Global Credit Exposure Management Policy 2024 (Bank of Baroda) PDF
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2024
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This document is Bank of Baroda's Global Credit Exposure Management Policy for 2024. It details the bank's governance structure, credit strategy, exposure norms, and underwriting criteria. The policy covers various aspects including customer classifications, credit delivery channels, and credit risk evaluation processes. It also includes restrictions for credit facilities.
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Global Credit Exposure Management Policy 2024 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 1 of 108 INDEX 1. PREAMBLE................
Global Credit Exposure Management Policy 2024 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 1 of 108 INDEX 1. PREAMBLE................................................................................................................................................9 2. PURPOSE AND SCOPE OF THE POLICY................................................................................................9 3. OBJECTIVES OF THE POLICY.............................................................................................................. 10 4. GOVERNANCE STRUCTURE................................................................................................................ 10 4.1. Board................................................................................................................................................... 10 4.2. Risk Management Committee of the Board (RMCB).......................................................................... 10 4.3. Credit Policy Committee (CPC)............................................................................................................ 11 4.4. Product & Process Approval Committee.............................................................................................. 11 4.5. Risk Management Department............................................................................................................. 11 5. CREDIT GOVERNANCE AND SEGMENTATION................................................................................... 12 5.1. Classification of Customers for the Purpose of Credit Risk Exposures:............................................. 12 5.1.1. Corporate & Institutional Credit (C & IC)..................................................................................... 12 5.1.2. MSME.......................................................................................................................................... 12 5.1.3. Rural & Agricultural Banking Business........................................................................................ 12 5.1.4. Retail Lending.............................................................................................................................. 13 5.2. Credit Delivery Channels..................................................................................................................... 13 5.3. Credit Expansion Planning.................................................................................................................. 13 5.4. Credit related Product Programme and Launching Process............................................................... 13 5.5. HR Capacity for Credit Risk Management........................................................................................... 14 6. CREDIT STRATEGY............................................................................................................................... 15 6.1. Credit Risk Strategy................................................................................................................................. 15 6.1.1. Target Sectors and Target Markets.............................................................................................. 15 6.1.2. Priority Sector Lending Certificate (PSLC).................................................................................. 16 6.1.3. Activity Clearance........................................................................................................................ 16 6.1.4. Agreement in Principle (AIP)....................................................................................................... 18 6.1.5. Activities Not Encouraged by the Bank & Licensing Requirements............................................ 19 6.1.6. Industries for which Industrial Licensing Is Compulsory.............................................................. 19 6.1.7. Credit Rating Matrix – Other than Retail...................................................................................... 20 6.1.8. Credit Risk Matrix – Retail........................................................................................................... 21 6.1.9. Risk Adjusted Return on Capital (RAROC)................................................................................. 21 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 2 of 108 6.1.10. Requirement of cross-selling and ancillary business:................................................................. 22 6.2. Restricted Exposures........................................................................................................................... 22 6.2.1. Wilful Defaulters / Fraud Accounts / Promoters/ Partners/ Directors of such companies/ Firms Loans settled under compromise / Write-off:............................................................................... 23 6.2.2. Sanction of Credit Facilities to Companies whose Directors feature in Defaulters’ List.............. 24 6.2.3. Lending to Group/Associate Concerns having any group NPA/ settlement/ Compromise A/c.... 25 6.2.4. Security of own shares:............................................................................................................... 25 6.2.5. Loans to Directors of the Bank:................................................................................................... 25 6.2.6. Regulatory Restrictions:............................................................................................................... 27 6.2.7. Loan against NRE and FCNR (B) Deposits:................................................................................ 28 6.2.8. Buy back of own shares:.............................................................................................................. 29 6.2.9. Grant of loans & advances to officers and the relatives of Senior Officers of the Bank:............. 29 6.2.10. Advances against sensitive commodities under Selective Credit Control (SCC):....................... 31 6.2.11. Ozone Depleting Substances:..................................................................................................... 31 6.2.12. Loans & advances against shares, debentures and bonds:........................................................ 31 6.2.13. Advances against Fixed Deposits Receipts issued by other banks:........................................... 31 6.2.14. Advances to Agents/Intermediaries based on Consideration of Deposit Mobilizations:.............. 31 6.2.15. Loans against Certificate of Deposits (CDs)/ Buyback of CDs:................................................... 31 6.2.16. NBFC Activities not Eligible for Bank Credit:............................................................................... 32 6.2.17. Bank finance to Equipment Leasing Companies:........................................................................ 33 6.2.18. Financing of Housing Projects:.................................................................................................... 33 6.2.19. Issuance of Bank Guarantees in favour of other banks/ Financial Institutions:........................... 33 6.2.20. Lending against Bank Guarantee issued by other banks/ FIs:.................................................... 34 6.2.21. Advances against Bullion / Primary gold:.................................................................................... 34 6.2.22. Advances against Gold Ornaments & Jewellery:........................................................................ 34 6.2.23. Grant of loans for acquisition of Small Savings Instruments / Kisan Vikas Patras (KVPs):........ 34 6.2.24. Finance for and Loan against Indian Depository receipts (IDR):................................................. 35 6.2.25. Bridge Loans against receivables from Government:................................................................. 35 6.2.26. Cross Border Lending:................................................................................................................. 35 7. EXPOSURE NORMS.............................................................................................................................. 35 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 3 of 108 7.1. Single/ Group exposure limits:............................................................................................................. 35 7.2. Substantial Exposure Cap................................................................................................................... 39 7.3. Individual, Non-Corporate & Private Limited Companies.................................................................... 39 7.4. Limits as per type of activity/ nature:................................................................................................... 40 7.5. Capital Market Exposure..................................................................................................................... 41 7.6. Enhancing Credit Supply for Large Borrowers through Market Mechanism....................................... 41 7.7. Exposure to banks:.............................................................................................................................. 42 7.8. Investment in Bonds / Debentures / Commercial papers:................................................................... 42 7.9. Specific Industry / Sectoral Limits........................................................................................................ 43 7.10. State Government Exposure Limits..................................................................................................... 43 8. UNDERWRITING CRITERIA................................................................................................................... 43 8.1. Assessment Parameters/ Guiding Principles...................................................................................... 43 8.2. Credit Risk Evaluation Process (CREP).............................................................................................. 44 8.3. Internal Credit Rating:.......................................................................................................................... 44 8.3.1. Domestic Exposure:..................................................................................................................... 44 8.3.2. Overseas Exposure:.................................................................................................................... 45 8.3.3. Acceptance Criteria:.................................................................................................................... 46 8.3.4. Cut-off scores and grades for Retail Scoring models:................................................................. 46 8.3.5. Review of Internal Credit Rating.................................................................................................. 46 8.4. External Credit Rating.......................................................................................................................... 47 8.4.1. Authority for allowing substitution in External Credit Rating Agency during review of account / in between the review period:.......................................................................................................... 48 8.4.2. Exemptions from External Credit Rating..................................................................................... 48 8.4.3. Minimum external credit rating:.................................................................................................... 49 8.5. Margin / LTV Ratio............................................................................................................................... 50 8.5.1. Priority Sector:............................................................................................................................. 50 8.5.2. Retail Lending:............................................................................................................................. 51 8.5.3. Capital Market Exposure & Commodities under Selective Credit Control:.................................. 51 8.5.4. C &IC, EC / MSME Loans............................................................................................................ 51 8.5.5. Real Estate Exposures:............................................................................................................... 52 8.5.6. NBFC:.......................................................................................................................................... 52 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 4 of 108 8.5.7. Other Exposures:......................................................................................................................... 52 8.6. Indicative Financial Ratios................................................................................................................... 53 8.7. Exposure to Counterparty Banks......................................................................................................... 55 8.8. Country Exposure Limit:...................................................................................................................... 55 8.9. Finance to NBFCs............................................................................................................................... 56 8.10. Project Loans....................................................................................................................................... 56 8.10.1. TEV Study:................................................................................................................................... 56 8.10.2. Partial Credit Enhancement (PCE) to corporate bonds............................................................... 58 8.11. PSUs, Central & State Govt. Entities, Municipal Committees / Corporations:................................ 59 8.12. Investment in Corporate Bonds / Debentures / Commercial papers (Exposures undertaken by SITB)......................................................................................................................................................... 59 8.13. Syndicated Loans / Foreign Currency Loans/ External Commercial Borrowings (ECB):................ 60 8.14. Extension of credit facility to JVs/Subsidiaries/SPVs of the Bank................................................... 62 9. CREDIT PROCESS................................................................................................................................. 62 9.1. Credit Approval process....................................................................................................................... 62 9.2. Facility Structure.................................................................................................................................. 62 9.3. Application:.......................................................................................................................................... 63 9.4. Processing:.......................................................................................................................................... 64 9.4.1. Due Diligence............................................................................................................................... 64 9.4.2. Assessment criteria:.................................................................................................................... 66 9.4.2.1. Working Capital........................................................................................................................ 66 9.4.2.2. Financing against Book Debts:................................................................................................ 67 9.4.2.3. Loan System for Delivery of Bank Credit................................................................................. 68 9.4.2.4. Term Loan................................................................................................................................ 68 9.4.2.4.1. Repayment Period for Term Loans:................................................................................. 69 9.4.2.4.2. Moratorium period (other than restructured / NPA accounts):......................................... 69 9.4.2.4.3. Letter of Credit within Term Loan:.................................................................................... 70 9.4.2.5. Non-Fund Based Facilities....................................................................................................... 70 9.4.2.6. Export Credit............................................................................................................................ 74 9.4.2.7. FCNR (B) Loans & FCTL:........................................................................................................ 75 9.4.2.8. Import Credit............................................................................................................................ 76 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 5 of 108 9.4.2.9. Bill Financing............................................................................................................................ 77 9.4.3. Takeover of Loan Accounts.......................................................................................................... 79 9.4.4. Valuation/ Verification/ Inspection of Securities:.......................................................................... 79 9.4.4.1. Valuation of Securities:................................................................................................................ 79 9.4.4.2. Valuation norms in case of Consortium Finance:........................................................................ 80 9.4.4.3. Valuation of Sugar Stocks:........................................................................................................... 80 9.4.4.4. Valuation of Gold:......................................................................................................................... 81 9.4.4.5. Valuation at overseas territories:................................................................................................. 81 9.4.4.6. Valuation of Financial Securities – Periodicity............................................................................. 81 9.4.4.7. Securities Verification / Inspection:.......................................................................................... 81 9.4.4.7.1. Primary Securities:........................................................................................................... 81 9.4.4.7.2. Collateral Securities:........................................................................................................ 81 9.4.4.7.3. Unit visits / Visit to the Borrower’s Office premises by Authorities:................................. 82 10. CREDIT DECISION............................................................................................................................. 82 10.1. Delegated Authorities:...................................................................................................................... 82 10.1.1. Domestic Lending:....................................................................................................................... 82 10.1.2. Overseas Territories:.................................................................................................................... 83 10.2. Interchangeability of limits............................................................................................................... 83 10.3. Allocation of Sub-Limits/Parking Limits/ Transfer of Loan Accounts............................................... 84 10.4. Policy on Inter Bank Participation Certificate (IBPC)....................................................................... 84 10.5. Discretionary Lending Powers for “Participation and Issuance”:..................................................... 84 10.6. IBPC Exposure Cap:........................................................................................................................ 84 10.6.1. IBPC Underwriting Criteria:.......................................................................................................... 84 10.7. Validity of Sanction:......................................................................................................................... 85 10.8. Stipulating appropriate covenants................................................................................................... 85 10.8.1. Pricing:......................................................................................................................................... 85 10.8.2. Pre-payment / Foreclosure Charges:.......................................................................................... 88 10.8.3. Levy of Commitment Charges:.................................................................................................... 89 10.9. Post Sanction Reporting.................................................................................................................. 89 10.10. Documentation, Security Creation & Security Perfection:............................................................... 89 10.10.1. Verification of Documents:....................................................................................................... 90 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 6 of 108 10.10.2. Document Management:......................................................................................................... 91 10.11. Disbursement:.................................................................................................................................. 91 10.12. Substitution/Release of Securities/Personal or Corporate Guarantee............................................ 92 10.13. Down-selling.................................................................................................................................... 93 10.13.1. Loan assets acquired through down-selling:........................................................................... 93 10.13.2. Down-selling of the Bank’s Loan Assets:................................................................................. 93 10.14. Credit Administration:....................................................................................................................... 93 10.15. Review Process............................................................................................................................... 94 10.15.1. Review:.................................................................................................................................... 94 10.15.2. Mechanism for Review of Pending Proposals at Various Levels:........................................... 95 10.15.3. Short Review:........................................................................................................................... 95 10.15.4. Single Credit Line / Approval for Recognised Groups:............................................................ 95 10.15.5. Review of Business Relationship:............................................................................................ 96 11. MONITORING AND CONTROL.......................................................................................................... 96 11.1. Three Lines of Defence................................................................................................................... 96 11.1.1. First Line of Defence – Customer Relationship Department....................................................... 97 11.1.2. Second Line of Monitoring – Risk Management.......................................................................... 97 11.1.3. Third Line of Monitoring – Audit Department............................................................................... 97 11.2. Loan Review Mechanism/ Credit Audit:........................................................................................... 97 11.3. Verification and Audit of hypothecated/ Pledged Stocks / Book Debts:.......................................... 98 11.4. Agencies for Specialised Monitoring............................................................................................... 98 11.5. Credit Risk Management................................................................................................................. 99 11.6. Credit Risk Mitigation....................................................................................................................... 99 11.7. Insurance......................................................................................................................................... 99 11.8. Netting.............................................................................................................................................. 99 11.9. Monitoring Credit Limits................................................................................................................... 99 11.10. Credit Monitoring Reports.............................................................................................................. 100 11.10.1. Monthly Monitoring Reports (MMRs):.................................................................................... 100 11.10.2. Other credit monitoring mechanism....................................................................................... 101 11.10.3. Accounts causing concern:.................................................................................................... 101 11.11. Stressed Assets Resolution........................................................................................................... 101 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 7 of 108 11.12. Curing Policy.................................................................................................................................. 102 12. DATA QUALITY MANAGEMENT....................................................................................................... 103 13. EXIT POLICY..................................................................................................................................... 103 14. REPORTING OF BREACHES........................................................................................................... 104 15. TRAINING & DEVELOPMENT.......................................................................................................... 104 16. POLICY ADMINISTRATION AND REVIEW....................................................................................... 105 17. ABBREVIATIONS.............................................................................................................................. 105 Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 8 of 108 1. PREAMBLE Credit risk or default risk involves the inability or unwillingness of a customer or a counterparty to meet contractual commitment(s) in relation to lending, trading, hedging, settlement and other financial transactions. While credit risk in respect of a single customer or counterparty is made up of transaction risk or default risk intrinsic to that customer/counterparty, the same in relation to a portfolio comprises both the intrinsic and concentration risks. The credit risk of a bank’s lending portfolio depends on its strategic goals concerning risk- adjusted return and the regulatory and economic capital to be deployed for this purpose. However, there are certain external and internal factors that can cause deterioration of the credit risk assumed by a bank. The external factors are the state of the economy, wide swings in commodity/equity prices, foreign exchange rates and interest rates, trade restrictions, economic sanctions, government policies, etc. The internal factors are deficiencies in loan policies/administration, absence of prudential credit risk concentration limits, inadequately defined decision rules and authority/limits for approving credit exposures by Loan Officers/Credit Committees, deficiencies in the appraisal of borrowers’ business and financial position, excessive dependence on collateral, faulty risk pricing, defective loan documentation, absence of proper loan review mechanism and post-sanction surveillance, etc. This Global Credit Exposure Management Policy (hereinafter referred to as ‘the Policy’) aims to maintain the different types of credit risk exposures of the Bank within the respective risk tolerance limits/ levels specified in this regard and maximize the risk-adjusted rate of return for such exposures. 2. PURPOSE AND SCOPE OF THE POLICY The coverage of the Policy extends to all kinds of credit exposures assumed by the Bank globally, both at the stand-alone as well as the consolidated levels. The consolidated level refers only to the Banking Group entities for the specific purpose of consolidated exposures in conformity with the regulatory guidelines and norms issued by RBI in this regard. Individual group entities will be governed by the respective Credit Policies approved by their Boards. The overseas branches are required to operate within the laws and regulations of the countries concerned and the regulations of Reserve Bank of India or of the host country, whichever are more stringent. In general, should there be divergence of guidelines/rules/regulations issued by RBI and the regulatory authorities of the territories concerned, the more stringent ones shall be followed. Branches / Territorial Head / Territorial Committee will lend / invest in the respective local currencies / authorized currencies as per terms and conditions of approved lending schemes for each territory, within the delegated lending powers communicated to the overseas branches. The Limits and Caps wherever mentioned in INR terms in the Policy are applicable only for the operations of the Bank in India. Overseas Branches are required to incorporate suitable limits in terms of their local / operating currencies in their territory-specific credit risk management policies. The Policy covers only the broad aspects of credit risk exposure management. Operational aspects and specific details as regard to its implementation are covered in the Annexes of this policy and also the Book of Instructions which are prepared by the Corporate & Institutional Credit Department in consultation with other credit verticals and the Treasury Department. Overseas territories will prepare / update their respective credit operations manuals in consultation with the Corporate & Institutional Credit Department. Credit product- specific guidelines and criteria for approval shall be as per the credit programme (reference should be made to the Circulars / Master Circulars in this regard) prepared by the respective credit verticals / territories. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 9 of 108 The Policy provides the broad principles and guidance for managing the credit risk exposures of the Bank in connection with its lending and other businesses/activities involving credit risk. Operational aspects are detailed in the Book of Instructions. In respect of any specific product / schemes formulated, the product / scheme specific guidelines, including indicative financial / non- financial benchmarks will prevail. 3. OBJECTIVES OF THE POLICY The Policy is devised for prudent, safe and profitable deployment of the Bank’s financial resources for lending and related purposes and also for achieving uniformity in the lending framework, approach and practices throughout the Bank. Credit risk exposure decisions in terms of the Policy are required to be taken and implemented in conjunction with various regulatory and operational guidelines issued in this regard from time to time. The Policy also aims to improve the standard, effectiveness and profitability of credit risk management in the Bank. The objectives of the Policy are as follows: To provide an enterprise-wide framework and guidance for all concerned in respect of the principles and processes to be adhered to for credit risk decisions. To optimize the Economic Value Addition (EVA) to the shareholders by setting ex ante benchmarks for risk-adjusted return (RAROC) for different types of credit risk exposures and compare the same with actual risk-adjusted returns periodically for the purpose of ex post evaluation of credit risk decisions for making adjustments and alterations in the credit risk exposures, if needed. To ensure growth in credit risk exposure-related business and income in line with the annual and the medium-term plans adopted in this regard. To build and maintain a well-diversified credit portfolio yielding adequate risk-adjusted return by way of interest and commensurate non-interest income and entailing low credit cost. To provide need-based and timely credit to various borrower segments, and especially to the target market customers. To strengthen the credit delivery system and to inculcate credit risk culture enterprise-wide. To strengthen the credit risk management system and procedure in the Bank by way of risk identification, measurement, monitoring and mitigation. To set up prudential exposure norms and to avoid credit risk concentration. To establish risk-based pricing framework for all credit products and facilities. To comply with various regulatory requirements, more particularly the exposure norms, Priority Sector norms, Credit Risk Management guidelines etc. of RBI / other authorities. 4. GOVERNANCE STRUCTURE 4.1. Board The Board of Directors will be responsible for the overall credit risk exposure management of the Bank by ensuring that all credit risk decisions are taken following the Policy and that the benchmark risk- adjusted returns on credit risk exposures are achieved. 4.2. Risk Management Committee of the Board (RMCB) To approve the Policy and set all the major credit risk appetite and monitoring limits. To provide support and advice to the Board in all matters relating to credit risk exposure management, including the formulation of the Policy and its periodic review. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 10 of 108 4.3. Credit Policy Committee (CPC) The Credit Policy Committee (CPC) is a senior management committee headed by Managing Director & CEO and responsible for effective and continued implementation of the Bank’s credit risk management policy and guidelines issued in this regard by the Board. There may be certain areas which are overlapping in terms of exercise by Risk Management Committee of Board and CPC, which shall be construed that both the functions shall exercise their oversight at their level. Additionally, the Sub-Committee of CPC which is a Board approved committee headed by the Executive Director/s. The detailed guidelines with regard to CPC and Sub-committee of CPC are mentioned in the Policy Annex No.1 - Credit Related General Guidelines. 4.4. Product & Process Approval Committee Product & Process Approval Committee (PPAC) is Board approved committee for vetting of new products or modification in existing products. PPAC is also approving authority for new processes and / or modifications of the existing processes. 4.5. Risk Management Department To measure, monitor and control credit risk on a Bank-wide basis as per the Policy. To enforce compliance with the credit risk parameters and prudential limits set by the Board. To prescribe and implement credit risk measurement and monitoring tools, systems and procedure to be followed for this purpose, develop MIS for credit risk, monitor the overall quality of the Bank’s credit portfolio, identify problem exposures and formulate corrective measures. To undertake risk-return evaluation of the various segments of the Bank’s loan portfolio from time to time for providing insight and feedback for policy formulation and marketing efforts. The agenda notes are to be placed before the respective committees for consideration and approval. In the case of requirement of urgent approval, the agenda notes may be placed for approval by the members of the committees through circulation. In such cases, the approval of the members completing the quorum of the respective committees shall suffice for approval of the agenda. The agenda approved through circulation is to be placed before the respective committee for noting. General guidelines: COCC-CGM, for the proposals falling upto the powers of COCC-CGM, will have the power for considering deviation, modification, concession, and waiver from the guidelines detailed in this Policy, if not specified elsewhere. COCC-ED and above authorities may consider the deviation, modification, concession, and waiver as per their respective DLPs. However, all approvals of deviation, modification, concession, and waiver should be within the regulatory prescriptions and be given on a case-to-case basis with due justification recorded in writing. However, for scheme specific deviation, modification, concession, and waiver which is not mentioned in the scheme or scheme related guidelines or not specified in the Policy, COCC-GM and above authorities Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 11 of 108 may approve the deviation, modification, concession, and waiver as per their respective DLPs, but within the regulatory prescriptions on a case-to-case basis with due justification recorded in writing. CACB may approve deviation, modification, concession, and waiver falling under the power of MCB. If any credit proposal encompasses multiple aspects that require approval from different authorities, such as deviations, modifications, concessions, and waivers, the authority with the highest Discretionary Lending Powers among them will have the authority to evaluate and grant approval for all of them collectively. Nonetheless, the sanction/review of such credit facility/ies will be carried out by the respective competent authorities according to their Discretionary Lending Powers. 5. CREDIT GOVERNANCE AND SEGMENTATION 5.1. Classification of Customers for the Purpose of Credit Risk Exposures: 5.1.1. Corporate & Institutional Credit (C & IC) Borrower entities having a gross annual turnover (Sales including export sales) of over Rs. 250 crore as per the Audited Balance Sheet of the Previous Financial year and not classified under Regulatory/ Non- Regulatory MSME will be classified as C&IC borrowers. Borrowers with initial project cost above Rs. 100 crore till the achievement of DCCO will be classified under C&IC borrower. In the case of real estate projects, where the project cost exceeds Rs. 50 crore, will be considered as C&IC borrower. 5.1.2. MSME Regulatory MSME: Borrower satisfying the definition of MSMED Act 2006 (including amendments from time to time), having investment in Plant & Machineries/ Equipment not exceeding Rs. 50 crore and gross annual turnover of up to Rs. 250 crore (excluding export sales) as per the Audited Balance Sheet of the Previous Financial Year / any other statutory returns (e.g. GST return) will be classified as Regulatory MSME. Financing under various Government schemes launched for the MSME Sector. Non-Regulatory MSME: Borrower entities which are outside the purview of MSMED Act 2006 (in terms of investment in Plant & Machineries/ Equipment) and having a gross annual turnover of up to Rs. 250 crore (including export sales) as per the Audited Balance Sheet of the Previous Financial Year / any other statutory returns (e.g. GST return) will be classified as Non-Regulatory MSME. Borrowers who are not classified as regulatory MSME with initial project cost up to Rs. 100 crore till the achievement of DCCO. Post achievement of DCCO, the classification will be based on the above- mentioned Corporate/ MSME guidelines. In the case of real estate, where the project cost is up to Rs. 50 crore. 5.1.3. Rural & Agricultural Banking Business All agriculture and allied activities accounts irrespective of their priority sector status will be classified under Rural & Agriculture Banking Business Segment. Food & Agro Processing Units each with aggregate credit facilities from the banking system up to Rs.100 crore, irrespective of their annual turnover. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 12 of 108 5.1.4. Retail Lending Lending for purposes related to personal consumption / meeting personal financial life cycle needs, loans and advances not covered under C&IC, MSME, Rural & Agri segments and for the purposes other than business are covered under the Retail Lending Segment. It includes retail lending products existing as well as new schemes & products as and when approved by competent authorities. The classification of borrowers, as above, will be entity-wise and not group-wise. Different entities belonging to the same group can be classified differently, depending on their gross annual turnover, as mentioned above. Credit Policy Committee is authorized to redefine / modify the classification, as above. If the categorization of the borrower based on the set criteria for Retail/ MSME/ C&IC/ Rural & Agri as stated above undergoes any change leading to migration to other categories, respective account will be migrated to the concerned vertical after review by the existing vertical. 5.2. Credit Delivery Channels The credit delivery channels includes the units set up by the Bank viz. Branches/ Operating units (Domestic and Overseas), Credit Proposal Processing Centres, SME Loan Factories/ SME Cells/ Specialized SME Branches, Centre for Agriculture Marketing and Processing (CAMP), and other credit delivery channels established/ to be established by the Bank to perform the functions assigned to them respectively. The credit delivery channels are mentioned in the Policy Annex No.1 – Credit Related General Guidelines. 5.3. Credit Expansion Planning Each credit vertical will prepare an annual credit expansion plan for each financial year. For this purpose, they will take into consideration the macroeconomic outlook, interest rate scenario, competition in the market, regulatory and economic capital requirements, prudential risk limits, risk appetite of the Bank, target/benchmark Risk Adjusted Return on Capital (RAROC), and resource planning, including training & development etc. The same will be an integral part of the Target Market Approach. 5.4. Credit related Product Programme and Launching Process Every credit vertical will be responsible for designing processes and controls, systems architecture and capacity planning for achieving its annual business plan and targets in compliance with this Policy. Accordingly, it will design the process flow (preferably in terms of digital footprints) for originating new business and monitoring of the portfolio to maintain the desired credit quality. The Credit Programme will cover the following aspects: 1. The existing credit portfolio (with quality analysis) and the desired portfolio profile 2. SWOT analysis, which should encompass: Industry / sector / segment analysis In case of asset-based financing, stage under which the underlying asset / industry / sector is in the product life cycle (Introduction / growth / maturity / decline) Who are the major players in the industry and competitors, threats to the product What are the internal capabilities / resources / infrastructure availability to service the customers under the proposed product segment? Analysis of regulatory landscape, restrictions if any, permissions / compliance required Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 13 of 108 3. Key risks (credit / market / operational / liquidity) identification, providing risk mitigants for each identified risk (both intrinsic as well as extraneous risk) 4. Projections and estimates: Target segments/sectors of the market Target geographical segments Target business levels Target market Target/benchmark RAROC Expected credit losses Overall cost- benefit analysis 5. Business Model Delivery model including governance structure, outsourcing requirements, if any, origination, delivery, maintenance and collection mechanism, pilot and full-fledged launch/ stage-wise implementation etc. Underwriting criteria in line with this Policy and the Bank’s risk appetite. Process flow and job cards Clearly articulated roles and responsibilities of all concerned in respect of the product and the process involved. Infrastructure required, including IT systems and skilled manpower. The above are indicative and not exhaustive. Credit verticals may include further information, as they may deem fit, depending upon the product. Process of Product Approval / monitoring Pre-Launch: Each Credit Programme is required to undergo a collaborative review and approval process in order to identify appropriate technology, accounting and regulatory standards, legal, compliance and control framework. Prior to launch of the product, Risk and Control Self-Assessment (RCSA) is required to be carried out. Vetting of specific product programme with approval of product launching process is also required from the Product & Process Approval Committee (PPAC). Post Launch Monitoring: The credit verticals should submit the performance review report in respect of all approved products after 6 months of rollout and every year thereafter to the CPC. 5.5. HR Capacity for Credit Risk Management The Bank will adopt appropriate HR policies for developing and retaining high quality HR capacity and skillset to enhance the appraisal, sanction and monitoring standards of its credit business in a sustainable manner. Towards this, Officers engaged in appraisal, inspection, documentation and post-disbursement supervision and monitoring will be required to possess at least any one of the following qualifications / certification to qualify for the role: (a) Chartered Financial Analyst (b) Chartered Accountant / ICWA / Certified Management Accountant (CMA) (c) MBA with specialization in finance (d) Certification in Small Business Banking and Commercial Credit from Moody’s Analytics (e) Any other certification approved by RBI / IBA / Bank from time to time The Bank will make arrangements for training, continuing education and professional development of the staff engaged in the credit function. For this purpose, the staff can be deputed to attend in-house as well as external training programme/ workshop etc. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 14 of 108 Officers with qualifications, as above, will be given the responsibilities for processing relevant sector / product specific credit proposals. Proposals with exposure of Rs. 50 crore and above (or equivalent in other currencies) will be processed by officers having any of the qualifications mentioned in (a), (b), and (c) above or having minimum experience of 3 years in credit function, including sector-specific expertise and certification mentioned in (d) & (e) above. HR department will be responsible for developing a pool of human resources with qualification and experience, as above. 6. CREDIT STRATEGY 6.1. Credit Risk Strategy The Credit Risk Strategy of the Bank will apply to all incremental credit risk exposures to be taken during the financial year. The strategy has the following main elements: 6.1.1. Target Sectors and Target Markets In addition to laying stress on meeting specific commitments in terms of RBI and Government of India directives, the focus areas and target markets for the domestic operations of the Bank will be: Digital Lending (Lending through digital platform/s that will encompass the full life-cycle - origination, credit appraisal, documentation, disbursement as well as repayment and recovery etc.) especially in Retail, MSME & Agri segments. Micro, Small and Medium Enterprises (MSMEs): Likely to grow faster in view of high priority being accorded to this segment by the Government. Retail Finance: To grow further with specific thrust on housing loans. Looking into the market dynamics and the economic scenario, all the sectors / industries will be categorized in terms of their future outlook: positive, neutral or negative. The Bank takes into account Industrial Risk Scores provided by various agencies, demand-supply situation for the products, government policies etc. for this purpose. The Bank’s target segment/sector approach for different sectors / industries based on their respective outlooks and applicable to fresh/enhancement of exposure under various sectors, will be as under: Positive outlook sectors / industries –Will be the primary target sector. Neutral outlook sectors – Exposure will be moderate Negative outlook sectors – - Exposure will be limited to the borrowers with external rating of ‘A’ and above for C&IC. - Exposure will be limited to borrowers with external rating of ‘BBB’ and above for Regulatory & Non- Regulatory MSME and Rural & Agriculture borrowers having exposure above Rs. 50 crore (from banking industry) In the case of MSME and Rural & Agriculture borrowers having exposure beyond Rs. 50 crore (from the banking system) and Corporates where the industry is having negative outlook and the borrower not meeting the external credit rating threshold, COCC- CGM is authorized to consider and approve proposals falling up to the powers of COCC-CGM. COCC-ED and above sanctioning authorities may consider and approve proposals as per their respective DLPs, as per merits of each case. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 15 of 108 Exemptions from the above Rating Threshold for Negative Outlook Sectors: Regulatory and Non-regulatory MSME borrowers with exposures of up to Rs. 50 crore (from the banking system). Rural & Agriculture borrowers with exposures of up to Rs. 50 crore (from the banking system). Food & Agro processing units irrespective of quantum qualifying for priority sector classification. In respect of the exempted borrowers, as above, proposals may be considered and approved selectively by the respective sanctioning authorities on a case-to-case basis, depending on the merits of each case. Risk Management Department will prepare sectoral outlook for each industry/sector of the economy along with advisory on a monthly basis. The target market approach, as per the template that has been developed for this purpose, will be prepared at the beginning of every financial year by respective credit verticals and it will be reviewed once in every quarter. The annual target market approach and quarterly review thereof will be put up to the Credit Policy Committee and the Risk Management Committee of the Board for approval. 6.1.2. Priority Sector Lending Certificate (PSLC) To enable banks to achieve the priority sector lending targets / sub-targets, in the event of shortfall, banks can purchase / surplus banks may sell ‘Priority Sector Lending Certificates (PSLC)’ from / to the Scheduled Commercial Banks, Regional Rural Banks, Local Area Banks, Small Finance Banks and Urban Co-operative Banks traded through RBI’s CBS portal (e-Kuber). PSLCs are of 4 types counting for achievement towards Agriculture, Small/ Medium Farmer, Micro Enterprise and General (overall PS targets). PSLC can be issued up to 50% of previous year’s PSL achievement without having underlying in its Books. However, as on the reporting date, the Bank must have met the priority sector target by way of the sum of outstanding priority sector lending portfolio, net of PSLC purchased / issued. The lot size is Rs. 25 lakh and multiples thereof. There will be no transfer of credit risk on the underlying as the tangible assets are not transferred. The validity of PSLC will be March 31st every year and will not be valid beyond the reporting date (31st March) The fee payable / receivable is market determined. The Bank may issue PSLC subject to meeting respective sector / sub sector targets and having minimum surplus of 2%. 6.1.3. Activity Clearance Category A: In the case of following activities/ industries, while considering the fresh exposure to a single counterparty by any amount leading to the aggregate exposure to that counterparty exceeding Rs. 1 crore, will be subject to Activity Clearance from COCC-CGM for proposals falling within the DLP up to and including COCC- GM / CLCC-MCGM. For proposals falling within the DLP of COCC- CGM and above (COCC-CGM/COCC-ED/ CACB/ MCB), no such activity clearance is required. Applicability I. Leasing, Hire-Purchase and Non-Banking Finance Companies (other than Central/ State Government- owned NBFCs, Middle layer and Upper Layer NBFC) II. Capital Market (other than advances against shares to individuals), Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 16 of 108 III. Financing of Film-making – Activity clearance to be obtained from COCC-ED. Sanctioning/ Reviewing authority rests with ZOCC-GM and above authorities as per their respective DLPs. IV. Bridge Loan. V. Financing of Educational Institute (Above Rs. 5 crore) VI. Aviation VII. Infrastructure-Power (Other than for own captive power consumption and Solar Power) VIII. Infrastructure-Roads [Other than Hybrid Annuity Model (HAM) project] IX. Securitization / Through Deed of Assignment. X. Gems & Jewellery and Diamond Industry (Above Rs. 5 crore) XI. Commercial Real Estate for construction of Malls XII. Advances to co-operative banks Category B: In respect of following activities, while considering the fresh exposure to a single counterparty by any amount leading to the aggregate exposure to that counterparty exceeding Rs. 1 crore, the activity clearance may be accorded by ZOCC- GM for proposals falling up to the power of ZOCC-GM. All cases falling beyond the power of ZOCC-GM, are not required to be submitted for activity clearance separately. Proposal may be submitted directly to the respective authorities in such cases. I. Plantation (excluding tea, coffee and rubber plantations, common horticulture crops, Jatropha, spices, medicinal plants, essential oils/ Aromatic plants), II. Manufacturing & Trading of Liquor, III. Vegetable Oil, Vanaspati IV. Cinema Halls, Theatres/ Auditoriums/ Amusement Parks, Marriage Halls/ Kalyanamandapams). V. Educational Institutions (for proposal up to Rs. 5 crore) VI. IT & IT Enabled Services VII. Advances to Hotels/ Resorts VIII. Commercial Real Estate (other than construction of malls) for Commercial Activities but excluding Retail Loans, Priority Sector Advances Note: The requirement of activity clearance will be applicable only at the time of taking fresh sanction and not at the time of Review/ RWI. Note: a. If Activity Clearance falls within the discretionary power of Corporate Office, ZO/RO/ Branch shall submit the Activity clearance form over e-mail directly to the respective sector / Functional Head at BCC in the specific format. b. With respect to any ad hoc request related to activities in which activity clearance is required from Corporate Office, Sanctioning Authority may take a view on such request under the respective DLP strictly on the basis of merit. c. Fresh sanction of any credit facility, whether FB or NFB including Guarantees and Temporary Overdrafts, are not to be sanctioned to any Co-operative Bank. Also, guarantee or any other credit facility is not to be sanctioned to any customer of any co- operative Bank merely on the strength of Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 17 of 108 counter-guarantee of a co-operative Bank. In exceptionally meritorious cases, the proposal for sanction of fresh/new credit facility to co-operative banks and/or to their customers merely on the strength of counter-guarantee of a co-operative bank irrespective of the amount may be sent to the Corporate Office, Corporate & Institutional Credit Department, BCC, Mumbai. However, reviewing authorities may review the credit facilities as per their respective DLPs. d. In case of Retail Loans, activity clearance is not required to be obtained from the respective authorities even though prospective borrower is engaged in the activities, requiring Activity Clearance as mentioned above. However, in the case of Mortgage Loan to non- individuals, activity clearance needs to be obtained where the Borrower is engaged in those activities, requiring Activity Clearance as mentioned above. e. Financing against 100% cash collateral will not require Activity Clearance. In the case of lending to co- operative banks against their deposits, operating units to obtain a certificate from the statutory auditor of the borrowing institution that the deposit (Cash Collateral) is not part of its statutory requirements. f. No activity clearance is required for MSME loans, where the proposal falls within a specific scheme designed for the above mentioned activities. Branches may or may not assess internal rating as it is not a necessary requirement for Activity clearance. 6.1.4. Agreement in Principle (AIP) Applicability: AIP is required in the case of fresh proposals of Corporate with external credit rating below “A” and falling beyond the ZOCC-GM powers. AIP is required in the case of fresh proposals of MSME and Agriculture with external credit rating below “BBB” and falling beyond the ZOCC-GM powers. AIP is required in the case of takeover proposals of eligible MSME and Agriculture with external credit rating below “BBB” and falling beyond the power of ZOCC-GM with following relaxations: Rating Parameters for AIP BB AIP will not be required in case of takeover if below mentioned criteria is fulfilled - No dilution in security coverage. - No release of existing security. - Additional exposure less than or equal to 20% of the existing exposure. AIP is required in the case of fresh proposals falling beyond the power of ZOCC-GM and valid external credit rating is not available or the borrower is unrated. AIP shall be exempted in the case of fresh proposals of Corporate, MSME and Agriculture falling beyond the power of ZOCC-GM (CLCC-MCGM/ COCC-GM/ COCC-CGM/ COCC-ED/ CACB/ MCB) subject to the following conditions: - External credit rating is A & above for Corporate borrowers. - External credit rating is BBB & above for MSME and Agriculture borrowers. - Sector should not be in negative list. - Project should not be a Greenfield project. The authority matrix for according AIP is as follows: Proposals within the Power of Authority CLCC-MCGM CLCC-MCGM COCC-GM COCC-GM COCC-CGM COCC-CGM Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 18 of 108 COCC-ED COCC-ED CACB and MCB CACB Note: AIP should be considered only for considering in-principle approval in the specified format and not for the purpose of complete assessment. ZO/RO/Branch shall submit the AIP form over e-mail directly to the respective sector / Functional Head in the specific format only and TAT is to be maintained strictly while considering AIP. Branches may or may not assess internal rating as it is not a necessary requirement for AIP. 6.1.5. Activities Not Encouraged by the Bank & Licensing Requirements The Bank will not encourage the following activities:- Financing for exports to countries for which Export Credit Guarantee Corporation Ltd. (ECGC) does not extend guarantee cover. Enhancement of credit exposure to clients engaged in certain Industry / sectors/markets as may be specified by the Bank on account of unsatisfactory experience. (Presently, jelly-filled cables manufacturing / trading, etc.) Setting up of new sugar factories in the co-operative sector and / or sugar factories of capacity less than 5000 TCD (Tonnes of crushing per day) of sugarcane. Proposals for working capital facilities for sugar production units can be considered, subject to the guidelines of RBI under Selective Credit Control. For overseas territories: Credit facilities for setting up units for products which are in the banned list / negative list of financial institutions / other authorities in the respective countries. Financing requests of borrowers who are defaulters with other financial institutions, and/or against whom caution notices are issued by local regulators. For proposals falling up to the powers of COCC-CGM, the COCC-CGM is authorized to consider proposals under above list. For proposal above the power of COCC-CGM, respective corporate office level credit committee may consider the proposal as per merits of the case. 6.1.6. Industries for which Industrial Licensing Is Compulsory Distillation and brewing of alcoholic drinks. Cigars and cigarettes of tobacco and manufactured tobacco substitutes. Electronic Aerospace and Defence Equipment – all types. Industrial explosives including detonating fuses, safety fuses, gun-powder, nitrocellulose and matches. Hazardous chemicals: Hydrocyanic acid and its derivatives, Phosgene and its derivatives, Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate) Drugs and pharmaceuticals (according to modified Drug Policy issued in September, 1994 and subsequently amended in February, 1999) Any other industry as per Central Government / State Government notification issued / to be issued from time to time. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 19 of 108 6.1.7. Credit Rating Matrix – Other than Retail The Bank intends to achieve a good level of diversification across the rating grades that will enable it to tap good business opportunities while reducing both the expected as well as the realized credit losses. Accordingly, the Bank’s desired mix of corporate loan book (individual exposures of above Rs. 7.50 crore) in terms of credit ratings for the current financial year will be as under: Internal Rating range Target share in External Rating Range # Target share in incremental incremental business business BOB 1, BOB 2 10% AAA / CMR 1 10% BOB 3 15% AA / CMR 2 15% BOB 4 20% A / CMR 3 25% BOB 5 35% BBB & Unrated / CMR 4 & 30% unrated under CMR BOB 6 and below including un- 20%* Non- Investment Grade (BB 20% * rated obligors and below) / CMR 5 and below Within the above, Cap for BOB 7 4% & below rated obligors (*) Managing Director& CEO may permit the exceeding of the target share by 5 percentage points (i.e. up to and including 25%) in respect of internal rating of BOB 6 & below including un-rated obligors. Similarly, the target may be exceeded by 5 percentage points (up to and including 25%) for non- investment grade i.e. BB and below in respect of external credit rating with the permission of MD & CEO. (#) For Non- Indian Corporates, only Internal Rating criteria will be applicable. For MSME exposures of above Rs. 7.50 crore up to Rs. 50 crore, CMR- CIBIL MSME Ratings will only be applicable. Fresh/incremental business may be undertaken in CMR-6 rated accounts based on the decision rules of CreditVision Algorithm of CIBIL, details of which is governed by separate operating guidelines. No fresh/ incremental business will be allowed in CMR 7 or below rated accounts. For MSME exposure of above Rs. 50 crore, the following rating criteria will be applicable: Internal Rating range Target share in External Rating Range Target share in incremental incremental business business BOB 1 & BOB 2 5% AAA to A 5% BOB 3 & BOB 4 20% BBB including un-rated 45% exposures BOB 5 50% BB 45% BOB 6 & below, including un- 25% B and below 5% rated exposures Within the above, Cap for BOB 7 4% & below rated obligors Shortfall in any rating grade can be compensated by higher exposure in upper rating grades but not vice-versa. Corporate & Institutional Credit Department and MSME Department will submit monthly progress report with regard to the above (incremental credit exposure - rating grade-wise) to Risk Management Department (RMD). RMD, in turn, will submit consolidated report including its summary in dash board format to the Credit Policy Committee on quarterly basis. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 20 of 108 6.1.8. Credit Risk Matrix – Retail For retail exposures, the Bank currently has a well-diversified portfolio across various rating grades. The Bank has also linked its pricing policy to the CIBIL scores of the borrowers. The Bank’s strategy in respect of incremental growth in retail loans, will be linked to credit information bureau scores. An illustrative target range of retail portfolio based on CIBIL score is as under: CIBIL Score range (Credit Vision Score) % share in incremental business 771 and above 30% 726-770 20% 701-725 10% Below 701 10% # Borrowers with limited / no credit history (-1) 30% (#)Managing Director & CEO can approve deviation up to 5 percentage points, i.e., incremental retail portfolio with CIBIL score below 701 could go up to a maximum of 15%. Shortfall in any rating grade can be compensated by higher exposure in upper rating grades but not vice-versa. In case of other credit information companies, equivalent range will be taken into account. Retail Credit Department is required to submit monthly progress report with regard to the above (incremental credit exposure growth – CIBIL Score-wise) to Risk Management Department (RMD). RMD, in turn, will submit consolidated report, including a summary in dash board format to the Credit Policy Committee on quarterly basis. 6.1.9. Risk Adjusted Return on Capital (RAROC) RAROC is required to be computed for each credit exposure (other than exempted categories as mentioned herein below) and the same is required to be compared with the Cost of Equity (COE). Proposals where RAROC equals / exceeds the COE (presently 15%) shall be considered as indicative Benchmark (or the Hurdle Rate) for domestic exposures. Moreover, during periodic review, the realized RAROC on Credit risk exposures will be compared with the RAROC assumed at the time of sanction / previous review as also the Hurdle Rate. Wherever the realized RAROC is consistently less than the COE/ Hurdle Rate over two successive reviews, the Bank may suitably enhance the price of the exposure or endeavour to exit the same. During any financial year, RAROC for at least 75% of the C & IC customers with exposure of Rs. 50 crore and above (excluding exempted categories) must meet the prescribed COE mentioned above or as revised from time to time. The Risk Management Department will issue operational guidelines in this regard and also report the status in this regard to the CPC on a quarterly basis. Global ALCO is empowered to review COE and approve target/benchmark/Hurdle Rate for RAROC, including for various products/ schemes/ portfolios separately, from time to time. The details regarding the RAROC framework are narrated below. RAROC provides an objective basis to evaluate all the risk types and risk exposures consistently, including the authority to take risk decisions. Further, RAROC promotes consistent, fair, and reasonable risk- adjusted performance measures that are needed to make the trade-off between risk and reward more efficient. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 21 of 108 RAROC will form an important criterion for all credit decisions. For fresh/review proposals, RAROC will be calculated on the basis of the estimated income over the next 12 months adjusted for expected loss (based on the data on actual loss incurred in the loan accounts with similar external/internal credit ratings). The RAROC approach requires that the RAROC so computed be compared to the Cost of Equity (COE) of the Bank. The threshold level for RAROC will be decided by the Global ALCO of the Bank. Credit risk exposures with RAROC below the COE do not add economic value to the shareholders. Global ALCO is also authorised to specify / stipulate / modify the aforementioned benchmark COE for any specific segment / sector / product/ territory from time to time. Exemptions to RAROC Framework: Regulatory retail portfolio as per Basel guidelines (Exposure up to Rs. 7.50 crore and annual average sales turnover for the last three financial years not exceeding Rs. 50 crore). Pre-settlement and settlement counterparty limits for taking derivatives exposures. Loans to individuals, irrespective of the ticket size, under schematic lending. However, RAROC requirement will be applicable at scheme level when any scheme is conceived and when the performance of the scheme is evaluated post facto. Further, any deviation in respect of processing charges / interest rate in a specific proposal with exposure of above Rs. 7.50 crore must be justified by way of computation of RAROC of that specific proposal. This stipulation will also apply to the regulatory retail portfolio. Credit Risk in respect of exposure under regulatory instance e.g., RIDF funds to NABARD etc. Staff Loans Credit exposure on counterparty banks, Exposures having 0% risk weighted assets (against Central Govt. Guarantee/ Direct exposures to Central / State Governments) Restructured loans and advances Loans / Overdrafts against the Bank’s own deposits/ fully secured by cash margin/ financial collateral recognised under Basel guidelines Direct exposure to Central / State Government and exposures fully guaranteed by Central Government. T-bill linked Loans 6.1.10. Requirement of cross-selling and ancillary business: Preference will be given to proposals with adequate scope for cross-selling and ancillary business opportunities. Actual business and revenue generated in this regard will be reviewed once in a year and will be taken into account for the purpose of calculation of the realized RAROC, as above. The other elements of the credit risk strategy are: Aggregate credit exposures beyond 3 years maturity shall not exceed 35% of the total. Launching new product lines with enhanced monitoring of credit risk. 6.2. Restricted Exposures From time to time, exposure to certain sectors or types of assets could be restricted for internal or external reasons, including regulatory prescription. The operating units and business verticals should be well versed with all restricted exposures before offering any product to the customer. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 22 of 108 6.2.1. Wilful Defaulters / Fraud Accounts / Promoters/ Partners/ Directors of such companies/ Firms Loans settled under compromise / Write-off: No loan to be granted to Wilful Defaulters (Refer to Recovery Policy), Fraud Accounts (to be verified through Central Fraud Registry) and Promoters/Partners/Directors of such companies/Firms availing credit facilities from the Bank / Other banks / Financial Institutions/ NBFCs, whose loans were settled under compromise /write off with the prospective customers as borrowers or guarantors. However, for exposures written off under loan waiver schemes of Central / State Government, such restrictions will not apply. In the case of promoters/ borrowers / guarantors, whose loan accounts were closed (i) under compromise settlement involving write off, or (ii) by the Bank/other banks/NBFCs with a write off, further lending (fresh, review with increase & takeover proposals) to them can be considered by the sanctioning authority strictly on the merits of each case, subject to the compliance of all the following conditions: Loans & Advances Credit Card write-off (other than Credit Card write-off) 1. The aggregate amount written off in regard to all 1. Cases where credit card account status write-off the credit facilities provided to the borrower by / settlement involving amount upto Rs.0.50 lakh the Bank/other banks/NBFCs was not higher (up to Rs. 1 lakh if date of write-off/settlement is than Rs. 2 lakh. more than 5 years) 2. Current CIBIL score of the borrower must be at 2. Current CIBIL score of the borrower is at least least 701 in case of Retail Loans. 701 (in case of Retail Loans). 3. The loan accounts should have been adjusted/ closed at least -5- years prior to the date of current application for fresh credit facilities. In all other cases, deviation powers can be exercised by the following authorities: Parameter Sanctioning Authority For proposals falling below the power of ZOCC- ZOCC-GM GM For proposals falling within the powers of Next higher level credit committee. For ZOCC- GM, ZOCC-GM; COCC-GM, CLCC-MCGM COCC-GM will be treated as next higher authority. COCC-CGM and above Respective credit committee 1. While considering deviation proposals where write-off / settled amount is not available in CIBIL/ other bureau report, sanctioning authority may consider ‘High Credit’ amount displayed in CIBIL / other bureau report for the purpose of quantifying the write-off / settled amount. 2. In case the loan account(s) of the borrower was/were previously with the Bank (BOB, eDena & eVijaya), the borrower should pay upfront (before disbursal of the fresh credit facilities, if sanctioned) the aggregate amount written off. 3. In the case of review of accounts, sanctioning authority may take a view in all such cases without referring for deviation, if deviation is already obtained/ approved at the time of sanction. 4. No fresh credit facilities should be granted to wilful defaulters and fraud accounts. 5. Credit Policy Committee (CPC) is authorized to permit fresh sanction of loans and advances settled under specific OTS schemes limited to the period of such schemes in respect of agriculture borrowers. While extending such fresh finance under OTS schemes for other borrowers, CPC may approve, subject to the condition of right of recompense and in cases where management change is proposed. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 23 of 108 6.2.2. Sanction of Credit Facilities to Companies whose Directors feature in Defaulters’ List The Directors of a company may be classified as Promoter / Elected / Professional / Nominee / Honorary directors. RBI has been collecting and circulating information on defaulting companies amongst banks / FIs, including names of directors of such companies. (This responsibility is now with Credit Information Companies (CIC)). Where sanction / continuation of credit facilities to such companies whose directors are in the defaulters' list needs to be examined, the following approach is to be adopted: S. N. If Director of applicant company is Approach (i) Promoter Director of a defaulting Generally, no ad hoc / enhancement / additional / new company or Director of a defaulting credit facilities to be sanctioned to the applicant company and having a role in the day-to- company till the name is removed from the defaulters' day affairs of its management. list. In case the performance and conduct of the accounts of the applicant company are otherwise satisfactory, renewal / continuation of the limit at the existing levels may be considered. (ii) Promoter Director of a defaulting Generally, no ad hoc / enhancement / additional / new company or director of a defaulting credit facilities to be sanctioned to the applicant company having a role in day-to-day company till the name is removed from the defaulter's affairs of its management, but who list. resigned from the Board of defaulting In case the performance and conduct of accounts of the company, to circumvent any obstacle in applicant company are otherwise satisfactory, renewal / getting credit. continuation of the limit at the existing levels may be considered. (iii) Director in a defaulting company, but not Proposal relating to the applicant company to be connected in any way with its day-to-day considered on merit. If the defaulting company is an management. associate/ subsidiary of the applicant company or a group company, approach mentioned in '(i)' & '(ii)' above may be followed. (iv) Nominee / professional / honorary director Proposal relating to the applicant company to be of a defaulting company, (including considered on usual parameters as these directors are associate / group / subsidiary company). on the Board in their professional / honorary capacity. I. However, specific requests for enhancement / additional / new credit facilities by the applicant company may be considered, on merits and for reasons to be recorded in writing, by COCC-CGM for the proposals falling up to the powers of COCC-CGM. COCC-ED and above credit committees may consider the proposals falling under their respective powers. II. As an additional security, personal guarantee of the Promoter(s) / Director(s) may be stipulated. III. In case of review proposal, Bank may endeavour to stipulate personal Guarantee of the Promoter(s)/ Director(s). IV. A covenant in the loan agreements with the companies in which Bank has significant stake, shall be incorporated by the Bank to the effect that the borrowing company should not induct a person who is a promoter or director on the Board of a company which has been identified as a RBI / CIBIL / Wilful defaulter, and that in case such person is found to be on the Board of the borrower company, expeditious and effective steps will need to be taken for removal of the person from its Board. V. In case of taking fresh exposure in the accounts where individuals / proprietor / partner / director / guarantor credit card account was written off / settled above Rs. 5,000/- but not exceeding Rs. 50,000/- or Rs. 1 lakh, as the case may be, by the Bank / other banks in the past, the sanctioning authority to ensure the following: a. No Dues certificate from the Bank / FIs be obtained in the case of credit card account. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 24 of 108 b. Borrower be impressed upon for updation of “Satisfactory Status” with the concerned Bank / FIs, preferably within the stipulated period. c. Ensure that ‘Bureau Report’ of the applicant/s contains no other adverse remarks. 6.2.3. Lending to Group/Associate Concerns having any group NPA/ settlement/ Compromise A/c The Bank will be very cautious in taking additional exposure/ granting additional credit facilities to any borrower/ customer belonging to a group, where one or more concern/s of that group or an associate concern of the borrower/customer has failed/defaulted in meeting its financial obligations to the Bank and/or to other banks/financial institutions. i) No additional/new exposure to be generally considered and also the Bank shall endeavour to exit from the existing exposures from all the account/s of the group, provided:- (a) The default is on account of internal reasons such as lack of resourcefulness, inexperience of promoters-directors, mismanagement, diversion of funds, major diversification / expansion without adequate financial closure etc., (b) The default is due to External reasons, i.e., reasons beyond the control of the enterprise/its promoters-directors, such as unforeseen changes in Government policies or natural calamity or act of God or unforeseen sovereign risks, unforeseeable changes in the exchange rate of the rupee vis- à-vis major convertible currencies etc., and the said default have materially threatened the Group as a whole. ii) However, if there is no threat to the Group as a whole due to the external reasons stated above, the Bank may consider to continue/to take additional or new exposure to the existing/new group entities on the merits of individual case. At the time of taking fresh exposure, the reasons for default and its materiality and impact on the Group, as a whole, as also on the individual entities of the group, their financial viability and creditworthiness may be determined by the next higher sanctioning authority up to the DLP of COCC-CGM. COCC-ED & above may consider it within their respective DLP. The above restrictions will not be applicable for review of the credit facilities of the borrowers having any group NPA/ settlement / Compromise A/c/ suite filled account and the reviewing authority may take suitable credit decision, based on the merits of each case. Statutory and other Restrictions: 6.2.4. Security of own shares: The Bank does not grant any loan and advance on the security of its own shares. 6.2.5. Loans to Directors of the Bank: As per Section 20(1) of the Banking Regulation Act, 1949 loans and advances to the directors and the firms in which they hold substantial interest are restricted. Purchase of or discount of bills from directors and their concerns, which is in the nature of clean accommodation, is reckoned as ‘loans and advances’ for the purpose of Section 20 of the Banking Regulation Act, 1949. The Bank is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company [not being a subsidiary of the banking company or a company Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 25 of 108 registered under Section 8 of the Companies Act, 2013, or a Government company] of which, or the subsidiary or the holding company of which any of the directors of the Bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. However, the loans and advances that are exempted from the above purpose & which may be extended with prior approval of the Board of directors are as under: 1. Loans or advances against Government securities, life insurance policies or the Bank’s fixed deposit; 2. Loans or advances to the Agricultural Finance Corporation Ltd; 3. Such loans or advances as can be made by the Bank to any of its directors (who immediately prior to becoming a director, was an employee of the Bank) in his capacity as an employee of the Bank and on the same terms and conditions as would have been applicable to him as an employee of the Bank, if he had not become a director of the Bank. 4. Call loans made by banking companies to one another; 5. Facilities like bills purchased/ discounted (whether documentary or clean and sight or usance and whether on D/A basis or D/P basis), purchase of cheques, other non-fund based facilities like acceptance/co-acceptance of bills, opening of L/Cs and issue of guarantees, purchase of debentures from third parties, etc.; 6. Line of credit/overdraft facility extended by settlement bankers to National Securities Clearing Corporation Ltd. (NSCCL) / Clearing Corporation of India Ltd. (CCIL) to facilitate smooth settlement; and 7. Loans / advances granted to Whole Time Directors for purchase of car, personal computer, furniture, constructing/acquiring a house for personal use, Festival Loan and Credit limit under Credit Card facility. While extending Non-Fund based facilities such as guarantees, L/Cs, acceptances on behalf of Directors and the companies/firms in which the Directors are interested, it is to be ensured that: 1. adequate and effective arrangements have been made to the satisfaction of the Bank that the commitments would be met by the openers of L/Cs, or acceptors, or guarantors out of their own resources, 2. the Bank will not be called upon to grant any loan or advance to meet the liability consequent upon the invocation of guarantee, and 3. No liability would devolve on the Bank on account of L/Cs / acceptances. In case such contingencies, as at (2) & (3) above, arise, the Bank will be deemed to be a party to violation of the provisions of Section 20 of the Banking Regulation Act, 1949. The Bank shall not, except with the prior approval of the Reserve Bank of India, remit, in whole or in part, any debt due to it by (a) any of the Bank's Directors, or (b) any firm or company in which any of the Bank's Directors is interested as director, partner, managing agent or guarantor, or (c) any individual, if any of the Bank’s directors is its partner or guarantor. The Bank will not hold shares whether as pledgee, mortgagee or absolute owner, in any company in the management of which Managing Director or any manager of the Bank is in any manner connected or interested. Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 26 of 108 6.2.6. Regulatory Restrictions: Without prior approval of the Board or without the knowledge of the Board, no loans and advances should be granted to the directors of other banks and close relatives, as per Book of Instructions (Volume 4 – Credit Management/ V.2.0), of the directors of the Bank’s Board or other banks' boards, including the directors of scheduled co-operative banks, directors of subsidiaries / trustees of Mutual Funds / Venture Capital Funds set up by the Bank or other banks. o Unless sanctioned by the Management Committee of the Board, the Bank shall not grant loans and advances aggregating Rs. 25 lakh & above to: a. Directors (including the Chairman/Managing Director) of other banks* (Other than personal loans); b. any firm in which any of the directors of other banks* is interested as a partner or guarantor; and c. Any company in which any of the directors of other banks* holds substantial interest or is interested as a director or as a guarantor. o Unless sanctioned by the Board of Directors/Management Committee of the Board, the Bank will not grant any Personal Loans (as defined by RBI in its circular DBR.No.BP.BC.99/08.13.100/2017-18 dated January 04, 2018) aggregating to Rs. 5 crore and above to any director of other banks. o Unless sanctioned by the Management Committee of the Board, the Bank shall not grant loans and advances aggregating Rs. 5 crore & above to: a. Any relative other than spouse (spouse as specified in para 2.2.1.3 of RBI Master circular no. DBR.No.Dir.BC.10/13.03.00/2015-16 dated 01/07/2015 on Loans and Advances – Statutory and Other Restrictions) and minor / dependent children of their own Chairman/ Managing Directors or other Directors; b. any relative other than spouse (spouse as specified in the above point) and minor / dependent children of the Chairman/Managing Director or other directors of other banks*; c. any firm in which any of the relatives other than spouse (spouse as specified in the above point) and minor / dependent children as mentioned in (a) & (b) above is interested as a partner or guarantor; and d. any company in which any of the relatives other than spouse (spouse as specified in the above point) and minor / dependent children as mentioned in (a) & (b) above is interested as a major shareholder or as a director or as a guarantor *Including directors of Scheduled Co-operative Banks, directors of subsidiaries/trustees of mutual funds/venture capital funds. o The Chairman/Managing Director or any other Director of the Bank who is directly or indirectly connected or interested in any credit proposal shall disclose the nature of his / her interest to the Board when any such proposal is discussed. He / she should not be present in the meeting unless his / her presence is required by the other Directors for the purpose of eliciting information and the Director so required to be present shall not vote on any such proposal. o The proposals for credit facilities involving an aggregate amount less than Rs. 25 lakh or Rs. 5 crore (as the case may be) to the above-mentioned categories of borrowers may be sanctioned by the Bank of Baroda - Global Credit Exposure Management Policy 2024 Page 27 of 108 appropriate authority as per delegated financial powers. However, such sanctions must be reported to the Board. o The restrictions as contained in Section 20 of the Banking Regulation Act, 1949 will apply to grant of loans and advances to spouse and minor / dependent children of the Directors of the Bank. However, loans or advances can be granted to or on behalf of spouses of the Bank’s Directors in cases where the spouse has his / her own independent source of income, and the facility so granted is based on standard appraisal and assessment procedures. All such credit proposals involving an aggregate amount of Rupees twenty five lakh and above should be sanctioned by the Bank’s Board of Directors. The proposals for aggregate amounts not exceeding Rupees twenty five lakh may be sanctioned by the appropriate authority as per delegated financial powers, subject to notifying the Board of such sanctions. o In this regard, declaration as under shall be obtained from every borrower stating that: ▪ He/ She is not a director or specified near relation of a director of a banking company (where the borrower is an individual) ▪ None of the partners is a director
