Book Of Instructions On Loans PDF

    BOOK OF INSTRUCTIONS ON LOANS  CHAPTER – 1 GENERAL INSTRUCTIONS ON LOANS & ADVANCES INTRODUCTORY 1. Efficient management of Loans and Advances portfolio has assumed greater signific...

    BOOK OF INSTRUCTIONS ON LOANS  CHAPTER – 1 GENERAL INSTRUCTIONS ON LOANS & ADVANCES INTRODUCTORY 1. Efficient management of Loans and Advances portfolio has assumed greater significance as it is the largest asset of the Bank having direct impact on its profitability. In the wake of continued tightening of norms of income recognition, asset classification and provisioning, increased competition and emergence of new types of risks in the financial sector, it has become imperative that the credit functions are strengthened. RBI has also been emphasising banks to evolve suitable guidelines for effective management and control of credit risks. 2. With a view to ensuring a healthy loan portfolio, our bank has taken various steps to bring its policies and procedures in line with changing scenario which also aim at effective management & dispersal of credit risks, strengthening of pre-sanction appraisal and post-sanction monitoring systems. Further, bank has been continuously endeavouring to strengthen the organisational set-up by opening Specialised Branches to meet the credit requirements of specific types of borrowers, imparting intensive credit management training to staff and deployment of the trained staff at branches/offices having potential for credit growth. Bank has laid down detailed guidelines to be followed while considering credit proposals, some of the important ones are listed as under: i) All loan facilities be considered after obtaining loan application(s) from the borrower(s) and compilation of Confidential Report(s) on him/them and the guarantor(s). The borrowers should have the desired background, experience/expertise to run their business successfully. ii) Project for which the finance is granted should be technically feasible and economically/commercially viable i.e. it should be able to generate enough surplus so as to service the debts within a reasonable period of time. iii) Cost of the project and means of financing the same should be properly assessed and tied up. Both, under-financing and over- financing can have an adverse impact on the successful implementation of the project. iv) Borrowers should be financially sound, enjoy good market reputation and must have their stake in the business i.e. they should possess adequate liquid resources to contribute to the margin requirements. v) Loans should be sanctioned by the competent sanctioning authority as per the delegated loaning powers and should be disbursed only after execution of all the required documents. 1.1 vi) Projects financed must be closely monitored during implementation stage to avoid time and cost overruns and thereafter till the adjustment of the bank's loan. 3. Bank extends Loan facilities by way of fund-based facilities and/or non- fund based facilities. The fund-based facilities are usually allowed by way of term loans, cash credit, bills discounted/purchased, demand loans, overdrafts, etc. Further, the bank also provides non fund-based facilities by way of issuance of inland and foreign letters of credit, issuance of guarantees, deferred payment guarantees, bills acceptance facility under SIDBI Bills Rediscounting Scheme etc. 4. The foregoing list contains the usual types of facilities undertaken by the bank. In case loan application is received for any particular facility which is not specifically mentioned above, the same should be forwarded to controlling office(s) for consideration, provided the same can be transacted within the overall policy of the bank. 5.1 The usual types of facilities sanctioned by the Bank to the borrowers, as also other aspects like Project appraisal, Post sanction follow up, Management of NPAs, Documentation, Limitation etc. are discussed in succeeding chapters. These are briefly explained hereunder: 5.2 OVERDRAFTS AND DEMAND LOANS OVERDRAFTS All overdraft accounts are treated as current accounts. Normally, overdrafts are allowed against the Bank's own deposits, government securities, approved shares and/or debentures of companies, life insurance policies, government supply bills, cash incentive and duty drawbacks, personal security etc. Overdraft accounts should be kept in the ordinary current account head at branches. Temporary clean overdrafts in current accounts should be maintained in the ordinary current account ledgers. DEMAND LOANS A demand loan account is an advance for a fixed amount and no debits to the account are made subsequent to the initial advance except for interest, insurance premia and other sundry charges. As an amount credited to a demand loan account has the effect of permanently reducing the original advance, any further drawings permitted in the account will not be secured by the demand promissory note taken to cover the original loan. A fresh loan account must, therefore, be opened for every new advance granted and a new demand promissory note taken as security. 1.2 Demand Loan would be a loan, which is repayable on demand in one shot i.e. bullet repayment. Normally, Demand Loans are allowed against the Bank's own deposits, government securities, approved shares and/or debentures of companies, life insurance policies, pledge of gold/silver ornaments etc. A separate account for each demand loan should be kept in the appropriate demand loan ledger. The detailed instructions/guidelines relating to Overdrafts and Demand Loans are available in Chapter 2. 5.3 TERM LOANS Term loans are sanctioned for acquisition of fixed assets like land, building, plant/machinery, office equipment, furniture-fixture, etc., for purchase of transport vehicles & other vehicles, for purchase of agricultural equipment, machinery & other movable assets e.g. tractors, pump sets, cattle etc. under various schemes of agricultural advances introduced from time to time, for purchase of house, consumer durables, etc. under Special Schemes introduced from time to time. The Term loan would be a loan, which is not a demand loan and is repayable in terms i.e. in instalments irrespective of period or the security cover. Term Loans are normally granted for periods varying from 3 to 7 years and in exceptional cases beyond 7 years. Term loans for Infrastructure Projects can be allowed even with longer repayment period. The exact period for which a particular loan is sanctioned depends on the circumstances of the case. The detailed instructions/guidelines relating to Term Loans are available in Chapter 3. 5.4 CASH CREDIT ADVANCES Cash Credit account is a drawing account against credit granted by the Bank and is operated in exactly the same way as a current account on which an overdraft has been sanctioned. The various types of securities against which cash credits are allowed are pledge/ hypothecation of goods or produce, pledge of documents of title to goods, book debts, trust securities, etc. In cash credit accounts the borrower is allowed to draw on account within the prescribed limit, as and when required. The detailed instructions/guidelines relating to Cash Credit are available in Chapter 4. 1.3 5.5 BILL FINANCE Advances against Inland Bills are sanctioned in the form of limits for purchase of bills (ODD) or discount of bills (BD) or bills sent for collection (ABC), to borrowers for their genuine trade transactions. Bills are either payable on demand or after usance period. Demand Bills which are payable on demand or at sight, are purchased from the parties who are sanctioned ODD limits and Usance Bills which are payable on maturity after a certain period of time as per terms of contract are discounted for parties who are sanctioned BD limits. While discounting/purchasing/negotiating usance bills under LCs or otherwise, it is to be ensured that the bills so discounted/ purchased/negotiated have arisen out of the actual movement of goods. Further, branches should not extend bills limits to non-constituent borrower and/or non-constituent member of a consortium/multiple banking arrangement. The detailed instructions/guidelines relating to Bill Finance are available in Chapter 5. 5.6 PACKING CREDIT Packing credit is an advance given to an exporter who holds a Code Number assigned to him by the Directorate General of Foreign Trade (DGFT), for financing the purchase, processing, manufacturing or packing of goods prior to shipment/working capital expenses towards rendering of services on the basis of letter of credit opened in his favour or in favour of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods from India or any other evidence of an order for export from India having been placed on the exporter or some other person, unless lodgement of export orders or Letter of Credit with the bank has been waived. Packing credit advances are generally allowed separately for each Letter of Credit/Firm Order to comply with the guidelines issued by HO Divisions/RBI. The detailed instructions/guidelines relating to Packing Credit are available in Chapter 6. 5.7 INLAND LETTERS OF CREDIT Letter of credit (LC) is issued by the Bank at the request of its customer in favour of a third party informing him that the Bank undertakes to accept the bills drawn on its customer up to the amount stated in the LC subject to fulfillment of the conditions stipulated therein. Therefore, when Bank issues LC, it assumes responsibility to pay its beneficiary on production of bills drawn in accordance with the terms and conditions of the LC. 1.4 While assessing the non-fund based limits, branches should ensure that projections and cash flows submitted by the borrowers are realistic and in line with the past trend. Whenever the bills drawn under LC are not paid by the party from its own resources or out of available DP in the CC account on its due date, the LC is said to have devolved. The amount in default of devolved LC will be directly debited to the main operating account of the customer (CC/OD/CA) in the transaction system (CBS) itself. In case two consecutive bills, drawn under LCs opened previously were not retired by the party from its own resources or out of available DP in the CC account, further opening of Letter of Credit must not be allowed by the Branch Heads without clearance from their next higher authorities. The detailed instructions/guidelines relating to Inland Letter of Credit are available in Chapter 7. 5.8 GUARANTEES Guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default. In the ordinary course of business, Bank often issues guarantees on behalf of its customers in favour of third parties. When Bank issues such a guarantee, it assumes a responsibility to pay the beneficiary, in the event of a default made by the customer. The detailed instructions/guidelines relating to Guarantees are available in Chapter 8. 5.9 CONFIDENTIAL REPORTS Confidential Reports (CRs) on borrowers and guarantors are required to be compiled (excepting the cases where compilation of CRs is exempted) and reviewed (except brief CRs). CRs should contain full and reliable record of character, estimated means, business activities and credit-worthiness of all Individuals, firms and corporate bodies who are under any form of liability to the Bank, whether as direct borrowers or guarantors. CRs must be recorded in the confidential reports binders under the names of the parties to whom they refer. Brief particulars of any business known to be conducted by the borrowers or guarantors at other office(s) of the bank should also be noted. Non-review of confidential/credit reports in time, not only delays consideration of loan proposal but may expose the Bank to risk in case of unnoticed deterioration in the means and financial position of the borrowers/co-obligants. 1.5 The detailed instructions/guidelines relating to Confidential Reports are available in Chapter 9. 5.10 DOCUMENTATION No advance should be disbursed until documents have been properly executed strictly in accordance with the prescribed guidelines. Proper documentation in a Loan Account is very essential from Banker's point of view. The prime consideration to be kept in mind while executing the documents is that these are enforceable in a Court of Law in case the Bank decides to initiate legal action to recover its dues. A bank generally takes some assets as security for advances made by it. The purpose is to realise the assets so taken in case the borrower defaults in making payments of the dues. This is possible only when documents are complete in all respects (i.e. correctly drafted, stamped and properly executed) so that the bank can prove its rights over the property/ies in court of law. The detailed instructions/guidelines relating to Documentation are available in Chapter 10. 5.11 MORTGAGES - IMMOVABLE PROPERTY A mortgage of immovable property can be taken either as a primary security or as an additional/collateral security for Bank's advances as may be provided in the sanction. Before a mortgage is taken, Managers should satisfy themselves by an examination of deeds that the title is prima facie in order and property is unencumbered. The title deeds offered should be original and not copies unless specific sanction of the competent authority is obtained. A sale certificate issued by a court is a valid document of title to the property and can be accepted to secure an advance. If the chain of deeds is incomplete, a certified copy of the missing documents from the Office of Assurances should be supplied by the intending borrower with an explanation for non-production of the original deeds. A full report on the title should be obtained from the Bank's approved lawyer. Where non-encumbrance certificate from the Office of Assurances is not produced, Bank's lawyer should make a search of records and ensure that no prior mortgage, charge or any other encumbrance on the property exists. The result of this search should be incorporated in his report. Enquiries must also be made regarding the persons occupying the property & if they are not the owners, the terms on which they have the possession. A complete record must be kept of all such reports and investigations. 1.6 5.11.1 VALUATION OF PROPERTY AND PLANT & MACHINERY The detailed instructions/guidelines relating to Mortgages are available in Chapter 11. Guidelines for valuation of property and empanelment of valuers, as contained in L&A Cir.38 dated 28.03.2013 followed by other relevant circulars on the subject, be observed meticulously in all borrowal accounts. 5.12 PROJECT APPRAISAL Project Finance is one of the key areas for any lending institution. As such, before taking a final decision about financing any project, whether individually or jointly, a detailed and critical appraisal of the project is necessary. The appraisal methodology of the Bank should keep pace with ever changing economic environment and also address the various types of risks viz. industry, business, financial, management etc. Bank has to ensure that the people behind the project have the required knowledge & expertise in the proposed line of activity, enough owned funds to meet the promoter’s contribution. The projections submitted by the promoters should be realistic and achievable and the project must have enough surplus generation to service the debt in a reasonable period of time after meeting the normal business expenditures. While doing appraisal of any project, the following four fundamentals should be carefully studied and examined: a) Market and Economic aspects. b) Technical aspects. c) Financial aspects. d) Managerial aspects. The detailed instructions/guidelines relating to Project Appraisal are available in Chapter 12. 5.13 POST SANCTION SUPERVISION & FOLLOW UP OF LOANS Post Sanction Supervision & Follow up of Loans is an important function as it helps in keeping a watch on conduct and operational/ financial performance of the borrowal accounts. Further, it also helps in detecting signals/symptoms of sickness & deterioration, if any, taking place in the conduct of the account for initiating timely corrective action to check slippage of accounts to NPA category. The detailed instructions/guidelines relating to Post Sanction Supervision & Follow up of Loans are available in Chapter 13. 1.7 5.14 CREDIT RISK MANAGEMENT 5.14.1 “Credit risk,” means the possibility of loss associated with diminution in the credit quality of borrowers or counter parties. These counter parties may include an individual, corporate, bank, financial institution or a sovereign. In a bank’s portfolio, losses stem from outright default due to inability or unwillingness of a customer or counter party to meet commitments in relation to lending, trading, settlement and other financial transactions. 5.14.2 In order to measure the credit risk in Bank’s portfolio, the Bank has already developed certain models/tools. The models evaluate the credit risk rating of a borrower on a scale of A1 to C3 with A1 indicating minimum risk and C3 indicating maximum risk. The credit risk rating tools consider broad areas in evaluating the default risk of a borrower viz. Financial, Business Performance, Industry Outlook, Quality of Management and Conduct of Accounts. Credit risk rating of the borrower shall be valid for a period of 18 months from the date of balance sheet on the basis of which the credit risk rating was last conducted or 15 months from the last date of month in which the rating was confirmed/ vetted by the competent authority, whichever is earlier. Similarly to evaluate risk in retail segment credit scoring models are being used. The scoring models supplement credit appraisal and result in increase in consistency of lending decisions. The outcome is based on personal characteristics and past behavior. The cut-off level for sanction of all the loan applications has been kept at the score of ‘50 & above’ for all the retail loan schemes covered under the scoring models. This cut off shall be revised from time to time based on experience gained. 5.14.3 Risk-return pricing is a fundamental tenet of risk management. In a risk- return setting, borrowers with weak financial position placed in high credit risk category are priced high. Thus the Bank has linked the price with the risk rating of borrowal accounts. 5.14.4 The bank already has in place a multi tier credit approving system in which the credit proposals are approved. In order to restrict our exposure in high risk rated accounts, certain restrictions on exercising loaning powers by the field functionaries have been placed on sanctioning loans to B2 to C3 rated borrowers. Higher loaning powers have been delegated to CMs and above for A1 to A4 rated accounts. 5.14.5 With a view to constantly evaluating the quality of loan book of the bank and to bring about qualitative improvements in credit administration, bank has already created Credit Audit & Review Division which is independent of Risk Management Division. The Credit Audit and Review system shall cover all borrowal accounts beyond a threshold limit and all weak accounts. 1.8 5.14.6 Bank has also taken necessary steps to monitor it’s entire portfolio periodically on an ongoing basis so as to maintain the portfolio quality. The detailed instructions/guidelines relating to CREDIT RISK MANAGEMENT are available in Chapter 14. 5.15 LIMITATION Every suit, appeal and application shall be filed, preferred and made within the period of limitation as prescribed under the Limitation Act, 1963. Care and caution must be exercised to ensure that the recovery of debts due to Bank & the enforceability of the related securities do not get time-barred. Else, the Bank will be left without any legal remedy. The detailed instructions/guidelines relating to Limitation are available in Chapter 15. 5.16 MANAGEMENT OF NON PERFORMING ASSETS (NPAs) In the present scenario i.e. after introduction of Income Recognition & Asset Classification norms and SARFAESI Act, term Protested Advances has lost its relevance. Non Performing Assets include Protested Advances as well. Therefore, some of the contents of the existing Chapter No. 15 (Protested Advances) have been merged with Chapter 16 (Management of Non Performing Assets) and existing Chapter No. 15 has been deleted. NPAs act as drag on bank's profitability and need urgent attention at all levels. The action points and strategies for reducing NPAs have to be two pronged (i) recovery/reduction in existing NPA accounts and (ii) checking slippage of fresh accounts from Performing (Standard) to NPA category. The action points may vary depending upon the area, nature of activity and intention of borrowers etc. Advances are classified under two broad categories: i) Performing (Standard) and ii) Non Performing (Sub-standard, Doubtful and Loss). The detailed instructions/guidelines relating to Non- Performing Assets are available in Chapter 16. 5.17 NPA Management through One Time Settlement (OTS) OTS has proved to be an effective strategy to resolve NPAs. As such, procedural guidelines of OTS Policy have been incorporated in Chapter 17. 1.9 5.18 SARFAESI Act The Act came into force w.e.f. 21st June 2002. Main operative instructions relating to SARFAESI Act have been incorporated in Chapter 18. 5.19 Legal Action Filing of suit, execution of decrees and their follow up, waivement of legal action etc. are incorporated in Chapter 19. 6. NEW CAPITAL ADEQUACY FRAMEWORK 6.1 The bank has implemented new capital adequacy framework (NCAF) popularly known as Basel II for calculation of Bank’s CRAR. In terms of the RBI guidelines bank has adopted Standardized Approach under credit risk w.e.f. 31.3.08. Under Standardized Approach loan assets have been classified into following major categories: 1. Claims on Domestic sovereigns 2. Claims on foreign sovereigns 3. Claims on Public Sector Entities (PSEs) 4. Claims on MDBs, BIS and IMF 5. Claims on Banks 6. Claims on Corporates 7. Claims on primary dealers 8. Claims included in the Regulatory Retail Portfolio 9. Claims secured by Residential Properties 10. Claims secured by commercial real estate 11. NPA 12. Claims under Specified Categories 13. Other assets Risk weights for the different asset classes have been prescribed by RBI, which may be fine tuned by them from time to time. For smooth evaluation of risk weighted assets for credit risk under Standardized Approach, bank has got upgraded the existing LADDER system called “Cris-Mac”, which generates the requisite reports. 6.2 With the objective to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, Bank has implemented the Basel III guidelines w.e.f 01.04.2013 on the basis of regulatory guidelines. ii) Internal Rating Based Approach 1.10 Under the IRB approach, to arrive at the risk weighted assets (RWA) for exposure, internal risk ratings will be used and banking book exposures will be categorized into following six asset classes broadly: a) Corporate b) Sovereign c) Bank d) Retail e) Equity f) Others The IRB approach is again classified into Foundation IRB (FIRB) approach and Advanced IRB (AIRB) approach. The bank has got approval from RBI to participate in the parallel run of the Foundation IRB (FIRB) approach of credit risk. 6.3 Credit Risk Mitigation Techniques RBI has prescribed list of eligible financial collaterals, method of valuation of collaterals, haircut etc., which helps the bank in reducing the exposure amount by permitting offset of such collaterals against the exposure. Banks use a number of techniques to mitigate the credit risk e.g. exposure may be collateralised in whole or in part by cash or securities, deposits from the same party, guarantee of a third party etc. RBI guidelines under Standardized Approach of credit risk allow a wide range of credit risk mitigants to be recognized for regulatory capital purposes provided these techniques meet the requirements of legal certainty. Under Standardized Approach, the following securities (either primary or collateral) are at present eligible for treatment as credit risk mitigants: (i) Cash (as well as certificates of deposit or comparable instruments issued by the lending bank) or deposit with the bank which is incurring the counter-party exposure. (ii) Gold: Gold would include both bullion and jewellery. However, the value of the collateralized jewellery should be benchmarked to 99.99 purity. (iii) Securities issued by Central and State Governments (iv) Indira Vikas Patra, Kisan Vikas Patra and National Savings Certificates provided no lock in period is operational and if they can be encashed with in the holding period. (v) Life insurance policies with a declared surrender value of an insurance company which is regulated by an insurance sector regulator (vi) Debt securities rated by a recognised Credit Rating Agency where these are either: 1.11  (a) at least BBB- when issued by public sector entities; or (b) at least A3 for short-term debt instruments (vii) Debt securities not rated by a recognised Credit Rating Agency where these are: a) issued by a bank; and b) listed on a recognised exchange; and c) classified as senior debt; and d) all rated issues of the same seniority by the issuing bank that are rated at least BBB- or A3 by a chosen Credit Rating Agency ; and e) the bank holding the securities as collateral has no information to suggest that the issue justifies a rating below BBB- or A3 (as applicable) and; f) Banks should be sufficiently confident about the market liquidity of the security. (viii) Units of Mutual funds regulated by the securities regulator of the jurisdiction of the bank’s operation mutual funds where:
a price for the units is publicly quoted daily i.e., where the daily NAV is available in public domain; and
Mutual fund is limited to investing in the instruments listed in this paragraph. (Equities including convertible bonds are no longer part of CRM) Under RBI guidelines one tool available is external risk rating of borrowal accounts having exposure of above ₹5 crore. The risk weights of the rated accounts ranges from 20% to 150% whereas it is flat 100% in respect of unrated accounts. Eligible IRB collaterals In addition to the eligible financial collaterals as mentioned above for standardized approach, some other collaterals recognized under IRB approaches of credit risk are as under:- i. Eligible Financial Receivables ii. Commercial or Residential Real Estate (CRE/RRE) iii. Other physical Collaterals The eligibility criteria of these IRB collaterals has been defined in IRMD Cir.No.07 dated 23.03.2015. 7. Besides, the specific areas and subjects covered in various chapters briefly explained above, other important issues to be considered while allowing loans and advances are explained in the following paragraphs. 1.12 8. CONSIDERATIONS BEFORE MAKING OR RECOMMENDING ADVANCES Before granting any advance under their own delegated powers or while forwarding proposals for sanction to a higher authority, Managers must satisfy themselves or provide such of the following information as may be necessary to take a prudent credit decision and give their own definite recommendations: i) The means of the applicant and guarantors should be verified by independent enquiries and by examination of their books. ii) The details of the assets of the applicant, with specific reference to his liquid assets viz. cash, book debts, stocks etc. iii) The details of the liabilities of the applicant - whether short-term or long- term. iv) The extent of the margin available with the applicant, which is indicated by the excess of the liquid assets over the current liabilities. v) The experience of the applicant in the business or the line of activity in which he proposes to utilise the money to be borrowed from the bank. vi) The purpose for which the advance is required and the probable date of repayment. The advance should be for productive purposes and not for speculative purposes. vii) The profitability projections/repayment schedule submitted by the applicant should be critically analysed so as to ensure that the projections are not optimistic. viii) The details of the primary and collateral security offered to secure the loan need to be ascertained. ix) That amount of the advance is need based and is in relation to the applicant's means. The same should also bear a reasonable relationship to the amount of the self owned capital provided by him. x) The details of all contingent liabilities related to the payment of disputed cases of excise duty, income tax, sales tax and other statutory liabilities, need to be ascertained. xi) Comments on past conduct of the accounts covering the following aspects should be ascertained: Inadequate availment of credit limits. 1.13  Unauthorised accommodation, if any, allowed. Credit summations being disproportionate to sales. Non-payment of stipulated instalments. High returning of bills. Delay in retirement of bills received under LCs and guarantees invoked by beneficiaries. Non-submission of audited annual accounts. Borrowers' failure to give proportionate foreign exchange, merchant banking and non-fund based business to our branch. Non-compliance of terms and conditions of sanction. 9. PRE-SANCTION & POST SANCITON FOLLOW UP CHECK LISTS In order to strengthen the pre-sanction appraisal and post sanction follow up and to avoid the quick mortality cases, checklists in the form of questionnaire on pre- sanction appraisal and post sanction follow up have been prepared and circulated to the field functionaries. Branches should comply with the laid down guidelines and also ensure that points enumerated in the checklists are duly addressed/covered at the time of loan appraisal. 10. FAIR PRACTICE CODE, CODE OF BANK’S COMMITMENTS TO CUSTOMERS AND CODE OF BANK’S COMMITMENT TO MICRO AND SMALL ENTERPRISES 10.1 Based on the guidelines received from RBI, Fair Practice Code has been devised by the Bank. The Fair Practice Code contains important declarations such as the loan applications will be disposed of within a specified time period, wherever possible the main reasons of rejection of the loan application shall be conveyed to the applicant, need based credit requirement of the borrowers shall be assessed as per bank’s guidelines, the terms and conditions of the sanction shall be conveyed to the borrower and borrower’s acceptance thereof shall be obtained, a copy of the loan agreement shall be invariably furnished to the borrower, information about all the charges/fees should be provided, changes in terms & conditions including interest rates, service charges, etc. shall be advised to the borrowers. Bank will not interfere in the affairs of the borrowers except for what is provided in the terms and conditions of the sanction. Bank will not discriminate on grounds of sex, caste and religion. It will not resort to undue harassment in the matter of recovery of loans, etc. 10.2 Further, to comply with the Code of Bank’s Commitments to Customers formulated by The Banking Codes and Standards Board of India (BCSBI), it has to be ensured that: 1.14 a) Borrower will be informed that default/delay in deposit of the installment(s)/ interest as per agreed repayment schedule shall have adverse impact on its credit rating and past conduct of the account. b) Bank will have an unqualified right to pass on to the Credit Reference Agencies the details of his loan account in such manner and through such medium as the bank in their absolute discretion may think fit. However, consent of borrowers and guarantors is to be obtained and kept on record. c) All securities/ documents will be released within 15 days on receiving payment of loan or realisation of loan subject to any legitimate right or lien for any other claim, the lenders may have against borrowers. d) All loan application forms in respect of all categories of loans irrespective of the amount of loan sought by the borrower must contain information with regard to the method of calculation of interest in the loan account. e) Besides treating all the personal information of the customer as private and confidential and revealing the information in exceptional cases as mentioned in the Code, bank will not use the personal information of the customer for marketing purposes, unless specifically authorized by the customer to do so. f) The written permission of the customer will be required before giving any banker's reference about him/ them. g) The customer will be explained of the extent of his rights under the existing legal framework for accessing the personal records that the bank holds about him. h) The permission of the customer (borrower) will be obtained for giving confidential information about his finances to the person giving the guarantee or other security for his (borrower’s) liabilities or to their legal adviser. 10.3 Moreover, the Bank has also adopted the Code of Bank’s Commitment to Micro and Small Enterprises (BCSBI MSE Code –August 2015) developed by BCSBI to give a positive thrust to the MSE sector by providing easy access to efficient banking services; promote good and fair banking practices by setting minimum standards in dealing with the customers and increase transparency so that the customers can have a better understanding of what they can reasonably expect of the services. 11. Use of data of Credit Information Companies With the aim of taking informed credit decisions, the bank has become a member of four Credit Information Companies (CICs) namely Credit Information Bureau (India) Ltd., M/s Experian Credit Information Co. of India Pvt. Ltd., M/s Equifax Credit Information Services Pvt. Ltd. and M/s CRIF High Mark Credit Information Services Pvt. Ltd., which have been set up for creation of the database in respect of the Borrowers, Guarantors & Co-obligants of banks/FIs and sharing the same with its member banks. 1.15 Credit Information Report (CIR) should be drawn, while considering fresh/enhanced/renewal proposal. 12. LOANING POWERS & RESPONSIBILITIES OF BRANCH HEADS 12.1 In order to expedite the decision on Loan Proposals and quicker dispensation of credit, Head Office from time to time lays down the powers of officials at various levels in regard to granting of various types of advances, guidelines for exercising these powers, the directions regarding submission of returns etc. It is expected that the loaning powers are used judiciously with due care and in good faith having regard to duties and responsibilities attached to the post held by the sanctioning authority. 12.2 Sanctioning officials must exercise prudence and a wise discretion in the use of powers delegated to them and must thoroughly satisfy themselves that all advances granted by them (other than borrowings against Govt. Securities, Gold ornaments, Bank's own deposits and Life Policies for personal purposes) are for genuine business requirements, need based and that, in all cases, the bank's interests are fully safeguarded. The fact that an advance has been specifically sanctioned by higher authority in no way lessens the responsibility of the other officials. 12.3 Branch Heads must see that the accounts of the borrowers are at all times properly conducted, that the security therefor is adequate & in order and that financial position of the borrowers and guarantors has not deteriorated. Should an occasion arise, immediate remedial steps must be taken by them to protect the interests of the Bank under advice to their controlling office, whose guidance should be sought, wherever necessary. 12.4 The important guidelines and various aspects relating to loaning powers are given hereunder: a) Sanction of all loan facilities shall be governed by Bank's prevalent policy and as per guidelines laid down in circulars issued by HO from time to time. Sanction shall be subject to margin in force. Though, various facilities are grouped for delegation purpose in the loaning power charts, the sanctioning authority while sanctioning a proposal should clearly specify the nature of facility, the security, margin, etc., alongwith other norms/terms and conditions governing the facility sanctioned. b) All loan facilities must be considered after obtaining a loan application from the borrower(s) concerned and compilation of confidential report(s) on him/them and the guarantor(s), if any, in accordance with the instructions given in the separate chapter of CRs on Borrowers/Guarantors and other instructions/guidelines issued from time to time. 1.16 c) Sanctioning authority will sanction facilities within his loaning powers on regular loan proposals prepared by another officer of the office. Where second officer is not available, such proposal may be prepared by Special Assistant of the office, if available or in terms of extant guidelines issued by IRMD from time to time. d) Persons working in officiating arrangements shall be vested powers of the officers one grade above than the person who is officiating and that such higher power may also be exercised during the casual leave arrangements of the permanent Branch Head. However, Clerical Staff while officiating as Spl. Asstt./Officer are not allowed to sanction any loan proposal. e) COCAC & above have been empowered to sanction credit facilities to allied/associate concerns taken together, upto 2 times of their ‘aggregate commitment per borrower’. Such CACs may consider proposals in favour of allied/associate borrowers, even where the facilities of one or more such borrowers have been allowed at higher level provided: The aggregate exposure to all allied/associate concerns, including the one which have been sanctioned facilities at higher level, does not exceed two times of their aggregate commitment per borrower. and The aggregate exposure to any single borrower, other than one which has been sanctioned facilities at higher level, does not exceed the loaning powers of the concerned official. f) Sanctioning authority should not sanction/set-up any limit in his own favour at his own office. However, he may sanction certain specified facilities within his own vested powers to any officer, other than himself, irrespective of the fact that the borrowing officer is senior or junior to him. g) Permission for taking over loan facilities sanctioned at another bank/financial institution except for taking over of Retail Loan Accounts shall be given by next higher authority of the authority under whose powers such loan facilities are to be taken over. h) Circle Head and higher officers are authorised to withdraw powers, for reasons to be specified, of their junior(s) wherever they feel that powers so delegated are not being exercised judiciously or in Bank's interest. Next senior authority is to be informed in case of such withdrawal of powers. 1.17 i) Sanctions in respect of Working Capital and Term Loan facilities shall be valid for 6 months, from the date of sanction. Facilities not availed within the above period should be treated as lapsed and borrower be advised accordingly. Unless a lapsed sanction is revalidated by the competent authority within a maximum period of 12 months from the date of sanction, no facility should be released. j) Powers will be exercised by Branch Head according to the scale in which he is placed. 12.5 Adhoc Loaning Powers - In order to meet the emergent requirement of borrowers, officials at various levels have also been delegated specific powers to permit adhoc facilities for period ranging from 3 to 5 months in the nature of "Drawing Beyond Limits" and "Drawing Beyond Drawing Powers" through menu option ACTODM and verified through menu option ACTODMAU in CBS system. 12.6 While exercising the loaning powers, the officials have to ensure that the following instructions/guidelines are strictly complied with: i) All the powers are exercised in terms of guidelines/instructions given in: a) Book of Instructions and various operative circulars & circular letters issued by the Bank from time to time. b) Specific powers vested under various Schemes in operation e.g. Priority Sector Loans, Consumer Loans, Housing Loans, Staff Welfare Loans, etc. c) Notes & other guidelines on exercise of powers issued through Loans & Advances Circulars on the subject. ii) The loaning restrictions circularised to the branches from time to time are to be adhered to and restrictions should be strictly followed during the period of abeyance. 12.7 All sanctioning officials are required to submit Monthly Statement of Limits Sanctioned in respect of Sanctions falling within vested powers; Adhoc sanctions within vested powers; Details of excess drawings/limits permitted; Details of loan proposals rejected during the month and confirmation of action required to the next higher authority within the stipulated time. The Controlling authority should scrutinise the statement closely and the serious irregularities/ discrepancies observed in the sanction should be reported to the sanctioning official for rectification and avoiding recurrence in future. In case of officials retiring in next three months, the statement of limits sanctioned is required to be submitted promptly at fortnightly intervals. 1.18 13. CONFIRMATION OF ACTION IN SANCTIONS EXCEEDING DISCRETIONARY POWERS a) In case, officials in organisational interest exceed their vested loaning powers, then after such a transaction has taken place (including the cases where telephonic/oral sanctions were obtained from the higher authority for exceeding the powers), it should be reported immediately to the controlling authority for confirmation of action by the Competent Authority through submission of a proposal on the prescribed format. b) The competent authority will grant or reject requests for confirmation of action within 15 days of the receipt of the proposal.In case, queries/clarification are necessary for grant of such confirmation, the competent authority may take another 15 days for taking the final action in this regard. However, in all circumstances the decision with regard to confirmation/rejection of the proposal has to be taken and conveyed within a period of maximum one month of the receipt of the original proposal. Otherwise, the transaction in question shall be deemed to have been ratified/confirmed by the competent authority. In case a transaction has to be ratified/confirmed under the powers of the Board/Management Committee, the confirmation in respect of such a transaction may be obtained from the latter in its next meeting and the same be conveyed to the concerned office immediately after the meeting. c) Reporting to Audit Committee of Board (ACB) - To comply with RBI instructions about the cases requiring confirmation of action, consolidated position is to be put up to the ACB on quarterly basis in respect of : i) All the cases where action has not been confirmed by the Competent Authority as per their delegated "Powers for Confirmation" and ii) All the cases where transgression is beyond the "Powers for Confirmation" delegated to the officials at various levels & which can be confirmed by the Management Committee only. 14. PRICING (INTEREST RATES) OF LOAN ASSETS AND CREDIT RATING SYSTEM 14.1 With an objective of improving the efficiency of monetary policy transmission in bank’s lending rates, RBI has issued guidelines on Marginal Cost of Funds based Lending Rate (MCLR) and advised that all rupee loans sanctioned and credit limits renewed w.e.f. 01.04.2016 will be priced with reference to the MCLR which will be the internal benchmark for such purposes. Bank shall publish seven MCLRs and except those loans which are specifically linked with particular MCLR elaborated in the interest 1.19 rate tables, all other loans, working capital advances, term loans on floating rate will be linked with one year MCLR. The reset period will be one year in all loans. Since, Tenor Premium is a component of MCLR, no Tenor Premium shall be charged in any loan account linked with MCLR. The existing borrowers have the option to either continue with the existing BPLR/Base Rate System till expiry of their existing contract with the bank or shift to the new MCLR System at mutually acceptable terms. Accordingly, the interest rate structure under BPLR system and Base Rate System shall remain in force till the bank shifts entirely to the new MCLR System. 14.2 Other important aspects to be considered for determining the Credit Rating of the borrower are as under: a) The basis of determining parameters shall be the latest audited balance sheet of the borrower. b) All Working Capital and Term Loan accounts are to be reviewed annually for determining the interest rates on advances over ₹2 lakh on the basis of rating of the borrower. c) For downward revision of interest rates, in case of change in the category of borrower, the cases require reference to the sanctioning authority. d) Refund of Interest: For refund of excess interest charged, waivement of interest, commission, hundian etc. branches may follow the under-noted instructions: a) Refunds/reliefs beyond the powers of Branch Head should be allowed only after obtaining prior approval of the competent authority. b) Amounts of refunds/reliefs, etc. approved by the competent authority should be allowed only from out of revenues of the branch concerned. 14.3 It should be ensured that interest rates are revised and charged as per the Bank's guidelines/instructions issued from time to time and wherever there is an upward revision of interest rates, the same should be intimated to the borrowers. 1.20 15. ADVANCES TO LIMITED LIABILITY COMPANIES 15.1 Before an advance is granted to a limited liability company, certified true copies of the company's up-to-date memorandum and articles of association and its last three years published/audited balance sheets [if it is a holding company, of its subsidiary company (ies) as well and vice versa in the case of a subsidiary company] and certified copy of the certificate of incorporation should be obtained. When a public company is newly incorporated, a certified copy of its certificate to commence business (vide Section 149 of the Companies Act, 1956) should be obtained. The certificate to commence business is not required in the case of a private limited company or when such a company is converted into a public company. However, as per Companies (Amendment) Act, 2015, certificate to commencement of business is not required in case of new public company also. 15.2 The manager must satisfy himself that the purpose for which the advance is stated to be required is not inconsistent with the objects for which the company was formed (vide its memorandum of association), that the advance is within the borrowing powers of the company and normally that no prior charge exists over any of the assets offered as security. He must also be careful to see that the persons who sign the security documents and operate the account have been properly authorised to do so and, in case of doubt, should refer to his Circle Head, for instructions. 15.3 If a company has issued debentures, the managers must ascertain from the debenture trust deed that the assets the company proposes to charge to the Bank are not already charged to the debenture holders. If there is any doubt on the point, a deed of release must be obtained from the debenture holders or their trustees in terms of the debenture trust deed. Also when debentures are being issued by a company whose stocks etc. are pledged or hypothecated to the bank, the managers must be careful to see that the Bank's interests are protected. 15.4 A company's powers to borrow and create a charge on its assets are usually specifically stated in its memorandum and articles of association, but the borrowing powers are not always limited to a fixed amount. When no mention of borrowing powers is made, a trading company may generally be presumed to have power to borrow for the purpose of its ordinary business. 15.5 It is to be noted that in terms of Section 180 (1) (C) of the Companies Act, 2013, a public limited company or a private limited company, which is a subsidiary of a public limited company, cannot borrow in the aggregate (moneys already borrowed together with the moneys proposed to be borrowed) in excess of its paid up capital and free reserves (that is to say reserves not set apart for any specific purpose) except under authority of a special resolution passed by the share-holders of the company in a general meeting. 1.21 15.6 In arriving at the aggregate of borrowings, `temporary loans' obtained from the company's bankers in the ordinary course of business should be excluded. `Temporary Loans' are loans repayable on demand or within six months from the date of loan, such as short term cash credit arrangements, discounting of bills and issue of other short term loans of a seasonal character. Temporary loans do not include loans raised for the purpose of financing expenditure of a capital nature. 15.7 To comply with the essential requirements of law, every resolution passed by the company in a general meeting must, inter-alia, specify the total amount up to which moneys may be borrowed by the board of directors. A certified true copy of such resolution must be kept on Bank's record. 15.8 In addition, a certified true copy of the resolution passed by the board of directors of the company declaring that the company's total borrowings are within the aggregate of its paid up capital and free reserves or within the borrowing limits sanctioned by the resolution passed by the share- holders at the general meeting of the company as required by Section 180 (1) (C) of the Companies Act, 2013 must be obtained. 15.9 In terms of Section 179 (1) (C) of the Companies Act, 2013, a company can exercise its borrowing powers only through its board of directors by means of a resolution passed in a meeting of the board and not by circulation. Further, the board may delegate the powers to borrow to the following officers and to none else, and the resolution must specify the total amount up to which moneys may be borrowed by them: a) any committee of directors b) managing director c) manager or any other principal officer of the company d) in the case of branch office of the company, manager or the principal officer of a branch office 15.10 Before an application for an advance by a joint stock company can be entertained, a resolution must be passed by the board of the company which must, inter-alia, specify the maximum extent to which the company desires to borrow and the name(s) and designation of the officer(s) who is/are to sign the necessary documents and to operate upon the account. Specimen forms of such resolutions are embodied in the Bank's standard forms No. PNB 283 and PNB 284. 15.11 As per section 77 of the of Companies Act 2013, It shall be the duty of every company creating a charge within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise, and situated in or outside India, to register the particulars of charge signed by 1.22 the company and the charge holder together with the instruments creating such charge, on payment of such fees, with the registrar within 30 days of its creation. As per the 2013 Act, all charges are to be registered with the Registrar and as per the said provision, even ‘pledges’ will have to be registered. Thus charge created on the property of any company has necessarily to be registered under this section. Charge includes a mortgage also. Therefore, charges created on the properties of the company should be registered with the registrar of companies as per the provision of this section. Where a company fails to register the charge within 30 days, the person in whose favour the charge is created may apply to the Registrar for registration of the charge alongwith the instrument created for the charge, within such time and in such form and manner as may be prescribed and the Registrar may on such application within a period of 14 days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause, why such charge should not be registered, allow such registration on payment of such fees as may be prescribed. If the company fails to register the charge within 30 days, the Registrar may, on the application by the company, allow such registration to be made within a period of 300 days of such creation on payment of additional fees. 15.12 The certificate issued by the Registrar should be kept as part of the relative loan documents. 15.13 In case of modification in the terms of sanction, or increase/decrease in the amount of advance in respect of which a charge is already registered with the Registrar of Companies, a memorandum of modification of charge is also required to be filed with the Registrar of Companies within the time period as allowed for registration of creation of charge. 15.14 The consequences of non-filing of papers/particulars in respect of fresh charge or modification in the existing charge requiring compulsory registration within the stipulated period under the Companies Act are that the charge will be void against the liquidator and any creditor of the company and the Bank's debt would become unsecured and shall immediately become payable. 15.15 Further, under Section 80 of the Companies Act, 2013, any person acquiring any interest in the property of the company shall be deemed to have notice of the charge from the date of such registration (and not from the date of its creation). The managers must, therefore, ensure that the papers/ particulars 1.23 are filed for registration immediately after the charge is created without availing the stipulated period of 30 days. 15.16 To ensure that the security offered is not previously encumbered in any manner, the Branch Heads must inspect the Register of Charges kept at the registered office of the company and also make a search of the Register of Mortgages and Charges of the Registrar of Companies. Such search should again be made immediately after 30 days from the date of execution of the documents of an advance to find out if any charge has been created on our security during the intervening period. 15.17 Whenever banking facilities or credit limits are enhanced, or terms and conditions are modified, modification of charge under Section 77 of the Companies Act, 2013 be registered with the Registrar of Companies by filing the particulars of such modification. However, if the rate of interest is fixed with reference to the MCLR/bank rate/BPLR as per the terms of loaning documents and the MCLR/bank rate is enhanced or varied, there is no need to register the modification of charge. 16. ADVANCES TO PARTNERSHIP FIRMS 16.1 When making an advance or setting up a credit limit in favour of a partnership concern, all the loan documents must be signed by all the partners on behalf of the firm. The Bank can proceed simultaneously against the firm as well as the partners for recovery of its dues and the account opening form (AOF) be signed by all the partners in their individual capacity while specimen signatures be obtained thereon in their representative capacity. Similarly, specimen signatures of a third person authorised to operate upon the account will be taken on the account opening form in his representative capacity. Also, particular care must be taken to ensure that the declarations given in the penultimate paragraph of the account opening form (PNB 38) are in accordance with facts. 16.2 When it is stated that a written partnership deed exists, a copy thereof should be obtained and kept on the branch record. This is an important procedural requirement and should be insisted upon. Where, however, customers of undoubted integrity decline to exhibit such deeds and there is the risk of a good account being lost, this formality may be waived provided the firm is a registered one and a copy of the relative entry from the office of the Registrar of Firms is obtained; it being understood that the loan documents will be signed by all the partners, the prior sanction of the Circle Head must in each case be obtained before this relaxation of standard procedure is permitted. 16.3 If a partnership has been registered with the Registrar of Firms, a copy of the relative entry should be obtained from the office of the Registrar of Firms which should be compared with the particulars already on the branch record. As 1.24 the registration has the effect of public notice, the constitution declared to the Registrar of Firms should necessarily be in conformity with that advised to the Bank. 16.4 It is to be noted that the Indian Partnership Act provides for the registration of partnership firms. However, registration is not compulsory. But, an unregistered firm suffers from certain disadvantages, such as, it cannot sue third parties to enforce a right arising from a contract or conferred by the Indian Partnership Act. The rights of third parties against the unregistered firm are not affected and they can sue an unregistered firm. It may be pointed out here that the registration of firm binds it to the statement filed by it with the Registrar of Firms. Therefore, the manager should enquire whether the firm is registered but need not insist registration against their wish. 16.5 When a firm is established at more than one station under the same constitution, and the credit facilities are required to be made available at different station(s), the branch where firm has its main account will : i) handle the loan proposals, ii) obtain one set of loan documents for the consolidated limits, and iii) allow apportionment of the limits as may be required by the firm under the written instructions and after having obtained the approval of the competent authority. 16.6 Partners of a firm residing at different stations will sign the documents and indicate the date under their signatures. In such circumstances, no one date will be indicated in the body of the document(s) in the space provided and the limitation will run from the earliest date mentioned. Care should also be taken to see that the document(s) is/are first executed at a place where the stamp required is the highest and thereafter the same be sent to the place for execution by the other executants. In case this is not done, the document(s) will require additional stamp duty to make up the difference at the time of execution, if the stamp duty required at that place is higher. This involves good deal of procedural difficulty as the additional stamp duty will have to be got embossed or made up from the Office of the Collector of Stamps. 16.7 In case of death or insolvency of a partner, a partnership may or may not dissolve depending upon the provisions of the partnership deed. If the partnership stands dissolved, the operation in the account should be stopped and no further withdrawals be permitted. In case there is no written partnership deed, the partnership be taken as dissolved on death or insolvency of a partner. Subject to the provisions of the AOF (PNB 38), the security may be delivered to the surviving partners on behalf of the firm against payment of Bank's dues. But before doing so, other liabilities of the firm to the Bank e.g. Guarantees or Letters of Credit etc. issued on their behalf be kept in view. 1.25 16.8 If partnership does not stand dissolved on the death of a partner and the Bank is satisfied with the means of the surviving partners and no recourse is considered necessary against the legal representatives of the deceased partner, the account can be allowed to continue with prior permission of the sanctioning authority. 16.9 Further, in case of retirement of a partner, partnership stands dissolved on issue of a notice of dissolution of the firm by the retiring partner. In such cases, the operation in the account should be stopped. 16.10 A minor cannot be a partner in a firm but may be admitted with the consent of the partners to the benefits of the firm. He is, in these circumstances, not personally liable for the debts of the firm, but his share, both in the property and profits of the firm, is liable for all acts of the firm. 16.11 A minor may repudiate his liability as partner within six months of his attaining majority or within six months of his knowledge that he was admitted to the benefits of the partnership, whichever is later. His silence after the expiry of the above period will be taken to mean in law that he has elected to become a partner. It is, therefore, necessary to keep a proper record of the date on which a minor attains majority and when this occurs, he should be requested to sign a declaration that he has opted to become a partner and he stands liable for all the obligations/dues of the firm to the Bank from the date he was admitted to the benefits of the partnership while a minor. 16.12 On admission of a new partner, a letter should be obtained to the effect that in consideration of the Bank's continuing the banking facilities, he agrees to be liable for the amount due by the firm to the bank as on ____________ and also for future advances made from time to time and is bound by the terms and conditions agreed to by the other partners. 17. ADVANCES TO LIMITED LIABILITY PARTNERSHIPS 17.1 On incorporation of Limited Liability Partnership (LLP), the persons who have subscribed to the incorporation document shall be its partners and any other person may become a partner in accordance with LLP agreement. The mutual rights and duties of the partners inter se and that of the LLP and its partners are governed by the LLP agreement. In the absence of any such agreement, the mutual rights and obligations of the partners and their liabilities will be governed by the provisions of the first schedule of the Act. 17.2 The Limited Liability Partnership Act 2008 provides that any person, who by words spoken or written or by conduct, represents himself, or knowingly permits himself to be represented to be a partner in any LLP is liable to any person who has on the faith of any such representation given credit to the LLP, whether the person representing himself or represented to be a partner does or 1.26 does not know that the representation has reached the person so giving credit. It also seeks to provide that where any credit is received by the LLP as a result of such representation, the LLP shall, without prejudice to the liability of the person so representing himself or represented to be a partner, be liable to the extent of credit received by it or any financial benefit derived thereon. 17.3 It further provides that where after a partner's death the business is continued in the same LLP name, the continued, use of that name or of the deceased partner's name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the LLP done after his death. 17.4 It is clear that LLP agreement is a most important document and any changes therein should be filed with the Registrar. 17.5 Every partner of the LLP is an agent of the LLP but not of the other partners. LLP is bound by Act of a partner. A partner is not personally liable, directly or indirectly for an obligation of the LLP, whether arising in contract or otherwise solely by reason of being a partner of the LLP. 17.6 The Limited Liability Partnership Act 2008 provides for unlimited liability of the LLP and its partners in case LLP or any of its partners carry out an act with intent to defraud creditors of the LLP or any other person or if they carry out an act for any fraudulent purpose. It further provides that in case any such act is carried out by a partner, the LLP is liable to the same extent as the partner unless it is established by the LLP that such act was done without the knowledge or the authority of the LLP. 17.7 Further conversion of legal status (conversion from firm to LLP, from private company to a LLP or from unlisted public company to a LLP) does not affect the existing obligations, liabilities, agreements/contracts and continuation of employment on conversion to LLP. On registration of LLP, all assets and liabilities of the firm/private company/unlisted company shall be transferred to and vest in the LLP and the firm/private company/unlisted company shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be. 17.8 The LLP shall ensure that for a period of 12 months commencing not later than 14 days after the date of registration, every official correspondence of the LLP bears a statement that it was, from the date of registration converted into an LLP. 17.9 A firm may apply to ROC in the prescribed form for converting itself into an LLP provided all the partners of the firm becomes partners of the LLP. 1.27 18. ADVANCES TO HINDU UNDIVIDED FAMILIES (HUF) 18.1 The Karta of a HUF has implied authority to borrow money and pledge securities of the family for the ordinary purpose of the family business or for the benefit of the joint family. Thus, advances against stocks should be limited to goods and commodities which are regularly dealt with by the HUF during the course of family business. Sometimes a collateral security of an immovable property in the name of HUF may have to be offered. 18.2 Although the Karta is competent to bind the family, yet in practice, the loan documents should be signed by the Karta & all major co-parceners of a HUF. By signing the documents, the major co-parceners will become personally liable. 18.3 In terms of the Hindu Succession (Amendment) Act, 2005 the daughter of a coparcener has been made by birth, a co-parcener in her own right, in the same manner as the son. She has the same rights in the coparcenary property as she would have if she had been a son. She is also subject to same liabilities in respect of the said coparcenary property as that of a son. So, while assessing loan proposal as well as while obtaining documents, the existance of female coparcener should also be kept in view. Karta/all major male and female coparceners have to execute the documents. While creating mortgage of the properties of HUF, all the major coparceners (including female coparceners) have to create the mortgage. 18.4 The loan documents will be signed in the following form: For self and M/s___________________ (HUF) 1. A. Karta 2. B._____________] 3. C._____________] Major co-parceners 4. D._____________] 5. E._____________] 18.5 Consequent upon the passing of the Hindu Succession (Amendment) Act, 2005 the share of the deceased co-parcener shall devolve on his/her heirs as specified in the Act. 18.6 As by virtue of para 16.5 above, extraneous interest would be created in HUF property, to protect the Bank's interest, managers should stop operations in the account of a HUF firm as soon as the death of a co-parcener comes to their knowledge. If the account is in credit, it should be dealt with as an ordinary claim case, but in the event of the account showing debit balance, necessary steps must be taken to have it adjusted as soon as possible. In case the surviving co- parceners desire to avail of credit facilities, their application should be considered afresh after taking into account the assets of the remaining co-parceners. 1.28 18.7 To enable the Bank to have the notice of the death of a co-parcener in a HUF, Form No. PNB 440 includes a clause providing that the signatories i.e. the Karta and the major co-parceners, undertake to report to the bank when a birth and/or death occurs in the family. As an additional precaution, a declaration on Form No. PNB 36 should be obtained every half-year in respect of each HUF account. 18.8 A complete pedigree chart of the family giving the names of all the co- parceners including the minors with their dates of birth and names of guardians should be prepared and kept on record. The dates on which the minors attain majority should be diarised and a minor on attaining majority should be asked to sign appropriate declaration/supplemental loan documents and agree to operation by the person(s) already authorised. 19. ADVANCES AUTHORISED BY SISTER BRANCHES When an advance is required at one office against security held by another, the office holding the security will advise the office at which the advance is to be made, the amount of the drawing power allocated to it retaining full responsibility for the safety of the advance. The lending office will merely be responsible that the account is regularly conducted and the drawing power allocated to it is not exceeded. 20. DRAWING POWER (DP) REGISTER 20.1 The drawing power of borrowers in cash credit and packing credit accounts with limits below ₹10 lakh will be recorded in the drawing power register (Form No. PNB 1061) which will be maintained as under: i) A separate opening should be allotted to each account, and brief particulars of the limit sanctioned, security held and the margin(s) maintained on the account recorded. ii) The current market value of the security and the drawing power (in words and figures) should be stated in the appropriate columns. (Note: It is to be noted that DP must not exceed the limit sanctioned irrespective of the value of the security held) iii Each drawing power must be initialed by the supervising official concerned and signed in full by the manager. iv) Drawing powers must be altered with every change in the security and every important change in its market value. 1.29 20.2 In case of cash credit and packing credit accounts with limits of ₹10 lakh and above, Drawing Power is to be calculated and recorded in the Drawing Power Sheet (PNB-1062). 20.3 In CBS System: The Scheme type for CC A/Cs is CCA and for OD A/Cs it is ODA. Sanction limit and MIS codes to describe the purpose of advance are part of account opening. Menu option to open accounts in these schemes is OAAC which needs verification through OAACAU. Options H and V are mandatory in addition to G and S while opening CC/OD accounts. Security details have to be captured separately, which can be attached to the account. Menu option to capture and maintain Security Register is SRM. SRM can be created at account level and/or at limit level. Drawing power indicators are D- Derived from Security, E-Equal to Sanction limit, M- Maintained by or P-Parent, which can be changed through menu option ACLHM and verified by menu option ACLHMAU. DACC (Debit Against Clearing Cheques) limit can be maintained at account level through menu option ACLHM. DACC limit shall be within the sanctioned limit. Sanction Limit and Drawing Powers indicator (and drawing power) can be changed from time to time through menu option ACLHM. Facility is available to give TOD (Temporary Overdraft) during passing the transaction if the amount being drawn exceeds the drawing power or account is irregular. However, facility of granting TOD should be used judiciously in Bank’s interest. To arrive at the Drawing Power, system takes into account various values, like security value, margin money, sanction limit, ceiling limit, security type (primary & collateral). Menu option ACCBAL can be used to see components of available balance, or same can be seen through menu option ACM – option M (components of available amounts). For detailed guidelines on the CBS aspects, reference should be made to CBS Circulars/User Manual issued by Information Technology Division from time to time. 1.30 21. RETURNS The periodical returns related to advances as are required to be submitted to the Circle Office and/or Head Office will be advised to branches from time to time. Managers are responsible that the information given in all such returns is correct and although the checking of details may be delegated to other authorised officials, they must satisfy themselves before signing the returns and the certificates appended to them that, each one of them is a true statement of fact. Various reports/statements related to loans and advances are generated in CBS system through menu options PNBREP, PNBRPT and SENSRPT. Reports available in CBS system can be generated for all branches (SOLs) and some reports can also be generated circle-wise. 22. GENERAL SAFEGUARDS SUGGESTED BY RBI RBI has suggested that the following broad safeguards/corrective measures may be observed while allowing advances: i) Branches should open letters of credit and purchase/ discount/negotiate bills under LCs only in respect of genuine, commercial and trade transactions. RBI has advised that Scheduled Commercial Banks can grant non-fund based facilities to those customers, who do not avail any fund based facility from any bank in India, subject to some conditions. However, banks are prohibited from negotiating unrestricted LCs of non-constituents. ii) All proposals for advances, without exception, should emanate from the branches and sanctions should be made only after proper appraisal. iii) No excess limit beyond the delegated powers should be sanctioned unless it is absolutely essential. Normally, necessity for large and adhoc amounts cannot arise overnight. If it happens, it indicates either unrealistic projections in the credit proposals or improper assessments of credit requirements. iv) Adhoc amounts/excesses wherever sanctioned should be promptly reported to higher authorities without waiting for regularisation of advances, explaining the circumstances leading to the urgent need for funds. Controlling authorities should monitor the regularisation effectively. v) Sanctions within discretionary powers should also be promptly reported to the controlling authorities in the stipulated manner (Bank has prescribed reporting through Monthly Limits Sanctioned Statement). 1.31 vi) In case of non-reporting (either of the regular or adhoc sanction), the controlling authorities should obtain the prescribed returns/ statements and scrutinise the same diligently and take prompt follow up action. Observations/discrepancies, if any, should be conveyed to the sanctioning official for corrective action. vii) Caution should be exercised against attempts by main borrowers to float fictitious companies in order to facilitate sanction of large limits ostensibly within the discretionary power of the sanctioning authority obviating need to put up the proposal to higher authorities for sanction. viii) In case of oral/telephonic sanctions, proper record of the same should be maintained by the sanctioning as well as the disbursing authority, explaining therein the circumstances under which such sanctions had to be conveyed/obtained. Written confirmation of the competent sanctioning authority must invariably be obtained by the disbursing authority in such cases as also in sanctions beyond discretionary powers. If the Officer giving the instructions is not his immediate superior, but one higher to the latter in the hierarchy, he shall bring such instructions to the notice of his immediate superior at the earliest. ix) The discretionary powers of the officials who have a tendency to exceed their powers frequently, should be reviewed by the Controlling Authorities. Bank's guidelines provide that wherever it is felt that the delegated powers are not being exercised judiciously or in Bank's interest, the same may be withdrawn. x) Controlling Authorities should make frequent visits to branches and submit reports of such visits, with special focus on all loan accounts. ************** 1.32