CP SME BASIC MANUAL 2024 PDF

ROL E GU I D E CU M CE RT I FI CATION MANUAL CP SME BASIC CREDIT – 2024-25 ( For internal Circulation Only)  FOREWORD Dear Role Holder, Banking Industry is witnessing changes at an unprecedented pace. It has, therefore become imperativ...

ROL E GU I D E CU M CE RT I FI CATION MANUAL CP SME BASIC CREDIT – 2024-25 ( For internal Circulation Only)  FOREWORD Dear Role Holder, Banking Industry is witnessing changes at an unprecedented pace. It has, therefore become imperative that we continuously update and upgrade our skills relating to our profession. Each one of us should not only understand his/her role and responsibilities but also continuously equip oneself with latest guidelines in related areas. This will improve professional effectiveness and also lead to enhanced customer satisfaction. With these objectives in mind, Bank has introduced role-based certification programs for employees across all levels. We, at STU, have made an effort in this direction by compiling a Role Guide cum Certification Manual which will provide insight into the role you are currently performing. This booklet may be referred to whenever you need clarity in your day to day working. We are confident that this manual will provide you conceptual clarity and also help in mitigating associated risks. We wish you all the best for a successful and enriching journey in your current role. With Best Wishes, Chief General Manager (STU) S.No. Chapter Page No. 1 LOAN POLICY MATTERS 4 2 A(I) SME DELIVERY MODEL 105 2 A(II) PRE-SANCTION CREDIT PROCESS 119 TYPES OF BORROWERS 134 2 B VALUATION OF ASSETS TIR SME DOCUMENTATION CREATION OF EQUITABLE MORTGAGE CERSAI 3 A ANALYSIS OF FINANCIAL STATEMENTS 189 3 B PREVENTION OF FRAUDS 201 4 A OVERVIEW OF WORKING CAPITAL ASSESSMENT 212 B LETTER OF CREDIT 223 BANK GUARANTEE C EXPORT FINANCE 238 IMPORT FINANCE 5 TERM LOAN 257 6 A CREDIT RISK ASSESSMENT 272 B PREPARATION OF PROPOSALS AND COMMON MISTAKES 281 OBSERVED IN PROPOSALS. CALCULATION OF RAROC 7 SME ASSET PRODUCTS 288 8 POST SANCTION PROCESS 359 9 STRESSED ASSETS MANAGEMENT 373 10 RECOVERY/RESOLUTION METHODS OF STRESSED ASSETS 426  CHAPTER - 1 LOAN POLICY 1.1 The Loan policy, at a holistic level, is an embodiment of the Bank's approach to sanctioning of loans, managing and monitoring credit risk, and aims at making the systems and controls effective. It is guided by the highest standards of commercial prudence and ethical business practices. While formulating the loan policy, the overall risk appetite of the Bank has been taken into consideration. 1.2 The loan policy provides a broad framework for management of the loan portfolio of the Bank with emphasis on creating products and services as well as maintaining asset quality. It helps our customers in achieving their goals and fulfilling the Bank’s vision ‘Be the Bank of Choice for A Transforming India’. 1.3 The provisions of the loan policy are applicable to the domestic as well as international operations of the Bank. Based on the Bank’s loan policy, the Foreign Offices (FOs) have their own loan policies taking into account the regulations and lending practices of the host country. Additionally, country-specific loan policy and manual of instructions have been documented in all the FOs. Different procedural aspects relevant to their credit portfolio/environment are incorporated in the Loan Policy of respective Foreign Offices. The provisions of Bank Loan Policy, particularly with regard to prudential exposure norms / Large Exposure Framework, income recognition and asset classification, industry concentration norms as well as external commercial borrowings of Indian corporate clients will also apply to policies of Foreign Offices. It is the policy of the Bank that as far as regulatory guidelines of the home and host country are concerned, the more stringent of the two will be applicable except those countries where regulatory norms stipulate applicability of only local regulatory norms. 1.4 The Overseas Subsidiaries and the Joint Ventures of the Bank follow the loan policy guidelines approved by their respective boards, keeping in view their own risk appetite and the need to follow the principles of sound credit risk management. 1.5 The Board has authorized the setting up of a Credit Policy & Procedures Committee (CPPC) at the Corporate Centre for dealing with all matters relating to credit policy and procedures. Accordingly, the CPPC approves policies for managing credit risk covering loan appraisal for assessment of need based credit, exposure limits, loan management and for NPA management including industrial rehabilitation, compromises and taking the accounts off balance sheet and parking in Advances Under Collection Account (AUCA). All new loan products are also approved by the CPPC. All decisions of CPPC are put up to RMCB for information. However, Credit Risk Assessment models and Exposure Limits for various industries are approved by Credit Risk Management Committee (CRMC) and Risk Management Committee of the Board (RMCB). Sub-Group of CPPC has also been constituted with powers equivalent to CPPC, for review of asset products and processes including modifications, approval of new products of similar type which is already approved by CPPC. All decisions of Sub-Group of CPPC to be put up to CPPC for information. DMD of Business Verticals have been delegated powers for approving any process related changes, where there is no change in Loan Policy guidelines or procedures. However, for centralized monitoring, such actions to be placed before Sub-group of CPPC for information. 1.6 While this Loan Policy document articulates the broad guidelines and approach to administration of the credit portfolio, the Bank recognizes that there may be occasions when it would be appropriate and necessary, based on sound commercial considerations that are agreed after careful evaluation of individual cases, to permit waiver from the prescribed norms. Accordingly, authority structure covering delegation of powers to permit such waivers has been laid down. The policy document shall be read in conjunction with circular instructions, periodic guidelines and codified instructions issued from time to time covering procedural aspects in detail. 1.7 The Loan Policy is reviewed once in a year by the Board. The changes made, if any, on account of regulatory guidelines, annual policy guidelines issued by the Chairman and requests received from business groups etc. and approved by CPPC form part of the policy and are all incorporated in the annual review. The revised guidelines of the policy are made effective/enforceable from the date of approval by the Central Board. All regulatory guidelines would be effective from the date advised in the guidelines. 1.8 All loan products are to be reviewed Biennially. Business Units/Verticals shall put up review of the products to sub-group of CPPC. In order to ensure compliance, Risk Management Committee of each Business Vertical shall monitor progress of reviewed products of their vertical, at quarterly intervals. 1.9 The Bank is not averse to acquiring quality business from other Banks and Financial Institutions. Accordingly, norms for takeover of accounts are formulated, broad features of which are incorporated in this Policy document. 1.10 To cater to the varied needs of customers in different segments, the Bank has created different Business Verticals such as IBG, CAG, CCG, RB&O and also different business groups under RB&O viz. Small & Medium Enterprises Business/ Personal Banking Business/ Real Estate and Housing Business/ Agri Business Unit & GSS/ Financial Inclusion/. In order to have a focus on monitoring, management and resolution of stressed assets, SARG is created. 1.11 The Bank recognizes the importance of trained and adequately skilled personnel for building and maintaining quality of the credit portfolio. Appropriate placement and training of personnel, and development of requisite skills are the responsibility of the line managers, in co-ordination with the Human Resources Department of the Bank. 1.12 The Bank recognizes the importance of Risk Adjusted Return on Capital (RAROC). The policy aims at pricing the risk appropriately through RAROC. Guidance rate for RAROC (excluding Priority Sector Loans) is 20%. For priority sector loans, it is 12%. The Benchmark RAROC for FOs is 6%. 1.13 Fair Practices Code (FPC): The Bank has continuously been striving to maintain transparent and fair practices, and stand by its commitments made to customers under the Fair Practices Code, as envisaged and overseen by the Banking Codes and Standards Board of India, in respect of acknowledging receipt of loan applications, their timely processing, appraisal and sanction, stipulation of terms and conditions, post disbursement supervision, changes in terms and conditions, recovery efforts etc. The Bank has also put in place a mechanism for redressal of grievances of borrowers. Annual review of compliance with FPC for lenders and functioning of the grievance redressal mechanism is to be put up to the Compliance RMC by Credit Policy & Procedures Department.  ORGANISATION OF BUSINESS 2.1 The Bank recognizes the need for a differentiated approach to marketing, risk management and service delivery to different categories of borrowers. Taking this into account, different business verticals have been created, and rules framed in regard to the type of the business that they will normally handle. While the benchmarks and business rules are reviewed from time to time based on administrative requirements, the business verticals are allowed flexibility so that issues relating to customer convenience are taken care of. 2.2 Retail Business & Operations Group (RB&O) RB&O Branches would normally handle all Retail loans including i) All Personal Segment, e.g., Housing Loans, Auto Loans etc. ii) Exposures pertaining to Agri upto Rs. 50 Cr except schematic lending where specific approval is in place. iii) SMEBU For business loans, the criteria shall be as under: Criteria Aggregate exposure from the Bank a. Circles where CPCs have been established Upto Rs.100 crores b. Circles where CPCs have not been established Upto Rs. 50 crores However, at CCG Centres, MD (RB&O) can permit branches (administrative approval) to handle exposures beyond the above-mentioned levels. At Non-CCG centres, CGM (Circle) is empowered to permit the branches handling the exposure beyond the prescribed level. Detailed guidelines have been put in place. At the time of periodic renewal of credit facilities/enhancement or granting of additional facilities, if the increase in exposure is less than 25% from the previous approval, no fresh administrative approval is required to be obtained. However, by way of enhancement/additional facilities, if the proposed exposure is increasing by 25% or more from the previous approval, then a fresh administrative approval should be obtained from the competent authority. 2.3 Commercial Clients Group (CCG) CCG Branches shall normally handle loans with exposures of above Rs. 50 crores and other than those Accounts & Groups identified for CAG relationship. 2.4 Corporate Accounts Group (CAG) Corporate Accounts Group has been created with an objective to ensure focus on the highest quality relationships for the bank. The criteria for selection in CAG are based on quality (external or internal rating) of the account, business potential and the client’s reputation or strategic importance in addition to the size of the account. Hence, credit risk of customer is expected to be minimal with almost zero default expectations. List of the CAG, CCG, RB&O and SARG relationships will be reviewed annually independently by DMD & CCO through CPM Department and submitted to Group Heads for their approval. Upon approval, wherever required, migration exercise shall be completed in first quarter of every Financial Year. 2.5 However, the following facility shall be exempted from the above norms as detailed below: a) If credit facilities are availed on Standalone basis: i) e-DFS/ e-VFS ii) Builder Finance- (Residential Projects), up to certain approved limits. iii) Portfolio Purchase of Asset Backed Securitisation for which separate policy is in place. iv) Central/State PSUs and SBI Group entities accounts b) If credit facilities are availed even along with other facilities: i. Bills discounting limits against letters of credit (outside the ABF) ii. WHR loans. iii. Any additional finance availed by the borrower in line with government guidelines for tiding over unforeseen natural calamities (such as GECL etc.,) 2.6 Group Accounts Group accounts should preferably be housed in one branch or, at the most, within the vertical which has the highest exposure on the group. Based on business considerations, DMDs of the two Business Verticals involved would jointly agree on migration of accounts which cross the prescribed threshold limits. Retention of accounts at variance with the prescribed threshold limits, can be approved by the DMDs of Business Verticals concerned. 2.7 International Banking Group (IBG) IBG Vertical has been created with the objective of playing a pivotal role by establishing footprints of the Bank across the globe to provide seamless/smooth international trade related facilities to Indian Residents, Indian Corporates and Foreign Corporates especially by way of Trade Finance, External Commercial Borrowings, Remittance Services, Correspondent Banking etc. IBG Vertical plays an important role in facilitating International trade, transforming Indian businesses by providing Foreign Currency Funds to key industries & infrastructure sectors. The loan Portfolio of IBG comprises of (i) Commercial Banking & (ii) Retail Banking. Commercial Banking comprises of India Based Loans, Trade Finance and Commercial Loans to local and other overseas entities. Retail Banking Portfolio comprises of Housing Loans and other Retail loans to individuals in the respective Host country. 2.8 Stressed Assets Resolution Group (SARG) With a view to bringing about better focus on management and resolution of Non-Performing Assets, SARG has been set up. Detailed operating guidelines have been issued in the matter of protocol to be followed by the Business Groups for transfer of accounts to SAR Group, and for management of these accounts. 2.9 Project Finance & Structuring Strategic Business Unit (PF&S SBU) Project term loans require different skill sets and are more complicated in nature. Recognizing the complexities involved, project loans above a certain cut off value are handled by Project Finance & Structuring SBU, specially set up for this purpose. 2.10 Retail Loans in Personal Segment (PBBU/REHBU) The Bank aims at providing diverse loan products to meet people's credit needs in the retail sector. The Bank's brand image, extensive network, computerised operations and a large customer base are significant strengths that enable leveraging so as to garner a higher share of the available retail market. In view of the Bank’s thrust on Personal Segment Loans and the steady and significant growth witnessed, the Bank will periodically undertake assessment of concentration risk in housing loans, auto/personal loans etc. The risk management parameters i.e., Credit risk/market risk/operational risk in respect of lending to P-segment borrowers are examined and reviewed annually by the Business Group in consultation with the Risk Management Department. 2.11 Rural Business 2.11.1 Agriculture Business Unit (ABU) The Bank has been a pioneer in agricultural banking in the country. With large number of branches in rural and semi-urban areas, Bank has been the undisputed leader in disbursal of agricultural credit. To drive and expand the Bank's business in rural and semi-urban areas, Agriculture Business Unit has been set up to take care of the credit requirements for not only farming activity, but also for those relating to agro-based industrial activity, trade and services and for personal consumption needs of the target group are addressed by the group. All products offered by the Bank for agriculture segment are in alignment with rules by and large prescribed by the regulator, NABARD and the State Level Bankers’ Committee (SLBC). Bank has recognized that setting up of high value/ hi-tech agricultural projects has been engaging the attention of entrepreneurs and projects covering agro / food-processing, biotechnology, Agri-value chain, Agri-marketing infrastructure etc. With a view to responding to emerging opportunities, the Bank extends support in a planned way to these avenues. Further, Bank has also been identifying the thrust areas for short-term business opportunities and devising area/activity specific loan products. These high value proposals (as defined by ABU) shall be handled in Specialised Branches where adequate skills are available for handling such exposures. The services of Agri technical officer may be utilized for assessing the technical and economic viability. The necessary arrangement for assessment, sanction of proposal and monitoring mechanism should be put in place. Operating units are required to obtain an administrative clearance from DMD (Business Vertical) prior to sanction of credit facilities exceeding Rs.10 crores. 2.11.2 Financial Inclusion & Micro Credit (FI&MC) With changing demography and lifestyles in rural India, a strong need is there for providing comprehensive financial services encompassing savings, credit, remittance, insurance and pension products to the rural populace. Of late, provision of micro credit is acting as a catalyst for inclusive development primarily focusing on uplifting the poor and for the benefit of low-income people in the society. The Bank has been supporting many NGOs who are active in the formation and development of volunteer groups known as ‘Self Help Groups’ (SHGs). The Bank is committed to timely and adequate credit to SHGs in order to facilitate upliftment of the poor. Further, to increase its outreach to a large number of low-income people, Bank is also financing MFIs/NGOs including NBFCs engaged in microfinance activities, for on-lending to SHGs/JLGs (Joint Liability Group) and Individuals. 2.11.3 NBFC Alliances Co-Lending by Banks and NBFCs to Priority Sector- A separate department of NBFC Alliances has been created separating MF part of FI &MF. The Co-Lending Model (CLM) permits the Bank to co-lend with all registered NBFCs (including HFCs) based on a prior agreement. The co-lending Bank will take their share of individual loans on a back-to-back basis in their books and NBFC shall be required to retain a minimum share of the individual loans on their books as per the guidelines. 2.11.4 Bank's role under Lead Bank Scheme The Bank has been designated as lead bank in several districts across the country. Under the scheme, Bank assumes the role of catalytic agents of economic development in the lead districts area. Bank serves as leaders to bring about a co-ordination of co-operative banks, commercial banks and other financial institutions in the respective districts for overall development. It is expected to fill the credit gaps to improve bank advances in rural areas, especially to priority sectors and weaker sections. In this direction, annual credit plans are prepared and launched at the beginning of a financial year. The progress of various State sponsored poverty alleviation / employment generation schemes is reviewed and resolved the issues relating to the flow of credit to all sectors of the economy in DCC / DLRC meetings. It is also expected to promote Financial Inclusion. 2.11.5 Employment Generation Program of GoI Bank is also implementing schemes/ programs launched by the Government for alleviation of poverty and employment generation both in urban and rural areas. 2.12 Digital Loans Considering the technological advancement over the time and rising customer expectations, Bank provides end to end digitized loan products where sanctions are based on predefined rule based analytical engine. BUs shall define the operational guidelines including limit amount, process of sanction (Physical/ straight through process), monitoring mechanism etc. Business Units, while designing digitally sanctioned (end-to-end, without manual intervention) loans, should meticulously follow regulatory guidelines and ensure correctness of Business Rule Engines. BUs to get periodic validation of the Business Rule Engine from domain expert and RMD to ensure correctness of the process. *******  EXPOSURE NORMS AND CREDIT RISK CONCENTRATION While prudential guidelines for avoiding concentration of risk serve as broad indicators, continuous evaluation of other elements such as market conditions, government policies, legal framework, economic indicators, stock market movements, etc., is made to assess transaction risk intrinsic to a single borrower, group of borrowers, segment of industry as well as to sectoral exposures in order to formulate short term exposure restrictions where considered necessary. The Loan Policy recognises the need for measures aimed at better risk management and avoidance of concentration of credit risk at the whole- Bank level and at the FOs. To this end, limits have been prescribed for Bank’s exposure to single borrower, borrower groups, specific industry/ sector etc. RBI has released a framework on large exposure on single borrower and closely related group of borrowers. It recognizes that the off-balance sheet exposures should also be subject to normal credit appraisal and discipline. 3.1 Definition of Exposure Exposure shall include credit exposure and investment exposure. Credit Exposure i) All types of funded and non-funded credit limits, ii) Credit Exposure on account of derivative products using credit conversion factor; iii) Facilities extended by way of equipment leasing, hire purchase finance and factoring services. a. Standard Assets: Term Loan- For Partially drawn TLs, Limits or outstanding, whichever is higher is reckoned as exposure. For fully drawn term loans, t h e outstanding s h a l l b e reckoned as the exposure. Cash Credit/ Overdraft- Limits or outstanding whichever is higher is reckoned as exposure. Further, wherever limits have expired for CC/OD, higher of the last sanctioned limit or outstanding shall be reckoned as exposure. NFB Facilities- Limits or outstanding whichever is higher shall be reckoned as exposure. b. Non-Performing Assets (NPA): Term Loans- The outstanding in the accounts shall be reckoned as exposure. In case, term loan is not fully drawn but slipped to NPA and even not restructured, operating units may allow further disbursement for completion of the projects with prior approval of the sanctioning authority. In this scenario, for reporting purpose, limit or outstanding, whichever is higher, shall be reckoned as exposure. Cash Credit/ Overdraft- Outstanding shall be reckoned as exposure. NFB Facilities: Limits or outstanding, whichever is higher, shall be reckoned as exposure. For restructured NPA accounts, the limit or outstanding whichever is higher shall be reckoned as exposure for both FB and NFB facilities (existing/proposed). In case, term loan is not fully drawn but slipped to NPA and not restructured, operating units may allow further disbursement for completion of the projects with prior approval of the sanctioning authority. In this scenario, for reporting purpose, limit or outstanding, whichever is higher, shall be reckoned as exposure.  Investment exposure i) Investments in shares and debentures of companies ii) Investments in bonds iii) Investments in Commercial Papers and similar commitments. In respect of investments in equity and CPs, the limit or outstanding (whichever is higher) will be reckoned as exposure. For investment in NCDs and Bonds the outstanding to be reckoned as exposure. The two permissible categories of investments are SLR and Non-SLR. Investments portfolio of the Bank is classified into three categories – Held to Maturity, Available for Sale and Held for Trading. 3.1.1 The ceilings on single / group exposure limits would not be applicable to existing / additional credit facilities (including funding of interest and irregularities) granted to stressed assets under resolution. 3.2 Definition of Single/ Groups of Connected Counterparties as per LEF a. Single Counterparty: The exposures to a group of counterparties with specific relationships or dependencies such that, were one of the counterparties to fail, all of the counterparties would very likely fail. A group of this sort, referred to in this framework as a group of connected counterparties, must be treated as a single counterparty. b. Group of Connected Counterparties (GCC): Two or more natural or legal persons shall be deemed to be a group of connected counterparties if at least one of the following criteria is satisfied. I. Control relationship: One of the counterparties, directly or indirectly, has control over the other(s) or the counterparties are directly or indirectly controlled by a third party. While assessing the control relationship, the control relationship criteria is satisfied if one entity owns more than 50% of the voting rights of the other entity. In addition, the other control criteria to assess connectedness are as under: 1) Voting agreements (e.g., control of a majority rights pursuant to an agreement with other shareholders) 2) Significant influence on the appointment or dismissal of an entity’s administrative, management or supervisory body, such as the right to appoint or remove a majority of members in those bodies, or the fact that a majority of members have been appointed solely as a result of the exercise of an individual entity’s voting rights 3) Significant influence of senior management e.g., an entity has the power, pursuant to a contract or otherwise, to exercise a controlling influence over the management or policies of another entity (e.g., through consent rights over key decisions, to decide on the strategy or direct the activities of an entity, to decide on crucial transactions such as transfer of profit or loss). 4) The above criteria will also be assessed with respect to a common third party (such as holding company), irrespective of whether the bank has an exposure to that entity or not. 5) Further, the criteria specified in the extant accounting standards shall also be considered for qualitative guidance while determining control. However, where control has been established based on any of the above criteria, the Bank may still demonstrate to the RBI in exceptional cases, e.g., existence of control between counterparties due to specific circumstances and corporate governance safeguards, that such control does not necessarily result in the entities concerned constituting a group of connected counterparties. II. Economic interdependence: If one of the counterparties were to experience financial problems, in particular funding or repayment difficulties, the other (s) as a result, would also be likely to encounter funding or repayment difficulties. Identification of possible connected counterparties on the basis of economic interdependence shall be mandatory in all cases where the sum of all exposures to one the individual counterparty exceeds 5% of the eligible capital base (i.e., Tier I Capital), and not in other cases. Economic interdependence criteria: Both the parties should be customers of the Bank and exposure of the bank in each of them is more than 5% of Tier I Capital. In establishing connectedness based on economic interdependence, the following Criterion/ parameters are to be considered: RBI parameters Compliance by Bank i. Where 50% or more of one counterparty's gross receipts or gross 50% of gross receipts or expenditures (on an annual basis) is derived from transactions with expenditure. the other counterparty ii. Where one counterparty has fully or partly guaranteed the Guarantee amount is >=50% of exposure of the other counterparty, or is liable by other means, and Net Worth of the guarantor. the exposure is so significant that the guarantor is likely to default if a claim occurs iii. Where a significant part of one counterparty’s production/output >=30% of gross receipts. is sold to another counterparty, which cannot easily be replaced by other customers iv. When the expected source of funds to repay the loans of both 100% funding from source. counterparties is the same and neither counterparty has another independent source of income from which the loan may be serviced and fully repaid v. Where it is likely that the financial problems of one counterparty No specific parameter would cause difficulties for the other counterparties in terms of full specified; Assessing/ Sanctioning and timely repayment of liabilities authority may decide on a case-to- case basis and document the dependency. vi. Where the insolvency or default of one counterparty is likely to Intercorporate Liabilities or be associated with the insolvency or default of the other(s) Trade receivables are >=50% of Net Worth. vii. When two or more counterparties rely on the same source for >=35% of Funding the majority of their funding and, in the event of the common Requirement is met from a provider’s default, an alternative provider cannot be found - in this single source (e. g.: NBFC). case, the funding problems of one counterparty are likely to spread to another due to a one-way or two-way dependence on the same main funding source. 3.2.1 Look Through approach (LTA) has been made mandatory in determination of relevant counterparties in case of collective investment undertakings, securitization vehicles and other structures. RBI guidelines in this regard need to be meticulously followed. 3.2.2 Borrowers under consortium or multiple banking arrangements: Identification of Group In such cases, other member banks may be consulted to ensure consistency in identification of group. 3.2.3 In the case of a split in the group, if the split is formalized, the splinter groups will be regarded as separate groups. In case any doubt about the bonafides of the split, a reference may be made to RBI for its final view in the matter to preclude the possibility of a split being engineered in order to prevent coverage under the Group Approach. 3.3 Regulatory Guidelines (on Exposures and Relaxations / Restrictions) 3.3.1 Exposure norms: The regulator has prescribed the following caps, which the Bank shall comply with at all times: Large Exposure Framework. Nature of borrower Cap on Exposure (Prudential Norms) Single Counterparty 20% of Bank’s Tier I Capital * Group of Connected Counterparties. 25% of Bank’s Tier I Capital Single NBFC 20% of Bank’s Tier I Capital Group of Connected NBFCs 25% of Bank’s Tier I Capital Note: * In exceptional cases, exposure upto additional 5% of the Tier I capital may be permitted to single counterparty with the approval of Chairman. Any breach of the above Large Exposure Limits shall be under exceptional conditions only and shall be reported to RBI (DBS, CO) immediately and rapidly rectified. 3.4 Large Borrower In order to align the exposure norms with the BCBS standards, RBI has issued guidelines on Large Exposure Framework (LEF) to be implemented with effect from 01.04.2019. Large borrower is defined as the sum of all exposure values of the bank to a counterparty or a group of connected counterparties is equal to or above 10% of the Bank’s Tier- I Capital. The aggregate exposure to all “large borrowers” should not exceed 800 % of Bank’s Tier I Capital. CRMD will monitor exposure under Large Exposure Framework and put-up review to RMCB at quarterly intervals. The exposure to Large Borrower shall be reported by CRMD to RBI, Department of Banking Supervision, Central Office (DBS, CO) as per the RBI guidelines. Under LEF framework, an exposure to a counterparty will constitute both on balance sheet (accounting value of exposure) and Off-Balance Sheet (by applying CCF with a floor of 10%) exposure included in either the banking or trading book and instruments with counterparty credit risks. The LEF norms are applicable from 01.04.2019. 3.4.1 Non-Centrally cleared derivatives shall also be reckoned as exposure under LEF w.e.f. 1st October 2021. 3.4.2 The exposures that are exempted from the LEF are listed below: a) Exposures to GOI and State Governments which are eligible for zero percent Risk weight under Basel III – Capital regulation b) Exposure to RBI c) Exposures where the principal and interest are fully guaranteed by the Government of India; d) Exposure secured by financial Instruments issued by GOI, to the extent that the eligibility criteria for recognition of credit risk mitigation are met. e) Intra-day interbank exposures f) Intra-group exposure as it will continue to be governed by the Master Circular on Exposure Norms Borrowers, to whom limits are authorised for Food Credit g) Bank’s clearing related exposure to Qualifying Central Counter Parties (QCCPs) h) Deposits maintained with NABARD on account of shortfall in achievement of targets for priority sector lending. i) Exposures to foreign sovereigns or their central banks that are:  a. subject to a 0% risk weight as per Basel III Capital regulations and, b. denominated in the domestic currency of that sovereign and met out of resources of the same currency. RBI guidelines on LEF issued from time to time to be complied with. 3.4.3 Enhancing Credit Supply for Large Borrowers through Market Mechanism: 1.The Bank has to keep future incremental exposure to large “specified borrowers” within a “Normally Permitted Lending Limit) (NPLL). 2. Specified Borrower: Means a borrower having Aggregate Sanctioned Credit Limit (ASCL) of more than Rs. 10,000 Cr at any time from April 1, 2019 onwards. The date on which the borrower becomes a specified borrower is termed as reference date. 3. Aggregate Sanctioned Credit Limit (ASCL): Means the aggregate of Fund based credit limits sanctioned or outstanding, whichever is higher, to a borrower by the Banking System. ASCL also include: a. Unlisted privately placed debt with the banking system b. ECB, Trade Credit raised from overseas branches of Indian Banks Banking System means all banks in India including RRBs and Co-operative Banks and branches of Indian Banks abroad. 4. Provisioning implications for the Bank (Incremental provisions and risk weights): Incremental exposure of the Banking system to a specified borrower beyond NPLL would be deemed to carry higher risk, which would be recognised by way of additional provisioning and higher risk weights as under: a. Additional provision of 3 percentage points on the incremental exposure of the banking system in excess of NPLL, which would be distributed in proportion to each bank’s funded exposure. b. Additional risk weight of 75 percentage points for the incremental exposure to the specified borrower. The resultant additional risk-weighted exposure, in terms of risk-weighted assets, would be distributed in proportion to each bank’s funded exposure to the specified borrower. 5. Exemptions: a. Food Credit limits extended to State Governments/ Union Territories and Food Corporation of India b. Exposure towards agencies setup by State Government/Union Territories which are engaged in the procurement and distribution of food grains and other essential food commodities under the public distribution system. Monitoring of the accounts shall be done by the BUs concerned. BUs shall provide the detailed report to CRMD for consolidation and putting up review to RMCB at quarterly intervals. Guidelines in this regard have been put in place. 3.5 Exposure on Single / Borrower Groups 3.5.1. Based on market conditions, government policies, legal framework, economic indicators, stock market movements, and ease of doing business, an internal exposure limit has been set according to constitution of borrowing unit. The details of current exposure levels prescribed are as under: Constitution of Borrower Maximum ceiling on Exposure prescribed by Bank (Excluding facilities granted against specified securities) Individuals as borrowers Maximum aggregate exposure of Rs. 100 cr or its equivalent. Non-corporates ($) Maximum aggregate exposure of Rs. 250 cr or its equivalent The above ceilings will also be applicable to the aggregate of all facilities sanctioned to partnership firms which have identical partners. Corporates (#) As per the Large Exposure Framework prescribed by RBI (Refer Note: The exposure to Gems & Jewellery, Diamond Industry (including Lab-grown diamonds), Ship Recycling, Financing to Stockbrokers etc. shall be guided by the Exposure Ceilings stipulated under the respective policies subject to Large Exposure Norms. $ Non-corporates will include Partnerships, Trusts, HUFs, Associations and REIT (Real Estate Investment Trust). # Corporates will include Companies, Societies, Govt. Departments, Institutions and Statutory Corporations, Infrastructure Investment Trust (Inv IT) and Limited Liability Partnerships (LLP). Norms for the Bank Exposure- Internal Maximum aggregate exposure is governed by Large Exposure Framework of RBI as well as Enhancing credit supply for Large Borrowers through Market Mechanism. With a view to diversifying exposure of the Bank, the following norms may be followed. Counterparty Exposure limit set for the Bank Single Counterparty a. Autonomous bodies promoted by Central Government/ Profit making Central PSUs (Maharatna/Navratna/Miniratna)/ SPVs promoted by Profit making Central PSUs (Maharatna/Navratna/Miniratna)/ State Governments/ PSUs guaranteed by Central Government/ State Government institutions/ State PSUs guaranteed by State Governments (Irrespective of CRA/ECR): - Maximum exposure as per LEF (i.e., presently 20% of Tier I Capital, exposure to be calculated with CCF). In exceptional cases, exposure upto additional 5% of the Tier I capital may be permitted to single counterparty with the approval of Chairman. b. Others (without CCF): (Rs. In Cr) CRA Maximum Exposure SB-1 &SB-2 42000 SB-3 & SB-4 22000 SB-5 & SB-6 11700 SB-7 & SB -8 6200 SB-9 & SB-10 3400 SB-11 & SB-12 2000 SB-13 to SB-15 1000 Group of a. Autonomous bodies promoted by Central Government/ Profit making connected Central PSUs (Maharatna/Navratna/Miniratna)/ SPVs promoted by Profit counterparties making Central PSUs (Maharatna/Navratna/Miniratna)/ PSUs guaranteed by Central Government/ State Government Institutions/ State PSUs  guaranteed by State Governments (only for PQI Rs. 5 crores ii. As per our loan policy , no fresh limit/enhancement may be sanctioned to units/promoters whose name appear in the 'Wilful defaulters' list. However, wi t h the approval of appropriate authority, renewal/ continuation of earlier sanctioned limits may be approved.  1.2.3 SBI Default Borrower Registry (SBIDBR): - To align with the emerging best practices of data privacy and with a view to leverage the modern digital platform, Bank has developed a web based application “SBI Default Borrower Registry (SBIDBR)” accessible through URL https://sbidbr.sbi:9443. - Search through SBIDBR can be carried out for all loan applications, however search will be mandatory for ₹10 lac and above loan applications irrespective of segment. - Search through SBIDBR is an additional risk mitigation measure that will complement the pre sanction activities now being carried out and is not intended to replace, fully or partially, any of the extant procedures / steps prescribed by the Bank in this regard. - SBIDBR search facility should also be used by the branches while issuing “No Dues Certificate” to any current account holder / customers and such certificate should be issued only after ensuring that the person, in whose favour the NOC is being issued, is not linked to any loan in any branch of the Bank. 1.2.4 Due diligence on guarantors: Individual as a guarantor: i. Apart from obtaining proof of identification and address as per KYC norms, the details of income, assets, liabilities, etc. is also required to be obtained as per following indicative list: a. Bank Account Statement – last 6 months b. Credit Card Statement -- not more than 3 months old c. Salary Slip (Recent date) d. Income Tax Return e. Income/Wealth Tax Assessment Order f. Details of movable and immovable properties g. Details of liabilities with its terms and conditions ii. In case of Non-Resident Indian (NRI) Passport and Residence Visa Copies, Copy of PIO/OCI Card issued by Govt. of India. iii. Before accepting Third Party Guarantees, branches are advised to exercise more than ordinary care in view of our experience that several frauds that have been detected are found to be having links to fake title deeds of property purportedly belonging to third party guarantors. Some of such Third-Party Guarantors have no connection whatsoever with the borrowing entity / promoters and have merely offered their guarantee / fraudulent title for consideration. ii. Corporate as Guarantor: a. Memorandum and Articles of Association (MAA), Certificate of Incorporation, Certificate of commencement of business (in case of Public Limited Company), CIN Number, Copy of PAN of Company, Proof of Current Address, etc. to be obtained.  b. If the guaranteeing corporate has borrowing arrangements, “No Objection” certificate(s) from the lending banks. c. Search, as is carried out in RBI Defaulters’ List/ECGC Caution l ist / MCA Site/ Credit Information Company etc. for a borrowing entity and its Promoters / Directors is to be ensured, mutatis mutandis. d. The provision of the Companie s Ac t, 2013 regarding providing guarantee or security by companies should be considered before accepting the guarantee and to be ensured that the same is valid and enforceable under law. 1.2.5 Compilation of Opinion Reports on Borrower / Guarantor: i. Opinion Reports should invariably be compiled and updated annually for borrowers in CAG, CCG, SME and before migration of accounts to SARB / SAMB. ii. Opinion report formats are divided into two categories viz. a) loans upto Rs.25 lacs b) loans above Rs.25 lacs iii. The estimated means, details of the property, etc. of the party reported on should not be stated, the information asked for being furnished in general terms as indicated below. For this purpose, the following code should be adopted by the branches / operating units / processing cells. When a party’s means are estimated at He should be reported as Upto Rs.1.00 lac havingsmall means Very Above Rs.1.00 lac to Rs.4.00 lacs Small means Above Rs.4.00 lacs to Rs.10.00 lacs Moderate means Above Rs.10.00 lacs to Rs.25.00 lacs Fair means Above Rs.25.00 lacs to Rs.1.00 crore Good means Above Rs.1.00 crore to Rs.10.00 crores. Very good means Above Rs.10.00 crore to Rs.25.00 crores Large means Above Rs.25.00 crores Very large means iv. Obtaining Separate Assets & Liabilities Statement: For all loans of Rs.25 lacs and above, branches / operating units / processing cells should obtain statement of assets and liabilities with following documents: - Copies of Documentary evidence in respect of assets of Borrowers/ Guarantors - Copy of IT return filed along with a copy of latest available IT assessment order - Self Certification will be the basis for the Opinion Report (if not an IT Assesses) - Bank account statement with all the Banks for the past one year to be obtained. - Other assets to include cars, jet, yachts etc - Detail term and conditions of liabilities reported including sanction letter, if any. v. The statement of assets and liabilities is required to be obtained in the form of notarised affidavit in case of the following types of loans: New loans For all loans rated ( SB-9) and worse. Existing loans - renewal / enhancement For all loans rated (SB-9) and worse. Existing loans - rehabilitation / restructuring In all cases  After filling in the affidavit format with all particulars and after duly stamping at the rate in force in each state for affidavit as well as for an agreement and with additional stamp duty for notarial act, the affidavit may be got sworn before a notary public. At places where notary public is not available, the affidavit may be sworn before a Magistrate duly authorised for the purpose. vi. The Branch Managers/Managers(Division)/RMSME should scrutinise each such report before compiling the final opinion sheet to ensure that the statements made therein are correct. vii. The estimates of the worth arrived at by the Cash Officer/CSO/Field Officer should be conservative and lower than the assessment of the outside parties. viii. All opin ion reports shou ld contain a signed summary the Branch Manager’s /Manager’s (Division)/RMSME’s own estimate of the borrower’s standing, total means and the break-up worth of his immovable properties. 1.2.6 Time norms and other guidelines for monitoring disposal of credit proposals: The detailed guidelines on time norms as applicable to the MSME & C&I are as under. Particulars Timeline for Loan All loans upto Rs.25 lac Application 14 days Loans of Rs.25 lac and above upto Rs.50 lac Disposal 14 days Sanction in case of takeover 14 days Time norms for RM (SME) Limits above Rs.50 lac upto Rs.5 Crore 22 days Time norms for RM (SME) Limits above Rs.5 Crore 22 days 1.2.7 Security for Advances: i. Obtaining security against loan is one of most common risk mitigation practices of the bank. Such type of loans are classified as secured loans. Normally, there are following two types of assets available to the bank as security in case of financing an activity under SME Primary Security: Security of those assets which will be created out of the proposed bank finance (part or full value of assets). For example, hypothecation of stocks, book debts etc. for working capital loans and Plant and Machinery etc. for Term Loans. Collateral Security: Security of those assets which will not be created out of the proposed bank finance, other than Primary Security. Apart from security, we are also obtaining personal guarantee of proprietor / partners / directors / etc. of the entity or third-party guarantee as risk mitigation practices. Wherever, Collateral security from third party is obtained, personal/corporate guarantee of owner of collateral security is desirable. Further, if third party collateral is from Corporate (Non individual) entity, a detailed due diligence should be done on the financial of the corporate to look for any financial stress/insolvency. For MSE Sector (both Manufacturing and Services enterprises) as per MSMED Act no collateral security is to be obtained for loans upto Rs. 10 lacs (this is also an RBI directive), and for loans above Rs. 10 lacs and up to Rs. 15 lacs the sanctioning authority may consider waiving collateral security subject to compliance with certain conditions. For this sector, the Bank has decided to cover all eligible SME advances upto Rs. 200 lacs (including trading activity – SME Retail Trade and Wholesale Trade) under CGTMSE scheme. The cost of guarantee i.e., Annual Guarantee Fee (AGF) shall be borne by the borrower for all loans (CC &TL) sanctioned on or after 01.07.2017 (irrespective of the amount, including renewal of Cash Credit facilities). The matter of recovery, or absorption, of guaranteed fee by the Bank is reviewed from time to time. CGTMSE has introduced “Hybrid Security” product, wherein collateral security can be obtained for a part of the credit facility whereas remaining part of credit facility, upto a maximum of Rs. 200 lacs can be covered under CGTMSE scheme. 1.2.8 Our Bank has issued stage wise Standard Operating Procedure for the sanction of Credit Facilities as under: Stage-I: Lead Generation, Preliminary KYC, Market Reputation, customer contact, customer meeting, obtention of Application form/KYC documents, Sanction letter of existing bank(s) in case of take of loan, ECR letter, if applicable, Obtention of statement of accounts for past 12 months, Securities details. Stage-2: Obtention of financials, ownership documents, profile of the unit, Associate concerns details, All statutory approvals, in case of Term loan (Project report), other borrowing details, IT returns, GST/VAT returns, premises lease agreement (in case of rented premises), Assets and liabilities statements of promoters and guarantors, details of share holding pattern, Processing fee. On the basis of above documents operating functionaries an perform following activities: Discreet enquiries should be made, financial verification, Credit Information report from the existing bankers, do the CRA/CUE, pricing negotiation with the customer, Pre sanction survey of unit and collaterals etc. Stage-3: Obtain the following documents from the customer- If TL availed from other lender – copy of sanction letter, Title documents, evidence for investment made so far, Other relevant approvals and operating functionaries can arrange for TIR of the securities, valuation of securities, TEV study if deemed necessary. Stage-4: (if the proposal is sanctioned) – Advise the sanction to the unit, documentation, Disbursement and charge creation. Stagewise TAT: Stage Days Stage-I 7 days Stage-II 8-10 days  Stage-III 10-12 days Stage-IV 5-7 days Key Learning Points: 1) KYC- KYC is must. You must first identify the customer. It is better to approach the customer rather customer approaches you. Sometimes borrower is not selected properly, he/she is either new customer or introduced by another stranger or middlemen. Normally, do not involve middlemen, talk to customers directly. Avoid giving multiple loans to single party/ family or a group, to minors, lunatics or insolvents. It is compulsory to complete all the KYC norms before even thinking of giving loan. 2) Understanding Credit Cycle 3) Verification of RBI’s Defaulter List/ Wilful Default list 4) CIC reports – search the CIC reports of the borrower and guarantors in all loan cases and commercial CIC report in case of firms/ companies. 5) Search CERSAI site- if mortgage of property is involved in the loan, then before proceeding further search should be made on CERSAI site to ascertain that there is no mortgage outstanding against the property in any other bank/ FI. 6) Loan safety- safety of loan is directly related on the basis on which decision was taken, type and quantum of credit to be given and terms and conditions of the loan. 7) Pre-sanction Visit- next step is to visit the residence place of borrower, place of unit and property to be mortgaged. Pre-sanction visit is basically to determine the “bank- ability” and access related riskiness of the proposal. Identification of borrower and site must be ascertained beyond doubt by inquiring from neighbors and other surrounding people. The whole observations must be noted down and to be placed on the record. 8) Assets and liabilities Reports- assets and liabilities statements of all borrowers/ guarantors must be prepared on prescribed format mentioning full detail of assets & liabilities duly signed by borrower/ guarantor and Relationship Manager/ Branch Head and to take necessary proof of asset and liabilities. 9) Balance Sheets – in case of working capital limits 3 years’ balance sheets of the unit along with income tax/ GST/ Sale tax returns etc., Estimated/ projected balance sheets/CMA of next 2 years in cases of working capital limits and for the period of loan in case of term loan. The balance sheets must be thoroughly analyzed and sanction-able limits be assessed. 10) Project report- project report (for the proposed project if term lending is required) containing details of the COP including machinery to be acquired, price, name of suppliers, capacity utilization assumed, production, sales, projected profit and loss and balance sheets for the period till the proposed loan is to be paid. Project report should be analyzed and feasibility be ascertained. 11) Credit Rating/CUE rating- credit rating must be done in all the loan cases as per bank’s guidelines. Rate of interest should be fixed as per credit rating. Credit rating should be done judiciously based on analyzing balance sheets. Avoid sanctioning loan below Hurdle Rate. 12) Legal opinion- verification of title deed of property to be mortgaged is utmost necessary. It must be ascertained that it is original not fake, scanned copy or duplicate one. In respect of TIR, Empaneled Advocate should personally verify that title deed to be mortgaged tally with the one kept with revenue records. Must get certified copy of the title deed and tally it with original Title deed. Also, take certificate from advocate that certified copy tallies with the original one. Thoroughly read the TIR given by the advocate and observe that there is no objectionable clause which goes against the bank’s interest. Also obtain all the documents mentioned in the TIR. Here it is also important to personally verify that submitted title deed belongs to the property you visited earlier. Also make sure that SARFAESI act 2002 is applicable on the property. Certificate of change of land must be taken in case unit to be financed is to be built on agriculture land. 13) Any additional limit sanctioned against same securities already charged to the bank ensure- a) To extend charge to such limits too. b) All concerned should be kept informed. c) Acknowledge debt/ balance conformation with the borrower. 14) Valuation- valuation of property to be mortgaged is to be done from valuer on banks panel. Considered value is as per circle rate or realizable value, whichever is lower. After that realizable value can be considered. Valuation report of the valuer must be thoroughly analyzed that it should not contain any comment which may harm the bank’s interest on later stage. The title deed, revenue numbers, area of the land must tally with deed/ legal opinion and valuation report. 15) Filling of Appraisal note- after verifying all the documents the appraisal note should be filled. Care should be taken that full detail should be filled and it should be complete in all respects. Appraisal should reveal whether proposal is fair banking risk. 16) Repayment- detail of repayment mentioning number/amount of instalments, duration in months must be mentioned. If moratorium period allowed, then it must be mentioned and also mention date of first installment and last instalment. CHECK YOUR PROGRESS MCQ-1 1. A borrower can engage the services of intermediaries for preparation of financial statements, CMA data etc. for submission to the Bank for availing loan facilities. The intermediaries can be a ? a Chartered Accountants b Cost Accountants c Financial Consultants d Any of the above MCQ-2 A shell company is an entity that has a No active business  b usually exists only as a vehicle for another company c Both 1 & 2 above d None of the above MCQ-3 At the time of sanction of credit facilities, Valuation report should not be older than months. a 3 b 6 c 9 d 12 MCQ-4 In case of Minor, less than 10 years, whose ID is required for KYC. a Father b Mother c Minor d The person who will operate the account (Natural Guardian or Legal Guardian) MCQ-5 A company has approached us for sanction of credit facilities. What declaration we should obtain from them before considering the request? a Declaration regarding whether any credit facilities in any bank / FI /NBFC and their status. b Declaration regarding overdue statutory payment obligations c Declaration regarding credit facilities availed by its associates andsubsidiaries from banking system d All the Above MCQ-6 A company has export sales turnover of Rs.5 crore. From which return it can be verified? a GR Form / Softex Declaration Form b GST / VAT Return c SEBI d None of the above MCQ-7 What precaution we should take at the time of sharing of Credit information on our constituents with other banks? a It should be shared only on a specific request received in writing from other banks.  b It should be shared only on the format prescribed by IBA. c The estimated means should not be stated in absolute terms. It should be shared by way of prescribed rating. d All the Above KEY: 1 d 2 c 3 a 4 d 5 d 6 a 7 d  APPLY YOUR LEARNING CASE 1 Mr. Jagat Singh has been maintaining a SB account with you since 2018. He is also having one proprietorship concern M/s ABC which is engaged in trading of AC, TV, Fridge, washing machines of Samsung, IFB. Mr. Jagat Singh has approached you for sanction of WC limits of Rs. 2.25 crores. The turnover of the said units as on 31.03.2023 is Rs. 42 crores. He has advised that audited financials will be available after June 2023 as his auditor is not in the town, but keeping in view the ensuing summer season, he is in urgent needs of funds. He has also offered immovable property as collateral security having realizable value of Rs. 1.25 crore in the name of Sh. Jagtaur Kaur, sister of Mr. Jagat Singh. The Relationship Manager in the branch is new one, having only 4 months’ experience. He has approached his Branch Manager to proceed further in the matter. Please help him to find out the answer of following questions: Q1 As per Banks extant guidelines we have to complete KYC formalities of ? a Mr. Jagat Singh only b Mrs. Jagtaur Kaur only as she is offering the property. c Both Jagat Singh and Jagtaur Kaur d There is no need of KYC formalities as limits will be secured by Collateral security of Rs. 1.25 crore Q2 Whether the limits can be assessed without obtention of Audited balance sheet as on 31.03.2023? a No b Yes c Can’t say d Yes, after obtaining provisional balance sheet as on 31.03.23 also Q3 Who can sign the provisional balance sheet in this case? a Proprietor of the unit b Statutory Auditor/Chartered Accountants c By Proprietor & Statutory Auditor/Chartered Accountant d Obtention of provisional balance may be waived by Sanctioning Authority Q4 How many TIRs are required in the instant case? a One b Two c Three d As per discretion of Branch Head Q5 TIR in this case is required for how many years? a Thirteen years b Twenty-Three years c Thirty Years d Thirty-Three years KEY: Case- 1 1 c 2 d 3 a 4 b 5 c CIRCULAR REFERENCES: For further details, please refer the following: 1. SMEBU Cir. NBG/SMEBU-OPER/689/2022-23 dated 01.02.2023 2. CPPD Cir. CCO/CPPD-ADV/111/2022-23 dated 13.01.2023 3. CPPD Cir. CCO/CPPD/ADV/46/2022-23 dated 04.08.2022 4. CPPD Cir. CCO/CPPD-ADV/17/2022-23 dated 20.05.2022 5. R&DB/Ops-KYC/KYC/14/2021-22 dated 07.09.21 6. RBI Master Direction on Know Your Customer (KYC) updated as on 09.01.2020 8. Manuals on Loans and Advances, Part-I, Chapter-5: Pre-Sanction Credit Process 9. Manuals on Loans and Advances, Part-2, Chapter-17: Opinion Report 10. CPPD E-Circular S. No. 1176/2019-20 dated 19.11.2019: Credit Information Report (CIR) on Group Companies 11. CPPD E-Circular S. No. CCO/CPPD-ADV/14/2023 – 24 dated 12.05.2023: Legal Entity Identifier (LEI) 12. CPPD E-Circular S. No. 337/2022 - 23dated 17.06.2022 Obtention of Financial Statements 13. SMEBU E-Circular S. No. 1577/2018-19 dated 22.02.2019: Collateral Security Norms for Trade & Service Sector 14. CPPD E-Circular S. No. 1264/2018-19 dated 18.12.2018: ICAI’s Unique Document Identification Number (UDIN) 15. CPPD E-Circular S. No. 1172/2018-19 dated 29.11.2018: Opinion Report Format 16. SMEBU E-Circular S. No. 1094/2023 – 24 dated 26.02.2024: SOP for Sanction of Loans 17. CPPD E-Circular S. No. 860/2015-16 dated 07.10.2015: Handbook on Pre- sanction and Post Sanction – Due Diligence in Advances FOR FURTHER READING, REFER TO:  CHAPTER 2 B LEGAL ASPECTS OF ADVANCES LEARNING OBJECTIVES 1) The chapter gives an overview of the legal implications involved in dealing with different types of customer constitutions like Proprietorships, Partnerships, Societies etc. and to LLP, Private & Public limited companies generally referred to as Non- corporate and Corporate Segments. 2) Title Investigation for establishing the chain of title in favour of the owner of property is an exhaustive and a very important function for the Bankers. Similarly, valuation of property is a crucial activity. Bank has prescribed detailed guidelines for these activities, which can be learnt from this chapter. 3) SME Documentation scheme is detailed in the chapter. Documentation, basically, consists of Formation of Lender – Borrower Contracts, Various agreements with the Borrower and Guarantor in fulfilment of the contract and creation of various charges like Hypothecation, Mortgage etc. Apart from the said initial documents, supplemental documents are used for extension of charges (in order to retain priority of charges) and complimentary documents for revival of documents and linking documents etc. You will find details of these, in this chapter. 4) Mortgages form a major part of charges created in Bank's favour. While there are several types of mortgages as per law, equitable mortgage and registered mortgage are the common types of mortgages preferred by the Bank. Details are given in the chapter. 5) Charge Creation & Perfection is an important function in lending. The creation of various types of security interest in favour of the Bank and registering those security interest at appropriate forums / portals is also mandated by law. Procedures, prescriptions for Creation of Charges and perfection of charges, viz., Registration of charges with Registrar of Companies, CERSAI portal etc. and the implications of non-registration of charges are dealt with in the chapter. A. CONSTITUTION OF BUSINESS ENTITIES Businesses operate under different structures and depending on the law applicable to a particular structure they are classified into various legal entities. Normally, the following are the types of entities requiring credit facilities. i. Proprietorship Concerns ii. Partnership firms iii. Private & Public Limited Companies iv. Limited Liability Partnership v. Trust vi. Hindu Undivided family vii. Societies Special legal provisions applicable to the particular type of borrower has to be kept in mind in dealing with each type of business entities. PROPRIETORSHIPS Proprietorship is perhaps the simplest form of a borrowing entity. As far as the legal status is concerned, both the proprietorship and proprietor in individual capacity are considered the same, though for accounting purposes a proprietorship has to prepare the financial statements, viz., balance sheet and profit and loss account for an understanding of the financial health of the concern. The amount invested by the proprietor in the firm will be shown on liability side of the balance sheet as Capital. While sanctioning credit facilities to proprietorship firms, it is not necessary to obtain personal guarantee of the proprietor, as the proprietor is personally liable for any debt of the proprietorship. PARTNERSHIPS Partnerships are governed by The Indian Partnership Act, 1932. “Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered partnership with one another are called individually “partners” and collectively a “firm”, and the name under which their business is carried on is called the “firm name”. The relation of partnership arises from contract and not from status. It is preferable to finance partnership firms which are registered with the Registrar of Firms of the local area. The loan account should be opened in the name of the firm and not in the name of the individual partners irrespective of the fact that one or more of the partners may be authorized to operate the account. Apart from collateral security, if any, by way of personal guarantee of a third party, personal guarantee of the partners should be obtained especially when the firm is not registered as per the Partnership Act. This is to make them jointly and severally liable to the Bank for the dues of the borrowing firm. The partnership deed, which is an agreement between all the partners containing terms & conditions of partnership as well as rights and liabilities of individual partners, must be examined carefully. No credit facility should be provided to a partnership firm for any activity which has not been mentioned in the partnership deed as it may prove to be Ultra Vires (beyond the scope or more than legal power or authority) of the executed deed between partners. Whenever changes take place in the constitution of the firm either by death, retirement, insolvency, expulsion or inclusion of partner, a new partnership is formed. In such cases, the limits granted to the old firm should be cancelled and credit facilities extended to the reconstituted partnership firm after examining afresh the creditworthiness of the partners of the firm and other relevant factors for taking a credit decision. Till the formalities concerning reconstitution of the partnership of new firm are completed and necessary loan documents are executed, as interim measure for the sake of continuity of business activity, operations in the existing Bank account may be permitted only after obtaining a stamped continuing letter of guarantee signed by all the outgoing partners as well as the incoming partners. Where personal guarantee of third party has been obtained, confirmation from the guarantor must also be obtained before allowing operations in the existing account. It should be ensured that the necessary formalities are completed within a period of two months. In case a firm has been granted term loan, on reconstitution of the partnership, a supplementary agreement owning up the liability and repayment of the outstanding loan should be obtained. Where reconstitution takes place in case of a partnership firm, which has created equitable mortgage of immovable property of the partnership firm in favour of the Bank for collaterally securing the loans, an agreement on prescribed proforma should be obtained without disturbing the existing mortgage. A person must have a distinct legal entity as recognized by law e.g., Individuals, Company etc., to be a partner in a partnership, but a partnership firm cannot be one of the partners in a partnership firm. Since the Bank insists on guarantee of all the partners, a company (as a partner) may have to provide corporate guarantee and in which case section 185 & 186 of the Companies Act 2013 shall be applicable. A company must pass a resolution for executing necessary documents in this regard. A minor can be a partner of a partnership firm, however he cannot be held liable personally for any debt of the firm, so this aspect has to be kept in mind while granting credit facilities to partnership firms. To safeguard the Bank’s interest on account of a partner exceeding his implied authority, a `partnership letter` must also be obtained. A partnership firm is considered separate entity from its partners and taxed separately. LIMITED LIABILITY COMPANIES In dealing with a Limited Liability Company, the foremost requirement is the company’s Memorandum and Articles of Association and Certificate of Incorporation. From a scrutiny of the Memorandum & Articles of Association, it would be revealed whether the purpose of borrowing is consistent with the stated objectives and whether the advance is within the borrowing powers of the company. It has to be ensured that no prior charge exists over any of the assets being offered as security and that the persons executing the security documents and operating the account(s) are duly authorized. A company’s borrowing powers are usually specified in the Articles of Association, but they may not always be limited to a fixed amount. When no mention of borrowing is made, a trading company may generally be presumed to have power to borrow for the purpose of its ordinary business, but no advance should be sanctioned in such circumstances without prior reference to the controlling office. The powers of a company (public or private) to borrow may be exercised by its Board of Directors by means of resolutions passed at a meeting (and not by circulation). All advances granted to companies must, therefore, be supported by resolutions so passed. Proposals for a new advance to a company must be accompanied by copies of its last three years’ (Audited) Financial Statements. Supplementary statements showing (a) details of the Company’s borrowings from all sources and the securities offered and (b) the value of the stocks of the company should also be submitted to the sanctioning authority with the analysis of every balance sheet. Before a term loan is granted to a company, a certificate should be obtained to the effect that the total borrowings from all sources for the purpose of financing expenditure of capital nature, including the loan applied for from the Bank would not exceed the limit prescribed under section 180(1)(c) of the Companies’ Act. Companies’ Act, 2013 – Sec. 180.1 “The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:- … (c) to borrow money, where the money to be borrowed, together with the money already borrowed, by the company will exceed aggregate of its paid- up share capital and free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business…” In terms of this section, the powers of a public company or a private company which is a subsidiary of a public company to borrow by way of term loan together with money already borrowed for capital expenditure are restricted to the amount of its paid-up capital plus free reserves. Any borrowing in excess of this amount is subject to the consent of its shareholders in a general meeting by means of a special resolution. Before granting an advance in any form to a limited liability company, a search of the records of the Registrar of Companies should be done to ensure that no prior charge exists over the security offered. If a company has issued debentures, it must be ascertained 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. When debentures are issued by a company whose stocks etc. are already pledged or hypothecated to the Bank, extra care should be taken to ensure that the Bank’s interest is not jeopardized. Instructions regarding the registration of Bank’s charge over the assets of Companies liable to Bank are detailed in section E of this chapter. Branches should not provide loans to companies for buy-back of shares / securities. In terms of Section 68 of the Companies Act, 2013, companies have been permitted to purchase their own shares or other specified securities out of their free reserves, funds in securities premium account or the proceeds of any shares or other specified securities. At the time of renewal / enhancement / sanction of an advance relating to a company that has accepted public deposits, a certificate should be obtained from the company to the effect that it has not defaulted in payment of interest / principal to small depositors and that the company has complied with the provisions of Section 73 of the Companies Act, 2013 along with a confirmation by the Statutory Auditors of the Company. It should also be verified with the NCLT for any notice of default filed by the Company in terms of Section 73. This is to be done at the office of the NCLT having jurisdiction over the place where the registered office of the borrowing company is located. AFFIXING COMMON SEAL The Indian Companies Act mandates affixation of the Common Seal on any Power of Attorney or Certificate of Shares issued. In addition, the MAA may stipulate affixation of common seal on any document required to be authenticated by the company. Indian Companies Act, 2013 made the requirement of having a common seal optional and allowed Authentication of documents by 2 directors, or by 1 director & Co. Secy. Accordingly, the legal requirement as advised by the Bank vide Circular CPPD/153/6MAR17, in cases where the company opts to maintain a common seal and does not opt to maintain a common seal is as under: a. IN CASE THE COMPANY OPTS TO HAVE A COMMON SEAL Branches should continue to get the Common seal affixed on all documents as detailed above authenticated by affixing the common seal. b. IN CASE THE COMPANY OPTS NOT TO HAVE A COMMON SEAL i. The company should be advised to amend its Memorandum and Articles of Association to do away with the common seal and the requirement of affixing of common seal and also indicate its option i.e., execution of documents either by two directors or by a director and the Company Secretary. ii. Thereafter, the documents as detailed above may be allowed to be authenticated as per the option exercised by the company. Branches should not insist upon affixing of common seal in such cases. TYPES OF COMPANIES Public & Private Company: Based on the number of members and capital, companies may be classified into (i) Public Companies & (ii) Private Companies. As per the Companies Act, 2013 a private company must have minimum of 2 members and a maximum of 200 members. One Person Company is a private company with only one member. The Companies Act restricts the rights of members of a private company to transfer its shares and also prohibits an invitation to the public to subscribe to any shares or the debentures of the company. A public company means a company, which is not a private company. A private company which is a subsidiary of a public company is deemed to be a public company. A public company must have a minimum of 7 members. A public company can issue shares to the general public and the transferability of shares and related issues etc. are controlled by SEBI. As per the Act, both the Private as well as Public companies can start its operations only after obtaining Certificate of Incorporation and Certificate of Commencement of Business. Minimum Paid-up Share Capital The minimum paid-up share capital requirement of INR1L (Pvt. Ltd.) and INR5L (Pub. Ltd.) under Companies Act, 2013 has been done away with by the Companies (Amendment) Act, 2015 which received the assent of the President of India on 25MAY15 A COMPARISON OF PRIVATE & PUBLIC LIMITED COMPANIES BASED ON FEATURES Basis for comparison Public Company Private Company Meaning Owned and traded publicly Owned and traded privately Minimum Members 7 2 Maximum Members Unlimited 200 Minimum Directors 3 2 Suffix Limited Private Limited Start of Business After receiving certificate of After receiving certificate of incorporation and certificate incorporation and certificate of commencement of of commencement of business business Statutory Meeting Compulsory Optional Issue of prospectus / Obligatory Not required statement in lieu of prospectus Public subscription Allowed Not Allowed Quorum at AGM 5 members in person 2 members in person Transfer of shares Free Restricted HOLDING, SUBSIDIARY & ASSOCIATE COMPANIES Companies are classified as Holding, Subsidiary or Associate companies on the basis of control. A company is treated as subsidiary of another company if the latter controls the composition of the Board of Directors; or holds more than half in face value of equity share capital of the former. Thus, if A Ltd has equity capital of Rs. 4 cr out of which B Ltd. holds shareholding of Rs. 3 cr, then B Ltd. is a holding company and A Ltd. is the subsidiary of B Ltd. The Act defines an Associate company (say, A) of another company (say, B) where B exercises a significant control over A (by controlling at least 20% of the total share capital of A, or the business decisions under an agreement). If A is a joint venture partner of B, both the companies enjoy the status of associate companies to each other. But, the company A will cease to be an associate company of B, if it happens to the latter’s (B’s) subsidiary company. GOVERNMENT COMPANY A Government company is one in which not less than 51% of paid-up share capital is held by the Government (Central / State). A subsidiary of a Government company is also a Government company. LIMITED LIABILITY PARTNERSHIPS (LLP) LLP is a new corporate form designed to provide an alternative to the traditional partnership (with unlimited liability on part of the partners) and the corporate statute (statute-based governance with limited liability on part of the shareholders). The LLP form of business is a hybrid structure between the two, which provides the benefits of limited liability but allows the partners the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The Limited Liability Act, 2008 allows two or more persons associating for carrying on a lawful business ‘with a view to profit’ to set up an LLP. LLP is a separate legal entity which is liable to the full extent of its assets, but the liability of the partners is limited to their agreed contribution in the LLP. Like a corporate, an LLP can continue its existence irrespective of changes in partners. In a traditional partnership, every partner is jointly and severally liable with all other partners for all acts of the firm done while he is a partner. As against this, liability of a partner is limited to his agreed contribution in the LLP structure. One of the important differences between an LLP and a company is that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 2013), whereas for an LLP, the internal governance is governed by a contractual agreement between the partners. There is no ceiling regarding maximum number of partners. Each LLP must have minimum two designated partners, one of whom must be a resident of India. The partners in an LLP agree and sign on an agreement known as ‘LLP Agreement’. However, entering into an LLP agreement is not mandatory. In the absence of an LLP agreement, the mutual rights and liabilities of an LLP and its partners are determined by the provisions described under Schedule I to the Act. Every LLP must register itself with the Registrar of Companies (ROC). Unlike companies, LLPs do not attract ‘Dividend Distribution Tax’ and ‘Minimum Alternate Tax’. HINDU UNDIVIDED FAMILY (HUF) An HUF is represented by the head of the family, known as Karta, and the members of the HUF are known as coparceners. Karta represents the HUF and is authorized to transact on behalf of the HUF by virtue of age-old practice sanctified by law. With the introduction of Hindu Succession (Amendment) Act 2005, from September 6, 2005, daughters are also given the status of a coparcener. Banks should obtain a letter of authority in favour of the Karta signed by all major coparceners, which is commonly known as JHF letter. This letter contains the names of the family members, the minors, and a declaration that any change in the family constitution shall be duly brought to the notice of the Bank. Karta manages the HUF property on behalf of his family members. However, his powers are limited and a charge created by him is binding on the family property only when the loan taken by him is: i For the purposes of the necessity of the family or, ii For the benefit of the family or, iii For repayment of a lawful antecedent debt due from the family. The liability of the Karta is unlimited, though the liability of the coparceners is limited to the extent of their shares in the HUF property. However, Banks act conservatively and obtain documents executed by all major coparceners of the HUF including the Karta. This makes the coparceners jointly and severally liable for all the loans and advances that may be taken by the Karta. TRUSTS The Indian Trusts Act, 1882 defines a Trust as an obligation annexed to the ownership of property and arising out of a confidence reposed in an accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. A Trust is formed for the benefit of certain person(s) or purpose. The Trust Deed contains the aims and objectives of the trust. It lays down the duties and responsibilities of the Trustees and also the restrictions/ limitations imposed on them. In almost all the cases, the borrowing powers of the Trustees are severely restricted. Trust deed generally permits borrowing by the Trust. The provisions of the Trust deed relating to borrowings from Banks/ FIs must be interpreted in a very strict sense. Operations of Trust accounts have to be strictly according to provisions of the Trust deed. CO OPERATIVE SOCIETY While considering credit facility to a co-operative society, it is necessary to examine the rules or byelaws of the society, especially the terms on which it can borrow under the relevant section of the State Co-operative Societies Act, 2002. The lending bank should obtain a certificate from the society stating that the credit facility sought is within the overall borrowing limit authorized by the Registrar of Co-operative Societies. Questions 1. Why do we insist on financing a partnership firm which is registered? What may be the implications of financing partnership firms which are not registered? 2. What are the key features of a Limited Liability Partnership? 3. How do we define Holding, Subsidiary & Associate companies? What is the relationship between such companies? B. TITLE INVESTIGATION REPORT (TIR) Master Circular on Title Investigation Report- Revision Cir. No. Circular No.: CCO/CPPD-ADV/129/2021 – 22 Dated 9th Feb 2022 1. Introduction 1.1 Title investigation is to be conducted in respect of all types of immovable properties that are to be accepted as mortgage security. Title investigation has the following aspects: i. Examination of the documents to title (of the property) by an empanelled advocate. ii. Examining the acceptability of the property as security based on the TIR report issued by the Panel Advocate; and iii. Physical verification of the property for verifying the details. 1.2.1 TIR shall be obtained only from the Banks empanelled Advocate (Advocate is to be identified through the LLMS / RLMS / VVM which has a master database of TPEs regarding centralised monitoring, work order allotment, tracking the status of work orders, performance tracking and evaluation of services offered before payment / renewal of contract of TPEs. The Law Officers posted at respective AOs / BUs shall be the nodal officer for updating the list of empanelled advocates / master database (post categorisation of the advocates) in LLMS / RLMS portal / VVM. For accounts / borrowers falling under the domain of LLMS, the assignment of task to the advocate and generation of the letter of allotment will be made through the LLMS platform involving “maker and checker” concept, i.e. allotment initiated by the Service Officer and confirmed by the Relationship Manager / Branch Manager. In respect of Housing Loans, the assignment of task to the advocate shall be done through the RLMS platform. The operating unit shall ensure proper distribution of work to advocates, which should be reviewed by the controllers at regular intervals during the branch / CPC visit. TIRs shall be obtained only from the advocates at the place where the property is situated. In case of deviation the approving authority shall be under: Business Verticals To be approved by R&DB branches / CPC DGM (B&O) CCG/CAG branches Controlling authorities 1.2.2 Obtaining two TIRs In case of the following types of properties, a satisfactory Title Investigation Report (TIR) from two different empanelled advocates is required to be obtained, irrespective of amount in all segments (including Housing Loans):- i. Properties offered by third party guarantors (individual or non-individual). ii. Properties acquired through Gift deed. iii. Properties sold through Power of Attorney holders to our borrower/guarantor. In case of new connections / where existing property is being replaced / additional property is being offered as security and where operating units are stipulated to obtain one TIR and the TIR so obtained reflects multiple transactions in the last twelve months, then a second TIR shall be obtained from the in-house legal team / empanelled advocate. 1.2.3 In case of Housing Loans, satisfactory Title Investigation Reports from two different empanelled advocates (**) should also be obtained in the following cases: Housing Loans where RERA Registration is available and Loan Amount is above Rs.5 Crore Housing Loans where RERA registration is not available and Loan Amount is Rs.1 crore or above Second or subsequent sale, Loan amount greater than Rs.1 crore or above ** Wherever In House Legal Team has been created, one TIR from them and the other from the empanelled Advocate. 1.3 Where the loan amount is less than Rs.1.00 crore, it would suffice that the advocate makes search of the title of the property for not less than 13 years. However, if the flow of title is not clear or in the event of any ambiguity about the title after search for 13 years, the Advocate may make search for 30 years. Where the loan amount is Rs.1.00 crore and above, the advocate is required to make search of the title of the property for not less than 30 years. In case of Builder Tie Ups (Home Loans) for approval of the project, search of the title for 30 years is mandatory. 1.4. Where TIR is obtained from two Advocates and there is divergence of opinion, matter is to be referred to Law Officer/ In house Legal Team, for their directions. 1.5 Branches have to search CERSAI (Central Registry) to ascertain the existing charges and credit history of the borrower / mortgagor. Any doubtful circumstances in respect of the genuineness of the security offered is to be ruled out. A screen shot of search report / search report of CERSAI is to be attached with the loan proposal and subsequently preserved with the security documents. 1.6 In case of Home Loans in addition to the extant instructions, instructions wherever modified for Housing Loans, as per Annexure-V, should be complied with. 1.7 The formats for obtaining and verification of TIR have been standardised and are provided as annexures to the Master Circular dated 9th Feb, 2022. they are – Annexure A - Letter for assigning the job of TIR to the advocate. Annexure A1 - Details of the Property offered as security to be prepared by the Branch. Annexure B - Report of Investigation of Title in respect of immovable Property Annexure C – Certificate to be submitted by Advocate along with report as per Annexure B Annexure C1 – Interim Certificate from Advocate (to be taken along with annexure B) in case of takeover of loans and if the original title documents are not available for scrutiny/verification by the advocate. In all such cases, after takeover of the loan is completed and original title documents are received from the other Bank / Financial Institution, advocate has to complete the scrutiny / verification of original title documents and to submit the certificate of title as per Annexure- C. Annexure-C2- Certificate of Title on the basis of Parent deed and sale agreement in favour of the Borrower Annexure-C3- Certificate of Title (Supplementary TIR) In case of purchase of property where original title deeds in the name of the seller may or may not be available for scrutiny and title is yet to be conveyed in the name of the borrower and only sale agreement is available, the Interim certificate will be obtained as per Annexure-C2 along with Annexure B. Once the registration process is completed, the original sale deed (conveying the title) and encumbrance certificate for the intervening period will be obtained. Based on the original title documents (Parent title deeds as well as sale deed in the name of Borrower) received, advocate has to complete the scrutiny / verification of original title documents and submit the supplementary TIR certificate as per Annexure – C3. Annexure D - Guidance Note for the advocates entrusted with the work of issuing TIR for verifying the genuineness of the documents Annexure E - Detailed checklist for scrutiny of TIR Annexure F - Checklist for identification and physical verification of the properties offered as securities 1.8 Selfie of the Inspecting Official at the site, with or without the borrower should be taken as an integral part of inspection and the same should be kept along with the security documents. This exemption (with or without the borrower) will apply in respect of all Loans (including Housing Loans), as the inspection is required to be conducted independently. Digital date should be imprinted on the photograph. Functionality for taking photographs / selfie during inspection is available in e-LLMS app. Inspecting officials shall take photographs / selfie through the e-LLMS app and the geo tagged photographs captured through the e-LLMS app shall be printed and attached to the inspection report submitted by the Inspecting Officials. Annexure G - Important aspects relating to procedures, precautions and due diligence for prevention of frauds, etc., in connection with the title investigation creation of mortgage Annexure H - Separate annexure about the advocates to be entrusted with TIR work Annexure H1 - Copy of MOU to be obtained from the advocates who are entrusted with the work of issuing TIR 1.9 The original title deeds / related documents should be handed over to the advocate (Annexure A / A1) by the operating unit only and intervention of the borrower / guarantor should be avoided in the process. The advocate is required to submit the TIR along with all the original title deeds / documents and certified copies of documents directly to the operating unit and in no circumstances the same is to be handed over to the borrower/guarantor or his/their agent/representative. 1.10 The Advocate is required to. Make personal inspection of relevant books and indices at the office(s) of sub registrar / registrar Obtain certificates of encumbrance (wherever such facility is available) Obtain the certified copies of all the relevant title documents directly from the office of the sub- registrar/ registrar office and compare the same with the documents submitted by the customer Attach along with the Report(TIR) all such certified copies and the receipt for fees paid for obtaining certified copies. 1.11 A conditional Title Investigation Report (TIR) certifying clear and marketable title of the property subject to compliance of conditions or stipulations would not be acceptable. Professional fees/expenses charged by the advocate should be paid by the Bank directly to them and recovered from the customer. 1.12 The procedure for creating EM of leased properties such as MIDCO, CIDCO, HUDA, HSIDC and DDA etc. should also be discussed in the TIR by the Advocate. A reference may be made to Law Department to clarify the position regarding mortgageability of such type of properties before accepting them as security. 1.13 Hindu Undivided Family (HUF):-Great care should be exercised in mortgaging properties of HUFs and Law Officer’s opinion may be sought. 1.14 If the title deeds are in a vernacular, an English translation signed by the Bank’s empanelled advocate is obtained. 1.15 Wherever Cooperative Housing society is yet to be formed, an undertaking from borrower should be obtained stating that the Bank would be informed and share certificate along with NOC submitted as and when the society is formed. Procedure and Precautions (Annexure G of CPPD/129/09FEB22)A. General Procedures If the original title deeds are not available at the time of conducting title investigation, the advocate would be required to verify/scrutinise the original title deeds when subsequently provided and to certif