unit of Rs1,000/- Min-Rs10,000-Single deposits with various units-Pass book
for each deposit
Varshik Aai Yojana-2 to 7 years-Compound interest payable at the end of each year
Min-Rs1,000/-
Wedding Deposit-RD-63,84,120 Months-Min Rs50/- Rs 100 step up every year
Education Deposit-RD-63,84onths-63 Months91/5th decrease, 84 Months-1/7th
decrease)Min-Rs250-63 Months, Min Rs350/-84 Months
Sanjeevini Deposit-Min Rs10,000/- OD/Cc facility up to 90% of l Dep amount+Int
accrued
Easy Deposit-Minimum Deposit pm Rs100-Rs1000-Core amount-Rs100-Rs10000/-
Deposit 10 times of core amount –will be repaid in 6M-120 Months
Cash Certificate-Odd amount invested-Round amount after fixed period- Rs 100,
Rs500,1,000, 5,000, 10,000.

Prepared by R.Vijayaraghavan May 2010 159

MAXIMUM ELIGIBILTY

IOB –Green Credit Minimum Rs1 lac, Maximum-Rs10.00 lacs

Agri Transport Max-Rs 5 lacs
IOB Urban Horticulture Minimum-Rs10,000/-
Max- Individuals-Rs1 lac, Institutions-Rs10 lacs
Debt Swap scheme -Farmers Existing Loanee farmers-Max-Rs50,000/-
Non Loanee farmers-Max-Rs25,000/-
Debt Swap Scheme-SHGs Existing SHG-Max-Rs 5.00 lacs
New SHGs-Max-Rs 2.50 lacs
Agri Clinic Rs 10 lacs for individuals, Rs 50 lacs per group of 5
entrepreneurs
Land for Agri Purpose Rs2 lacs
Subha gruha Rs50 lacs-Max repayment 20 years( up to Rs2 lacs
Max- 15 Years)
Housing loan for High net worth Rs 200 lacs
Vidya Jothi Rs10.00 lacs-Inland, Rs20 lacs-Foreign
Sanjeevini Rs200 lacs
Laghu Udyami Credit Card Rs10 lacs
Artisan Credit card Rs2 lacs
Swarozgar Credit Card Rs25,000
Home loan for NRIs Rs 50 lacs( for Repair Max Rs 5 lacs- Max
Repayment 5 Years)-20 times of Gross Monthly
Salary-Max repayment 15 years
HIS Minimum-Rs25,000/-Max Rs10 lacs( Max
repayment 10 Years)
Pushpaka New car-90% of cost-No ceiling
Used car-Rs5 lacs
Two wheeler-Rs0.60 lacs
Sahayika Rs 5 lacs
Liquirent 84months/60 months rent(75%)
IOB Akshay 90% of SV
Home décor Rs 5 lacs( 5 times(2 lacs)/10 times of gross pay)
Pensioner’s loan 50,000(over 65 years) 1 lac(up to 65 years)
Clean loan 5times/10times of salary Maximum Rs 5.00 lacs
Others-loan agt shares- Demat-Rs20 lacs
Easy Trade Finance Min-Rs1 lac, Max Rs100 lacs(Metro/Urban)
Rs50 Lacs(SU) Rs10 Lacs-Rural
Commercial Cc agt Jewellery Minimum Rs50,000/- Max-Rs 10 lacs
SME Advance Term Loan Max-Rs25 lacs.
Insta Fund Min-Rs 5 crore, Maximum-Rs 50 crore

Prepared by R.Vijayaraghavan May 2010 160

 RETAIL CREDIT SCHEMES
Name Personal Loan to others Clean loans Pensioners’ Loan Scheme Swarojgar Credit Card
Target Employees of Govt.Corp, PSUs,Central/State,Govt/defence Fishermen,Rickshaw owners,self
Group Central/State Govt and reputedpensioners/pilot employed persons,small artisans,
PVt.sector undertakings which arepensioners/EB/PSU/Family handloomweavers, service sector,
highly rated and are in existencepensioners/Ex-gratia/ex- other micro entrepreneurs,SHGs
for mini.10 yrs-LIC agent 3 yrsIOBian pensioners etc.,
average monthly commissionMax age-ceiling 70 years
Rs.10000/- age not to exceed 55removed
yrs,mini. experience 5 yrs,IT
assessee
Purpose To meet out financial needs To meet household/socialTo meet out WC & Block
expenses capital(fixed assets)
Quantum upto 10 times of salary or Rs. 5.00 Up to 65 years-10 times theWC as a % of turn over divided by
lac whichever is lower subject tomonthly pension or Rs.1 lacthe number of operating cycles per
undertaking from the employer towhichever is less annum/consumption also Maximum
route the salary through theOver 65 years-10 times ofRs.25000 TL/CC a/c separate within
branch till the loanmonthly pension orthe overall ceiling. enhancement in
adjusted.(repayment upto 60Rs50,000 which ever is less TL/revolving CC allowed. The
months).If not, 5 times or Rs.2.5 aggregate credit during 12 months
lac (repayment 36 months)-LIC period should be equal to maxi
agent 10 times of average outstanding in WC + instalment of
monthly commission or the TL-CC to be repaid within 12
Rs.200,000/- which ever is lower months.
Rate of
Interest
Security 3rd party guarantee- two withUndertaking letter from legalHypothecation of assets only
salary equal or more, heir/third party-for Ex-IOBian
no such letter

Prepared by R.Vijayaraghavan 161

Name Personal Loan to others Clean loans Pensioners’ Loan Scheme Swarojgar Credit Card
Margin Nil Nil Nil
Repayment 60 months for 10 times/36 monthsBelow-65-48 EMIs WC as revolving CC/TL in 5 years
for 5 times 65-70 Years-24 EMIs
Holiday Nil Nil Nil
period
Priority No No Yes
status
Discretion Scale I-5000,II-10000,III-50000/ to all Rs.25000/- to all. All operations
20000,IV-50000,AGM Br-1 through card issuing branch only.
lac/SRM-2 lacs/CRM-2.5 lacs LIC
agent by RM only
Remarks Obtention of undertaking letterAdv/275/87 dt 10.4.87 No fee for renewal/review Group
from employer to recover the duesLetter to treasury officer inInsurance cover-premium shared
from the terminal benefits in casecase of State Govt Pilotequally by bank and borrower. Tiny
of retirement/death/terminationPension scheme/undertakingindustries should be covered under
preferably for the loans repayablefrom Pilot scheme pensioner.CGTSI. No drawal will be permitted if
within two years. Discount rate dispensed withrevolving CC remains O/s more than
for loans sanctioned after12 months. Card validity is 5 years
1.7.2004

PC=0.15% +ST(for loans abovePC-Nil

Rs25000)-Rs170 per lac.(non
rural)-Min Rs170 up to Rs 2 lacs
-Rs140 per lac-Rural-Min Rs140
up to Rs2 lacs

Prepared by R.Vijayaraghavan 162

 Name Pushpaka Sahayika MCC Subhagruha
Target Individuals- in employment, Confirmed salaried persons withContractors engaged in Individuals/group of
Group business, self employed 40% take home pay (includingconstruction works and jobs individuals/members of co-op society
professionals. If employed must other income),Professional ,selflike material supply, road having regular and independent
be in confirmed service with employed &business men with 3laying, wholesale dealers income-employed persons three
take home pay of not less than yrs standing in the field, ITwhere hypothecation of stock years confirmed service/P&SE three
50% of gross salary. Total assessee is not possible, service sector years standing-should not have
monthly income, including that activities undertaken on job- same facility elsewhere-should not
of spouse, other income should work basis, dealers in be a defaulter to banks/FIs/may own
not be less than Rs.5000/for petroleum and kerosene a house already in his /spouse/minor
two wheeler loans and /other business/retail outlets children’s name –age not to exceed
Rs.8000/- for car loans- where no. of items are too 60 years(entire loan to be liquidated
firm/companies also eligible.No many. before the I applicant attains 65
Max age years)

Purpose To purchase New/old car (not To meet any social & Working capital assistance Acquisition/construction of a new
older than 5 years)- New two personal,financial commitments where scientific evaluation of flat or a house. purchase of old
wheelers balance sheet is not possible.house/flat age not exceeding 15
years (deviation can be allowed by
RM). additional floor/rooms
construction also
Quantum New car 90% of cost-old car Maxi.Rs. 5 lacs. 50% of the value of Upto 80% of the cost /purchase
75% with maximum of Rs.5 immovable property offered value of the house-maxi,Rs.50 lacs-
lacs-Two wheelers 90% of the as security EMI not to exceed 50% of the gross
cost or 10 times of monthly monthly income (deviation upto 60%
salary or Rs. 60000/- whichever including the proposed EMI by RM)
is less. -Other income can be taken up for
staff to arrive 40% norms

Prepared by R.Vijayaraghavan 163

 Name Pushpaka Sahayika MCC Subhagruha
Security Hypothecation of vehicle-Third EM on immovable EM on Immovable property, First mortgage of property to be
Party Guarantee, routing salary, properties/NSC/Units/ additionally NSC,UTI,IVP etc financed/land in the name of
undertaking from employer LIC/ULIP applicant(s)
waived
Margin New car 10% old car 25% NSC/units/KVP/IVP25%, 50% of the value of the 20% inclusive of cost of land( with
Two wheeler 10% Life policies 10% immovable property Margin of25% and above
Properties- 50% concession in interst -25 basis
points for loans upto Rs30 lacs, 50
bassi points for loans above Rs30
lacs
Repayment New cars 60 EMI-Old 36 EMI- 48 EMI-12 post dated cheques Subha Gruha-
two wheeler-60 EMI-12 post can be accepted towards EMI Maxi 20 years including holiday period-(Up to Rs2 Lacs- Max 15
dated cheques can be accepted Years)A/c should be closed before the applicant attains 65 years
towards EMI of age. 36 post dated cheques must be obtained towards EMI.
Housing Loan exceeding 10 years under fixed rate option
discontinued wef 01.05.06.Individual Housing loans at
concessional rate is applicable for one House Only.(Dwelling
purpose only.) If margin is more than 25%-Concession in Int 25
basis points for loan up to Rs20 lacs, and for loan above Rs20
lacs-50 basis points.Max Repayment .-fixed rate-10 years
.Restructuring HF Fixed rate-Max 10 years-others-Max 25 years.
Int rate for restructured loan exceeding 20 years- Int applicable for
20 years+0.50%

Prepared by R.Vijayaraghavan 164

 Name Pushpaka Sahayika MCC Subhagruha
Holiday NIL Nil Nil Maxi.18 months or completion of
period construction whichever is earlier for
construction/3-6 months for
purchase of old house/flat.
Priority No No No Upto Rs.20 lacs in all areas
status
Discretion Car-Scale-I&II-Rs.3 lacs,III-6 Scale-I-II-0.50,III.100000, IV Rs.2 SRM Rs.10 lacs,CRM-25 Scale (I) Rs.3 lac-Scale(II) Rs.5 lacs
lacs lacs, AGM Br/SRM- lacs Scale III Rs.7.5 lacs-ScaleIV-15
IV-8lacs,AGM Br CRM/DGM/RGM full lacs/AGM Br,SRM ,DGM,CRM full —
/SRM/CRM,RGM-full-Two a pre-payment penalty of 1.00% of
wheelers I&II 50000,III- the amount repaid or excess amount
60000,ScaleIV/AGM paid over DP should be levied
Br/SRM/DGM/CRM/RGM-full 36 post dated cheques should be
obtained
Remarks Two valuation & road On selective basis-property value On selective basis-property Staff-entire loan to be recovered two
worthiness certificates for used should be double ensured value should be double months before retirement-
cars-reputed automobile ensured undertaking to recover from terminal
dealers/engineers/ benefits in case of death/pre mature
surveyors of GIC retirement/termination.
PC=0.15% +ST -Rs170 per Concession in interest is available
lac.(non rural)-Min Rs170 up to for only one House. For second
Rs 2 lacs Housing Loan-addl int 1%
-Rs140 per lac-Rural-Min PC-1.50%(Max Rs30,000/-)
Rs140 up to Rs2 lacs

Prepared by R.Vijayaraghavan 165

 Name Home Improvement Scheme Home Décor scheme Home loan to close Home Loan to NRI
relatives of NRI
Target Individuals(Salaried, Individuals who own a Joint loan with residents Existing NRI/Persons of Indian
Group business people, house/flat in their name or in the permitted under Home loan Origin holding Indian Passport or
professionals) owning a name of their spouse-mini.3 to NRI .Hence can be pass port of any other country
flat/house in his /her name- years confirmed service, three considered under Home except Pakistan and Bangladesh,
confirmed service, take years standing for P.SE – if Loan to NRIs. PIOs with fresh account relationship
home pay more than house in close relative’s name – with monthly salary equal to Rs.
50%,balance of service joint borrowers-age below 50 10000/-
equal to or more than the years Joint loan with resident relatives
repayment period, proof for permitted.
other source of income-
P&SE -IT assessee,mini.3
yrs standing
Purpose For repair & To furnish the house-TV,VCR, For purchase or construction of
renovation/upgradation of existing Washing machine computer not residential flat/house and for
houses/flats allowed repair/renovation of existing house
or flat.
Quantum Mini.Rs.25000 Maxi.Rs.5 lacs Maximum-Rs 5 lacs Upto 20 times of gross monthly
50% of value of security or 5 times of Gross monthly salary of NRI and borrower with a
estimated cost of repair whichever income or Rs2 lacs which ever maximum of 80% of cost for
is less. is less if III party guarantee is construction/purchase upto Rs. 50
offered lacs/
10 times of Gross monthly upto Rs. 5 lakhs for
income or Rs5 lacs which ever repair/renovation. The loan
is less if coolateral equal to the proceeds not to be credited to
loan amount is offered. NRE/FCNR A/c

Prepared by R.Vijayaraghavan 166

 Name Home Improvement Scheme Home Décor scheme Home loan to close Home Loan to NRI
relatives of NRI
ROI As per subhagruha loan As per Subha Gruga loan
Security EM of the house/flat which is Hypothecation-if the house is Equitable mortgage of property
under repair/renovation and the already financed by us purchased or proposed to be
land or any other immovable supplementary narration-TPG acquired-Free accident Insurance
property in the name of borrower depending upon the custom-no cover for entire loan outstanding as
and unencumbered with a market lien letter from other Banks/FIs on date of death-Guarantee waived-
in case the loan for the house Processing charge @ 0.50% of the
sanctioned by them. loan mini. Rs.570/- maxi. Rs 5700/-
upfront
Margin Immovable property 50% of 25% on cost kept as term 20% of the cost of construction,
market value deposit till the loan is closed. purchase
( including cost of land) or repair to
be brought in by way of foreign
inward remittance or by debit to
NRE/NRO/FCNR accounts
Repayme Maxi.120 EMI –for salaried 60 EMI-not to exceed 60% of Construction/purchase-180 EMI-
nt persons entire loan should be gross pay including EMI for any Repair/renovation 60 EMI- fresh
recovered before retirement-36 housing loan-36 post dated inward remittance or entire rental
post dated cheques should be cheques must be obtained income/ short fall from
obtained towards EMI towards EMI NRE/FCNR/NRO account
Holiday Three months holiday period Nil 6months-acquisition-12months for
period construction from the date of first
disbursal
3 months for repair & renovation-
Incentive of 0.5% interest rate
rebate for prompt repayment
withdrawn. Minimum three years
continued overseas service
withdrawn

Prepared by R.Vijayaraghavan 167

 Priority Loan Upto Rs.1,00,000/in R/SU No No-36 post dated cheques should
status upto Rs.2 lacs in other areas be obtained
Discretio JMI 2 lacs, MMII 3 lacs MMIII IV, – Scale I- 50,000,II-50,000,III- For
n 5 lacs AGM Br, 75,000 construction/purchase/acquisition/re
SRM(V)/CRM/DGM/RGM-Full IV-1.50 lac,AGM pair/
Br/SRM/CRM/RGM-full renovation: JMI 2 lacs, MMII 3 lacs,
36 post dated cheques should MM III-5 lacs Scale IV Rs. 10 lacs,
be obtained AGM Br, SRM CRM/DGM/RGM-full
Remarks 36 posted dated cheques should Full cost of furnishing as loan Co obligant(resident) may also be
be obtained POA of NRI.
PC-1.50%(Max Rs30,000/-) PC-0.57% of the loan amount.
PC-1.50%(Max Rs30,000/-)

Prepared by R.Vijayaraghavan 168

 Name Special Rural Housing Scheme Vidyajyothi Educational Loan IOB-Akshay Liquirent
(NHB) Scheme

Target As per definition provided by the Student of Indian national, Personal borowers in their Owners who let out their properties
Group census of India 1991.-except secured admission to individual capacity to reputed companies / PSUs /
municipality, corporation professional/technical course Corporates/business MNCs / Banks /Institutions /
contonment /notified towns/village through entrance test/selection concerns not eligible. Commercial Organisations /
with mini.5000 population 75% of process/secured admission to individuals / Landlords of our Bank
male working in non-agricultural foreign university/institution premises / officers / executive’s
area, density 400/sq.m/urban quarters
agglomeration outgrowths
adjoining towns/falling within the
boundaries of villages
Purpose To build new house or to improve
School education upto plus two- Advance against LIC policies Advance against rent receivables
the existing house graduation/post graduation
courses/professional
courses/ICWA/CA/CFA/courses
conducted by IIM, IIT, Iisc, XLRI
,NIFT, evening courses, Diploma
courses of reputedinstitutions,
computer courses/foreign
universities courses/Job oriented
professional/technical
courses/MCA/MBA/MS by CIMA-
LONDON,CPA in USA
Quantum For New House Rs.2 lacs- Studies in India – Rs.10.00 lacs 90% of the surrender value Maxi.75% of rent receivables for the
upgradation Rs.50000 Studies abroad-Rs.20 unexpired lease period less tax
lacs(college/school deductible at source and rent
fees/exam/library/Lab fee/cost of advance taken if any subject to
books/equipments/instruments/un maxi.60 months rent-upto 84

Prepared by R.Vijayaraghavan 169

 iforms/caution deposit/building months rent by CRM/RGM including
fund/refundable deposit/travel renewal period-renewal lease
expenses for studies period under Regional office powers
abroad/computers/study tour only
expenses/for PH, tricycle,
motorised tri wheeler.
Rate of Slab rate
Interest
Security Mortgage of property-including Upto 4 lacs-Nil> 4 lacs upto 7.5 Assignment of Endowment Upto 2 lacs-Nil
collaterals lacs TPG policy with profit/money back > 2 lacs EM of the same property
> 7.5 lacs Collateral of suitable policy of LIC/PLI/ policies of whose rent is charged to us or other
value or Co-obligation of Pvt insurers approved by property valued 150% of loan
parents/guardian/TPG with IRDA amount. or Bank deposit,
assignment of future income of NSC,KVP,IVP,LIC equal to loan
the student. amount or more
land/building/Govt.securities/PSb
onds/Units,
NSC,KVIP,LIC ,Gold,
Shares/debentures/
bank deposits
Margin 1/3 of the cost/estimate Upto Rs. 4 lacs-Nil >4 lacs 10% of surrender value 25%
Studies in India- 5% abroad 15%

Prepared by R.Vijayaraghavan 170

 Name Special Rural Housing Scheme Vidyajyothi Educational Loan IOB-Akshay Liquirent
(NHB) Scheme

Repayme Maxi.15 years 5-7 years after holiday period Maxi.36 EMI Maxi.60 EMI
nt
Holiday Completion of construction period Normal study period and one Nil Nil
period or 18 months from the date of first year or 6 months after getting job
disbursement whichever is earlier. whichever is earlier. extension for
completion of course upto 2 yrs
Priority Yes Yes No No
status
Discretio As per housing loans Scale I -1 lac,II-3 lacs,III-4 lacs,IV Scale I-I lac,II-2 lacs,III-3 For landlords/others-Scale I 5 lacs
n 10. lacs(inland) 20 lacs foreign lacs,IV-4 lacs,AGM II-10 lacs-III-20 lacs,IV- 50 lacs,
studies AGM Br/SRM/CRM/RGM- Br/SRM/CRM/RGM full AGM Br/SRM-100 lacs/CRM DGM-
fulll 400 lacsl
PC-0.85%(0.85%-Min-Rs1130)
Remarks ADV/156/97-98 dt.3.9.97 No processing charges for Inland ADV/113/dt 21.5.2002
Studies. For Foreign Studies
0.57%

Name EASY TRADE FINANCE Sanjeevini Credit cum subsidy KCC

scheme for Rural

Prepared by R.Vijayaraghavan 171

 Housing 1999
Target individuals/proprietary Qualified/registered individual Rural households Existing farmer clients with good track
Group partnership concerns medical practitioners from having an annual record/prospective farmers from our
engaged in retail trade. reputed universities or by a income of upto service area/outside service
Pvt limited Co also eligible. group of such persons Rs.32000 only-area area/literate and illiterate farmers
practicing in India for a mini. of atleast 20 kms away
three years/corporates from metro and large
promoted by such persons-IT town and 5 kms away
assessees from small/medium
towns
Purpose To meet the WC needs and To set up new hospital/nursing Construction of To provide continuous cash credit
also term needs for buying a home or for acquiring houses facilities for meeting the crop
shop, showcase, equipment equipments for an existing cultivation expenses ,post harvest
etc., hospital/ nursing maintenance of
homes/working capital machinery/implements,electricity
requirement for purchase of charges, living expenses
equipments/ambulances,
Vans/cars etc
Quantum Maximum Rs.Two crores for Nursing Maxi.Rs.40000/- Mini. Rs.2000/- maximum-based on
Metro-Rs.100 lacs homes/hospitals in excluding subsidy of crops cultivated & extent cultivated-
Urban-Rs.100 lacs metro/urban areas Rs. 50 lacs Rs.10000/- 10% additional limit over & above
Semi-Urban-Rs.50 lacs in Semi-urban area-Rs. 10 Scale of finance- for I crop entire
Rural-Rs.10 lacs lacs in rural area( working 110% of SOF & for II crop 1/3 of
Minimum-Rs.1 lac capital not more than 20% of 110% SOF allowed. No loan for third
Docs required-Existing-upto Project cost crop on same land
Rs25 lacs-STAO or BSfor
past 2 years,
A 25 lacs-STAO/Audited BS
for past 2 years.
New units –Pr BS and Reg no

Name EASY TRADE FINANCE Sanjeevini Credit cum subsidy KCC

Prepared by R.Vijayaraghavan 172

 scheme for Rural
Housing 1999
Security Assessment-Tl-75% of Hypothecation of equipments EM on the property to Upto Rs50000-hypothecation of crops
invoice amount,WC-25% of Upto 2 lacs –nil be financed >50000-Collateral/TPG
turnover. > 2 lacs Immovable
property/NSC/LIC to cover
100% of advance
Margin Fully secured by immovable Equipments-15-25% Subsidy portion only Upto Rs. 50000/- Nil
property/liquid assets-forced Construction-25-30% > 50000-15-25%
sale value to be taken for
immovable property-no agri
land/rural property
Repaymen On immovable properties- TL-5-7 years-maxi.10 years Maxi.7 years including Annual review-continuous cash credit
t Metro/Urban centres- holiday period facility
30%,SU-40%-/Rural-50%-
liqiuid assets –Life policies-
10%,KVP-20%, TD-10%
Holiday TL-48 EMI.CC to be Based on income generation Depending upon the NA
period reviewed/renewed every year. income generation.
Priority Upto Rs. 10 lacs Upto 15 lacs in Rural/semi- Yes Yes
status urban areas, upto 10 lacs in
other areas with sub limit for
working capital 3 lacs and 2
lacs
Discretion Immovable Sec value-143% Scale I -5 lacs,II-10 lacs,III As per housing loan Scale I-0.75lacs,II-1.50 lacs,III-2
Of loan amt- 40 lacs,IV –100 lacs,IV-3 lacs
Metro/Urban,167%-SU,200%- AGM Br/SRM/CRM/RGM-full > 3 lacs CO
Rural
Remarks Value addition-IOB- ADV/96/1.4.2002 w.e.f 1.4.99 validity three years-50% of limit as
Jeevan,IOB-Health Care can Processing Charges- cash withdrawal from any branch-
be extended.Hassle free, no 0.85%(Min Rs1130) credit balance >14 days eligible for
need for stock statement, deposit interest-extended to AGJL

Prepared by R.Vijayaraghavan 173

 borrowers also-conversion of existing
crop loan into KCC allowed-Personal
Accident Insurance upto Rs. 50000/-

Name LUCC Agri-Clinic IOB’s ARTISAN Scheme for purchase of land for
CREDIT CARD Agrl purpose
SCHEME
Target All existing customers of Agricultural All existing artisans Small & marginal farmers i.e those
Group OPS,SSI ,Tiny sector graduates/graduates in borrowers enjoying who would own maximum of 5 acres of
categories who are dealing subjects related to credit limit upto Rs. 2 non irrigated land or 2.5 acres of
with us for the past three agriculture like horticulture, lacs and having irrigated land including the purchase of
years satisfactorily and animal husbandry, fisheries satisfactory land under the scheme-share
enjoying loan/operative limit ,dairy, veterinary, poultry, dealings/artisans croppers/tenant farmers
upto pisciculture and other allied involved in
Rs.10 lacs activities production/manufacturi
ng process- artisans
who have joined to form
SHGs-Beneficiaries of
Govt.sonsored loans
are not eligible
Purpose To meet credit requirement of To provide gainful To provide adequate To purchase, develop and cultivate
small business units, Retail employment to agrl. and timely assistance to agrl /fallow/waste
traders, Artisans, graduates to set up Agri- meet the investments lands/establishment/diversification of
Village industries, SSI, Tiny clinics, Agri-Business and working capital allied activities
sector units, centres for input supply and requirement in a flexible
P & SE services to needy farmers. & cost effective manner
in Rural and urban
areas.
Quantum Maxi. 10 lacs Maxi. Project cost Rs.10 lacs Based on Nayak Maxi.2 lacs
for individuals and Rs. 50 committee
lacs for Group of 5 recommendation i.e

Prepared by R.Vijayaraghavan 174

 entrepreneurs. 20% of the anticipated
turn over for Working
capital requirement &
term loan component
subject to a maximum
of Rs. 2 lacs.
Rate Of Int
Security Hypothecation of Stocks, Upto Rs.5 lacs-Nil Hypothecation of assets Mortgage of land to be purchased
receivables, machinery, office > 5 lacs- financed-No need to
equipments -existing Collateral/guarantee submit stock statement
collateral(may be waived on and other financial
selective basis) statements-Group
insurance for
beneficiaries who are
registered with
Development
Commissioner @ 60:
40 premium paid by
Govt & Beneficiary
Margin 25% Upto Rs. 5 lacs –Nil > 5 lacs Upto Rs. 25000/- No Mini.20%
15-25% margin
Above Rs. 25000- as
per RBI
guidelines/Bank’s policy
Repaymen Annual review-CC 5-10 years depending upon Revolving CC-term loan 7-10 years including the holiday period
t the activity component attracts
repayment schedule

Name LUCC Agri-Clinic IOB’s ARTISAN Scheme for purchase of land for
CREDIT CARD Agrl purpose

Prepared by R.Vijayaraghavan 175

 SCHEME -
Holiday NA Depending upon the activity Maxi.24 months
period Maxi.2 years
Priority Yes Yes Priority Yes
status
Discretion Sclae I- 5 lacs ,II,III,IV,AGM Depending upon the activity As applicable to Priority No discretion to branches- only
Br, SRM, CRM, RGM -fulll as per discretionary powers Sector advances RM/SRM/CRM can sanction the loan
Remarks Valid for 3 years-25% of limit Soft loan assistance from Card validity three ADV/81/22.2.2002
as cash withdrawal from NABARD is available for years-require renewal
select branches-Life margin money upto 50% No fee for renewal/fresh
insurance upto Rs. 2 lacs,
Personal accident Insurance
upto Rs.50000/--premium
sharing 3:1 card holder and
Bank-CGFSI coverage for
SSI-Credit balance eligible for
SB int.

Name IOB ROSHINI SCHEME FOR NEW KCC SCHEME IOB Alankar
DISTRESSED URBAN

Prepared by R.Vijayaraghavan 176

 POOR
Target Women-18-55 yrs from rural BPL, Resident of urban area Existing farmer clients and
Group households from well for atleast 3 years, member also the prospective
functioning SHGs, of well functioning SHG farmers
NGOs,SF/MF/Share croppers financed by us already for
and landless laborers/SC/ST productive purpose. or JLG
Purpose To pay deposit for LPG To enable the distressed To meet out investment
connection and purchase of urban poor to prepay their credit need and allied
gas stove with accessories. debt to non-Institutional activities and revolving
lender and to bring them into cash credit for cultivation of
formal financial system crop and working capital
requirement for allied
activities
Quantum Maxi. Rs.5000/- Rs.5000/- in Municipal Maxi.Rs.50,000/-
areas/Rs.10,000/- in
corporation areas
Rate of
Interest
Security Hypothecation of assets Group guarantee of Hypothecation of crops
purchased out of loan SHG/JLG members and assets created out of
bank finance.
Name IOB ROSHINI SCHEME FOR NEW KCC SCHEME IOB Alankar
DISTRESSED URBAN
POOR
Margin Nil Nil Nil

Repaymen Maxi 60 EMI 60 EMI Term loan component –

t maxi.5 years
Holiday Nil Nil Depending upon the asset
period created

Prepared by R.Vijayaraghavan 177

 Priority Yes Yes Yes
status
Discretion Branch Manager As applicable to Priority Branch Discretion
sector advances-small loans
Remarks Letter to be sent to LPG Payment directly to Non- Card validity-5 years-to be
dealer with a copy to Institutional lender by way of availed in full within one
Regional Office of the Oil pay order after getting due year from the date of
Company –no transfer without authorization from the sanction-Limit under
our NOC borrower –identification by production/Investment
Branch Manager with SHG/ categories are not inter
Women Development changeable
Corporation ADV/385/04-05 dt
28.3.2005

Prepared by R.Vijayaraghavan 178

FAQ-GENERAL BANKING

1) Details of Public Issue

S No Details IPO-Sep IPO-II issue-Sep

2000 2003
1 Size of issue Rs111.20 Rs 240.0Cr
Cr
2 Premium At Par Rs 14 per share
3 Post issue paid up Rs 444.80 Rs 544.80 Cr
capital Cr
4 Share premium Nil Rs 140 Cr
5 Share holding-GOI 75% 61.23%

Authorised Capital of IOB-Rs 1,500 Cr,

Paid up Capital -Rs 544.80 Cr, Share premium Account-Rs140 Cr)

2) Deposits: Minimum period- Domestic-15 Days(For Rs1 Lakh & above - 7 Days)
NRE -12 Months.
Max period-Domestic-10 years, NRE-Less than 5 years, FCNR-5 years.

3) For Sr.Citizens- Up to Rs 25 Lakhs-Addl Int 0.75% over card rates

Over Rs 25 Lakh & above- -Card Rate only.
Minimum –Rs5,000.-Min period 15 days-Max-10 years

4) NRNR Deposits withdrawn from-01/04/2002

5) Following schemes are withdrawn from 01/07/2002

Tax Sulabh,Sowmitra, Sunidhi, ON time Money, Vijayashree.
Abilasha from 01.11.2003
Annuity Deposit withdrawn from 01.07.02
Stock Invest Scheme withdrawn from November 03.
Chirenjeevi bima yojana scheme- withdrawn-01.11.04
Retail Gem- withdrawn
EEFC Term Deposit Scheme
Cumaltive Benefit Deposit Scheme and Golden Jubilee Cash Certificates-
withdrawn Dec 08.
July 09-PL(o),alankar, Subha yatra, .
Oct 09-Sishu vihar Yojana
6) SMS FACILITY-Short Messaging Services-Exchange of Messages through Cell
7) LONE Mechanism-Letter of Non Entitlement (For operating certain GL heads by
Branches)

8) Service Charges-Cash Handling Charges-CD/CC First 10 sections-1000 pieces-

Nil From 11th Section-Rs5 per Section

9) VALUE ADDITION- SB ACCOUNTS -WEF 01/08/2002

Average Quarterly Balance-Rs 10,000/- & above

1) Inland DD/MT/-Not exceeding Rs10,000/- per Month- 2 Occasions in a Month
2) Collection of ODB –Not Exceeding Rs 10,000/- per Month-irrespective of Number
of Instruments
3) Free ABB/ATM card(Minimum Balance-Rs 5,000/-already existing)
10)VALUE ADDITIONS IN CD ACCOUNTS-wef 07.05.2004
Prepared by R.Vijayaraghavan 179
 Average quarterly balance of Rs25,000/- and above was maintained during the
previous quarter- eligible for value addition in the subsequent quarter.
1. DD/MT( Inland) not exceeding 2 occasions in a month –not exceeding
Rs10,000 per month-exempted from Exchange/Commission.
11)TRANSFER PRICE MECHANISM:

CO INTEREST RECEIVABLES- Uniform for all branches

All deposits-8.50%

CO INTERST PAYABLE
All loans except ageri-9.00%
For Agri adv-5%

12)Banks are required to report all , cash deposits and withdrawals of Rs 10 lakhs
and above-Monthly Statement to Regional Office.
13)Ceiling for immediate credit of outstation/ Local cheques –raised from Rs
7,500/- to Rs 15,000/-
14)Certificate of Deposits-Minimum Size-Rs 1 Lakh and in multiples of Rs 1 Lakh.
15)Section 138 NI act-Twice the amount of cheque or 2 years RI or both.-Criminal
Complaint should be filed with in 1 month of failure to pay the amount. The period
of 1 month would be commuted , from the day immediately following the day on
which the period of 15 days from the date of receipt of notice by the drawer
expired( If the Payee present the cheque to the Bank and it gets bounced the
period of 1 month would not get extended, once the notice is given)Notice to be
given with in 30 days of return-15 days time for party to pay-with in 30 days from
the date of expiry of 15 days notice period-Criminal complaint to be filed
16)Bullion Insurance Policy—Bullion at vault-Rs40 crores, Transit-Rs6.50 crores,
Counter-Rs5 Lakh, Jewels/Gold in Govt of India Mint-Rs50 lakhs
17) Service tax 10% + 3% Surcharge on ST
18)Capital Gain accounts Scheme 1988-SB a/c A-GL 1203, Deposit-B-1010
19) Transfer of Overdue deposit (unclaimed) to Central Office –if not claimed with in
5 years after due date-to be transferred to Unclaimed balances a/c maintained at
CO-on 10th Dec every year.
20)Staff pension-Sanction of overdraft agt pension for IOB staff pension
1. OD in SB/CD a/c
2. Int 10% p.a
3. Not applicable for family pensioners
4. during major festivals (where salary is given in advance)
5. Request +Undertaking
6. To be adjusted in current months pension.
7. Max amount-Last drawn pension-PMBS EMI

21)HUF cannot be a partner in a partnership firm. HUF is the creation of Hindu law
and Joint Hindu family business is outside the provisions of partnership act. Karta
or any other member of HUF can join a partnership firm only as an individual.
22) Maximum-per transaction limit for EFT/ECS dispensed with from 01.11.04.
Compensation for delayed remittance in NEFT-more than 2 days-SB rate
23) No service charges on ECS both debit and credit, Return-Rs50/- per transaction
No service Charges on NEFT Inward transactions-Outward-Up to rs 1 lac-
Rs5,above Rs1 lac-Rs25 per transaction.
RTGS-up to Rs5 lacs-Rs25/- , above Rs5 lacs-Rs50 per transaction(+ST)
24)Cheques could be revalidated, by the Drawer, by altering the dates, so as to give
fresh life for cheques for another 6 Months.
Prepared by R.Vijayaraghavan 180
25)Amount paid to a nominee or kept by a depositor in Joint names with another
person, payable to E or S , would not , on the death of the Depositor , constitute a
gift to the nominee or to the joint holder. It is a money in trust, payable to legal
heirs.
26)Claims- Deposits and credit Balances- Branches should not insist on production
of Succession Certificate irrespective of the amount involved.
Safe Custody/Locker/Pledged Jewels-Branch should not insist on letter of
Administration or Probate up to value Rs 25,000/-(even beyond Rs 25,000/- need
not insist if the claim is genuine.-in case of doubt , can be insisted, even the value
is below Rs 25,000/-) RBI has advised Banks, while making payment to the
Survivor(s)/Nominee of the deceased depositors. To desist from insisting on
production of succession certificate /lr of administration or probate etc or
obtaining indemnity from the survivors/nominee irrespective of the amount.
Time limit-Banks to settle the claim with in a period of 15 days-proof of
death/identification.
Claims DP-JM I-50,000, II-1 lac, III-2 lacs, IV-3 lacs, V-10 lacs, VI-20 lacs
FGM-50lacs, GM- Unlimited
Nomination claims:As per IBA model Scheme
i)New format of application to be submitted by nominee under deposit accounts
ii)Nominee to be identified with ration card , election id card, pan card or pass port
iii) specimen application form for surviving a/c holder in case of Joint accounts)for continuing
the account.
Settlement of Claims in respect of Missing persons
Sec 107/108 of Indian Evidence Act 1872. Presumption of death can be raised only after a
lapse of 7 years.
27)Discretionary powers for issue of Replacement Drafts- Unlimited.
28)RBI has given the freedom to Banks to fix interest rates on overdue Domestic
term deposits
29)Minimum period for a single deposit of Rs 1 lakh and above - 7 days.
30) Limitation Period for overdue deposits-3 Years from the Date of Demand.
31)Preservation period for COMPASS summaries- 5 Years.
32)Staff Committee-to meet once in a month(expenditure Max Rs25 per head.Staff-
Minimum 5 Max 7.
Branch head , II line, BS of Union, BR of officers’Associatin, 2 customers, (one
senior Citizen), one more staff. Copy of minute’s book to be forwarded to RO
33)Customers’ Meet-Open House. Max 50 Customers-to meet twice in a year(ap-
sep-1, Oct-March-1)
To be held at Branch. Max expenditure-Rs25 per head. Copy of minutes to be
Sent to RO.

34)DEPOSITS- FORECLOSURE CHARGES

Domestic & NRO-For duration less than 15 Days-No interest.

Above 15 days-
For deposits up to Rs 5 Lakhs-No foreclosure Charges. Applicable Interest
is payable( contracted interest or applicable int for the
period run whichever is less) Additional interest for Sr Citizens
is payable.
Above Rs 5 Lakhs-1% lesser than the applicable rates. Additional
interest for Sr Citizens/ or addl int if any for
above Rs 15 Lacs- not payable.
Addl int for staff payable
If overdue deposit renewed and closed before maturity before 15 days ( 7 Days
for deposits of Rs1 lac and above) from the date of renewal- No interest is payable
and overdue int paid to be recovered.
Prepared by R.Vijayaraghavan 181
 NRE Deposits-
closed before maturity before completion of 1 year-No interest is payable.
Beyond 1 year-1% lesser rate than the applicable rate.
Additional Interest for Rs 15 Lakhs and above- Not payable.
If renewed overdue deposit if closed before completion of 1 year from renewal date-
No interest is payable. Overdue interest paid is to be recovered.
14)Renewal of overdue deposits-Domestic, NRO, NRE Term deposits
Up to and inclusive of 14 Days- To be renewed from the date of maturity –interest
will as prevailing on the date of maturity of deposit.( Deposit to be renewed further
for a minimum period of 15 days( 7 days for Rs 15 lac and above deposits, 1 Year
for NRE Deposits)
Overdue period is more than 14 days- deposit to be renewed from the date of
presentation at the prevailing rate on the date of presentation. .Interest for overdue
period, is to be paid at simple rate, prevailing on the date of maturity or on date of
renewal whichever is lower, applicable for the overdue period. In case of NRE
Deposits ,if overdue period is less than 1 year , int rate for 1 year prevailing on the
date of maturity or renewal which ever is lower is to be taken)

FCNR Deposits-No interest is payable , if the Deposit is closed before maturity,

before 1 Year.
If closed prematurely after 1 year-Int for the period Run-1%
If closed prematurely for renewal purpose-Interest for the period run(wef 23.12.05)
38) Int rate on Term Deposits-Staff-NRE/FCNR/RFC deposits-should be the same
as rate for Public- add lint not payable.-applicable to NRE SB also

39) Issuance of additional cheque Books- For those who avail loan facilities from
other financial Institutions-for issuing post dated cheques- additional cheque books
may be issued subject to the following conditions
1. Only to SB account holders
2. Should have satisfactory operation of atleast 6 Months
3. No cheque should have been returned earlier for want of
funds
4. Prescribed charges to be recovered.

40) Instant credit- Immediate credit of outstation and local cheques up to face value
of Rs15,000 per instrument per customer.

41) ATM MANAGEMENT

to ensure Customers get assured service through ATMs ( even when connectivity to
the Branch system is not available ) a limit known as Stand in Authorisation
/Processing limit –SIP is introduced

withdrawal limit per Day SIP limit

Rs 15,000 Rs3,000
Rs10,000 Rs2,000
Rs 5,000 Rs1,000
Withdrawal limit is the limit upto which one can draw on a single day out of funds
available in his account. SIP limit will be used to make payments wherever the latest
balance in the account is not available for verification at the time of ATM operation.
Branch managers while approving the issue of card would also recommend the
appropriate limits on the face of the application-SIP limit to be fixed based on the
worth of the customer.

Prepared by R.Vijayaraghavan 182

42) Multiple Deposit Account-Plan 2 is modified to allow fixing of the unit amount by
the depositors themselves depending upon their requirements instead of a uniform
unit amount of Rs1,000/-. Minimum deposit is Rs10,000 and in multiples of Rs
1,000/- Size of the unit to be decided by the depositor-minimum period 6 Months-
Maximum period-10 Years

43) For opening a Bank account-/Deposit accounts exceeding Rs50,000 by cash -

PAN (Permanent account Number) or GIRN(General Index Registration Number) or
declaration in Form 60(Non agricultural) or Form 61(Agricultural) is required.( Sale or
Purchase of immovable property value of Rs 5 lacs or more, Purchase /sale of Motor
vehicle-PAN/GIR required)

Under Rule 114 B of IT act, Quoting of Pan number is mandatory in respect of

following transactions
1. Sale or purchase of immovable property valued at Rs5 lac or over
2. Sale or Purchase of Motor vehicle that requires registration.
3. Time deposits exceeding Rs 50,000 with a Banking Company
4. A deposit exceeding Rs50,000 with a Post Office
5.Contract of value exceeding Rs1 lac for sale or purchase of securities
6. Opening an account with a Banking company
7. Making an application for installation of Telephone connection
8. Payment to hotels for an amount over Rs25,000 at any one time
9.Payment in cash for purchase of DD/PO/BC for an amount equal to or over Rs
50,000/- during any day.
10.Deposit in cash aggregating Rs50,000/- or more with a Banking Co during any
one day.
11. Payment in cash in connection with Travel to any foreign country of an amount
exceeding Rs 20,000/- at any one time.
12. Making an application to any Banking Company for issue of a credit card
13. Payment of Rs50,000/- or more to a Mutual Fund Co for purchasing its units
14. Payment of Rs50,000/- or more to a Co for acquiring its
shares/debentures/bonds
15. Payment of Rs50,000/- or more to RBI for acquiring bonds
If a person has no PAN he has to give a declaration in Form 60
Rule 114 B is not applicable to1. Non Resident Indians2. Central/State Govt 3.
Persons received Agricultural income only(Form 61 to be given)
Rule 114 D- Copy of Form 60/61 to be forwarded to Director of Income Tax in two
instalments( Received up to up to 30 th Sep- by Oct 31st, up to 31st March- By April
44)-Declaration for opening the Bank account need not be sent to ITO .

45)TDS to be deducted if Interest amount exceeds Rs10,000/- per annum-F15G-

Others, F15H-Sr Citizens
46) Requirement of second signature of Authorised official in the following cases
1. In case of cheques/vouchers exceeding Rs20,000/--for cash,
Rs50,000/- for Transfer/Clearing
2. For all Debit vouchers relating to Suspense, Sundry Creditors, P& L , Loan
accounts.
3. Documents like LCs, LGs etc
COMLET-Common Letter to all Regional Offices( COMLET No will be allotted by
MSD)
47) DICGC-10 paise per annum per Rs100 for deposits.-Maximum cover Rs 1 lac.
48) RBI has asked the Banks to follow simple procedure & minimum documentation
for release of Balance in deceased a/c holder accounts which operate under e or s,
clause , a/cs which have nomination. RBI advised Banks to release balance in such
accounts , irrespective of credit balances with out insisting on succession
Prepared by R.Vijayaraghavan 183
certificate/lr of Admn/ Probate/Indemnity /Surety from the Survivor or nominee. For
income flows received after the death of the depositor-course of action to be taken
after proper authorization from the legal heirs. Banks may open an account Estate
of Sri. ….. the deceased to credit all such inflows –provided no withdrawals are
made from such accounts. Alternatively banks may return such payments to the
remitter & intimate the survivor/nominee/legal heir.
49)EPR account- Electronic Product s Realization a/c-new system of accounting-
reconciliation of electronic transfer. –GL2526-CO balances- asset side(GL2570
Mirror GL )
50)Centralized ATM monitoring & transaction switch connected to one Central ABB,
Nodal server called Internal Payment gateway(IPG), to which all ATMs & net worked
branches will be connected. The central Server will have the Branch code of 0001

51)Eligible criteria for declaration of dividend from Banks-CRAR-at least 11% for
previous 2 years& the accounting year. Net NPA less than 3%. Ceiling-Dividend
pay out ratio – should not exceed 40%
52)Under section 285 BA OF IT Act – Bank has to furnish annual information
Return regarding certain transactions. One such transaction is “ Cash Deposit s
aggregating to Rs10 lacs or more in a year in any SB a/c of a person maintained
with the Bank.
53)For opening Joint accounts in the name of more than 4 individuals-RO prior
permission to be obtained.

54) Purdhanishn -Illiterate –accounts not to be opened

No CD a/c in the name of Minor-with out prior approval of RO
No CD a/c in the name of Purdhanishn ladies with out RO approval.
55) As per NI act amendment, Definition of Cheque includes Electronic Image of a
truncated Cheque& a cheque in the electronic form.
56) UCN-Uniform Code Number
Part –I-7 digit+ 2 digit (new)
Part- II-7 digit
Part-I- First 3 digit—Bank Code, Next 4- Branch code, Last 2-NAIO –code
(NAIO- Non Administratively Independent Office)

Part-II—First 3 digits-District code, Next 3-Centre Code, Last digit-Population

Code

( Population Range-up to 9999-Rural, 10,000- Less than1 lac-SU, 1 lac to Less

than 10 lacs-Urban, 10 lacs and above -Metro)
BSR-4- Survey of ownership of Deposit
BSR-6- Survey of Debits to Deposit accounts.

57)Government Business-Turn over Commission-(wef 01.07.2005)

Receipts- -Rs45/per transaction
Payment other than pension- 9 paisa per Rs100( relief & Savings Bond)
Payment pension -Rs 60/- per transaction) .
Currency Chest Transactions-Minimum amount of Deposit-withdrawal from
Currency Chest will be Rs 1 lac and in multiples of Rs 50,000/-. Currency chest
should report all transactions to Link office on the same day – Link office should
consolidate and report to issuing office on the next working day. In case of delay
beyond three working days/ Wrong reporting- Penal Interest-
2%+ Bank rate..

Prepared by R.Vijayaraghavan 184

58)OLTAS- On line Tax Accounting System- Maximum number of days allowed for
crediting Tax collection-T+ 3 working days.
59)TIN-Tax Information Net Work.
60)Permissible period for remitting Govt revenues
Local Transaction (Collecting & focal Point Branch on the same city)-T+3
working days
Outstation Transactions-T+5 Working days.
Penalty- Delayed Period Interest-Bank Rate+2%p.a
Govt Business-Delayed period Interest wef 01.01.07
Only for the delayed period and not from the date of transaction
Rs 1 Lac and above-Bank rate+2%=8%
Below Rs 1 Lac-6% for delays upto 5 calendar days and for delays above 5 calendar
days Bank Rate+2%=8% for the full period of delay.
61)MICR- This is the process in which the instruments are mechanically sorted bank
wise in the fastest manner through Reader Sorter with the listing of Clearing
instruments simultaneously. RBI has advised Banks to ensure that all non MICR
instruments are phased out by 31.12.05. Here in after all instruments should be
in MICR format only even in Non MICR centres.
62) Tax exemption Limit for filing Return(IT)- Fin year 2009-10
Individual Female Sr Citizen
A 1,60,000- 10% A 191000- 10% A 240000- 10%
300000 300000 300000
A 300000- 14000+20% A300000- 11000+20% A 300000- 6000+20%
500000 500000 500000
A 500000 54000+30% A500000 51000+30% A 500000 46000+30%

63)EASIEST-Electronic Accounting System in Excise and Service Tax

64)As per Sec 35 of stamp act 1899, insufficient stamped documents(except
Promissory Note, Bill of Exchange,) can be admitted in evidence on payment of
duty+penalty(penalty Rs5 or 10 times of proper duty or deficianet whichever is
higher) WEF 18/04/06, even insufficient stamped Promissory note or Bill of
exchange will be admissible in evidence on payment of proper stamp duty along
with penalty.
65)Credit of pension amount to Joint account along with spouse,in whose favour
authorization for family pension exists in PPO in respect of Central civil, Railway
and IOB pension(F ors , Eor S operations allowed)
66)Claims payable by DICGC in respect of Deposit accounts-Joint depositors held in
the names of A&B and B&A to be treated as two separate accounts for Max claim
of Rs1 lac each.
67)ATM Captured Card-ATM Branch is permitted to hold the captured card for 2
working days(Excluding the day of capture) after that card to be punched.
68)Banks to follow STOCK approach for conceiving and to bring out new products
S-Secure and Scalable, T-Transparent in terms of conditions of usage,
O-Operationally resilient and efficient , C-Cost effective and reasonably priced, K-
Knowledgeable to staff and customers
69) Service Charges for speed clearing of cheques above Rs 1 lac-Rs 150/-per
instrument.

70) CD Ledger folio Charges free folios-

If avg balance above 2 lacs No ledger folio charges-all folios free
A 1 lac-2 lacs 10 folios free
A 50,000-1 lac 5 folios free
Prepared by R.Vijayaraghavan 185
A 25,000-50,000 3 folios free

SETTLEMENT OF CLAIMS- MODEL OPERATIONAL PROCEDUREOF IBA

1.Thereshold limit-Rs25,000/--simplified procedure
With out third party sureties
Claim form+death certificate+(certificate from Jamma In case of Muslims)+Legal
heirship certificate or affidavit + Indemnity from all legal heirs+Joint receipt from legal
heirs+Declaration of the guardian.
Time frame for settlement of claims
With in 15 days from the receipt of all documents provided by the Bank where the
claim is supported by the nomination/survivorship .
With in 2to 3 weeks-in other cases
COMPENSATION FOR INSTRUMENTS LOST IN TRANSIT
Delay in conveying the intimation reg loss –for the period of delay beyond the
stipulated time(7/10/14 days)
Further period of 14 days at SB rate. Beyond 14 days –TD rate.,>90 days-TD
rate+2%
Compensate the customer reasonable charges in getting duplicate
cheque/instruments on production of receipt.

Failed ATM Transactions: bank to reimburse to the customers, in case of

ATM failure, the amount wrongly debited with in amax period of 12 days from
the date of receipt of complaint. Compensation for delay-Rs100 per day.
In case of Drafts the term customer refers to the Purchaser or the beneficiary
and would not include third parties in whose favour the draft has been
endorsed.
Banks to install note sorting machines in branches having average daily cash
receipts of
Rs 1 crore and above- by march 2010,
Between 50 lacs and 1 cr-by March 2011.
As per BCSBI revised code Customers to be informed 3 months before
classifying their account as dormant/inoperative.
Banks may open SB/Term Deposits with out insisting on introduction by
existing account holders provided KYC norms are satisfied and documents 9id
, address proof) are obtained and branch satisfied with the bonafides of the
applicant as a respectable person and letter of thanks to be sent.
When close relatives viz wife, daughter, son ,parent etc who live with their
husband, father, mother ,son are not able to give resident proof, for opening
account, bank may obtain identity document and utility bill/address proof of the
relative with a declaration from the relative that the said person ois a relative
and is staying with him/her. Branches may get supplementary evidence such
as letter recd through post for further verification of the address.

Revised RTGS timings

Customer Inter bank
Monday-Friday 9.00 to 16.30 Hrs 9.00 to 18.00 hrs
Sat Day 9.00to 13.30 Hrs 9.00 to 15.00 hrs
Our bank has entered “Card Payment Acquiring Business” with Visa
International & Bank tech India Ltd.
Prepared by R.Vijayaraghavan 186
 In case of Term Deposits /unclaimed balances withdrawn with out renewal –
Simple Interest from Maturity date till date of payment at SB rate as prevailing
on the date of maturity.
SB interest on daily products from 01.04.2010.

UTN-Unique Transaction Number for IT payers.

RTGS-Funds that cannot be credited to the account of the beneficiary have to
be sent back to the sender’s account with in one and Half hours-return msg
format-R 42
Credit Card Service Provider-Yelamanchili Consultancy P ltd
Point of Sale Service Provider-Bank Tech India P ltd.
Free Personal accident Insurance Scheme
SB Silver, CD classic, RD Gold-Max 1 lac
SB Gold, CD Super-Rs5 lacs.
Max coverage irrespective of more no of accounts-Rs5 lacs
Customers will be compensated upto a maximum of Rs 1 lac , where
erroneous debits have taken place in the customers account either through our
fault or system fault. Ed approval is to be taken upto Rs75,000 and beyond
that CMD approval is to be taken.
In case of erroneous debits, bank shall arrange to complete the process of
verification with in 7 days, -if it does not involve a third party.
Max 1 month if third party is involved.
In case a cheque has been paid after stop payment instruction is ackd by the
bank, the bank will reverse such debits with in 2 working days of the
customer intimating the Bank.
In case of FEx transactions-Bank shall compensate the beneficiary of inward
remittance by payment of Interest at 2%+SB rate-in case the proceeds of
inward remittance are not paid with in 10 days from the receipt of remittance
advice from abroad for remittance upto equivalent of USD 5000.
Adverse movement of FEX rate-no compensation is payable.
Cooling period-will not exceed 21 days.
In case of cheques lost in transit-intimation of loss conveyed to the customer
beyond the time limit of 7/10/14 days-int will be paid as meant for collection
delay. In addition Bank will pay int for further period of 15 days at SB rate. To
provide time for obtaining duplicate instrument.

The term CRM denotes in Banking

Country Risk Management
Customer Relationship Management
Credit Risk Management.

Prepared by R.Vijayaraghavan 187

INTER BRANCH TRANSACTIONS IN CBS
SB In Rs CASH CLG TRANSFER
Credit 50,000 20 lacs 20 lacs
Debit 1,000(W slip-III 10 lacs 10 lacs
party)
10,000(W/slip-
A/c Holder)
1 lac(Cheque)
CD/CC Credit 50,000 10 crores 10 crores
NCR with prior
approval of RO
Debit 50,000 2 crores 2 crores
DEPOSITS Credit 50,000(RD) Nil 1 lac(RD
instlaments)
Debit NIl Nil 10 lacs( only
Renewal-
conditions no
change in the
name/mandate)
Advances Credit 50,000 10 lacs 10 lacs
Debit NIl Nil Nil
BC/DD Debit 50,000 No ceiling No ceiling
Tax No restriction of
Collection Limit for system
generated
entries
NCR-No Ceiling Restrictions

Scheme of Incentives and penalties based on the performance in Customer

Service.
A. Incentives.
S Nature Of service Particulars of Subvention/Incentives
No
1 Currency Chests having a. Capital Cost: 50% of capital expenditure-
less than 1 lakh population ceiling Rs50 lac per chest( NE-100% of capital
in under banked States. cost Ceiling Rs50 lacs)
b. Revenue Cost:: 50% of revenue expenditure
for the First 3years(NE -5 Years)
2 Exchange of soiled/ Exchange of soiled notes/mutilated notes over
Exchange of the counter at all bank branches
soiled/mutilated notes 1.Exchange of soiled notes-One rupee per
packet in Rs5,10,20 and 50 denomination.
2.Adjudication of mutilated notes-Rs2 per
piece.
3 Distribution of coins over Rs 25 per bag,
the counter
4 Establishment of coin a. Of capital cost
vending machine 1.Urban/Metro centres-50%
2. Rural/SU centres-75%
b. Operational cost @Rs25 per bag.

Prepared by R.Vijayaraghavan 188

1. Shortage in the soiled note 1.Uo to Rs100 denomination-Penalty
remittances(Tolerance level-Max 2 Rs100 per piece in addition to the
piece per million) loss
2.Rd 500, 1000-denomination-Penalty
Rs 5000/- per piece in addition to the
loss.
2 a. Counterfeit notes detected in 1.up to Rs100 denomination-Rs1000
soiled note remittances and chest per piece
balances 2.Rs 500, 10000denomination-
Tolerance level: Up to June2009-2 Rs5000 per piece
piece per million in each remittance NB: in case of 3 instances of penalty,
After July 09-1 piece per million for ant currency chest branch, a
penalty of Rs5 lac will be imposed
and put in public domain.
b. Detection of mutilated/deliberately Rs 5000 for each piece detected.
cut notes
3 Non compliance with operational Penalty of Rs 5000 for each
guidelines by currency chests irregularity and it will be enhanced to
1.Non functioning of CCTV Rs10000 in each case of repetition.
2.Branch cash/u kept in strong room
3.Treasure kept outside the strong
room.
4.Non utilization of note sorting
machine
4 Violation of any term of agreement 1.Rs 10000 for any violation of
1.Non issue of coins over the counter agreement
despite having stock 2.Rs 5 lac in case thee are more than
2.refusal to exchange soled notes(all 5 instances of violation by the branch.
bank branches)/adjudicate mutilated The same will be placed in public
notes(currency chest branches) domain.
3.Not conducting surprise verification
of chest balances at least at
bimonthly intervals, by officials
unconnected with the custody there
of.
4.Non extending facilities to linked
branches of other banks.
5.non acceptance of lower
denomination notes(Rs 10,20,50)
6.Detection of mutilated/counterfeit
notes in re issuable packets prepared
by the chest branches

Prepared by R.Vijayaraghavan 189

FOREIGN EXCHANGE

• EXPORT DECLARATION FORMS-GR, SDF, PP, SOFTEX. (VP/COD

DISPENSED WITH)

• EXEMPTIONS-Export of goods/software not exceeding USD 25000/- in value.

By way of gifts- Rs 5 lac in value per annum.
• In terms of Regulation 9, export proceeds are required to be realized with in a
period of 6 months from the date of shipment.( time allowed ,presently,up to 12
Months) In cases of exports to approved Warehouses abroad, the proceeds have
to be realized with in 15 months from the date of shipment. (The requirement of
repatriation of proceeds on due dates has been dispensed with) Ads are
empowered to allow for extension of time.

• Export of goods on elongated credit terms beyond 6 months require prior

approval of RBI.

• Limit for advance remittance for imports-without bank guarantee-

USD1,00,000.(Ads can issue on certain conditions up to USD50,00,000.)

• Limit for remittances for imports( documents received direct by importers-

USD 3 00,000

SURRENDER OF FOREIGN EXCHANGE-Any person who has drawn foreign

exchange for any purpose, but has not utilized the same should surrender it with
in 6 months from the date of acquisition. For unspent FEX it is 6 months for FC
notes and for TCs from the date of return.(free to retain USD 2000 or credit
RFC with out limit)
For travel abroad, Travelers are allowed to purchase FC notes and coins only
upto USD 2000/ Balance can be in the form of TCs and Bank drafts. Exceptions
are- Travelers to Iraq & Libya-not exceeding USD 5000 or equivalent. To Islamic
Republic of Iran, Russian Federation and other Republics of CSIs-entire Fex.

• In terms of regulations 5, that any foreign exchange due or accrued should be

sold to an authorized dealer with in a period of 7 days of its receipt and in all
other cases with in 90 days of its receipt.
• Forfaiting-Export Finance- Financing of Medium term Export Receivables- with
out recourse
• Nostro-Foreign Currency Account, Vostro-Rupee account

UCP 600-ICC 2007(WEF 01.07.07)

1.Replaces UCP500
2.clear definitions
3.Negotiation has been defined as Advancing or agreeing to advance funds to the
beneficiary on or before the banking day on which reimbursement is due.
4. Deters Banks from incorporating excessive good descriptions.
5. Beneficiary may present the documents to a nominated bank or to the issuing
bank.
6. Standard for Examination of documents-time limit for a bank reduced from Seven
Banking days to 5 Banking days, following the receipt of documents.
7. Force Majuro-Acts of Terrorism included.
Prepared by R.Vijayaraghavan 190
Total No of articles 39

Interpretations For the purpose of these rules:

Where applicable, words in the singular include the plural and in the plural include the
singular.
A credit is irrevocable even if there is no indication to that effect.
A document may be signed by handwriting, facsimile signature, perforated signature, stamp,
symbol or any other mechanical or electronic method of authentication.
A requirement for a document to be legalized, visaed, certified or similar will be satisfied by
any signature, mark, stamp or label on the document which appears to satisfy that
requirement.
Branches of a bank in different countries are considered to be separate banks.
Terms such as "first class", "well known", "qualified", "independent", "official", "competent" or
"local" used to describe the issuer of a document allow any issuer except the beneficiary to
issue that document.
Unless required to be used in a document, words such as "prompt", "immediately" or "as
soon as possible" will be disregarded.
The expression "on or about" or similar will be interpreted as a stipulation that an event is to
occur during a period of five calendar days before until five calendar days after the specified
date, both start and end dates included.
The words "to", "until", "till", "from" and "between" when used to determine a period of
shipment include the date or dates mentioned, and the words "before" and "after" exclude
the date mentioned.
The words "from" and "after" when used to determine a maturity date exclude the date
mentioned.
The terms "first half" and "second half" of a month shall be construed respectively as the 1st
to the 15th and the 16th to the last day of the month, all dates inclusive.
The terms "beginning", "middle" and "end" of a month shall be construed respectively as the
1st to the 10th, the 11th to the 20th and the 21st to the last day of the month, all dates
inclusive.

EXCHANGE CONTROL MANUEL(16 Chapters)

Amended up to May 2000. Thereafter , wef June 2000, new Regulations /guidelines
notified by RBI , under FEMA 1999. RBI issues Master Circulars on Imports and
Exports and other important topics every year July 1st with sun set clause of 1 year.

FERA 1973 Vs FEMA 1999

SUN SET CLAUSE-2 YEARS FOR TRANSITION FROM FERA TO FEMA.

• FERA 1973 IS REPEALED.

• While FERA is for conservation of foreign exchange resources, FEMA is for

facilitating external trade and payments and for promoting the orderly
maintenance of the foreign exchange market in India.

• Under FEMA, Foreign exchange transactions have been divided into two broad
categories-current account transactions and capital account transactions.

• Transactions that alter the assets and liabilities of a person resident outside India
or of a person resident in India have been classified as capital account
transactions. All other transactions would be current account transactions.

Prepared by R.Vijayaraghavan 191

• As per Govt. Notifications only 7 types of current account transactions are
prohibited.
• The new act is a civil legislation. The onus of proving contravention rests with the
enforcement authorities and not on the person.

CAPITAL ACCOUNT TRANSACTIONS:

In terms of Section 2(e) of FEMA, ‘Capital Account Transaction’ means a

transaction that alters the assets or liabilities including contingent liabilities outside
India of a person resident in India or vice versa. Thus acquiring assets abroad other
than current assets, taking of loans, dealing of entities, would all amount to capital
account transactions.

FROM A4: is required in respect of Non Resident Account transactions where Credit
is for Rs1,00,000 and above( except int) and in respect of debit , if transaction
relates to investments in shares /securities/CP/or for the purchase of immovable
properties in India and the amount involved is Rs 1 lac or more. A4 need not be
forwarded to RBI but should be retained with AD.( as far as possible AD should have
the form completed by the resident party to the transaction or complete it themselves
after obtaining the requisite particulars)

MISCLLANEOUS REMITTANCES.

PURPOSE REVISED LIMIT (IN USD)

Travel-Private 10,000 per financial year.
Business trip 25,000
GIFT included in LRS
• DONATION included in LRS
• EMPLOYMENT 1,00,000
• EMIGRATION 1,00,000
• MAINTENANCE OF CLOSE RELATIVE 1,00,000
• STUDIES ABROAD 1,00,000
• MEDICAL TREATMENT 1,00,000( WITH OUT ESTMATE)
• INTERNATIONAL CREDIT CARD/ applicable card limit-there is no
monetary ceiling
ATM CARD/DEBIT CARD
 MISC REMITTANCE 5000( With out Documentary
Evidence raised from USD 500)

 LRS-Liberalized remittance scheme-USD 200,000 per financial year for any

purpose( for any current account or Capital account or combination of both)
 Remittance by NRI/PIO-out of balances in NRO a/c-

1. Current Income like Rent/ Dividend /Pension/ Int etc

2. Remittances out of NRO a/c of NRI/PIO up to USD 1 million per financial year
for all bonafide purposes
3. Amount not exceeding USD 1 million per year , representing sale proceeds of
assets acquired /out of rupee funs/FC funds/ by way of inheritance/settlement.
Immovable property-(lock in period 10 years-dispensed with). Other financial
assets- no lock in period. By inheritance/legacy-no lock in period.
( on production of Undertaking + Certificate from CA)

Prepared by R.Vijayaraghavan 192

 • NOT ORDINARY RESIDENT: A person would be a not ordinary resident in India
during a year (April 1 to March 31) if either of the condition below were satisfied.
If he has been a non-resident in 2 or more years of the preceding 10 years and
the need not be in succession. Or in the seven years proceeding those years,
the individual has not been in India for 730 days more (that is Maximum days
stay in India should be 729 days or less during 7 years period)
Persons qualifying as NOR are exempted from Income Tax on their foreign
income regardless of their no. of days stay in India, subject to the condition that
the Foreign Income should not have been derived from a business controlled or
profession set up in India. Once a person is NRI for 2 successive years he will
be eligible to become a NOR for 9 subsequent years.

TAX CONCESSIONS FOR RETURNING INDIANS: Returning Indians are

eligible for concessional tax treatments in respect of Income from Foreign
exchange assets (Investment Income)
Shares, Debentures, Deposits –Income Tax charged at flat rate of 20% under
section 115 H. However the NRI has to forgo the deduction permissible under
Income Tax for the assessment year. For subsequent years, if the domestic rate
of IT is found to be beneficial to him, the NRI can opt for that.

INTERNATIONAL BANKING STATISTICS-To improve the coverage, Quality

and timeliness of data on international claims and liabilities of the Banking sector
RBI has introduced a set of new returns known as International Banking
Statistics (IBS). This would enable the country to meet the data standards of
International Financial Institutions such as the Bank for International
Settlements. (BIS). RBI gets balance of payment statistics through R-Returns
and the International Assets and Liabilities Statistics through IBS returns. Both
the returns help the RBI in taking policy decisions.

The IBS, a quarterly statement has two formats.

LBS-Locational Banking Statistics for Indian Branches.
CBS-Consolidated Banking Statistics of all branches including Foreign
Branches.
LBS relates to balance sheet information and the items to be reported under
LBS are loans, deposits, securities, and other assets and liabilities.
CBS relates to comprehensive information on international assets of all
branches in India and abroad and the items to be reported are balances placed
with the banks, loans and advances to banks, holding of securities and equity
capital.

Loan to a resident from close relative outside India-USD 250,000/-free of

interest-Minimum maturity period-1 Year..
EEFC ACCOUNT:
All category including Individual and trade-Up to 100% of Foreign Exchange
earnings
NO DOCUMENTATION FOR SMALL VALUE REMITTANCE: ADs can release
upto USD 5,000, on the basis of simple letter from resident individuals( A2 need
not be insisted upon). Payment to be made by cheque.

Prepared by R.Vijayaraghavan 193

 EVIDENCE OF IMPORT: AD should secure documentary evidence-if value
exceeds USD 1,00,000. (with in 3 Months from date of remittance)
BEF STATEMENT-Half Yearly-June/December for amount exceeding USD 1,
00,000/--cases where Documentary evidence for Import not produced, with in 6
months from the date of remittance.

• For amount up to Rs 5,00,000/-A1,A2 to be preserved in the Branches.

Above Rs 5,00,000-to be sent to RBI along with R returns.
• Duplicate copies of GR/PP/SOFTEX- need not be sent with R returns-to
be preserved in Branches.

RESIDENTS CAN HOLD FOREIGN CURRENCY ACCOUNTS:

Resident can now open, hold and maintain a Foreign Currency Account in India. The
Reserve Bank Of India, has announced a scheme under which resident Indians are
permitted to maintain a Foreign Currency Account Called “Resident Foreign
Currency (Domestic)Account”. Indian Residents can keep foreign Exchange in
excess of $2000 (permissible limit to hold Foreign currency) in any foreign currency
in this account.

EXPORTS-EXTENSION BEYOND PERMITTED PERIOD

AD Category I Banks can extend the period of realization, beyond 6
months(presently 12 Months) from the date of shipment, up to period of 6 months at
a time, irrespective of value (subject to conditions)

EXPORT-WRITE OFF UNREALIZED EXPORT BILLS

Status holders are permitted to write off outstandings up to an annual limit of 5% of
average annual realization(during last 3 financial years) or up to 10% of export
proceeds during a financial year which ever is higher

All other exporters-10% of export proceeds due

EXPORT-REDUCTION IN INVOICE VALUE
Ad-I can allow reduction in invoice value up to 25% of invoice
IMPORT
Credit report on the overseas supplier (where the import documents are received
directly) need not be obtained in cases where the invoice value does not exceed
USD 100,000.

FAQ-FOREIGN EXCHANGE(Contd..)
1) Time Limit for Securing Unsecured Packing Credit- PC should be secured with in
minimum period of 30 days from the date of 1st disbursement.

2) EEFC- A/C-Interest on EEFC accounts-Nil, No Credit facilities can be given.

Units in EPZ, EHTP,STP, 100% EOU-100% of Realized proceeds.
Individual professionals-100% of realized proceeds
Others - 100% of Realized proceeds.
(EEFC Term Deposit Scheme Withdrawn)

3) ECGC cover under Whole Turn over comes under ECIB from 01.07.08.
4) WTPC Insurance 1.Maximum 100 Lacs per Borrower with out prior approval of

Prepared by R.Vijayaraghavan 194

 ECGC.

2. Premiuum- 6.50paise per Rs 100- to be debited to Borrowers

account.
3. PC up to 360 days with out ECGC approval.
4. Maximum liability Rs350 crore

4) WTPS Insurance-- 1. Maximum rs 100 lacs with out prior approval of ECGC.
2. Premium 5.50 paise per Rs 100-to be borne by the Banks.
3. Maximum liability-Rs175 crores.
Branches should ensure that ECGC’s Shippers policy is obtained by the
exporters for all Non LC bills and Bills under LCs are negotiated with out
discrepancy.
5) Export Production Finance Guarantee-Covers cases where the cost of production
exceeds FOB
value.
Export Finance Guarantee - Covers finance against Government
Incentives receivables.
Export Performance Guarantee - Covers guarantees executed by the
exporters.
Transfer Guarantee - Covers loss against confirmation of LC.

Exchange Fluctuation Risk Cover- Covers exports of Exports of Capital Goods.

6) SOFTEX FORMS-Export Declaration Form for export of Soft ware-in Triplicate.
7) Min Deposit for FCNR(B)-USD 1,000, GBP-1,000,EUR-1,000,JPY-1,00,000,
AUD, CAD-1,000.
8) Min FCNR Deposits for SFD/FDR-USD10,000, GBP-6,000, EUR-8,000.
9) FCNR – 5 Maturity periods- 1Y-L 2Y, 2Y- L3Y, 3Y-L4Y, 4Y-L5Y,5 Y only.

10)Supplementary to UCP 600 for electronic presentation-e UCP

11)Time limit for clearing Export Proposals-
Sanction of Fresh/Enhanced Credit Limits-45 Days
Renewal of existing limits -30 Days
Sanction of Adhoc Limits -15 Days
12)Packing Credit Advance –becomes overdue
On expiry of the period given in sanction or after the due date of shipment given
in LC whichever is earlier.
13)Insurance policy under LC must be in the currency of the Credit.-to be taken for
CIF VALUE+10%-Date of Insurance Policy must be on or before the date of
shipment.
14)The policy that covers all risks of loss of or damage to the goods insured and is
the widest cover.-
ICC-A-Institute Cargo Clause-(A)
15)Marine Insurance Policy is a contract of Indemnity.
16)Transferable credit- can be transferred only once- in favour of Second Beneficiary
or several second beneficiaries.
17)Back to Back letter of credit is called Countervailing Credit.
18) Time limit for Issuing Bank to scrutinize the documents for rejection-5 Banking
Days.
19)If the credit does not specify the period of time for presentation of documents,
Documents to be presented with in 21 Days after the date of issuance of
Transport Documents.(But to be presented on or before the expiry date of
Credit)

Prepared by R.Vijayaraghavan 195

20)Validity Date of Letter of Credit-Should not fall beyond 15 Days from the last date
for shipment (permitted under the License)
21)ICC 600- covers Uniform Customs and Practice for Documentary credits.
ICC 645- International Standard Banking Practice-ISBP-enforce uniformity in
scrutinizing documents.
ISP 98- International Standard Practices.
22)STANDBY LETTERS OF CREDIT- A stand by LC is an irrevocable, independent
documentary and binding undertaking. It is akin to Letter Of Guarantee(LG) . In
countries where issuance of LG is not in vogue(like in USA & Canada) Standby
LC is used to guarantee payment. In other words, drawing under standby LC will
arise only when there is non performance of the underlying contract. ICC
publication ICC 590 called ISP 98 covers Stand by LC.
23)Limit for advance remittance for imports- USD 500,000/- or its equivalent with out
any bank guarantee. If it exceeds USD 100,000/- irrevocable LC or Guarantee
from an International Bank of repute situate outside India or guarantee from an
Ad in India.(Relaxation up to USD 50,00,000 on certain conditions.)
24)Limit for issuance of Bank Guarantees on behalf of Service Importers-USD
500,000-Resident customer. USD 100,000
-(PSU>Govt U,GOI-beyond which MF approval is required.
25)Limit for remittance of salary of Foreign Nationals-up to 75% of the salary.
26)ConsolidatedA1/A2 forms- software exporters and other entities required to make
recurring remittances may file consolidated A1/A2 forms –giving complete details
of transactions made. This may be filled on a fortnightly basis.
27) The limit for remittance with out documentation formalities raised from USD 500
to USD 5000 for all permissible transactions. No documents including A2 need be
obtained. A simple letter will do. Payment should be made by a cheque drawn on
the applicants account.
28)Resident individuals can remit up to USD 200,000/- per financial year ( for any
capital or Current account transaction or a combination of both) or acquire and
hold immovable properties or share or any other asset outside India with out RBI
approval. Under the Liberalized remittance scheme, individuals can maintain and
hold FC accounts with a Bank outside India for making remittance under the
scheme. This includes Gift/Donation etc.Ads may release Fex upto USD100,000
each for employment , emigration, Medical treatment abroad etc.
29) Limit for gift of goods , accompanied by a declaration by the exporter as to the
value of goods has been raised from Rs One Lakh to Five Lakhs per annum.
30)Receipt of Import Bills/Documents direct by Importers /Remittances- limit for ADs
raised to USD 300,000/-
31)RBI has now waived the submission of declaration in form GR/SDF/PP/SOFTEX
in respect of export of goods and software of value not exceeding USD 25000 or
its equivalent

32)On the realization of export proceeds , the duplicate copies of GR/PP/AND

SOFTEX and exchange control copies of the shipping bills together with related
Statutory declaration forms shall be retained by Authorised Dealers.
33)XOS- need not be reported in XOS up to export value of USD 25,000-Half yearly
basis-June & December –Export bills O/S beyond 6 Months from the date of
export – to be submitted with in 10 days
34)ICC publication 645- for examination of documents under UCPDC 500. It is
called ISBP-International standard Banking Practice.-to overcome the problem of
rejection of credit complying documents drawn under LC on biased grounds.
35)Ads can grant rupee loans to NRIs( as per policy approved by their board based
on directives issued by DBOD) and the repayment of such loans can be out of
fresh remittances or out of funds held in NRE/NRO/FCNR for permitted activities.
36)FIRPS-withdrawn from March 04
Prepared by R.Vijayaraghavan 196
37)Indian students studying abroad to be treated as NRIs.

38)R-Return-discontinuance of submission of certain forms-

A1&A2- up to equivalent of Rs500,000/- to be preserved at the Branch. For
remittance above equivalent of Rs5,00,000/- to be sent to RBI with R returns.
GR/PP/SOFTEX-Duplicate copies duly certified after realization of export
proceeds –to be retained at the Branch.
cutoff limit above which AD to follow and verify the evidence of Import-
Usd1,00,000/-
R-Return-FET-ERS Foreign Exchange Transactions –Electronic Reporting
System
39)FETREM-Foreign Exchange Transactions Reporting through Electronic Medium.
40)Check-21- Collection Of Cheques payable in USA.
41) Limit for FEX-Gift- included in LRS
BTQ-USD 10,000
Gift parcel-Rs 5 Lakh.
Advance remittance for imports- with out Bank Guarantees-
USD1,00,000/-
SDF-Statutory Declaration Forms
EDI-Electronic Data Interchange
eUCP-UCP Supplement for Electronic Presentation

43) Release for foreign exchange for studies-Max-USD 1,00,000/-

Remittance in cash can be accepted up to Rs 50,000/- for Study
For BTQ- Travel -up to Rs 50,000/- by cash.
For Imports- NO Cash transaction- Through A/C only.Payment in cash exceeding
Rs20,000 require PAN number.
.
45) How much FEX can be brought in- With out limit. If aggregate in FC notes, Bank
drafts, TCs, exceeds USD 10,000 –( or the value Foreign Currency exceeds USD
5000 or its equivalent) –to be declared in CDF on arrival in India.

46) How much FEx can be purchased in FC notes for travel abroad?
Travelers are allowed to purchase Fc notes/Coins only upto USD
2,000.balances can be taken in the form of Tcs or Bank drafts.
Exceptions are a. Travelers proceeding to Iraq and Libya-not exceeding USD
5000 or =
b. to Islamic republic of Iran, Republic of CIS-entire FEx
47)Swap Charges- Forward Contracts: Swap charges to be recovered
Up front from the Customer on the date of cancellation, while Swap gains
relating to cancelled transactions will be passed onto the customer, only
on the date of maturity of cancelled contract.

48) FCRA 1976- associations having a definite cultural ,economic

educational, religious and social programs should get themselves
registered with the ministry of Home affairs, before receiving any foreign
contribution. Such Foreign contribution should be received only through
the designated bank branch.

49) Banks may permit a resident POA holder to remit through normal banking
channels funds out of the balances in NRE a/c to the non resident a/c holder,
provided specific powers are given.
50) Liberalized Remittance Scheme of USD 200,000/- for resident individuals –is
not permitted to Non cooperative Countries& Territories ( NCCTS) viz Cook
Prepared by R.Vijayaraghavan 197
 islands, Egypt, Guctemala, Indonesia, Myanmar,Nauru, Nigeria, Phillippines and
Ukraine as identified by Financial action task force.
51) TOD-NRE SB-Max Rs50,000/- to be adjusted with in 2 weeks.
52) NTP-for all bills in FC -25 days(general)
53) Period Of Crystallization of export Bills-on expiry of 30 days from the
Notional due date(Notional Due date=Normal Transit Period+usance
period+Grace period).
54) Exchange loss arising out of crystallization is recovered from the Exporter.
Similarly exchange gain , if any, will be passed on to the exporter at the time of
Crystallization of unpaid export Bills.
55) Banks are free to allow remittances for maintenance of close relatives
abroad not exceeding net salary of a person who is resident in India and is a
citizen of foreign state other than Pakistan.
56) For disposal of Credit applications to exporters in SME sector-should be with
in the Export Loan application time schedule or with in the time schedule
prescribed for SME sector which ever is less

57) Import Letter of Credit-Certificate issued by Societe Generale De

Surveillance(SGS)- Branch managers do not have discretion to waive pre
inspection certificate-RMs may permit waiver of SGS clause for preshipment
inspection, report on Vessel, age of vessel, on a case to case basis and on
merits.(branch power and RO power) for other cases GM in CO, FGM may
permit waiver.
58) Export Credit-Discretion to reduce interest- Sanctioning authority from the
Level of GM are empowered, on a case to case basis, subject to complying with
4 out of 7 parameters prescribed.
59) For purchase of USD less than 200-Photocopies of identification documents
need not be kept on record-details to be maintained.
Encashment of FEX between USD 200 to USD 2000-Photocopies of identification
docs to be maintained upto 1 year and till completion of Statutory audit.
Encashment in excess of USD 2000-to be maintained upto 5 years.
60) Limit for payment in cash-by foreign visitors/NRIs- Up to USD 2000 or its
equivalent
61) AD Category I Banks can extend the period of realization beyond 6 months
from the date of shipment up to a period of 6 months at a time, irrespective of
invoice value(subject to conditions)
62)Write off unrealized Export Bills:
Status holders are permitted to write off o/s bills upto an annual limit of 5% of
average annual realization(during last 3 years) or upto10% of exports proceeds
due during a financial year which ever is higher.( all other exporters-10% of
export proceeds due)
63) Reduction in invoice value-AD-I can allow reduction in invoice value upto
25% of invoice.
64) Credit Report on the overseas supplier(Where the import documents are
received directly) need not be obtained in cases where invoice value does not
exceed USD 100,000/-
65) Diamond Dollar Account-Maximum 5 accounts
66) Advance payment against exports-Shipment of goods to be made with in 1
year from the date of receipt of adv payment. Interest rate should not exceed
Libor+100 basis points.
67) Limits for resident individuals to book forward contracts (with out production
of underlying docs) –USD 100,000

Prepared by R.Vijayaraghavan 198

 Forward Contracts will be automatically cancelled on 7th working day after the
maturity date of contract(Sat days will be excluded)
For Non Trade remittances upto USD 5000 and Trade Remittances up to USD
500/- Branch to obtain simplified application cum declaration form.
ECB-2 to be submitted with in 5 days from the close of the month-to be
obtained from the borrower.
FC-GBR-with in 30 days from the date of inward remittance.
Trade Credit return-With in 5 days from the closure of the month
Libralized Remittance return-with in 5 days from the closure of the month.
Maximum amount a Bank can sanction to an individual borrower with out prior
approval of ECGC-Rs 100 lacs.
No remittance shall be made to a Non resident(except in case of certain
personal remittances) unless a no objection certificate obtained from It
dept.NOC need not be insisted upon ,if a person furnishes an undertaking in
15CA(in duplicate) and 15CB(certificate from CA in duplicate)

Prepared by R.Vijayaraghavan 199

ADVANCES

RBI prohibits granting of advances against the security of Non resident Deposit
accounts on applications made by the mandate holder/POA holder. Branches should
continue to grant such advances only on the application and execution of documents
by NR customers only.

Branches are required to furnish copies of loan documents to the borrowers with out
waiting for a request from the borrower and obtain ack from the borrower on the
second copy of the sanction advice.

ACCOUNT TREATMENT OF RECOVERIES IN NON PERFORMING ASSETS

(ADV/289/28/12/1998)

Branches should appropriate the recovery in NPA first towards un-debited interest
and the surplus if any should go to adjustment of principal dues. For NPA A/Cs
branches should maintain a separate register (un-debited interest register) to record
the interest that have fallen due which could not be debited to borrowers a/c. No
entry should be passed in the borrowers A/C. In cases of suit filed-decreed a/cs and
compromise cases, any recovery on suit filed a/cs should be appropriate towards
book outstanding only under intimation to Regional Office.

CASH CREDIT AGAINST SHARES AND DEBENTURES.

According to revised instructions there need not be a definite repayment program by
way of phased reduction in drawing power. But CC a/c s should be adjusted with in
36 months.
ALLOWING OPERATIONS IN NPA ACCOUNTS
Branch can recommend to CO/RO for allowing operations in NPA a/cs. The unit
should be a going concern. Branch should study the future prospects. Exposure in
the account should not be increased from the level of O/S as on the date of
recommending. Branch may recommend to RO/CO, TO RETAIN A MINIMUM OF
10% Of each credit coming to the account towards adjustment of overdue instalment
/ interest. Regional Managers irrespective of their grade can permit Branches to
allow operations in such NPA accounts, which enjoy fund based credit limits upto Rs
5 lakhs. For above Rs 5 lakhs, it should be reported to central office. In case of CC
accounts, of the remaining 90% of credits, cash withdrawal can be allowed up to a
maximum of 25%

REVERSAL OF INCOME
If any advance, including bills becomes NPA, as at the close of any year, Int accrued
and credited to Income account in the corresponding previous year, should be
reversed or provided for, if the same is not realized. This will apply to Govt
guaranteed accounts also. In respect of NPA a/cs , fees& Commission and similar
income that have accrued should cease to accrue in the current period and should
be reversed or provided for with reference to past periods, if remain uncollected.

Prepared by R.Vijayaraghavan 200

REPORT ON WILFUL DEFAULTERS: Banks and FI were asked to report all cases
of willful default, which occurred or were detected after 31/03/1999,on a quarterly
basis. The information on willful defaulters was expected to cover all NPAS with o/s
aggregating to Rs 25 lakh and above.

CGTMSE-Credit Guarantee Fund Trust for Micro and Small Enterprises(Trust

Name)
CGFSMSE-Credit Guarantee Fund Scheme for MSE(Scheme Name)
1) In operation wef August 2000(old scheme)-set up by Govt.Of India with SIDBI.
2) Covers eligible credit by Banks up to Rs 100 Lakhs in respect of a Single
Borrower.-covers both Manufacturing and Service Industries.
3) Exemption limit for obtention of Colllateral Securities-Rs 5 Lakhs.
4) Covers Credit Limit up to Rs 100 lakhs.-Term loan/Working Capital.
5) Rate of Interest should not be more than PLR+3%
6) As per S.L.Kapur Committee.
7) Claim period- Should apply for guarantee cover, in respect of credit sanctioned
during the quarter, prior to the expiry of the following Quarter.
8) Penalty for delayed remittance-4% +Bank rate.
9) Lock in period-18 Months from the date of last disbursement or from the date of
payment of guarantee fee which ever is later.(Interest at Bank rate for delay
beyond 30 days)
10)For prompt payment of dues to Small units(SME), Corporate enjoying credit
limits of more than Rs10 crore and above have to give a declaration once in a
quarter that the payment to Small enterprises suppliers, which are due are paid
promptly.

Modifications- wef 01.02.05, Banks are permitted to extend addl TL/enhanced

WC to borrowers already covered, by taking collateral/TPG by covering addl
facilities only.
Scope for CGS has been widened to cover all PMRY/ Other loans granted
to SSI/SSSBE
One time guarantee fee of 1.50% for SSI borrowers, enjoying credit limits upto Rs10
lacs, will be reimbursed after a period of 5 years or at the closure of loan whichever
is earlier.
Guarantee fee & Annual Service Fee
Guarantee Fee
Guarantee Fee Annual Fee
General Up to Rs 5 lacs 1.00% on limit 0.50%
Above Rs 5 lacs 1.50% 0.75%
North East Region Up to Rs50 lacs 0.75% 0.50%
Above Rs50 lacs 1.50% 0.75%

One time guarantee fee shall be paid upfront with in 30 days from the date of
first disbursement of credit facility or 30 days from the date of demand
advice(CGDAN) of guarantee fee whichever is later or as specified.Annual
service fee to be paid on or before 31st May each year. Or any other specified
date. Penal interest Bank rate+4% for delay.
The trust will pay 75% of the guaranteed amount with in 30 days of claim. Int for
the period of delay beyond 30 days-Bank rate.
Every amount recovered and due to be paid to the Trust shall be paid with in
30 days. Int for delayed payment beyond 30 days-Bank rate+4%
Amount in default-means principal+ int o/s as on the date of account becoming
Prepared by R.Vijayaraghavan 201
 NPA or on the date of lodgment of claim which ever is lower.

Extent of Guarantee Cover

category Micro Women ent/NE All others
region
Up to Rs5 lacs 85%of default(Max 85% Max-4.25 75%
4.25 lacs) lacs
Above 5 lacs-50 lacs 75%-Max 37.50 80%-Max 40 75%(Max37.50
lacs lacs lacs)
Above 50 lacs-100 lacs 37.50 40 37.50 lacs+50%
lacs+50%(max lacs+50%(max- (Max 62.50 lacs)
62.50 lacs) Rs 65 lacs)

BANK GUARANTEES:(ADV/404,428/2000)

Implications of amendment in section 28 of contract act.

In view of the amendment made in sec 28 of the contract act, old limitation clause
become invalid w.e.f 08/01/97. IBA has introduced a format with a revised limitation
clause. Our Bank is adopting the format.

LG issued with old limitation clause cannot be safely eliminated by issuing notice to
the beneficiary. Such LGs should be eliminated only after receiving the original LG or
discharge letter from the Beneficiary or after expiry of normal limitation period. 3
years for Non-Govt. beneficiary, &30 years for Govt .beneficiary, from the date of
expiry of LG. As per CO circular Adv/404/2000, these LGs can be eliminated after
following standard procedure. Elimination will reflect only in our Books and if we
preserve the counter indemnity without giving discharge, Bank can enforce counter
indemnity, in case when liability arises.
LG with margin of 100% can be issued, up to the following periods, inclusive of
claims period.
By Branches-upto 5 years.
By RM - above 5 years.
LG with less than 100% margin can be issued, up to the following periods, inclusive
of claims period.
By branches-upto 3 years.
By RMs-upto 5 years
By GM- more than 5 Years
Guarantee-Guidelines
1. Maximum maturity period for guarantee-10 Years
2. Bank Guarantee Scheme of Govt Of India – Model Form of Bank Guarantee( as
per RBI annexure to be used)
3. Banks may refrain from issuing guarantees on behalf of customers who do not
enjoy credit facilities with them.
4.Bank guarantees for Rs10,000& above- to be signed by two officials jointly.
5.To be issued in triplicate- Branch, Beneficiary, Head Office
6. It should be binding on the part of Beneficiary to seek confirmation from Head
Office as well, for which a specific stipulation to be incorporated in the guarantee
itself.
7. 20% of Bank’s o/s unsecured guarantee & total of its O/S unsecured advances
should not exceed 15% of its total outstanding advances( Unsecured exposure is
defined as an exposure where realizable value of the security is less than 10% of
outstanding exposure.

Prepared by R.Vijayaraghavan 202

8. Banks will have to make an additional provision of 10%( total provision 20% of the
o/s advances in SS category on unsecured exposures)
9. Commission on LG-appropriate the LG commission for the Current Calendar
Quarter to P&L –Commission a/c-Hold the remaining balance in LG Commission in
Unexpired Discount & Commission account. On the first working day of each
quarter–proportionate LG commission for that quarter to be transferred from
Unexpired D&C A/c
10. Minimum cash margin-Performance Guarantee-10%, Financial guarantee-25%
ASSET CLASSIFICATION & PROVISIONING NORMS.
Presently Central/State Govt. advances, in respect of guarantee has been invoked,
could be treated as Standard assets. Now, as per the revised guidelines, advances
guaranteed by State Govt. Where guarantee has been invoked and has remained in
default for more than 2 quarters (for advances granted w.e.f. 01/04/2000). For
advances sanctioned earlier, minimum provision of not less than 25% should be
made every year up to 31/03/2003.
PROVISION OF STANDARD ASSETS
Only Three categories- All Standard assets-provision-0.40%-For Agri direct and
SME-0.25%)
Minimum 0.40% on standard assets .-Provisions eligible for inclusion in Tier II
capital.
Commercial Real Estate-1.00%
Bank’s Direct advances to Agriculture and SME Sectors would be exempted from
additional provisioning( provision for Standard Category – Direct Agri & SME- 0.25%)
NBFC-ND-All NBFC –NDs with an asset value of Rs100 crore or more as per latest audited
balance sheet will be considered as systematically important NBFC-ND

REDUCTION IN TIME FRAME FOR SUB STANDARD ASSETS

An advance has to be classified as Substandard if it remains NPA for a period not

exceeding 12 months and thereafter as doubtful. ( SS-Provision-10% of O/S)
Doubtful-Provisioning-Up to 1 Year-D-1-100% of unsecured portion+20% of Secured
Portion
One to 3 Years-100% of unsecured portion+30% of Secured Portion
More than 3 years-100% wef 31.03.07
ADDITIONAL PROVISIONING-With effect from 31/03/05, an asset would be
classified as Doubtful, if it remained in the Sub Standard Category for 12 Months.
Classified as doubtful for more than 3 years on or after 01.04.04-100%provision.

In case of Infrastructure Loans, if the date of Commercial production extends beyond

a period of 1 year after the date of completion of the project, the a/c shall be treated
as substandard.

Purchase and sale of NPA:At lease 10% of the estimated cash flows should be
realized with in the I year.(atleast 5% in each half year subject to full recovery with in
3 years)
RISK WEIGHT ON HOUSING LOANS AND CONSUMER CREDIT
Claims secured by residential property
LTV ratio Sanctioned Amt of loan Risk weight
=or,75% up to Rs30 lacs 50%
=or<75% above Rs 30 lacs 75%
More than 75% irrespective of amount 100%
Consumer Credit., Personal loan and Credit cards-125%
Risk Weight-Staff loans-20%(backed by terminal benefits/mortgage)
Prepared by R.Vijayaraghavan 203
Other Staff Loans-75%
ECGC covered loans-50%
SME-CGTSI covered loans-0%
Cash Balance with RBI-0%
Balance with other Banks-20%
Advances guaranteed by State /Central Govt-0%
On O/S Commercial Real Estate exposure,-100% venture capital -125%
On Capital market exposure-125%
On loan up to Rs1 lac agt GOLd/Silver ornaments-50%

GUIDELINES OF RBI FOR PURCHASE AND SALE OF NPAS

1) Option to Banks Banks to resolve their NPas

2) To develop a healthy secondary market for NPAs, where
securitization/reconstruction cos are not involved
3) Guidelines applicable to Banks/FIs/NBFcs
4) A financial asset would be eligible for purchase/sale if it is
an NPA in the Books of the Selling Bank
5) Purchase/sale should be in accordance with the policy
approved by the Board
6) Banks may purchase/sell only on with out recourse basis
7) An NPA would be eligible for sale if it is remained as
NPA for atleast 2 years in the Books of the selling Bank
8) Bank sell NPA only on cash basis
9) An NPA should be held by the purchasing Bank in its
book atleast for 15 months before it is sold.

WATCH CATEGORY-Potential NPa

1. Where one instalment of principal is not paid with in one month of its due or one
month/quarterinterest is not serviced with in a month of its due
2.Frequent excess-in addition happening one or more of the following
3.Delay in submission of stock/Financial statements
4.Return of cheques for financial reasons
5.devolvement of DPG/LG/LC
6.Return of Bills/cheques purchased
7.Non payment of bills discounted/under collection
8.poor financial performance
9.In complete documentation in terms of creation/registration of mortgage
10.Non compliance of terms of sanction.

Prepared by R.Vijayaraghavan 204

FAQ-ADVANCES(contd..)

PROCESSING CHARGES:
1.Fund Based
a. Short Term Agri Loan/KCC/ Crop Loan-upto Rs3 lacs-Nil.
Above Rs3 lacs-Rs134.per lac over and above Rs3 lacs.
b. agri Term Loans-
Area Upto Rs25,000 Above Rs25,000-to Above Rs2 lacs
Rs 2 lacs
Non rural Nil Rs 168 Rs 168 per lac
Rural Nil Rs 134 Rs 134per Lac

c. .AJL-Nil
d. JLO- above Rs25,000/- 1.15% of the loan amount(up to Rs25,000-Nil)
e. Directly linked SHG/JLG-Nil
f. State Govt Sponsored/SGSY/SJSRY-Nil
g. Pension Loan Scheme-Nil
h. VJEL for Inland Studies-Nil, For Foreign Studies-0.57%
i. Others
Area Upto Rs25,000 Above Rs25,000-to Above Rs2 lacs
Rs 2 lacs
Non rural Nil Rs 168 Rs 168 per lac
rural Nil Rs 134 Rs 134 per Lac
Maximum Rs8.50 lacs per borrower for Working Capital limits (not for Term loans)
2.UP front Fee-For term loans 1% of Term Loan Limit in lieu of processing Charges-
No ceiling/Max amount
For Consortium advances-in line with member Banks
3.Non fund based limits

Area Upto Rs25,000 Above Rs25,000-to Above Rs2 lacs

Rs 2 lacs
Non rural Nil Rs 84 Rs 84 per lac
rural Nil Rs 67 Rs 67 per Lac

4. Evaluation Fee/Processing Charges for Agri Advances-Initial

processing/Renewal/adhoc increase-0.56% of the total outlay or project cost.
5. Processing Charges-Subha gruha & other Housing Finance Schemes-1.50%
( Max-Rs30,000/- )
Processing Charges-For Sanjeevini ----do-------
Liqui rent –0.85%-MinRs1,130/-

Prepared by R.Vijayaraghavan 205

Scheme Borrower Type % of Subsidy Maximum Subsidy permitted
1.SJSRY Individuals 15 % of the Rs.7500
Project Cost
2.SGSY SC/ST/PH 50 % Rs.10000
Others 30 % Rs.7500
Group 10-20 50 % Rs.125000
Members No quantum ceiling for irrigation
purposes
3. SLRS Individuals 50 % Rs.10000
4. Capital 25 % of the 1. New cold
Investment Project cost storage/expansion of
Subsidy Scheme subject to the existing storage _
for Cold Storage ceilings Rs.4000/- per tonne
& Storages for mentioned 2. Modernization/Rehabilitatio
Horticulture n of existing cold storage–
Produce Rs.1000 per tonne
3. Storage of Horticulture
produce like onion –
Rs.2000/- per tonne
4. Maximum eligible subsidy
Rs.50 lacs per project
5. Maximum eligible subsidy
for North Eastern States
Rs.60 lacs/project
5.Capital 25 % of the Rs.37.50 lacs
investment 206project cost
Subsidy Scheme
for
construction/expa
nsion/renovation
of rural godowns
6.SRMS Individuals 50% of project
cost( for
Minimum Rs12,500/- Maximum
projects upto
Rs25,000) Rs20,000/-
25% for PC
above Rs
25,000

Prepared by R.Vijayaraghavan 206

FAQs

1) Guidelines regarding Borrowers featuring in the defaulters/caution list of

RBI/ECGC
a. No additional facilities with out prior clearance /approval from the next higher
layer of Sanctioning authority.
b. Recovery steps including exit option/route should be initiated for current dues.
2) Entrepreneurs /promoters , identified as willful defaulter by other Banks. FIIs will
be debarred from financial assistance from our Bank for a period of 5 years from the
date of list by RBI
3) RBI has now allowed Banks to issue guarantees favouring other Banks/FIIs for
the loan extended by them . A cap of 10% of Bank’s tier I capital is fixed for the
Bank as a whole, for issuing such guarantees(guarantees favouring single Bank/FII
should not exceed 1% of tier I capital . CMD powers- 20%-2%
4) In respect of new SME proposals, all the Sanctioning authorities can now
sanction and release limits with out scrutiny by next layer of authority up to a limit of
25% of their discretionary powers to sanction credit facilities to a single borrower.
5) As per RBI guidelines, no facilities , either fund based or non fund based should
be extended to non customers .
6)Gestation/ Holiday period for various project loans will vary from 3 months to 30
months.
7) National Equity Fund –(underSIDBI) –to meet the gap in prescribed minimum
promoters contribution and/or in equity.
Cost of the project not to exceed Rs5 million.
Soft loan limit-25% of project cost(Max - Rs10 lacs)
Service Charges-5% p.a on soft loan.

8) Mahila Udayam Nidhi(MUN) by SIDBI

To meet the gap in equity.-to eligible women entrpreuners (new/existing)
Cost of the project not to exceed-Rs 10 lacs
Soft loan limit-25% of project cost(Max Rs2.50 lacs)
Service charges-1%p.a on soft loan.

9) SIDBI Norms for Refinance to SRTOs

Loan Limit-need based
20 Vehicles per operator including existing Vehicle.

10) Credit Linked Capital Subsidy Scheme(CLCSS) of SIDBI

Cap on amount of subsidy-15% on the cost of eligible plant & Machinery or Rs 15
lacs which ever is less.
Ceiling on loan amount-Rs100 lacs.

11) DMFS-Technology Development and Modernization Fund-SIDBI is providing

assistance through refinance 22% below PLR of SIDBI.Promoters Contributin-20%
11)Technology Upgradation Fund Scheme(TUF)-Textile, Jute Industries-Interest
subsidy-5%, Capital subsidy-15%-subsidy will be placed by GOI, Ministry of
Textiles, in advance with the Banks.

35) All credit facilities are valid for 6 months from the date of communication of credit
facilities to the borrowers. Thereafter requires revalidation.

Prepared by R.Vijayaraghavan 207

36)All new proposals seeking credit limits above Rs 5 crore ( existing proposals
seeking enhancement above Rs5 crore-Need not be referred) should obtain in
principle approval/clearance from “ New Business Group” set up at Central
Office. New Business Group-CMD/ED/GM(CSD)/DGM(Risk Management
Dep)/All TGMs. Reference need not be made to NBG for clearance in respect of
other accounts of the same group/associates, who are already having Borrowal
account with us. (Clearance required for different activity). Permission by NBG is
only an expression of Interest and not to be construed as In principle Sanction.-
valid for 1 month.
37)Limitation period of 12 years for execution of decree-starts from the date of
judgment/decree.
38)Collection of Processing charges for lapsed period of renewal of credit limits-(wef
01.04.06) for credit limits of above Rs5 lacs.

39) Rate of interest on advances against several deposits, carrying different int rates
may be arrived at based on weighted average method.
40)SIDBI Developed CART-Credit Appraisal & Rating Tool& RAM-Risk
Assessment Model.
41)Time limit for disposal of loan applications MSE
For credit limits up to Rs200,000-2 weeks, Over Rs200,000 upto Rs5 lacs-4
weeks, Over Rs 5 lacs-reasonable time

42)90 Days norm for recognition of Loan impairment-effective from the year ending
March-2004.
Period for Movement from Substandard to Doubtful-12 Months(18M)-from
31/03/2005.
Banks to Charge Monthly Compounding from –01/04/2003.
43)CDR- Corporate Debt Restructuring Mechanism-for restructuring of Corporate
Debts of Rs 10 crore & above.( Smt Gopinath Committee)
44)CIBIL-Credit Information Bureau of India Limited-It is mandatory for all
sanctioning authorities to draw reports on prospective borrowers in consumer
segment , before considering sanction of loans of Rs2 lakhs and above to
individuals. Non obtention of CIBIL report by Sanctioning authority will be treated
as staff lapse

45)Selective Credit Control- Levy Sugar( Margin-0%), Buffer stock of sugar with Mills
( margin-0%), free sale sugar( Margin Banks to decide) - under SCC.
Exemption limit of provisions under SCC-Rs 1 Lakh. BSR-3 Return on Bank
advances against SCC.
46)Limit for assessment of WC under turn over method-for SME Sector-Rs7.50
Crores.
47)Composite Loan limit-Small Enterprises-WC+TL-Rs 100 lacs
48)Maximum loan Education under PS-Inland-Rs 10 Lakhs, Foreign-Rs20 Lakhs.
Margin and Security-up to Rs 4 lakhs can be Nil.
49)WCDL: Working Capital Demand Loan- For borrowers enjoying Working Capital
fund based limits of
Rs 10 Crores and above.
Freedom given to Banks to relax-80:20 norms- In our Bank Term Loan
component can be up to 70%
and CC component can be up to 30%.( discretion vest with Sanctioning
Authority)

Prepared by R.Vijayaraghavan 208

50)Watch Category: Account in Standard assets, Where one Installment/ One
Quarter Interest is in arrears.
51)The following proposals to be referred to Approval Grid, before recommending
Sanction
1) Proposals falling under MCB
2) Proposals with fund based limits of RS 10 Crore and above
3) Proposals with non fund based limits of Rs 20 Crore and above.
52)For limits of Rs 5 Crore and above-to be reviewed once in 3 Months.
53) Loan against Shares-Individual- Physical form-Rs 10 lacs
Demat Shares-Maximum-Rs 20 Lacs-Margin-50%( minimum cash margin-
25%)Financing IPOs-Margin-50%.Max Loan for financing IPOs to individuals-Rs10
lacs.
Loan to Employees for purchasing share of their own cos under ESOP-90% of
purchase price or Rs20 lacs which ever is lower.
Aggregate Should not exceed – 5% of Total O/S advances and 20% of Net
Worth.

Banks exposure to Commodity Markets-Margin-50%(cash Margin-25%)

54)Collateral Securities can be waived

Small Enterprises -Rs 5 Lacs( up to Rs 25 Lakhs-On selective
manner, on case to case basis)
Micro -Rs 5 Lacs

SGSY-Individual -Rs100,000/-
Group -Rs 10 Lacs.
Agri clinics-Rs5 lakhs( Margin-Nil)

55)Definition of Sick Small Enterprises -( revised guidelines based on Kohli Working

Group)
1) If any one of the Borrowal Account is Sub Standard for more than 6
Months(Over due 1 Year) or
2) Erosion up to 50% of its Net worth during the previous accounting year
and
3) The unit is in commercial production for at least 2 Years.

4) Relief and Concessions for revival of potential sick SSE units

a. Int on WC /Tl-Int 1.50% below the prevailing fixed/PLR
a. Term loan concessions in int rate- not more than 2%( 3% for tiny) below
the document rate.

56)Lending to Weaker sections under Priority Credit-All individual Credit Limit to

Artisans, Village and Cottage industries for reckoning under Advances to weaker
section is increased from Rs 25,000/- to Rs 50,000/-
57)Repair to damaged Houses-Limit-Rs 1 Lakh-Rural/Semi Urban
Rs 2 Lakh Urban- can be classified under
Priority Sector. Housing-Rs 20 lacs
58)Margin-Loan against Deposits-Domestic/NRE-10%(for RDP with remaining
maturity period of less than 4 Years. For RDP with remaining maturity period of
more than 4 years-15%)
FCNR-Margin 25% for currencies other than USD. For USD –10%+5% for every
year of unexpired period of Deposits.
Foreign Currency loan against FCNR Deposits-Margin 10%(Max equivalent to
Rs 100 lacs)
Maximum loan against NRE/FCNR-Rs 100 lacs
Prepared by R.Vijayaraghavan 209
 Loan against Gold Deposit Certificates-25%
Interest rate on Loan against Deposits
Loan against Domestic Deposits—to depositors-Deposit Rate+1.00%
CC ----------------------do-----------Deposit Rate+1.50%
Loan or CC against Domestic Deposits-to third parties
Up to Rs 1 Crore-CC-Dep rate+3%, Loan-Dep Rate+2%
Above Rs 1 Crore-CC-Dep rate+3% or BPLR+0.50% which ever is higher.
Loan-Dep rate+2.00% or BPLR+0.50% which ever is higher.
Rupee Loan or CC to Depositors against FCNR Dep-BPLR-0.50%
Rupee Loan or CC to Individuals against Third Party FCNR Dep-BPLR+0.50%
Loan/CC against NRE deposits( wef12.05.05)
To NRE depositors-Dep rate+1%
To third parties- CC/Loan-BPLR+0.50%( discretion available with ED/CMD to
reduce by 0.50%)
RupeeLoan/CC-against FCNR Deposits-2% +corresponding Rupee Term Deposit
rate for similar maturity as at the time of opening the deposit.
RupeeLoan/CC-agt Third party FCNR deposits-3% + ----------do---------------------

59) Liquirent- Margin reduced from 40% to 25% of Rent receivables for the unexpired
lease period less TDS and rental advance. Maximum-60 months of rent
receivables.( 84 Months under CRM/Gm discretion) Repayment in 60 Months
Pushpaka--Minimum monthly income (including that of spouse)-not less than
Rs5,000( 2 wheeler)-Rs8,000/- (new as well as used cars) . 50% norms to be
satisfied
60) Pushpaka-New cars-90% of the cost of car without ceiling-used cars-75% of
market value subject to a maximum of Rs5 lakhs. In case of 2 whellers-90% of
cost of the vehicle or 10 times of the gross monthly income or Rs60,000/-
whichever is lower.Age of the car should not exceed 5 years.
Margin-new cars-10% , used cars-25% new Two Whellers-10%
Repayment-New cars-60 Months, used cars-36 EMIs , Two whellers-60 EMIs)

61)Format of POA for NRI HF revised to include excution and registration of Memo
of Deposit of title deeds.
62)Subhagruha-Repayment period-for loan up to Rs 2 lakhs- Max-15 years For
other cases-up to 20 Years. NRI Home loan-Max 15 Years(For Repair- max-5
Years. HIS-Max 10 Years .Fixed rate –Max 10 years.

63)PENSIONERS LOAN SCHEME- Modifications- Purpose for meeting any house

hold /social expenses-Maximum 10 times of monthly pension or Rs1,00,000/-
whichever is less-repayment period-48 EMIs below 65 years, 65 and above-10
times or Rs 50,000 which ever is less.-repayment-24 months- For loans granted
wef 01.07.04- changed over to EMI system-Maximum age ceiling removed
64)Revised margin/Security Norms for Agricultural Advances
Margin –Up to Rs50,000- No margin, over Rs50,000/- 15% to 25%
Security-
A. Crop Loans-up to Rs50,000/-Hypothecation of crops, over Rs 50,000/-+
Mortgage of land or Guarantee
B. Term loans-i )where movable assets are created
Up to Rs50,000/--Hypothecation of assets
Over Rs50,000/- + Mortgage of land or Third party guarantee
Term loans- ii )where movable assets are not created( dug well, land
development etc)
Up to Rs 50,000/- DPN/Loan agreement only
Over Rs50,000/- Mortgage of land or Guarantee

Prepared by R.Vijayaraghavan 210

 C. Agri business/ Agri Clinics- Margin/Security waived for loans up to Rs 5
Lakhs.
65)RBI have made it mandatory to formulate a policy on un hedged foreign Currency
Exposure of Corporate. Any un hedged exposure will ultimately result in credit
risk. In our Bank it is mandatory for Corporate who approach us for a cumulative
Foreign currency loan for USD 2 million and above to submit a declaration o their
hedged and un hedged foreign currency exposures and their maturity periods.
The sanctioning authority should assess the FC exposure of the Corporate at the
time of disbursement/ Interest reset time/Roll over.
66)Branches are permitted to accept post dated cheques( mandatory for Housing
Finance-36 PDCs) towards payment of loan installments in case of following
credit schemes only- Pushpaka, PLO, Sahayika, Subhagruha, HIS, Home décor.
(Wherever undertaking from employer for salary recovery is available-post dated
cheques need not be insisted upon)- At a time maximum only 12 post dated
cheques can be accepted.-blank cheques should not be accepted—should be
kept in joint custody- In case of dishonour-notice to drawer to be given with in
30 days from the receipt of information regarding return- 15 days available to the
drawer from the receipt of notice to pay the amount- if drawer failed to pay with
in 15 days , complaint to be filed with in 1 month from the expiry of 15 days time
allowed
67)Commitment charges on WC limits-0.50% on the unutilized portion of WC subject
to a tolerance level of 20 % for all borrowers enjoying Wc limit of Rs 50 Lacs and
above. Waiver-reduction- case to case –discretion basis.ED/CMD
Exemption for Commitment charges
a. WC limits for Sick/weak units
b. Export credits/Export incentives
c. Inland bills purchased/discounted
d. limit to commercial Banks/FIIs/COOP Banks
e. Non fund based limits
68)NAIS(National Agricultural Insurance Scheme)-RKBY-
1. to provide insurance coverage to farmers, in case of failure
of any notified crop as a result of natural calamities ,pests,
diseases, due to non preventable risks
2. available to both loanee and non loanee(farmers)
3. premium subsidy-30%
4. risk covered by Implementing agency(
69)VJEL-Modification of security Norms
1. up to Rs 4 lacs- No security
2. above Rs 4 lacs to Rs7.50 lacs-Collateral in the form of
satisfactory III party guarantee
3. Above-Rs7.50 Lacs-collateral security of suitable value or
co obligation of parents/guardians/III party guarantee
along with the assignment of future income of the
student.
4. Processing Charges for Foreign Studies-0.57%
70)Review/Renewal of Term Loan-Revised procedure
a. Various Credit Limits Sanctioned to a Borrower should be renewed at least once
in a year, irrespective of the amount.
b. In respect of Stand alone TL with limits of Rs5 lacs& below, the review/renewal is
not required, if the loan is regular.
c. In respect of stand alone TL with limits of over Rs5 lacs-up to Rs25 Lacs-( except
Housing Loans_-review in revised format- Audited balance sheet need not be
insisted upon.

Prepared by R.Vijayaraghavan 211

d. In respect of stand alone TL with limits over Rs25 lacs-(except Housing Loans)-
and the a/cs are regular-no comprehensive renewal proposal need be prepared-
Review/Renewal as per revised format, based on audited balance sheet.( for want of
audited balance sheet-review should not be delayed)
e. In respect of TL to new Projects under implementation( project amount exceeding
Rs10 crores) progress report should be furnished along with review report.
71)Export Credit-Discretion to reduce Interest

GMs-0.75% for Export Borrowers with IOB expo Gold card

-0.50% for others

ED- 1.00% for export Borrowers with or with out Gold card

CMD- 2.00% for export Borrowers with or with out Gold card
The discretion to permit interest reduction is subject to complying with 4 out of 7
parameters prescribed-( given in annexure to CO circular-392)for compliance by
borrowers for eligible for sub PLR rate.
( in cases where Export Turn over is Rs200 crore & above, additional 0.50%
concession can be considered over and above the above concessions)
72)Commission on LG-To be taken to P&L a/c for the current quarter and rest to
unexpired Discount& Commission account.- proportionate portion to be reversed
on first of every quarter.
73)Advances Against KVP-Margin 35%on face value.Agt NSC-as per advance value
provided by Co(Margin 35% on Advance value)
74)KVIC-Rural Employment Generation Programme(REGP)per capita
Investment(capital Expenditure on building/Work shed,machinery and furniture
divided by full time employment created by the project) for village, industries
under REGP scheme has been enhanced from Rs50,000/- to Rs100,000/- in
plain areas and Rs150,000 in hilly areas.
75)Realization of Photos of Chronic/Wilful defaulters in
a. 3 warning notices to be issued.
b. RO prior permission to be obtained.
c. 1. NPA of more than 3 months old-o/s of Rs1 lac and above
2. NPA borrower/guarantors who are not traceable.
3.Cases avoiding notice/Fake documents/transfer of securities/multiple loan
agt the same property.
4.Bill purchase o/s Rs 1 lac and above/amount collected from drawer by the
Borrower
5.Refusal to revive the documents.
6. OTS/OCS commitments not honoured.
76) Legal Opinion from Panel advocate should have the following certification
a. For correctness of entries in the Registry and for non omission in EC
b. for genuiness of documents and for verification of registration in the name
of the owner.
77) Home Décor Scheme- Hypothecation Doc-PL 6A
78) Liquirent- for Floating Rate-DPN doc-linked to BPLR-14A
79) Bank Finance to Factoring Companies- Cos should carry out standard factoring
activity viz-Financing receivables, Sale ledger management, , Collection of
receivables. Should derive 80% of income from factoring activity. Receivables
purchased/Financed form at least 80% of the assets of the factoring CO.
80) Advances to Ship Breaking Co: Collateral Coverage is fixed at 15% of the Total limits
for existing customers with proven track record. For New Cases-20% of collateral
coverage is required of total limits.
81) DER desirable for
Project finance-2:1

Prepared by R.Vijayaraghavan 212

 Technician oriented projects/Road Transport with National Permit/single Vehicle
Operator-5:1
Small Industries upto Rs10lacs Long Term Loan-3:1
Hi-Tech Project-2.5:1
Infrastructure Project/Large project with PC exceeding Rs500 crore-3.5-4:1
Ship Breaking Industry-if Unsecured loan is taken as quasi security-5:1
Others -10:1
Risky Venture-1:1
Where Civil construction work is High-1.5:1
82) Provision of Standard Assets-10% of Outstanding(with out allowance for ECGC
cover. Unsecured exposure would attract additional provision of10% of
O/S9Total 20% of O/S)

83) In case of Doubtful assets-for unsecured exposure-100% of O/S

84) Unsecured exposure is defined as the exposure where the realizable value of the
security is not more than 10% of outstanding exposure. Exposure will include all
funded and non funded exposure. Security will mean security properly discharged to
the Bank and will not include intangible securities like guarantees , comfort letters
etc.

85) Branches do not have the discretion to grant loans involving Third party
security(Guarantee of the third party( who is the owner of the security- is a must)
86) Compensation for delayed credit of remittance in NEFT-beyond 2 days- SB rate.
87) Finance for Acquisition of a Company-Bank’s finance should not exceed the net
worth of the Acquirer company. Margin-Minimum205 .ROI- based on RAM
rating/Internal Rating Repayment period for Term Loans-should not exceed 3-4
years.
88) Clearance By NBG for proposals above Rs5 crore(Int rate concessionaly is valid for
21 days only. (as against 1 month).
89) Branch/Ro have no discretion to sanction advances under the following sectors
a. Commercial Real Estate(up to 30/04/08)
b. Sponge iron
c. Steel Rolling
d. NBFC
e. Educational Institution.
90) It is mandatory for large value payments of Rs1 crore and above ,
Between RBI regulated entities and RBI regulated markets to be routed through
Electronic Payment System.
91) Modified TUF Scheme-Technology Upgradation Fund-for Modernisation and
Technogial Upgradation Textile and Jute Industries-Interest Subsidy 5% -Cover for
Exchange Fluctuations not exceeding -5% pa.( for Spinning Machinery-subsidy and
cover will be 4% each). 10% capital subsidy in addition for specified machinery.
92) Credit Linked Capital Subsidy for Small scale Textile and Jute Industries-15% Margin
Money subsidy for SSI textile and Jute Sector in lieu of 5% interest reimbursement
on investment in TUF compatible specified machinery subject to a capital ceiling of
Rs200 lacs and ceiling on margin money subsidy of Rs15 lacs. A minimum of 15%
equity contribution from beneficiary/ies( for Power looms-Margin money subsidy-
20%-Ceiling On margin money Rs20 lacs)
93) Registration of Charges with ROC-E filing-(MCA 21)- Under e filing Banks are
required to electronically file particulars of charge created by Borrower
Co(Creation/Modification-Form 8, satisfaction-Form 17) –to use digital signatures for
filing necessary forms for registration of charge through electronic mode).Charge
forms to bear the digital signatures of Company officials and Bank officials. .Under
MCA 21 Company should acquire CIN-Corporate Identity No and all directors of the
co to get-DIN-Director’s Identity No. Board resolution is required for accepting
Authorized Signatory by digital signature in the charge form. Time limit for filing 30
days. Another 30 days are allowed .If the delay is more than 60 days Company Law
Board approval is required.

Prepared by R.Vijayaraghavan 213

 Wef 01.04.2009, Interest Concession of 0.50% on all educational Loans( both
existing and future) to girl students for pursuing higer education in India and
abroad .
Moratorium for VJEL-Extended up to 2 Years or up to getting a job which ever
is earlier.
Housing Loan-Margin is 20%,If Margin is 25% and above additional
concession in interest rate up to 25 basis points for loans upto Rs30 lacs. For
loan above Rs30 lacs-0.50 % int concession,.
Bank can covert Fixed rate into Floating rate, after 3 years. Re Writing fee-
1%.(on O/s or DP which ever is higher)
Interest Concession is available for one house only. For second Housing
Loan, additional int of 1% has to charged.-Pre payment Charge-1%
As per Loan policy guidelines-adv against units of Mutual Funds-Branches /ROs
are restricted to grant advances only agt US 64units of Units truct Of India
and Bonds converted from Us 64 only and not against securities/units of other
MFs like LIC,GIC others.

PRIORITY SECTOR

SELF EMPLOYMENT SCHEME FOR REHABILITATION OF MANUAL SCAVANGERS

(SRMS)

Eligibility: Each Scavenger or his/her children who are 18 years of age and above, who are
not employed.NS FDC or other identified agency will provide interest subsidy to Banks thro
State channelising agencies(SCAs)
Quantum:maximum-Rs5 lacs.
ROI-for projects upto Rs25,000/-4%p.a(women),5%p.a(others)
for projects above Rs25,000/-6% p.a
Int:0.50%p.a(difference is int subsidy will be given to Banks)
Repayment:For projects uptoRs25,000/--3 Years
Above Rs25,000-5 years(moratorium-6 months)
Capital Subsidy: Credit linked Capital subsidy-For projects upto Rs25,000/-@50% of PC
Above Rs25,000/--25% of PC(Minimum –Rs12,500/- Max-Rs20,000/-)

1) Loan to artisans, Village & Cottage industries-Limit for classification under

Priority Sector-
Rs 50,000/-

2) 25% of Priority Sector or 10% of Net Bank Credit should go to Weaker sections.

Prepared by R.Vijayaraghavan 214

3) A simplified document 110-K –Agreement for hypothecation for agricultural Loans
has been introduced for Agri loans upto Rs1 lac.(irrespective of type/purpose)
Schedule-A-Crop Loans, B-adv against goods and Machinery, C-Adv aginst live
stock.
3) CULTURE:
1. Shrimp or Prawn Culture-Sea food exports.
2. Vermi Culture - Study of earth worms.
3. Oleri Culture -Cultivation of vegetables
4. Pomology -Study about cultivation of fruits.
5. Sylvi Culture -Cultivation of Trees/Fodder tree
6. Apri Culture - Mushroom cultivation
7. Entomology - Study of Insects.
8. API Culture- Rearing of Honey bees
9. AVI culture-Rearing of birds
10. MORI culture- Cultivation of Mulbery
11. Seri culture- Rearing of silk worm
12. Pisci culture- Rearing of fishes
13. Aqua culture- Shrimp/Prawn culture-related to water medium
14. Horti culture- Cultivation of fruits, vegetable, flower crops
15. Flori Culture- Cultivation of flower crops
16. Viti culture-Cultivation of grapes
17. Plasti culture- Use of Plastics in agriculture.
18. Tissue culture- Bio Tech application of quick multiplication of
plant varities
White Revolution-Milk production
Black Revolution-Rubber production
Red revolution-Meet production
Brown Revolution-Cocoa Production
Yellow revolution- Oil seeds production
Blue revolution-Fish production
Rain bow revolution-Flowr production
Green revolution-Food production.
4) Disposal of Applications-Priority Sector-
Up to Rs 25000/- With in 15 Days
Above Rs 25000/- 8-9 Weeks
5) To avail unrestricted Refinance from NABARD-Recovery % should not be less
than 60% NABARD Refinance for DRI Loans-NIL., SHG -100%
QUANTUM OF NABARD REFINANCE-
Investment Credit( Medium & Long Term)NE Region
1 SC/ST Action Plan/Waste Land Dev/ARWIND/MAHIMA 100%
SHG/ Margin Money Scheme
2 Non Farm Sector 100%
3 All other Purpose 90%

OTHER REGIONS
1 SC/ST Action Plan/Waste Land Dev/ARWIND/MAHIMA 100%
SHG
2 Minor Irrigation 95%
3 SGSY-Govt Sponsored Programme 90%
4 Schematic as well as ARF 90%
5 Farm Mechanization 90%
6 Work Animal/Bullock cart/Bio Gas 90%
7 Non Farm activities 90%

Prepared by R.Vijayaraghavan 215

 PRODUCTION CREDIT-(Short Term)-Consolidated limit to Scheduled
Commercial Banks.
Rate of interest on Refinance linked to NPA level
NPA less than20% of total Credit-5.25%
NPA more than 20%-5.75%
6) Holiday period for Farm Mechanization-Nil.
7) Maximum Repayment period-Tractor- 9 Years, Power Tiller-7 Years, SC crusher-
4 Years. Tractors with 35HP& less-Min Land Holding-4 Acres, More than 35 HP-
Min Land Holding 6 Acres of land-1000 working hours
8) Minor Irrigation-Land Holding-3 acres to 2000 Hectares.-Should be more than 8
KM from Sea Shore.
9) Dark Area-If Exploitation of Ground Water is more than 85%
Grey Area-If --do------------------------------65%-85%
White Area-If --do---------------is Less than 65%
10)Spacing Norms between Two Wells-300-500 feet..
11)Failed Well Compensation-100% (50:50 by NABARD and Bank.)
12)Target for DRI loans- -1% of Aggregate Advances of the previous year.
13)RRB-No interest on Current Account Balances maintained with Sponsoring
Banks. Share Holding-Central 50%, State-15%, Sponsor Bank-35%
CRR-3%, SLR-25%
As on Nov 07,RRBs are reduced to95 from 196.
Share capital of RRB Rs1 crore.
14)LAB-Local Area Banks- Union Budget-95-96-Minimum paid up capital-Rs 5
Crore, Promoters Contribution- Rs 2 Crore.
15)No service Charge/Inspection Charge for loans to SSI/PS sector loans –up to
Rs25,000
Insurance waiver for assets financed by bank for all categories of PS
Advances up to Rs 10,000-Fire & other risks-Equipment & other Current assets
To SSI up to Rs25,000-fire Equipment and CA
Composite loans to artisans, village and cottage inds-up to Rs25,000-fire Equipment
and Ca
All term loans- Rs25,000-fire and Equipment
WC-Rs25,000-Fire-CA
16)Rural Lending: Service Area approach- SAA will not be applicable to Banks for
lending except under Govt sponsored Schemes. Banks, RRBs will be free to lend
in any Rural/SU. The borrower will also have the choice of approaching any bank
for credit requirement. The requirement of obtaining No due certificate is also
dispensed with.
17)DRI loan-Eligible Criteria: Annual family income—Urban-Rs24,000/- per family,
Rural-Rs 18,000/-
Should not own any land or the size of holding if any should not exceed 1
acre(irrigated) 2.5 acres-Unirrigated
SC/ST-eligible for the loan irrespective of their land holdings, provided they
satisfy other criteria.
18)Reservation/ Subsidy for PS lendings
Reservation Subsidy
SC/ST General
SGSY Rural/SU SC/ST-Not less than 50% 50% of 30% of PC( max
families assisted PC( 7500)
Women-40% Max
Disabled-3% 10,000)
PMRY SC/ST-22.50%,OBC-27% 15% of PC(Max-
Women& Minority-fair& Rs12500)
adequate share
Prepared by R.Vijayaraghavan 216
SJSRY Urban SC/ST-To the extent of 15% of PC( Max-
strength of SC/ST in local Rs7500)
population Group-50% of
Women-not less than 30% PC(Max-Rs1.25
Lacs)
DRI SC/ST-Not less than 40% of
total DRI advances
SLRS SC/ST-All Scavengers 15%of
belonging to SC/ST PC(MaxRs10,000)
Margin Money–
15%Max-Rs7500/-
DRI- The eligible criteria that size if land holding should not exceed 1 acre of
irrigated land and 2.50 acres of un irrigated land –not applicable to SC/ST( More
over SC/ST satisfying the income criteria of Rs7200 under the scheme can also avail
Housing loan up to Rs20,000/-per beneficiary at 4% over and above Rs15,000/-
19) “Farmers Club Programme”-NABARD-Vikas Volunteeer Vahini Programmehas
been remodelled and renamed as Farmers Club Programme.The aim of the club
is development of farmers through credit , Technology Transfer, awarenessand
capacity building. Minimum 10 Members- No upper ceiling for no of members.(
except wilful defaulters)- NABARD would provide annual maintenance at
RS3,000 per annum for first 3 years and for the next two years sponsoring bank
may provide maintenance expenses( in NE region-NABARD-5 Years)
20)Agri Advances-Compounding of Interest-Payment of interest should be insisted
only at the time of repayment of loan-Interest on current dues should not be
compounded-when crop loans or instalments are over due banks can add
interest and compound-However total interest debited to the account should not
exceed the principal amount in respect of small and marginal farmers
21)Personal Accident Insurance Scheme(PAIS) for KCC holders-3 years-Premium 1
year-Rs15/- 3 years-Rs45/- Premium should be shared between KCC issuing
bank and KCC holder in the ratio of 2:1
22)IOB-GCC Scheme-Rural&Semi Urban Branches- In nature of CC-No security-
Max Rs25,000/-
23)Define Minority Communities: The following are Minority Communities a.Sikhs
b.Muslims c.Christians,d.Zoroastians e.Buddists. Minority communities will
receive fair and equitable portion of the creditwith in the overall target of PS
advances.
32) DRI loan-Limit raised to Rs15,000/- and for Housing-Rs20,000/- per beneficiary.
33) Interest Subvention for Short Term Production Credit to farmers (Crop loan/AJL)
@7%p.a up to Rs3 lac per beneficiary.
34) Khariff Season-April to Sep, Rabi- Oct to Feb

In terms of RBI Credit Policy Banks to extend credit to new farmers-Banking

system shd finance atleast 50 lacs new farmers per year.
New farmer is one availing of bank Credit for the first time and for this
purpose his declaration to that effect could be taken as the basis.
TIDBITS:
• wef 01.04.2010 under new section 206AA, PAN number is to be furnished where
ever TDS is applicable, failing which, tax to be deducted at TDS rate or 20%
which ever is higher. Form 15G and 15 H shall also be invalid, unless PAN is fur-
nished in the declaration.
• Renewal premium for WT-PC-6.5 paise per Rs100 per month- to be debited to
borrowers’ account for WT-PS premium is 5.5 paise per Rs100/- per month –to
be borne by the bank.. ECIB-Export Credit Insurance for Banks.(nomenclature

Prepared by R.Vijayaraghavan 217

 changed from Export Credit Guarantee).As per ECIB policy insurance cover up to
Rs1.00 crore no prior approval from ECGC is required.
• All guarantees irrespective of the amount should be signed by two officials one of
whom must be the branch manager. Branches manned by single officer should
issue guarantees only for amounts below Rs10,000/- and for guarantees of
Rs10,000 and above single man branches should obtain prior approval of RO,
even if the amount is vested with in its discretion.
• In case of Term Deposits remaining in overdue deposits/unclaimed balances and
withdrawn by customers with out renewal Branches may simple interest from
the date of maturity till date of payment at the rate of Savings Bank Interest pre-
vailing on the date of maturity.
• Gold Loans-Granted for tenors upto 6 months, no roll over facility. Banks retain
the right to convert the Gold loan into rupees by giving a short notice of 2 days.
• Adhoc limit-Non MSME borrowers-for a period not exceeding 90 days. ( Original
limit sanctioned by any layer of authority. The aggregate of such adhoc limits
should be with in the discretionary powers of the Sanctioning Authorities.
• Maximum Loan including Guarantees that can be granted to any single stock
broking entity including its associates-Rs 50 crores.
• Out Sourcing of Cash management at ATMs- CCC account debit balance at the
end of the day should not exceed Rs 10 lacs.. On occasion where there are
more than 1 day as Holiday, amount equivalent to Rs 3 lacs per ATM per day
multiplied by the number of days and the number of ATMs shall be permitted for
retention at CRA’s vault. As far as possible this should be avoided)CRA- Cash
Replenishment Agent., CCC- Clean Cash Credit opened by CRA is not a borrow-
al account.
• Educational Loan-B Ed and Nursing Courses leading to degree and approved by
Central/State Govt. are also eligible. Guardian would also include Grand parents
in the absence of parents as long as net worth of the grand parents found satis-
factory. Moratorium period extended up to 2 years from 1 year. Interest Conces-
sion at 0.50% on all educational Loans(both existing and Future) to Girl students
for pursuing Higher Education in India and abroad. Wef 01.04.09.
• Reschedulement of Housing Loans- Maximum period-25 years.. If the total peri-
od exceeds 20 years –Interest as applicable for 20 years period + 0.50% . For
Loans sanctioned under fixed rate-reschedulement up to a Maximum period of
10 years alone is permitted. Restructured Housing Loans should be risk weight-
ed with a risk weight of 25 percentage points in addition to the existing risk
weights.
• Overseas cash-Prepaid Foreign Travel Card. 16 digit card no-value of the card
resides in Host Computers and not in magnetic strip. It is usable in ATM/POS.
Expiry date pre printed on the card. No interest will be paid on the card balances.
Cards cannot be used in India, Nepal and Bhutan. Technical support provided by
Yalamanchilli Software Exports (P ) Ltd. Issuance/renewal fees-Rs100.Hot list-
ing, Reload fees, Reissue Pin-Rs50/-
• SME Advances- Renewal of Memorandum with SMERA- under MOU our exist-
ing and prospective customers can get Credit rating from SMERA at concession-
al fees. Small Enterprises will be eligible for National Small Industries Corpora-
tion (NSIC) subsidy of 75%.
• SHSRY revised Guidelines- Total weightage Score-540 for identifying the poorest
of poor amongst the persons living below the poverty line. Seven Non economic
Parameters are considered for identifying the beneficiary. Each parameter con-
sist of Six attributes indicating the condition from Worst to better. Accordingly a
weightage score has been assigned to each attribute ie from 100(worst) to 0 (bet-
ter condition). The beneficiary assigned highest weightage score will be given
top priority.(marks 80-100).Lowest priority( 90-20)
Prepared by R.Vijayaraghavan 218