LESSON No 28 – Important points be remembered/ complied before Sanction

We had discussed the appraisal as per modified method applied since 1993/94 and further modifications (earlier in 1974 Tandon Committee method were applied).Tandon Committee had suggested Norms for Holding periods for RM,SIP,FG and Debtors for some specific industries. Now each bank has their own indicative holding norms. Generally we accept the past trends any variation if accepted should be justified.
Before Sanction important points be remembered/ complied.
1.The borrower should be a customer of the bank/KYC be complied.
2 Check whether the proposal is under the Thrust area. If it is under Watch list or low priority area as spelt out in the Lending policies; then clearance from higher authorities may be required.
3.If it is a take over case HO guidelines be followed.
4. Account is within Individual/Group exposure limits. Bank's exposure limits also be considered.Loan proposals under Consortium Arrangement, Multiple banking,Syndicated loans be got cleared by relevant authorities.
5.Standard Application form be obtained.
6.Following Benchmark Ratios for Credit proposals are accepted by Most of the Banks where WC is assessed.

Manufacturing. Services Sector
Micro & SME.

1 Current Ratio
1.17 & above 1.25or1.33 & above

2 Debt Equity Ratio ( TL/TNW)
2 or 3:1 2 or 3:1
3 TOL/TNW 4:1 4:1
4 Asset Coverage Ratios FACR (FA/ Term Debts). 2:1 (some banks accept above 1.25)
5 Average DSCR for Term Loan
1.50:1 1.50:1
6 Interest Coverage ratios 2:1

Relaxation in the above benchmark ratios may be considered by the sanctioning authority in
deserving cases after recording justification for the same land reported to next higher authorities may.(In new accounts spirit of the ratios and projections be ensured. )
7.Stipulated margins be maintained
8.Securities should not be under Negative List.
9.Borrowers should not be under Negative list/Defaulter's list of Bank/RBI/EXIM bank/IBA/GOI/DGFT/ED/Home Ministry's list of Terrorists etc.
10 In respect of Group accounts observe that lending Powers vested in the authority are within total limits allowed.
11 Delegatee should not exercise any powers in favour of himself or any close member of his family or to an undertaking if he or his family members has interest in such a unit. (Close family members are defined in Lending policies of bank. Loan against bank own Deposit is generally exempted as well as Loans against NSC/LIC policies etc).These may be referred to competent authorities.
12 Loan facilities to the Directors or units where interest of Directors of your or other banks(Coop bank is common) & their close relatives is involved proper sanction as per loan policies be sought.
13 It should be ensured that the borrowing concern/proprietor/patterns/directors etc have any account with other branch of the bank and enjoys credit facilities to ensure that accommodation at one branch is not used to adjust the advance at other.
14. No proposal is generally entertained if similar is rejected by other branch of the bank.
15 Selective credit control norms if any or directives of RBI be followed in words and spirit.
16 Purchasing and Discounting of bills on associate and sister concerns of the Borrowers be allowed only if a specific sanction is given by competent authorities.
17 It is advisable to negotiate/purchase/discount the bills under LC or Issue BGs to the customers of the bank and ensured that the customer has made back up for the ensuing liabilities.
18 Generally the following facilities are sanctioned only after concurrence by specified authorities.
a) Corporate loans
b) Loan to Non Bank Financial Companies.
c) Bridge loans /Interim finance
d) Infrastructure lending/lending to Builders And Developers.
e) Software Industry/Start-ups involving complicated technological knowledge.

"PLEASE NOTE THAT THESE ARE INDICATIVE ASPECTS FOR BANKS IN GENERAL."

PLEASE ADD IF Any Vital Points Are Missed.

Good by.

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