LPD-CC 2024-25.pdf

EXPORT-IMPORT BANK OF INDIA LOAN POLICY DOCUMENT FOR COMMERCIAL CREDIT [INDUSTRIAL LOANS AND EXPORT CREDIT PROGRAMMES] APRIL 2024 (FOR RESTRICTED CIRCULATION)  CONTENTS SL. NO....

EXPORT-IMPORT BANK OF INDIA LOAN POLICY DOCUMENT FOR COMMERCIAL CREDIT [INDUSTRIAL LOANS AND EXPORT CREDIT PROGRAMMES] APRIL 2024 (FOR RESTRICTED CIRCULATION)  CONTENTS SL. NO. CHAPTER PAGE NO. 1. BACKGROUND & OBJECTIVES OF THE POLICY 6 2. BUSINESS GROUPS FOR DELIVERY OF COMMERCIAL CREDIT 9 3. TARGET BORROWERS & RESTRICTIONS ON CREDIT 16 4. EXPOSURE NORMS & CONCENTRATION OF CREDIT RISK 24 5. PERFORMANCE/FINANCIAL ANALYSIS AND CREDIT RISK 35 ASSESSMENT 6. CURRENCY, HEDGING REQUIREMENT AND PRICING OF LOANS 44 7. EXPORT CREDIT PROGRAMMES 53 8. MAJOR LENDING PROGRAMMES FOR INDUSTRIAL LOANS 67 9. WORKING CAPITAL FINANCING 90 10. TRANSACTIONS WITH ELIGIBLE LENDING INSTITUTIONS 100 11. DELIVERY MECHANISM 103 12. SECURITY & LOAN DOCUMENTS 113 13. FOLLOW UP, SUPERVISION AND MONITORING OF ADVANCES 116 14. STRESSED ASSETS MANAGEMENT 128 15. PRUDENTIAL NORMS ON INCOME RECOGNITION, ASSET 138 CLASSIFICATION AND PROVISIONING 2 Loan Policy for FY 2024-25  LIST OF ANNEXURES ANNEXURE NO. PARTICULARS PAGE NO. Annexure I LIST OF MAIN LENDING PROGRAMMES / PRODUCTS UNDER 145 INDUSTRIAL LOANS Annexure II DELIVERY MECHANISM 249 Annexure III DISBURSEMENT POLICY 250 Annexure IV GUIDELINES FOR ABC CLASSIFICATION 254 Annexure V GUIDELINES FOR CLASSIFICATION OF PROJECT EXPORT 260 CONTRACTS UNDER EXECUTION 3 Loan Policy for FY 2024-25  LIST OF ABBREVIATIONS ABBREVIATION FULL FORM AIFIs All India Financial Institutions AML Anti-Money Laundering BG Bank Guarantee CAG Credit Appraisal Group CBG Corporate/Commercial Banking Group CC Credit Committee CEL Comprehensive Exposure Limit COE Committee of Executives CGTMSE Credit Guarantee Fund Trust for Micro and Small Enterprises CRA Credit Rating Agencies CRILC Central Repository of Information on Large Credits CRMC Credit Risk Management Committee DSRA Debt Service Reserve Account DOP Delegation of Powers CRMT Credit Risk Monitoring Team EC Executive Committee ECA Export Credit Agency ECGC ECGC Limited ECR External Credit Rating EOU Export Oriented Unit ESG Environment, Social & Governance EWS Early Warning Signals Exim Bank/Bank Export-Import Bank of India FACR Fixed Asset Coverage Ratio FPCL Fair Practices Code for Lenders GRID Grassroots Initiatives for Development IBC Insolvency and Bankruptcy Code, 2016 IBPC Inter-Bank Participation Certificate IPR Intellectual Property Rights JLF Joint Lenders’ Forum JV Joint Venture 4 Loan Policy for FY 2024-25 KYC Know Your Customer L/C or LC Letters of Credit LE Lenders’ Engineer LOMG Loan Operations and Monitoring Group LPD-CC Loan Policy Document for Commercial Credit LTMLR Long Term Minimum Lending Rate MC Management Committee MCLR Marginal Cost of funds based Lending Rate MPBF Maximum Permissible Bank Finance NEIA National Export Insurance Account NOC No Objection Certificate NPA Non-Performing Asset NPAR Policy Non-Performing Assets Recovery Policy Document NWC Net Working Capital PEG Project Export Group PPC Product Pricing Committee PSC Preliminary Screening Committee PSUs Public Sector Undertakings RMC Risk Management Committee RO Representative/ Regional Office RP Resolution Plan SBLC Stand-by Letter of Credit SMA Special Mention Account SFP Sustainable Finance Programme SOP Standard Operating Procedures SPV Special Purpose Vehicle SSG Special Situations Group TAP Trade Assistance Programme TCE Total Credit Exposure TCF Total Capital Funds USP Ubharte Sitaare Programme WCTL Working Capital Term Loan WOS Wholly Owned Subsidiary 5 Loan Policy for FY 2024-25  CHAPTER-1 BACKGROUND & OBJECTIVES OF THE POLICY 1.01 The Loan Policy, at a holistic level, is an embodiment of the Banks’ approach towards commercial lending to eligible corporates/ commercial entities, which includes, inter alia, business origination, due diligence, risk assessment, sanctioning, disbursement, administering, monitoring & review of accounts in the context of current business environment, regulatory guidelines and the overall business objectives of the Bank. The Bank’s lending policy is guided by commercial prudence and ethical business practices. 1.02 This policy document lays down broad approaches to lending, which is further supplemented by standard operating procedures (SOPs), guidelines and other specific circulars, issued from time to time. While this Loan Policy document articulates the broad guidelines and approach to lending and its administration, 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 certain deviation(s)/exceptions from the prescribed norms. Case specific deviations/exceptions, if any, shall be approved by the MC, unless otherwise permitted in this Policy. 1.03 Broad objectives of the loan policy, inter alia, are as under: ✓ To define and formulate a comprehensive policy for the Commercial Credit portfolio of the Bank. ✓ To define and formulate eligible activities and eligibility norms. ✓ To strengthen the due diligence process, risk assessment and credit delivery systems. ✓ To build a sound commercial credit portfolio in terms of quality with reasonable interest margin. ✓ To define and formulate credit sanction terms including securities/collaterals. ✓ To evolve strategies to improve systems and procedures, sharpen skills and develop human resources in credit delivery and management. ✓ To strengthen credit-monitoring system through a review mechanism to enable regular monitoring of loan accounts with a view to contain NPAs and keep the loan portfolio healthy. 6 Loan Policy for FY 2024-25 ✓ To fix prudential limits on credit exposures to individual borrowers, group borrowers and industry to avoid asset concentration and to enable equitable distribution of credit to different sectors of the economy, depending upon the performance of the sector. 1.04 The Loan Policy Document was first introduced by the Bank in 2001. Up to March 31, 2019, the Bank had two separate Board approved Loan Policy documents – one for Industrial Loans, managed by Corporate Banking Group (CBG) and the other for Export Credit, managed by Project Exports Group (PEG). Brief history of evolution of both the Policy Documents is as under: Loan Policy Document Loan Policy Document Particulars for Industrial Loans for Export Finance Date of First Board September 24, 2001 December 15, 2001 Approval No. of subsequent 21 13 reviews by the Board 1.05 Given the increasing requirements of Indian exporters for commercial credit from the Bank under various financing programmes across CBG and PEG, and synergies in the due diligence for evaluating such proposals, the Bank undertook a comprehensive review of the two loan policy documents and consolidated the loan policies for Industrial Loans and Export Credit into a single Loan Policy Document for all commercial businesses. As directed by the Audit committee, the Bank had earlier constituted an Internal Working Group (IWG) for recommending improvements in the Bank’s Loan Policy Documents, based on the Bank’s experience regarding Non-Performing Assets in sole lending cases. The IWG’s recommendation on various issues, including documentation, disbursement and monitoring were duly reviewed and suitably incorporated in the revised Loan Policy Document named as Consolidated Loan Policy Document for Commercial Credit (LPD-CC). The Consolidated Loan Policy Document was first approved by the Board at its meeting dated January 29, 2019 and made effective from April 01, 2019. The provisions of this LPD-CC are applicable to the borrowers both in India and abroad. The provisions, however, are not applicable where the borrower is a foreign government or foreign government nominated agency outside India. 7 Loan Policy for FY 2024-25 1.06 The Loan Policy is reviewed once in a year by the Board. Pending such review, the existing policy will continue to be in force. Any regulatory guidelines issued by RBI/Government, etc. applicable to Exim Bank and any other guidelines pertaining to the area of commercial credit issued by the Bank from time to time will automatically form and be a part of this Policy. 1.07 As mentioned in para 1.02 above, the Bank has in place SOPs, which mainly deal with operating procedures for credit in detail and various standard formats to be used in day-to-day operations. Therefore, the LPD-CC is to be read in conjunction with relevant SOPs. 1.08 While LPD-CC mainly deals with credit origination, appraisal, sanction, credit risk management, etc., the Bank has in place a separate Non-Performing Assets Recovery Policy Document (NPAR Policy), duly approved by the Board. The NPAR Policy deals with the policies to be followed once a loan account comes under stress and/or the account turns NPA i.e. mainly with loan recovery related issues. 1.09 The Bank also has in place a separate policy guidelines on Know Your Customer (KYC), Anti-Money Laundering (AML) standards and Combating of Financing of Terrorism (CFT) [KYC-AML Guidelines] to enable the Bank to know/understand the clients/prospective clients and to take prudent credit decisions; and to prevent the Bank from being used by criminal elements for money laundering activities. Thus, LPD-CC in conjunction with NPAR Policy and KYC-AML guidelines addresses the entire life cycle of a loan. 1.10 This document is the property of the Bank. The document contains information that is internal to the Bank and for restricted use by the employees of the Bank, its auditors and regulatory bodies. All employees must treat its contents as confidential to the Bank. 8 Loan Policy for FY 2024-25  CHAPTER-2 BUSINESS GROUPS FOR DELIVERY OF COMMERCIAL CREDIT 2.01 Exim Bank has two broad business streams: one, the export credit financing typical of Export Credit Agencies (ECAs) around the world and two, financing of borrowers, inter alia, towards export capability creation, export facilitation, import and overseas investments, which are non-traditional for ECAs. Since inception, Exim Bank has been the principal financial institution in the country for financing project exports and exports on deferred credit terms. Exim Bank commenced financing of export oriented units with the approval of the Board in 1985. Since then, the Bank has introduced many products for enhancing international competitiveness of Indian corporates by supporting supply-side upgradation projects, demand-side generation activities, imports and overseas investments. 2.02 In line with the above-mentioned two broad streams of business, Exim Bank’s direct lending to corporates/commercial entities was handled by two business Groups namely: a) Corporate Banking Group (CBG) dealing with Industrial Loans and b) Project Exports Group (PEG) with focus on financing export transactions. Till December 31, 2020, CBG mainly handled loans to export oriented or externally oriented companies, aimed at facilitating export production, imports, overseas investment and enhancing international competitiveness of Indian companies, PEG handled export credits similar to those offered by ECAs around the world. However, for achieving operational efficiency and best practices in the area of commercial credit delivery, the activities of the Operating Groups for the Commercial Business viz. CBG and PEG-Commercial as well the Domestic Representative Offices (DROs) were reorganized under different groups viz. Business Development Group (BDG), Credit Appraisal Group (CAG), Loan Operations Group (LOG) and Loan Monitoring Group (LMG) with effect from January 1, 2021. The Operating Groups for commercial business were further reorganized by merging BDG with CAG with effect from June 1, 2022. Further, LOG and LMG were merged to form Loan Operations and Monitoring Group (LOMG), with effect from December 1, 2022. The roles and responsibilities of these groups will be guided by the office circulars and SOPs, issued by respective groups, from time to time. The roles of these groups are briefly mentioned below. 9 Loan Policy for FY 2024-25 Representative and Regional Offices (ROs) 2.03 Primary role of ROs would be the business development for the Bank under the overall guidance of the respective Group Head of CAG. It will include marketing of the Bank’s commercial products and services to the existing and new clients for the purpose of generation of new business proposals. Apart from business origination, the ROs will maintain relationships with the existing clients. Endeavour will be made to cross-sell the Bank’s products to maximize returns for the Bank from a business relationship. After origination of a proposal, preliminary note may be put up to the CAG, after preliminary clearance pursuant to discussions with MD/DMDs/GHs, for CAG to undertake detailed appraisal. During the appraisal process, RO may coordinate with CAG for providing various information related to the client and the proposal. Further, ROs will undertake loan documentation post- sanction. Credit Appraisal Group (CAG) 2.04 CAG’s role is primarily to carry out detailed due diligence for a loan proposal generated by the ROs and undertaking credit appraisal. After appraisal, CAG will obtain necessary approval for sanction of credit from competent authorities as per the extant Delegation of Powers (DOP). Post sanction, CAG and RO will jointly issue sanction letter. After obtaining acceptance of the sanction letter by the borrower/guarantor, ROs will carry out legal documentation, security creation including compliances with pre-disbursement terms & conditions. Prior to first disbursement, the account will be passed on to LOMG for disbursement, monitoring and related operations. Loan Operations and Monitoring Group (LOMG) 2.05 LOMG is primarily responsible for LC/Guarantee issuance/amendments, loan accounting, disbursement and monitoring of PA loan accounts. The activities, inter alia, include loan monitoring related compliances, modification in sanction terms, restructuring, exposure review, attending lenders’ meetings, information exchange, site visits, EWS identification, Red Flagged Accounts reporting, monitoring account discipline and other related activities. Further, post award approvals and project specific allocations under approved working capital limits will be undertaken by LOMG. 10 Loan Policy for FY 2024-25 Loan Policy 2.06 Industrial Loans: Loans extended by the Bank under industrial loan category may be classified into four broad categories viz., finance for export capability creation, export facilitation, import and finance for overseas investments. Besides loans, the Bank also extends non-fund based assistance e.g. different types of guarantees, underwriting of public issues, Letters of Credit (L/Cs), SBLC, etc. The nature of financing under four categories are broadly mentioned as under: Export Capability ✓ Asset Creation Creation Equipment Project ✓ Working Capital Medium Term/Long Term Short Term ✓ Special Products Export Marketing Export Product Development Export Vendor Development Research & Development Export Facilitation ✓ Financing Infrastructure for direct/indirect facilitation of exports e.g. port, terminals, shipyard, airport, etc. ✓ Software Technology Parks. ✓ Indian Educational Institutions and setting up institutions abroad. Import Finance ✓ Import of Capital Goods and Bulk Import of Commodities/raw materials. Overseas ✓ Term Financing to Indian Companies towards part Investment financing their equity investment in overseas Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS). Also, term financing to overseas JV/WOS/Special Purpose Vehicles (SPVs)/Step-down subsidiaries promoted by Indian Companies to meet various requirements including acquisition of overseas assets. ✓ Equity Investment – Participation in equity of overseas ventures of Indian companies. 11 Loan Policy for FY 2024-25 Apart from the above-mentioned four broad categories of financing, Exim Bank can also extend finance to Leasing Companies and refinance loans of Commercial Banks/Cooperative Banks, Public Financial Institutions and NBFCs. The Bank also undertakes rediscounting of Export Bills of Commercial Banks. Exim Bank currently has 36 lending programmes and few other structured products under the industrial loans category, terms and conditions of which have been approved by the Board/MC. Details of the main lending programmes are at Annexure I. 2.07 The primary objective of providing industrial loans is to facilitate export related production/ services and international competitiveness of borrower companies. The loans are extended at commercial terms normally with higher profitability than export credits. By providing a comprehensive range of products and services covering financial needs of the borrower companies at all stages of their business cycle, industrial loans help the Bank to widen its customer base and spread risks. The Bank’s vision is to develop commercially viable relationships with a target set of externally oriented companies by offering them a comprehensive range of products and services aimed at enhancing their internationalisation efforts. The industrial loans primarily help Indian companies to build export capability to meet the challenges of international competition. 2.08 Export Credit: The main focus of this export credit is to support export of projects and services from India including deemed exports. Project and Services exports mainly comprise (i) supplies on deferred payment terms i.e. where realisation of export proceeds is effected beyond the period statutorily prescribed (ii) Industrial turnkey projects (iii) civil construction contracts and (iv) consultancy and technical services contracts. To support project and export services, Exim Bank has a menu of funded and non-funded facilities to Indian exporters, commercial banks and overseas entities, which are broadly as given below: 12 Loan Policy for FY 2024-25  For Indian Exporters For Commercial Banks in India/Overseas ✓ Export Project Cash flow Deficit ✓ Risk participation in Financing Program funded / non-funded ✓ Post-shipment Supplier’s Credit facilities extended to ✓ Pre-shipment Credit Indian exporters. ✓ Finance for Export of Consultancy and ✓ Refinance of Export Technology Services Credit ✓ Finance for Deemed Export contracts ✓ Trade Assistance ✓ Capital Equipment Finance Programme ✓ Financing Deemed Export contracts ✓ LC Confirmation secured via structures including but For Overseas Entities not restricted to BOT / BOO / BOOT / ✓ Buyer’s Credit BOLT. ✓ Letters of Credit / Standby Letters of Credit / Guarantees. ✓ Trade Finance under the Global Trade Finance Program (GTFP) of International Finance Corporation (IFC), Washington. ✓ Trade Finance Facilitation Programme (TFFP) with IADB or similar such programmes. London Branch 2.09 Exim Bank commenced operations from its London Branch in September 2010 after receiving approval from the Reserve Bank of India and the Banking Regulator in UK, viz., FSA (Financial Services Authority). As sanctioning powers are centralized at Head Office including for London Branch and lending programmes are the same, the Bank’s LPD-CC is applicable to London Branch for both for industrial loans and export credits. The Bank has in place a separate Compliance Policy Document for London Branch duly approved by the EC/Board, which is to be followed by the London Branch in order to comply with specific local regulatory requirements viz., KYC Guidelines and AML Guidelines and others. 13 Loan Policy for FY 2024-25 2.10 Subsequently, London Branch voluntarily filed an application for cancellation of authorisation, which was accepted by the UK Financial Regulators viz., Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) on 23.12.2015. The Branch has thus become an unregulated entity in the UK w.e.f. December 23, 2015. After becoming an unregulated entity, the branch continues to undertake all the activities as it was carrying out earlier and there is no change in the Branch’s operations. The Branch is now registered with FCA (Financial Conduct Authority) for anti-money laundering Regulations. The Branch, through the Bank’s Head Office, will continue to be regulated by Reserve Bank of India and this LPD-CC would be applicable to the lending activities of London Branch to all corporate entities including commercial banks/FIs. 2.11 All credit approvals are centralized at the Bank’s Head Office in Mumbai. Domestic and Overseas Representative Offices and London Branch can originate business and assist CAG and LOMG at HO to carry out their functions effectively in respect of clients belonging to the respective offices. From accounting point of view, the Books of Accounts for all loans and advances are maintained at Head Office and London Branch (for loans funded out of London Branch). Special Situations Group (SSG) 2.12 With a view to bringing about better focus on management and resolution of Non-Performing Assets and stressed assets, Special Situations Group (SSG, earlier called Loan Administrative Group (LAG)) was set up by the Bank. Stressed assets or NPA accounts are periodically identified by LOMG and transferred to SSG for resolution purpose. Similarly, if loan assets show consistent satisfactory performance, those assets are transferred by SSG back to LOMG. Delegation of Powers (DOP) 2.13 Sanction: Board at its meeting held on February 11, 2022, approved reconstitution of the COE and creation of two separate committees i.e. ‘Executive Committee’ (EC) and ‘Credit Committee’ (CC). All credit approval notes are put up to the relevant sanctioning authority, based on prescribed DOP approved by the Board from time to time. In case of sanctions approved by MC, the EC is authorised to approve non-material modification to MC approved terms, inter alia, security, pre-disbursement conditions or other similar terms. However, such modifications will not include amount of loan, the primary security and the tenor. 14 Loan Policy for FY 2024-25 2.14 In case of syndicated loans where MC sanctions contain a provision that all broad terms and conditions will be in line with other lenders participating in the syndication, the EC will be authorised to modify other terms including primary security to be in line with the terms accepted by other lenders under the syndicated arrangement. However, in such cases, all material changes will be reported to the MC. 2.15 In cases of business exigencies where decision needs to be conveyed on an urgent basis and meeting of the MC is not scheduled in the immediate future, the EC may approve sanctions exceeding its delegated powers and get the approval confirmed by the MC at its next meeting. The reasons for doing so (sanction by EC, subject to MC confirmation) would be recorded in the notes to be submitted to EC and MC. Normally, such sanctions will be restricted to PSUs and/or corporates with external rating of A- or above. Loan Sanction Review Mechanism 2.16 The Bank currently has a review mechanism for all credit approval decisions. Approval of credit proposals is done at various levels, depending on the Board approved DOP. However, all approvals of credit are to be reviewed by the next higher authority. The decisions of the EC shall be reviewed by the MD. The decisions of the CC shall be reviewed by the DMD in charge of commercial business and shall be submitted for information to the MD. 15 Loan Policy for FY 2024-25  CHAPTER-3 TARGET BORROWERS & RESTRICTIONS ON CREDIT 3.01 Exim Bank's Vision has evolved from a product-centric approach with Export Credits and Export Capability Creation, to a more customer-centric approach by offering a comprehensive range of products and services at all stages of a company's business cycle. The Bank aspires to develop commercially viable relationships with externally oriented companies through a comprehensive range of products and services, aimed at enhancing their internationalization efforts. The Bank intends to utilize its leadership and expertise in Export Finance to support Indian companies with global aspirations. The vision of the Bank is “Facilitating Globalization of Indian Businesses and Empowering Growth of Partner Countries and its Mission is to “Facilitate Indian Trade and Investment, and Support Partner Countries' Development Priorities as a Financially, Socially, and Environmentally Responsible Institution.” 3.02 In line with the above objectives, the Bank has two broad types of commercial credit portfolio comprising a) Industrial Loans including Overseas Investment Finance and b) Export Credits. The loan portfolio comprises both fund based and non-fund based facilities. The Bank will accord due considerations for Environment, Social & Governance (ESG) related issues for conducting its business. It will focus on building ESG lending portfolio and enable Indian companies to become ESG compliant for exports. Industrial Loans 3.03 Eligible borrowers for industrial loans will, inter alia, include the following: ✓ Manufacturers/traders with a minimum export orientation (actual/ projected) of 10% of their annual turnover, or exports of `5 crore per annum, whichever is lower, inclusive of indirect exports or exports through Export/Trading Houses or substituted imports. (The modification related to ‘substituted imports’ will be effective after obtention of necessary approvals, in line with provisions of Export-Import Bank of India Act, 1981). ✓ Any division/product of a multi-division/multi-product company with a minimum export orientation (actual/projected) of 10% of their annual 16 Loan Policy for FY 2024-25  turnover, or exports of `5 crore per annum, whichever is lower, inclusive of indirect exports or exports through Export/Trading Houses and maintaining separate annual accounts for such division/product. ✓ Vendor companies supplying components/intermediate products to corporates whose final products are exported, subject to clear linkage between the products supplied to the exporting companies and the products actually exported by these exporting companies. The Export orientation norm in such cases will be met in the form of exports by the buyers of the vendor companies. ✓ Companies in the services sector earning foreign exchange, including, inter alia, turnkey contractors, consultancy firms, financial services firms, hotels, tour operators, amusement park operators, courier service companies, shipping companies, port service providers, airlines and companies in the healthcare sector. Export orientation norm of 10% of their annual turnover, or exports of `5 crore per annum, whichever is lower, to be met in the form of foreign exchange earnings. 3.04 Export orientation norm as above will not, however, be applicable for the following: ✓ For finance for import of capital goods and related services for production facilities. ✓ For finance of bulk import of raw materials and other inputs. Such financing may be done both within the overall assessed bank finance limits or over and above the assessed bank finance limits for specific bulk import requirements. The Bank’s total exposure to non-export oriented companies under such bulk import finance shall be restricted to 3% of the Bank’s total outstanding loans and advances as per the last audited Balance Sheet. ✓ In case of lending for overseas investment, companies setting up Joint Ventures and/or Wholly Owned Subsidiaries/step-down subsidiaries overseas. 17 Loan Policy for FY 2024-25  ✓ Companies leasing/hiring out equipment to end borrowers meeting export orientation norms by way of physical exports/foreign exchange earnings as above and/or companies importing plant, machinery and equipment without linkage to exports. ✓ Companies setting up software training institutes. ✓ Companies undertaking development of export related infrastructure e.g. ports/jetties/terminals/warehouses/cold chains, etc. to facilitate international trade. ✓ Proposals considered under the Bank’s GRID initiative. Export Credits 3.05 Project and Services exports comprise (i) supplies on deferred payment terms i.e. where realisation of export proceeds is effected beyond the period statutorily prescribed (ii) Industrial turnkey projects (iii) civil construction contracts and (iv) consultancy and technical services contracts. Eligible borrowers for export credits include, inter alia, manufacturer/project and services exporters, export- trading houses and merchant exporters/overseas entities. As regards, facilities for deemed export contracts, Indian companies/entities securing contracts categorized as deemed exports under the Foreign Trade Policy of the Government of India, contracts secured under funding from Multilateral Funding Agencies like the World Bank, Asian Development Bank, New Development Bank, Asian Infrastructure Investment Bank, etc., contracts secured under International Competitive Bidding process, contracts secured under which payments are received in foreign currency, would be eligible. Negative List 3.06 While extending the credit facilities to Indian companies/firms, care will be taken to avoid companies appearing in the negative list comprising (i) CIBIL: Suit Filed Accounts (a) `1 crore and above & (b) `25 lakhs and above (Wilful Defaulters) (ii) CIBIL: Non-Suit Filed Accounts (a) `1 crore and above & (b) `25 lakhs and above (Wilful Defaulters) (iii) Central Fraud Registry (CFR) (iv) Central Economic Intelligence Bureau (CEIB) Negative list (v) Sanctions List and (vi) the Bank’s any other negative lists as available. The names of the Directors of the companies to 18 Loan Policy for FY 2024-25 be checked in negative lists by way of reference to DIN/PAN etc. As per the RBI Master Circular Ref. RBI/2023-24/06 DOR.STR.REC.3/21.04.048/2023-24 dated April 1, 2023 (as may be amended from time to time), on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, banks should use independent sources for confirmation of the identity of directors rather than seeking declaration from the borrowing company. No credit will be granted to companies appearing in the negative list as mentioned above, companies with sub-standard and below asset classification as per CRILC database and prohibited under KYC-AML guidelines of the Bank unless permissible as per provisions in subsequent paras. 3.07 Companies with sound financials and good payment record with existing lenders may, at the discretion of the Bank, be considered eligible for finance even if a Group Company is in default with the Bank. Also, companies whose loan accounts have become NPAs due to extraneous reasons (like United Nations sanctions on Iraq, Libya, foreign exchange crisis in importer’s countries, improper invocation of guarantees, resulting in default in receipt of repayment from overseas, etc.) may be considered eligible for finance subject to suitable safeguards. Similarly, the Bank may consider extending working capital finance on merits to defaulting companies as per provisions at para 9.08 of this document. Lending to Sensitive Sectors 3.08 The Bank will not extend finance to any of the sensitive sectors such as capital markets, real estate, commodities, etc. as defined by RBI from time to time and particularly vide circular Ref. DBS.Co.No.OSMOS.BC.7/33.01.001/99-2000 dated September 15, 1999. However, the Bank may extend pre-shipment and post-shipment finance for export of commodities, as also finance for export capability creation for commodities. The Bank also will not extend finance for export of restricted/prohibited goods/items under the Foreign Trade Policy of Government of India. However, financing can be considered for such goods/items, if specific license/permission has been granted by the relevant Government Authorities. In terms of extant instructions on Bank Loans for Financing Promoters Contribution as consolidated in the RBI’s Master Circular DBOD.No.Dir.BC.16/13.03.00/2014-15 dated July 1, 2015 (as may be amended from time to time) on ‘Loans and Advances – Statutory and Other Restrictions’, the promoters' contribution towards the equity capital of a company in India should 19 Loan Policy for FY 2024-25 come from their own resources and banks should not normally grant advances to take up shares of other companies. However, RBI vide Master Circular Ref. DOR. STR.REC.3/21.04.048/2023-24 dated April 1, 2023 (as may be amended from time to time), on Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances advised that banks can extend finance to ‘specialized’ entities established for acquisition of troubled companies subject to the general guidelines applicable to advances against shares/debentures/bonds as contained in the above-mentioned Master Circular and other regulatory and statutory exposure limits. The lenders should, however, assess the risks associated with such financing and ensure that these entities are adequately capitalized, and debt equity ratio for such entity is not more than 3:1. In this connection, a ‘specialized’ entity will be a body corporate exclusively set up for the purpose of taking over and turning around troubled companies and promoted by individuals or/and institutional promoters (including Government) having professional expertise in turning around ‘troubled companies’ and eligible to make investments in the industry/segment to which the target asset belonged. Restriction on Financing Certain Activities 3.09 With the approval of the Board, the Bank has put in place an ESG Policy for Sustainable Development/Financing. As per this Policy, a list of 16 activities has been identified for which the Bank will not ordinarily sanction credit facilities except as permitted under the ESG Policy. Fresh/Additional Credit to Defaulting Borrowers 3.10 In terms of RBI circular Ref. DBOD.No.DL.194/ 20.16.014/2003-04 dated September 26, 2003 to Commercial Banks, request for fresh or additional credit limits by defaulting borrower companies or by other units with which they are associated, can be considered on merits. In cases where any director of the borrower company is listed in the CIBIL Wilful defaulters’ list/Suit Filed Cases/Non- Suit Filed Cases as director of the defaulting company, the Bank may consider extending fresh/additional credit facilities to the borrower company in one or more of the following cases: a) The director is only an institutional/bank nominee director in the borrower company. 20 Loan Policy for FY 2024-25  b) The director is an independent professional director where he/she is not involved in the day-to-day management of the borrower company and has equity holding of less than 500 shares. c) The director is an independent professional director where he/she in his/her personal capacity is not made party to disputes leading to classification of the said company as a defaulter. d) The director does not hold “substantial interest” in the borrower company. “Substantial interest” would mean: i) in relation to a company, the holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together, in the shares thereof, the amount paid-up of which exceeds `5 lakh or 10% of the paid-up capital of the company, whichever is lower; ii) in relation to a firm, beneficial interest held therein by an individual or his spouse or minor child, whether singly or taken together, which represents more than 10% of the total capital subscribed by all partners of the said firm. e) In case the director is the main promoter of the defaulting company, the proposal may be considered on merits with adequate justification and approved by MC irrespective of the loan amount. 3.11 The Bank shall not grant: i. Any fresh/additional facilities to the borrower companies appearing in CIBIL list of ‘Wilful Defaulters.’ ii. Finance to any company whose promoter and/or any director is also the promoter and/or director of a listed wilful defaulter. However, based on merit, financing may be considered after a period of 5 years from the date of removal of the name of wilful defaulter from the list of wilful defaulters as published/disseminated by RBI/Credit Information Companies. iii. Finance to the fraudulent borrower including companies promoted by promoter director(s) of fraudulent borrowers, in the normal course of business. However, based on merits, finance to such borrowers may be considered after period of five years from the date of full payment of the defrauded amount. However, as per RBI guidelines vide circular dated February 25, 2016 on Revitalising Stressed Assets in the Economy, in cases of fraud/malfeasance where 21 Loan Policy for FY 2024-25 the existing promoters are replaced by new promoters and the borrower company is totally delinked from such erstwhile promoters/management, banks and JLF may take a view on restructuring of such accounts based on their viability, without prejudice to the continuance of criminal action against the erstwhile promoters/management. If any director of an existing borrower company is also on the Board of a listed wilful defaulter, the borrower company will be required to take expeditious and effective steps for removal of the director from its Board. RBI guidelines on wilful defaulters vide circular Ref. DBR.No.CID.BC.22/20.16.003/2015-16 dated July 1, 2015 and Master Directions on Frauds issued vide Ref. RBI/DBS/2016-17/28 DBS.CO.CFMC.BC.No.1/23.04.001/2016-17 dated July 01, 2016 and as may be further amended from time to time be followed. Cooling Period 3.12 There shall be a cooling period of 3 years from the date of closure of the account in the books of the Bank, before the Bank would assume fresh exposures in respect of borrowers subject to compromise settlements, technical write-off/ total write off or any other case in which Bank had incurred a haircut/loss, except in case of wilful default or fraud, the cooling period will be of 5 years. The guidelines issued by RBI on Framework for Compromise Settlements and Technical Write-offs issued vide circular Ref. RBI/2023-24/40 DOR.STR.REC.20/21.04.048/2023-24 dated June 08, 2023 (as may be amended from time to time), will be followed. The proposals for on-boarding borrowers subjected to compromise settlement/ write-off/ wilful default/ fraud accounts, shall go through strict due diligence standards and shall have adequate safeguards. 3.13 In case a defaulting borrower or its assets are taken over by a different management under the IBC / any other process, the Bank may consider sanction of assistance conforming to the provision of RP approved under IBC, provided that the target/borrower company satisfies the Banks’ eligibility criteria, depending on merits and overall assessment of the credit risk under the new management. Connected Lending 3.14 RBI, in consultation with Government of India, issued guidelines to All India Financial Institutions (AIFIs) including the Bank regarding ‘connected lending’ vide 22 Loan Policy for FY 2024-25 Circular Ref. DBS.FID.NO.C-10/01.02.00/2000-03 dated December 21, 2002 (as may be amended from time to time). The instructions relate, inter alia, to: a) Credit facilities, funded and non-funded, to Directors/ firms in which the AIFI’s Directors are also Directors/ employees/ promoters/ guarantors; b) Loans and advances to: i) Directors* (including the Chairman/ Managing Director); ii) Any firm in which any of the Directors* is interested as a partner or guarantor; and iii) Any company in which any of the Directors* holds 'substantial interest' or is interested as a Director or as a guarantor; c) Loans and advances to relatives of the FI’s Directors or to the Directors of other FIs/banks and their relatives; d) Loans and advances to Officers of FIs or to their relatives. *of other AIFIs and banks including Directors of Scheduled Co-operative Banks, Directors of subsidiaries/trustees of mutual funds/trustees of venture capital funds. 3.15 Proposals, attracting provisions of ‘connected lending’ as above, sanctioned by the CC/EC as per the Board approved DOP have to be reported to the MC subsequently. 3.16 For borrowers attracting connected lending, following actions may be approved under delegated powers, subject to the credit exposure limit approved by MC not being exceeded and no deterioration in asset quality and company financials during the intervening period: ✓ Renewals of working capital facilities including pre & post-shipment credits. ✓ Change in sanction terms such as currency, interest rate, purpose of loan, special loan covenants, etc. 23 Loan Policy for FY 2024-25  CHAPTER-4 EXPOSURE NORMS & CONCENTRATION OF CREDIT RISK 4.01 Exposure norms, in the nature of ceilings on single borrower exposure, group exposure, substantial exposure, country exposure, industry exposures, unsecured exposures, etc., have been set with the objective of better risk management and avoiding concentration risk. All credit proposals shall comply with the various prudential norms/exposure ceilings stipulated by the RBI and put in place by the Bank, from time to time. In this regard, the Master Direction - Reserve Bank of India (Prudential Regulations on Basel III Capital Framework, Exposure Norms, Significant Investments, Classification, Valuation and Operation of Investment Portfolio Norms and Resource Raising Norms for All India Financial Institutions) Directions, 2023 issued vide circular Ref. RBI/DoR/2023-24/105 dated September 21, 2023 (hereinafter referred as Basel-III Master Directions) (as may be further amended from time to time) will be followed. 4.02 An exposure to a counterparty shall constitute both on and off-balance sheet exposures and will be calculated as per the guidelines in Basel-III Master Directions. Bank’s exposure to all its counterparties shall be subject to the exposure limits except for those listed below: (i) The refinance portfolio of the Bank. (ii) Exposures to the Government of India and State Governments which are eligible for zero per cent risk weight. (iii) Exposures to the RBI (iv) Exposures where principal and interest are fully guaranteed by the Government of India (v) Exposures secured by financial instruments issued by the Government of India, to the extent that the eligibility criteria for recognition of the Credit Risk Mitigation (CRM) are met. (vi) Intra-day exposures to banks (vii) Bank’s clearing activities related exposures to qualifying central counterparties. Where two (or more) entities falling outside the scope of the sovereign exemption are controlled by or are economically dependent on an entity that falls within the scope of the sovereign exemption {4.02 (ii) and (iii) above}, and are otherwise not 24 Loan Policy for FY 2024-25 connected, those entities will not be deemed to constitute a group of connected counterparties. Credit Risk Mitigation 4.03 Bank may use a number of techniques to mitigate the credit risks. For example, exposures may be collateralized in whole or in part by cash or securities, deposits from the same counterparty, guarantee of a third party, etc. The principles applicable to use of credit risk mitigation techniques will be followed. Bank will adopt the Comprehensive Approach, which allows fuller offset of eligible collateral against exposures, by effectively reducing the exposure amount by the value ascribed to the collateral. The eligible financial collaterals eligible for recognition in the comprehensive approach, as mentioned in Basel-III Master Directions, will be used. Guarantees are recognized as credit protection, if issued by ‘eligible guarantors defined by RBI’ and entities with a lower risk weight than the counterparty. The guarantees shall be direct, explicit, irrevocable, and unconditional. An exposure may be partly or fully recognized on the CRM provider as per the Basel III Master Directions and to that extent, the exposure will be reduced from the original counterparty. Exposure Norms 4.04 Regulatory Single Counterparty limits: The sum of all the exposure values of the Bank to a single counterparty must not be higher than 20% of the Bank’s available eligible capital base at all times. Presently, the eligible capital base is the amount of Tier 1 capital of the Bank as per the last audited balance sheet, fulfilling the criteria defined in the Basel-III Master Directions. An additional 5 % exposure to a single counterparty (beyond 20% but at no time higher than 25% of the Bank’s eligible capital base) can be taken with prior approval of the Board, subject to the conditions mentioned under para 4.05 below. Further, the Bank may exceed the exposure limit by 5% of its Tier I capital for exposure to a single counterparty, if the additional exposure is on account of infrastructure ‘loan and/ or investment’. However, it is to be noted that the single counterparty limit shall not exceed 25% of eligible capital base of the Bank under no circumstances. Since these are regulatory limits, utmost care should be taken while taking exposures and adequate cushions are to be provided at the time of sanction to take care of 25 Loan Policy for FY 2024-25 situations such as exchange fluctuations, conversion of non-funded exposure into funded exposure, withdrawal of CRM measures etc. 4.05 The additional 5% exposure to a single counterparty beyond 20% may be considered (excluding the additional exposure permitted by RBI towards financing of infrastructure loan and/ or investment) under one or more of the following conditions: ✓ The exposure is to a very well rated counterparty; i.e. minimum external credit rating of AA (A for PSUs). ✓ Such exposure is either towards financing major exports from the country or shall be towards financing projects of strategic importance for the country. ✓ The additional exposure is for very short term i.e. upto one year. ✓ Unless the additional amount is offered, the transaction will fall through. Exceptional reasons for which exposure beyond 20% is being allowed for each specific case are to be recorded in writing and consent of the borrowers to be obtained to allow the Bank to make disclosures in the ’Notes to Accounts’ to its Annual Financial Statements in respect of such accounts. 4.06 Risk-based Single Counterparty Exposure limits: Notwithstanding the abovementioned regulatory ceilings, for better risk management, the Bank will follow risk-based approach while fixing Single Counterparty Exposure Limit. Accordingly, the risk based single counterparty exposure limits based on external credit rating are tabulated below, which will be applicable for all commercial exposures including IBPC and TAP exposures: External Credit Rating by Exposure Limits (as a External Credit S&P/Fitch/ Moody’s (for Overseas % of Bank’s eligible Rating (Domestic) Borrowers) capital base) AAA/PSUs AAA/Aaa/AA/Aa/A 20% AA BBB/Baa 13% A BB/Ba 8% BBB/ Unrated B/Unrated 4% BB or below Below B 3% 26 Loan Policy for FY 2024-25 Except the first category where exposure limit has been set at 20%, for other categories, in exceptional circumstances and/or deserving cases, additional exposures upto 5% over and above the respective risk-based limits can be taken with the approval of the MC provided that such exception is brought to the notice of the MC and appropriate justifications for exceeding the risk based limit are recorded in the proposal. Any breaches related to the above risk-based limit for existing exposures prior to the introduction of the risk limits, will be grand fathered and those will not be considered as breach. Similarly, if the breach is on account of subsequent fluctuations in the exchange rate/ rating downgrade, the same will not be reckoned as breach. Thus, the framework will work only at the time of taking any fresh exposure on a Counterparty except the exclusion as mentioned below. It may be noted that the above risk-based exposure limits will not be applicable to additional exposures to be taken due to restructuring under JLF or other arrangements, where the decision is binding on the Bank. Mapping of Bank’s Internal Rating as per RAM to External Rating 4.07 Since many borrowers may not have external credit rating, the internal borrower rating as per Bank’s Risk Assessment Model (RAM) will be mapped to the corresponding external credit rating as per the table given below: Borrower Rating as per RAM Corresponding External Rating EXIM 1 AAA EXIM 2 AA EXIM 3 AA EXIM 4 A EXIM 5 A EXIM 6 BBB EXIM 7 BB EXIM 8 B EXIM 9 C EXIM 10 D 4.08 Exposure limits to non-corporate borrowers: As higher risks are perceived for non-corporate borrowers because of their legal structure, the exposure to non- 27 Loan Policy for FY 2024-25 corporate borrowers such as proprietary concerns, Trust/Society, partnership firms (including LLPs) shall be within the below prescribed limits. Particulars Exposure Limit Proprietorship firms ` 100 crore Trust/Society ` 200 crore Partnership firms (including LLPs) ` 300 crore In exceptional circumstances and/or deserving cases, additional exposures can be taken with the approval of the MC provided that such exception is brought to the notice of the MC and appropriate justifications for exceeding the applicable limit are recorded in the proposal. 4.09 Group of Connected Counterparties: The sum of all exposure values of the Bank to a group of connected counterparties shall not be higher than 25% of the Bank’s available eligible capital base at all times. The Bank may exceed the exposure limit by 10% of its Tier I capital for exposure to a group of connected counterparties, if the additional exposure is on account of infrastructure ‘loan and/ or investment’. Definitions of connected counterparties will be as defined in Chapter III – Exposure Norms, Part A – Large Exposure Framework, Clause 21 of Basel III Master Directors. 4.10 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: If 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, they shall be deemed to be a group of connected counterparties. If one entity owns more than 50 percent of the voting rights of the other entity, Bank will automatically consider that the control relationship criterion is satisfied. In addition, Bank will assess connectedness between counterparties based on control using the following evidences: (a) Voting agreements (e.g., control of a majority of voting rights pursuant to an agreement with other shareholders); (b) Significant influence on the appointment or dismissal of an entity’s administrative, management or supervisory body, such as the right to appoint or 28 Loan Policy for FY 2024-25 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; (c) Significant influence on 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); (d) Bank will also assess the above criteria with respect to a common third party (such as holding company), irrespective of whether the Bank has exposure to that entity or not. (e) Bank will also refer to criteria specified in the extant accounting standards for further qualitative guidance when determining control. (f) While determining control relationship, Bank will also examine cases where clients have common owners, shareholders or managers; for example, horizontal groups where an undertaking is related to one or more other undertakings because they all have the same shareholder structure without a single controlling shareholder or because they are managed on a unified basis. This management may be pursuant to a contract concluded between the undertakings, or to provisions in the memoranda or articles of association of those undertakings, or if the administrative management or supervisory bodies of the undertaking and of one or more other undertakings consist, for the major part, of the same persons. (ii) Economic interdependence: 4.11 A group of counterparties shall be deemed to be a group of connected counterparties 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. Bank will identify possible connected counterparties on the basis of economic interdependence in all cases where the sum of all exposures to one individual counterparty exceeds 5 per cent of the eligible capital base, and not in other cases. In establishing connectedness based on economic interdependence, Bank will consider the following criteria: (a) Where 50 per cent or more of one counterparty's gross receipts or gross expenditures (on an annual basis) is derived from transactions with the other counterparty; 29 Loan Policy for FY 2024-25 (b) Where one counterparty has fully or partly guaranteed the exposure of the other counterparty, or is liable by other means, and the exposure is so significant that the guarantor is likely to default if a claim occurs; (c) Where a significant part of one counterparty’s production/output is sold to another counterparty, which cannot easily be replaced by other customers; (d) When the expected source of funds to repay the loans of both counterparties is the same and neither counterparty has another independent source of income from which the loan may be serviced and fully repaid; (e) Where it is likely that the financial problems of one counterparty would cause difficulties for the other counterparties in terms of full and timely repayment of liabilities; (f) Where the insolvency or default of one counterparty is likely to be associated with the insolvency or default of the other(s); (g) When two or more counterparties rely on the same source for the majority of their funding and, in the event of the common provider’s default, an alternative provider cannot be found - in this 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. There shall be circumstances where some of these criteria do not automatically imply an economic dependence that results in two or more counterparties being connected. In such a scenario, the Bank may not combine these counterparties to form a group of connected counterparties, provided that it can be demonstrated that a counterparty which is economically closely related to another counterparty shall be able to overcome financial difficulties, or even the second counterparty’s default, by finding alternative business partners or funding sources within an appropriate time period. 4.12 Group of counterparties based on control and economic interdependence are to be assessed separately. However, there may be situations where the two types of dependencies are interlinked and could therefore exist within one group of connected counterparties in such a way that all relevant clients constitute a single risk. Risk of contagion is present irrespective of type of connectedness (i.e., control or economic interdependence) between counterparties. The chain of contagion leading to possible default of all entities concerned is the relevant factor for the grouping and needs to be assessed in each individual case. 30 Loan Policy for FY 2024-25 4.13 Exposures to banks: The exposures to domestic banks (excluding refinance exposure), except intra-day exposures, shall be subject to the large exposure limit of 25 per cent of the Bank’s Tier 1 capital. Such exposures will, however, be subject to Comprehensive Counterparty Exposure Limits (CEL) approved by Bank’s CRMC/ EC. The exposure to overseas banks and financial institutions shall be subject to the single and group of connected counterparty limits as mentioned above at paras from 4.04 to 4.09. 4.14 Exposures to NBFCs: The Bank’s exposures to NBFCs (excluding refinance exposure) shall be subject to the single and group of connected counterparty limits as mentioned above at paras from 4.04 to 4.09. Unsecured Exposure 4.15 RBI, vide its circular dated June 17, 2004, addressed to commercial banks, has withdrawn its directives on unsecured exposures to enable Banks’ Boards to formulate their own policies. Accordingly, Board has set a limit for unsecured exposure at 20% of the Total Credit Exposure (TCE) of the Bank, as at 31st March of the previous financial year. 4.16 Unsecured Exposure is defined in RBI Master Circular on ‘Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances’ Ref. DOR.STR.REC.3/21.04.048/2023-24 dated April 1, 2023 as an exposure where the realizable value of the security, as assessed by the Bank/approved valuers/RBI’s inspecting officers, is not more than 10%, ab-initio, of the outstanding exposure. ‘Exposure’ shall include all funded and non-funded exposures (including underwriting and similar commitments). ‘Security’ would mean tangible security properly charged to the Bank and will not include intangible securities like guarantees, comfort letters, etc. In case of PPP projects, the debts due to the lenders may be considered as secured to the extent assured by the project authority in terms of the Concession Agreement. While all unsecured loans and guarantees including unsecured unutilized sanctions, would constitute unsecured exposure, the following would be excluded from the purview of the latter, duly considering the nature of the exposure: 31 Loan Policy for FY 2024-25  a) Lines of Credit which are extended to sovereign governments or to overseas banks/FIs and are thus equivalent to sovereign obligations/ bank guarantees. b) Exposures guaranteed by the Government of India. c) Refinance portfolio of the Bank. d) Exposures guaranteed by ECGC/NEIA to the extent of available ECGC/NEIA cover. However, the uncovered portion would need to be treated as unsecured unless additional/alternative security is available for the same. e) Exposures to banks, AIFIs, NBFCs and other financial institutions, within the approved CELs. f) Interim disbursements under secured loans for which undertaking to create security has been executed by the borrower and the security is in the process of being created and no difficulty is envisaged in its creation. Unsecured exposures will continue to be assumed selectively in line with market practice and need to be closely monitored. Industry Exposure 4.17 As per Basel III Master Directions, the Bank is required to fix internal limits for aggregate commitments to industry sectors so that exposures are evenly spread over various sectors. These limits are required to be fixed based on perceived risks and performance of different sectors. The exposure limit to any industry sector shall not exceed 15% of Total Industry Exposure (TIE) as at the end of previous quarter. Risk-based Industry Sector limits: 4.18 The categorization of different industry sectors will be defined and reviewed by the Bank’s Credit Risk Management Committee (CRMC). The risk-based sectoral exposure limits, as a percentage of TIE, will be set based on multiple sector specific parameters inter-alia demand-supply outlook, input related risk, cyclicality, pricing risk, regulatory risk, extent of competition, financial risk analysis of the sector, Bank’s past experience and mandate/strategy of the Bank, etc. subject to the condition that total industry exposures for a sector does not exceed 15%. The CRMC will set and review the risk-based industry sector limits periodically, at least on a quarterly basis. Any breach in the above limit will be reported to CRMC on a 32 Loan Policy for FY 2024-25 monthly basis and to RMC on a half-yearly basis. If there is any exposure breach in any industry sector, the Bank will make endeavours to bring down the exposure and any fresh exposure in that sector will be permitted only for PSUs or corporates rated at AA- and above. Substantial Exposure 4.19 Prudential limits governing the Bank’s exposure to single counterparty and group of connected counterparties have been prescribed by the Reserve Bank of India and approved by the Bank’s Board as a percentage of the Bank’s eligible capital base. In addition to the maximum limits for single counterparty and group of connected counterparties prescribed by the RBI, exposure to a single counterparty in excess of 5% of the Bank’s eligible capital base and exposure to a group of connected counterparties in excess of 10% of the Bank’s eligible capital base are deemed by the Bank as ‘substantial exposures’. An annual review of all the substantial exposure loan account will be submitted to the Bank’s Board/RMC. In addition, as a prudent practice, the exposures categorized as ‘substantial exposures’ will be restricted within the below prescribed aggregate limits: Particulars Aggregate exposure limit (as % Bank’s eligible capital base) Aggregate ‘substantial exposures’ for single 400% counterparties Aggregate ‘substantial exposures’ for group 500% of connected counterparties Combined aggregate ‘substantial exposures’ 600% for single and group of connected counterparties Country Exposure Limits 4.20 The Bank’s Research and Analysis Group periodically calculates country exposure limits as per the Banks’ Country Exposure Model, first approved by the Board at its meeting held on October 25, 1988 and since modified/refined from time to time. The latest Model, approved by the Board at its meeting held on July 28, 2017, calculates country exposure limits based on risk ratings of countries arrived at by the Bank using select risk and potential parameters of the concerned 33 Loan Policy for FY 2024-25 countries, including both quantitative and qualitative variables, as well as Banks’ experience. Risk ratings of countries, which are on a scale of 1 to 7 in increasing order of risks, are then applied to Bank’s regulatory capital (Tier 1 + Tier 2) to arrive at respective exposure limit for countries falling on the same band of ratings. Country exposure limits are calculated for both developing and advanced economies, for Exim Bank to take exposure on its own risk on normal commercial terms. Multi-country entities like regional development banks are not subject to country limits by virtue of their para-statal nature. 4.21 Review and reporting: CRMC reviews the exposure concentration under the various categories, as mentioned above, on a monthly and quarterly basis. A half- yearly review shall be presented to the RMC as of end of September and March every year. Breach of exposure limits, if any, needs to be rectified at the earliest. The breach in exposure limits shall be reported to CRMC on a monthly basis and RMC on bi-annual basis. The risk-based limits, as stated above at paras 4.06, 4.08, 4.18 and 4.19 will be effective April 1, 2024. The exposures taken prior to the effective date, will be grandfathered, and will not be considered as a breach. Also, if the existing exposure exceeds the risk-based limits, due to foreign exchange fluctuation, the same will not be considered as a breach. The breaches in regulatory limits shall be reported to RBI immediately. The Bank will not take any fresh exposure (at the entity or group level, as the case may be) until it is brought down within the limit. 34 Loan Policy for FY 2024-25  CHAPTER-5 PERFORMANCE / FINANCIAL ANALYSIS AND CREDIT RISK ASSESSMENT 5.01 The primary objective of financial statement analysis is to understand and analyse the information contained in financial statements of the borrower with a view to examine the profitability, financial soundness and operational efficiency of the firm to make forecast about its future prospects. As part of the Bank’s appraisal process, financial statements comprising, inter alia, profit & loss account, balance sheet and cash flow statement of the borrowing companies/firms are analysed to determine its solvency, liquidity and profitability as well as sources and application of funds. In addition, financial analysis involves extrapolating the past performance of a borrowing unit so as to arrive at an estimate of its likely future performance. Various ratios are calculated by studying minimum past 3 years performance of the borrower. The ratios are calculated as per the standard method followed by the Bank as per instructions contained in its various internal circulars. 5.02 Audited financial statements of all borrowing entities, which are in operation need to be obtained every year. For sanction of any new credit facilities or enhancement in existing facilities, the audited financial statements should not normally be more than 12 months old. In case the latest audited financial statements are more than 12 months old, provisional statements not more than 6 months old are to be obtained and analysed with a view to ensuring that the performance of the borrower and its financial parameters are not deteriorated. 5.03 The desired and acceptable level of various financial parameters/ratios of borrower companies are as under subject to further relaxations as mentioned in the subsequent paragraphs: Financial Ratio Desired Level Acceptable Level Promoters’ 20% 20% Contribution/Margin Debt-Equity Ratio =1.50 (Minimum) 35 Loan Policy for FY 2024-25  Long-term Debt/EBITDA =1.20(Minimum) DSCR in a particular year >=1.50 >=1.00(Minimum) FACR/ACR >=1.25 >=1.25 (Minimum) All the above financial parameters, except the Promoters’ margin, ratios related to DSCR and FACR/ACR shall be calculated based on the latest available audited financials of the borrower. The Promoter’s margin, ratios related to DSCR and FACR/ACR shall be calculated for the proposed loan/ credit facility. For greenfield projects under a new company/SPV, except the debt-equity ratio and ratios related to DSCR, the other financial parameters may be checked based on the projected financials for the first optimum year of capacity utilization. In addition, Sector- specific financial norms as per para 5.11 and Programme-wise lending norms as per Annexure I should also be complied with. Any deviations/exceptions from above standard parameter/ratios/norms including sector-specific financial ratios and programme-wise lending norms, beyond acceptable level after considering relaxation as detailed below, should be captured with suitable justification, in the appraisal memorandum. Promoters’ Contribution/Margin 5.04 Credit proposals for term loans shall have a minimum margin (promoters’ contribution) of 20% with the following exceptions: i) For equipment financing (domestic as well as imported), minimum margin of 10% may be accepted. ii) In exceptional cases, particularly in the agricultural and other priority sectors, (often financed by quasi equity and/or grants/subsidies from Government agencies), minimum requirement for core promoters’ contribution may be relaxed to 10% for project loans on a case-to-case basis, subject to debt-equity ratio for the company as a whole being within the applicable norm. iii) In overseas acquisition transactions where Corporate Guarantee is available from the Indian promoter company, a lower contribution of say 10% may be accepted, provided the financials of the corporate guarantor are satisfactory. 36 Loan Policy for FY 2024-25  iv) Promoters’ margin of lower than 10% may be accepted in large overseas acquisition transactions where Indian Promoter Company has an external credit rating not less than ‘AA-‘ (‘A-‘ for PSUs). v) In balance sheet financing where the exposure is taken based on the strengths of the balance sheet of the borrower/company as a whole, project specific promoters’ contribution/margin may not always be insisted upon in case of companies having an external credit rating not less than ‘AA-‘ (‘Á-‘ for PSUs). In this case, Debt to Equity Ratio (DER) and TOL/TNW of the borrower should not exceed 1.50 and 3.50 respectively after availing the proposed facility and a minimum FACR/ACR of 1.25 is maintained during the tenor of the loan, which should be tested annually based on latest audited Balance Sheet. Debt-Equity Ratio 5.05 Debt-Equity Ratio for the borrower company shall not exceed 2:1, with the following exceptions: i) for infrastructure companies, including, inter alia, STPs/EHTPs, industrial parks, cold storage chains, ports, Agricultural Economic Zones and Special Economic Zones, a higher debt-equity ratio based on prevailing industry practice may be accepted; ii) for Non-Banking Financial Companies (NBFCs) engaged in leasing/hire purchase activities etc., a higher debt-equity ratio based on prevailing industry practice may be accepted. The Bank may, in exceptional cases, consider a higher debt-equity ratio for asset- based financing (both tangible assets and non-tangible assets like brands/IPR) in one or more of the following scenarios: i) Debt-equity ratio exceeds the norm of 2:1 only for a temporary period on account of project implementation, subject to (a) debt equity ratio is projected to fall within norms pursuant to commencement of principal repayments under the loan facility, and (b) projected debt service capacity indicators (ICR and DSCR) are comfortable. ii) In case the debt-equity ratio exceeds the norm of 2:1 for a borrower, which is a wholly owned subsidiary of a company (the Parent Company) whose (standalone) gearing ratios are within norms, and the Parent 37 Loan Policy for FY 2024-25  Company is providing Corporate Guarantee as security for the loan proposed to be extended. iii) Finance extended for overseas acquisitions of business/ assets/company. The borrowers/guarantors in the above situations would be companies with good financials with three years of net profits, satisfactory track record of debt servicing in case of existing clients, and/ or strong group support. In all the above exceptional cases, total indebtedness of the borrower company (TOL/ TNW) shall not exceed 3.50:1. TOL/TNW 5.06 TOL/TNW for the borrower company shall not exceed 5:1, with the following exception: i) for infrastructure companies, including, inter alia, STPs, industrial parks, cold storage chains, ports, Agricultural Economic Zones and Special Economic Zones, a higher TOL/TNW ratio based on prevailing industry practice may be accepted; ii) for Non-Banking Financial Companies (NBFCs) engaged in leasing/hire purchase activities etc., a higher TOL/TNW ratio based on prevailing industry practice may be accepted. The borrowers in the above situation would be companies with good financials with three years of net profits, satisfactory track record of debt servicing in case of existing clients, and/ or strong group support. Current Ratio 5.07 Current Ratio of borrower companies is expected to be in the range mentioned in para 5.03. However, a lower current ratio depending upon minimum level fixed by the borrower’s lead working capital banker in keeping with industry specifics may be accepted subject to Total Indebtedness (i.e. total outside liabilities/tangible net worth) not exceeding 3.5:1. Such acceptance of current ratio by the lead banker may be evidenced by: i) Letter from the banker confirming acceptance of the current ratio; Or ii) Copy of assessment note of the banker stating acceptance of the current ratio; Or 38 Loan Policy for FY 2024-25  iii) Confirmation by Statutory Auditor of the company/Independent Chartered Accountant or any other authority acceptable to Exim Bank that the lead banker/major working capital bankers are not charging any additional interest due to lower current ratio. Long-term Debt/ EBITDA 5.08 Long-term Debt/EBITDA for the borrower company shall not exceed 5:1, with the following exceptions: i) for infrastructure companies, including, inter alia, STPs/EHTPs, industrial parks, cold storage chains, ports, Agricultural Economic Zones and Special Economic Zones, a higher Long-term Debt/EBITDA ratio based on prevailing industry practice may be accepted; ii) for long gestation projects, a higher Long-term Debt/EBITDA ratio based on prevailing industry practice may be accepted. Asset Coverage 5.09 For term loans, Asset Coverage of the borrower company based on applicable security, i.e. fixed assets and/or current assets, shall not be lower than 1.25 times of the secured debt. However, for equipment finance (domestic as well as imported) lower asset coverage of 1.11 times may be accepted. In cases where security includes charge on immoveable properties, viz., land, building and any other structure thereon, and where there is a material difference between the written down value and market value of the immoveable properties, market value may be considered for calculation of asset cover backed by valuation report from a valuer acceptable to Exim Bank on a case-to-case basis. For non-fund based facilities (excluding financial guarantees in the nature of standby L/Cs, funded risk participation, overseas borrowing guarantees, etc.) the asset cover norms will not be applicable. For interchangeable limits, asset cover norms will be applicable for the portion of fund based limit. The Bank may, at its discretion and on a case-to- case basis, consider asset coverage below the norm of 1.25 times in the following cases: i) In case of existing clients, where inadequacy of asset coverage is of a temporary nature wherein asset coverage is expected to improve to 1.25 times or above in the near future on account of scheduled loan repayments, which are expected to occur with a degree of certainty. 39 Loan Policy for FY 2024-25  ii) In cases where additional security like pledge of shares, personal guarantees, corporate guarantee with or without charge on the guarantor’s assets, charge on IPRs like brands, patents, etc. with independent valuation, if available. 5.10 It may be mentioned that the above-mentioned parameters are indicative level and there cannot be a definite benchmark, as acceptable levels are case specific, guided by nature, size and scope of projects. Sanctioning authority is authorized to approve deviations/exceptions, if any, from the financial norms on a case-to-case basis. Further, under new or different accounting standards, the benchmark may undergo changes and in such events, appropriate variation in the benchmark may be considered by the sanctioning authority. Also, for loans to SMEs and Micro Enterprises including loans under GRID initiative, a rigid view on the adherence to the above financial parameters need not be taken. The sanctioning authority will consider deviations from the acceptable levels based on justifications, including adequacy of security, placed before them. Sector Specific Financial Ratios 5.11 Sector-specific ratios are financial metrics used to assess the creditworthiness of companies operating in a particular industry or sector. The acceptable level of various financial ratios for different sectors are as under: Sector Specific ratios DSCR in TOL / Long Term Current Average a Sectors TNW Debt/ EBITDA Ratio DSCR particular year Auto and Auto = 1.20 >= 1.00 Components Tyres = 1.20 >= 1.00 Aviation Services = 1.20 >= 1.00 Cement =1.20 >=1.00 Chemicals and Dyes =1.20 >=1.00 Construction =1.20 >=1.00 EPC Services =1.20 >=1.00 Consumer Goods =1.20 >=1.00 Gems and Jewellery =1.20 >=1.00 Hospitality and Tourism =1.20 >=1.00 Ferrous Metals and Metal =1.20 >=1.00 Processing Logistics =1.20 >=1.00 Mining and Minerals =1.20 >=1.00 40 Loan Policy for FY 2024-25 Non-Ferrous Metals and =1.20 >=1.00 Metal Processing Drugs and =1.20 >=1.00 Pharmaceuticals Plastic Products =1.20 >=1.00 Ports and Other =1.20 >=1.00 Infrastructure Port Services =1.20 >=1.00 Power =1.20 >=1.00 Shipping Services =1.20 >=1.00 Textiles and Garments =1.20 >=1.00 In addition to the financial parameters at para 5.03, the sector specific norms, as mentioned above should be complied with. In case of conflict between parameters set out under para 5.03 and 5.11, compliance with sector specific parameters will be acceptable. For the sectors not covered/ specified above, the financial norms, as mentioned at para 5.03, will be applicable. However, sanctioning authority may approve deviations/exceptions, if any, from the above sector-specific financial norms, on a case-to-case basis based on justifications. Credit Risk Rating: Internal Credit Risk Model 5.12 As part of the move towards introducing an enterprise-wide risk management system, a Credit Risk Model (CRM) has been developed with the assistance of CRISIL. This model has a provision for calculating the Borrower Rating (on a scale of 1 to 10 with 1 being the highest and 10 being the lowest), Facility Rating (on a scale of 1 to 8 with 1 being the highest and 8 being the lowest), Project Rating (on a scale of 1 to 5 with 1 being the highest and 5 being the lowest), as applicable and also the Combined Rating, which takes into account both the Borrower and Facility Ratings, (on a scale of 1 to 10 with 1 being the highest and 10 being the lowest). The CRM facilitates a broader based and comprehensive due diligence of the Borrower as well as the facility being considered. Apart from the quantitative financial parameters, the CRM also takes into account the Industry Risk, Business Risk and Management Risk. The CRM has customized modules for different categories of Borrowers, viz., Large Corporates, Small and Medium Enterprise, Infrastructure, Banks and NBFCs. 5.13 The credit risk rating will be arrived at by the credit processing unit/CAG, as applicable using the CRM. The internal credit risk rating thus arrived at will be 41 Loan Policy for FY 2024-25 independently validated and approved by Internal Credit Rating Committee set up for this purpose. 5.14 The Combined Rating would be used by the sanctioning authority for taking credit decisions. Minimum Eligible Rating 5.15 Normally, no new proposals or enhancements in existing credit limits will be considered for sanction of credit proposals with combined rating below CR 7 (i.e. CR 8 to 10), subject to exceptions in one or more of the following cases as mentioned below: a) Security includes Bank Guarantee/Government Guarantee/credit insurance/ adequate cash margin or liquid security such as pledge of listed shares. b) Security includes Corporate Guarantee from parent company with borrower rating EXIM 4 or above (i.e. EXIM 1 to 4) or minimum external credit rating of ‘A-‘ or above from CRAs c) The minimum borrower rating is EXIM 6 or above (i.e. EXIM 1 to 6) or external rating of ‘BBB-‘ or above from CRAs d) The minimum project rating is P2 or above, if the project is greenfield and the borrower is a new company. However, depending on the merits of the case, sanctioning authority may permit deviations from the above minimum eligible borrower rating considering satisfactory past relationship and/or other credit enhancements available. No such minimum eligible rating as mentioned above will be applicable for restructuring proposals or for credit exposures less than `5 crore and proposals under GRID. 5.16 Normally, all credit proposals should be rated as per the CRM except exposures to overseas Banks/FIs. However, for credit exposures under IBPC Scheme, CRM rating may not be mandatory if a valid investment grade external credit rating; i.e. BBB- or above, is available. External Credit Risk Rating: 5.17 In case of Indian borrowers, the borrowers will be required to obtain External Credit Ratings (ECRs) with Bank’s facilities included in such rating within a reasonable time from the date of acceptance of sanction. For the purpose of risk 42 Loan Policy for FY 2024-25 weights, the guidelines on ECR as mentioned in the RBI Basel-III Master Directions (as may be amended from time to time) will be followed. Internal Rating for Restructured/NPA Accounts 5.18 It is envisaged that restructured accounts under standard category need to be rated under appropriate CRM model. However, the rating exercise is not required to be carried out when such restructured accounts turn NPA and default grade rating of EXIM 10 shall be assigned directly. Thus, all NPA accounts shall be directly assigned EXIM 10 rating and in such cases no regular rating exercise needs to be carried out. However, when the account stands upgraded to standard, regular rating exercise is to be done in usual manner. 43 Loan Policy for FY 2024-25  CHAPTER-6 CURRENCY, HEDGING REQUIREMENT AND PRICING OF LOANS Currency of Lending 6.01 The Bank extends funded and non-funded facilities in rupees to Indian borrowers and in foreign currency to overseas borrowers under all the lending programmes. However, the Bank may extend credit facilities in foreign currency to Indian borrowers as permissible under the extant RBI guidelines. The Bank can also extend loans in foreign currency to Indian companies for on-lending to their overseas ventures. Lending in foreign currency is done under RBI’s General Permission dated March 24, 1995, to the Bank for extending loans to borrower companies out of foreign currency loans/lines of credit raised/contracted by the Bank. Foreign currency facilities are generally denominated in US Dollars. The Bank may also extend funded and non-funded facilities in other foreign currencies including convertible currencies. Interest rate on foreign currency facilities are generally floating rates linked to LIBOR or any other benchmark with a suitable spread based on credit risk perception and market competition. However, with timelines for cessation of LIBOR being announced, the RBI vide its letter no. CO.FMRD.DIRD.S39/14.02.001/2021-22 dated July 08,2021 advised banks and financial institutions to cease entering new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted Alternative Reference Rate (ARR) as soon as practicable and, in any case, by 31 December 2021. The RBI vide its circular dated September 28, 2021 permitted the authorised dealers to use any widely accepted ARR in the currency concerned in place of LIBOR. The IBA in December 2021 declared the various ARRs to be considered for different currencies. Accordingly, with effect from January 01, 2022, all new foreign currency loans are being sanctioned by the Bank with rates linked to new ARRs, i.e., SOFR for USD, SONIA for GBP etc. The Bank may on a case-to-case basis extend foreign currency facilities on fixed rate basis subject to the Bank arranging for suitable interest rate swap. Applicable interest rate on funded and non-funded facilities will be decided by the delegated authority as per Board approved Delegation of Powers. The Bank ensures compliance by the borrower with FEMA and exchange control provisions as required under RBI’s said General Permission. In terms of the said General Permission, the borrower companies do not need specific approval of RBI for making repayment/payment of principal/interest to the Bank, but need to follow the procedure evolved by the Bank for such payments. In 44 Loan Policy for FY 2024-25 respect of foreign currency facilities extended by the Bank, disbursements to and receipt of interest/ principal/other charges from the borrower companies are made either directly in foreign currency or in equivalent rupees. In case of disbursements made/ payments received in equivalent rupees, necessary forex deals are booked for converting the rupee amounts into relevant foreign currency for necessary debit/ credit entries. Unhedged Foreign Currency Exposure 6.02 As per Reserve Bank of India (Unhedged Foreign Currency Exposure) Directions, 2022 vide circular ref. DOR.MRG.REC.76/00-00-007/2022-23 dated October 11, 2022, evaluation of Unhedged Foreign Currency Exposure (UFCE) of the borrower needs to be done. The susceptibility of the borrower entity to adverse exchange rate movements by computing the ratio of the potential loss to entity from UFCE and the entity’s EBID over the last four quarters is to be determined and examined as a part of credit assessment/ review of loan accounts. Loan Pricing 6.03 The Bank has Board approved Risk-based Pricing Policy, for pricing commercial loans. Pricing of the Bank’s loans though primarily market driven, it is also guided by two main considerations i.e. minimum desired profitability and risk inherent in the transaction. The Bank has adopted a committee-based structure to facilitate pricing of loan products. The pricing is decided by the PPC comprising the Deputy Managing Directors (DMDs), the Group Heads of Treasury and Accounts Group and the Group Head of the Operating Group sponsoring the proposal. While the Bank’s Asset Liability Committee decides the broad pricing policy for the Bank, PPC decides the minimum interest rate to be charged on individual credit proposal (both fresh proposals and proposals for reset/conversion/reduction) keeping in mind prevailing market conditions, risk-based pricing, availability of alternative investment/lending options and ensuring that the Bank earns a reasonable spread over its cost of funds. However, for INR loans no PPC approval will be required if the proposed pricing meets the minimum risk-based pricing requirements as mentioned in para 6.05. While minimum rate of interest/commission/fee is approved by the PPC, the operating groups may negotiate higher rate from the borrower and such improved rates and other terms once accepted by the borrower may be reported to CC for its own sanctions and EC for its own and MC sanctions, periodically. 45 Loan Policy for FY 2024-25 6.04 The Board, at its meeting held on May 18, 2021, approved a revised Policy on Interest Rates on Loans and Advances, including introduction of Marginal Cost of Funds Based Lending Rate (MCLR) as benchmark for the Rupee loans and advances. The MCLRs would be applicable for pricing of all floating Rupee denominated loans and advances except for the exemptions as indicated below: a) The MCLR will not be applicable for refinance loans, bills discounting / rediscounting and Inter Bank Participation Certificates (IBPC). b) Loans covered by schemes specially formulated by Government of India wherein the Bank has to charge interest rates as per the scheme. c) Working Capital Term Loan (WCTL), Funded Interest Term Loan (FITL), etc. granted as part of the rectification/restructuring package. d) Loans linked to other external benchmarks. e) Advances to the Banks’ own employees including retired employees. 6.05 The Board, at its meeting held on May 18, 2021, approved a risk-based pricing framework for pricing commercial loans. As per the new risk-based pricing framework, the minimum rate of interest to be charged to a borrower for INR loans linked to the Bank’s MCLRs will be equal to sum of applicable MCLR, Credit Risk Spread (CRS), and Business Strategy Spread (BSS). CRS is arrived based on a 2- dimesional matrix with internal CRM rating in one axis and external credit rating in another axis. The CRS matrix will be reviewed periodically by the CRMC and any changes in the spread will be applicable only for fresh sanctions/renewals or upon exercise of spread reset option for an existing case as per terms of sanction. If more than one external credit rating is available, the latest rating will be considered for this purpose. If the external rating is not available, the CRS will be decided solely based on internal rating. In respect of credit facilities secured by Corporate Guarantee for entire amount of the credit facility and tenor of the credit, the borrower rating for calculating credit risk spread may be reckoned as one notch lower than the corporate guarantor’s credit rating (both internal and external), if the credit rating of the corporate guarantor is higher than the borrower. Business Strategy Spread will depend on past relationship, type of loan product, market competition, embedded option i.e. probability of prepayment, market liquidity of the loan, type of ownership etc. With approval of CRMC, the minimum BSS has been fixed lending programme-wise and will be reviewed periodically depending upon the Bank’s business strategy. As per the risk based 46 Loan Policy for FY 2024-25 pricing framework, the minimum interest rate to be charged to a borrower for INR loans linked