OR No.

:207/2011-2012 HO:CREDIT:CIRCULAR:GF-7: 104 :2011-2012 TO THE HEADS OF ALL BRANCHES/OFFICES OF THE BANK

Mangalore, 29.02.2012.

Check list for scrutiny of credit proposals. Please refer to the instructions/ guidelines furnished through Manual of Instructions and various circulars issued by Credit Department from time to time regarding pre-sanction scrutiny, collection of required information/ data and proper compilation of credit proposals. Inspite of these instructions, many a times incomplete credit proposals without requisite information needed for processing the loan papers are submitted to the Sanctioning Authorities. This results in avoidable correspondence and delay in credit appraisal and sanction leading to customer dissatisfaction. In this background we have prepared a check list for scrutiny of credit proposals and the same is furnished as annexure to this circular. We hope this will help personnel working at operational level to collect all the required information at a stretch and forward credit proposal in toto to the Sanctioning Authorities. We wish to clarify that the list is only illustrative and not exhaustive one. Depending upon the nature of credit proposals, if branches find additional information/ details other than mentioned in the enclosure, useful, they can furnish the same in support of the credit proposal. We hope the check list provided will help branch personnel to build a full pledged credit proposal with required information which will help speedy disposal of loan proposals enabling steady and healthy growth in the credit portfolio of the Bank. All the concerned are advised to go through the circular and be guided accordingly.

DEPUTY GENERAL MANAGER

\APR.ganesh

Enclosed: as above.

CHECK LIST FOR SCRUTINY OF CREDIT PROPOSALS: I: Related to Applicant: A: Individuals: i) Copy of PAN card/ UID if available. B: Proprietorship concerns: i) Declaration letter duly signed in Form No 62 AB (old) /1202 (new). ii) Copy of the PAN card of the proprietor. C: Trusts/Associations: i) Trust Deed/Bye laws of the association duly certified. ii) Borrowing powers of the trust/ association. iii) Registration certificate if any of the trust/association. iv) Copies of the PAN card of the members of the trust/association. D: HUFs: i) Joint Family letter in Form No 63A/1213/63B/1214 duly signed by the Kartha and major members of the HUF. ii) List of all the members of the HUF along their relationship to the Kartha of the HUF. iii) Copies of the PAN card of the members of the HUF. E: Partnership firms: i) Certified copy of Partnership Deed along with copy of certificate of registration with Registrar of Firms. ii) Partnership letter duly signed by all the partners in Form No: 61/1207. iii) In case of any change in the partnership then, a) New Partnership Deed/Reconstitution Deed. b) Balance sheet of the firm prior to and after the date of reconstitution of the partnership. c) Letter to the effect how the capital of the outgoing partners is dealt with. iv) Copies of PAN card of the partners of the firm.

F: Limited Liability Partnership firms: i) Limited Liability Partnership agreement. ii) LLP incorporation document. iii) Incorporation Certificate of LLP. iv) Resolution of the LLP firm signed by all the partners of the LLP for availing credit facilities and execution of documents by the authorized persons. v) LLP partnership letter duly signed by all the partners in Form No 1207 L. vi) Copies of PAN card of the partners of the LLP. G: Limited Companies: i) Copy of Memorandum and Articles of Association of the Company duly attested. ii) Certificate of incorporation and commencement of business. iii) List of Directors duly certified. Copies of Form No 32 submitted to ROC in case there is any change in the directors of the company. iv) Copy of the Board Resolution of the company duly signed specifying the limits sought, securities offered and persons authorized to sign documents on behalf of the company. v) Search Report for charges if any on the assets of the Company. vi) In the case of existing corporate borrowers, copies of relevant forms filed with Registrar of Companies for any change in directors of the company, increase in capital etc. vii) Share holding pattern of the company.

vii) List of shareholders in the case of private limited companies. viii) In the case of listed companies data relating to movement of share price during the last one year as well as the market price as on the date of the proposal. ix) Copies of PAN card and DIN of all the directors of the company. x) Copy of Form 5 & 2 filed with ROC for any change in the authorized capital of the company. II: Related to Financials: A. Specific to working capital finance: i) If the working capital limits sought are for more than Rs 2.00 crore, then CMA data furnishing the actuals for the current year, estimates for the next year and projections for the subsequent year.

ii) If the credit limits are for less than Rs 2.00 crore projected financial statements for the next one year shall be obtained and submitted. iii) Supporting documents for additional limits sought if any like additional agencies allotted if any, new products introduced, new work orders received, expansion in capacity carried out if any etc. Points to be verified from CMA/ projected financial statements: a) Whether classification of current assets, current liabilities, long term sources , long term uses etc are in accordance with the guidelines prevalent. b) Whether the projections furnished are in tune with the previous trend. If not the variations are substantiated like introduction of new product, new agencies obtained etc. c) Whether projected holding of stocks, sundry creditors, sundry debtors are in tune with the past trend. If not whether the variations are substantiated. d) Whether the required NWC is available in the system. If not what is the plans of the borrower to improve the NWC to the required level. iii) In the case of requirement of LC limit as working capital finance, the amount of purchases under LC and tenor of the bill under LC shall be obtained and furnished for the purpose of assessing LC requirements. It is to be ensured that the projected creditors are commensurate with the LC limit sought. If not variations shall be substantiated. B. Specific to project finance/Asset finance: i) Detailed project Report. ii) Projected profitability statement covering the entire period of the loan along with calculation of DSCR. iii) Details of the basis for the profitability estimates, various assumptions made while preparing profitability statements like interest rate, capacity utilization, selling price etc. iv) Brief note regarding the sources available for margin money and schedule of introduction of margin money. v) Details of similar projects if any. vi) For new borrowers seeking project finance exceeding Rs 10.00 crore detailed project report prepared by independent appraising agencies to be insisted. vii) Status of the project as on the date of proposal like whether works have commenced, if so what are the works completed etc. Auditors/valuers certificate in support of the statement. viii) Schedule of project implementation. ix) In the case of individuals seeking term loan for purchasing vehicle, house etc for personal use, then copies of Income Tax returns filed for the last three years along with projected income for period covering tenure of the loan shall be furnished.

Points to be verified: a) Whether projections and profitability statements are realistic and achievable. b) Whether the basis, assumptions made while preparing the profitability statement are realistic. C. Common to working capital finance & project finance. i) Audited Financial Statements for the last three years along with tax audit report in Form No 3CB, 3 CD wherever applicable. All schedules forming part of audited balance sheet like schedule of fixed assets, schedule creditors, schedule of debtors etc shall be obtained. ii) Provisional financial statements till the date of application. Or at least monthly sales and purchases figures till the date of application. Points to be verified from financial statements: Balance Sheet: a) Whether profit is ploughed back and capital is improved over the years or the capital is withdrawn/eroded. b) Whether short term funds are diverted for long term uses like acquiring fixed assets, investment in group concerns etc. c) Movement of Net Working Capital (NWC). d) Whether any interlocking of funds is observed between group concerns. e) In the list of debtors whether any old debt which are not recoverable is observed. f) Whether the detailed list of stock statement contain any obsolete stock. g) Whether the stock furnished in monthly stock statement as on March every year tally with the figure furnished in the balance of even date. h) Whether variations are observed between provisional and audited financial statements furnished. If yes, satisfactory explanations for the variations shall be furnished. i) Whether proportionate capital/ long term funds are introduced/ brought in as envisaged. If not explanations for variations shall be furnished. j) Whether all the assets/ machineries/construction of building as envisaged in the project report are acquired/completed. If any variation is there, details of prior permission obtained from the sanctioning authority shall be furnished. Trading, Profit & Loss Account: a) Whether sales turnover, gross profit and net profit are showing steady increase over the years or not. If not, reasons for such variations. b) Whether sales turnover, profitability are as per the projections furnished while seeking credit limits. If not, reasons for variations.

c) Whether any change in the policies of the borrower like in depreciation, valuation of stocks etc is made during the year which has resulted in boosting of profits. Auditors Report/ Directors Report: a) Whether Auditors report and Directors report has any comment which is likely to have adverse effect on the performance of the borrower. Whether it has got any comments which will through lights on the future plans of the borrower. iii) Sales Tax/VAT assessment orders of the firm/company for the last three years at the first instance and thereafter latest available every year. iv) Income Tax assessment orders of the firm/company for the last three years at the first instance and thereafter latest available every year. v) Income Tax assessment orders /Wealth Tax assessment orders of the individual partners of the firm/directors of the company for the last three years at the first instance and thereafter latest available every year. vi) If latest tax assessment orders are not available, then at least auditors certificate to the effect that all tax liabilities stand paid by the firm/company. vii) Auditors certificate to the effect that all the statutory dues of the borrower has been paid up to date. III: Related to Securities: A: Primary Security: i) Detailed list of stocks as on date of application or as of nearest date of the credit proposal duly verified and certified by the Branch Head. ii) Detailed list of debtors with age wise classification of debtors duly certified by the Branch Head. iii) In the case of loan for acquiring assets, invoice for the asset/s shall be obtained and furnished. Before submitting the same discreet enquiry shall be conducted and ensured that the firm/company issuing invoice is an authorized dealer for the same. iv) In the case of project finance, if construction is involved, detailed estimates for construction duly certified by valuers. Permission for construction issued by Competent Authority. B: Collateral Security: i) Legal opinion on the property offered as collateral security from an advocate in our panel of legal advisers. Any conditions in legal opinion shall be complied with before furnishing the same to sanctioning authority. Broken period EC and latest tax paid reciepts shall be obtained and verified. ii) Valuation report on the property offered as collateral security from the valuer in the panel of banks approved valuers. Branch representative shall accompany the valuer while valuing the property and affix the certificate as required. Any riders in the valuation which is likely to affect the realizable value of the property at a future date shall be discussed in the valuation report and value of the property shall be arrived at accordingly.

iii) In the case of high value real estate exposure of Rs 2500.00 lakhs and above valuation shall be obtained from two valuers in the panel. iv) If machinery/vehicles are taken as collateral then valuation report of such machineries duly discussing the remaining life of the asset. v) In all the cases it shall be verified whether valuation is more than 3 years old and if so whether fresh valuation is obtained and enclosed. As far as possible revaluation shall be obtained from the valuer other than one who has furnished the earlier valuation. v) If life policies are offered as collaterals, surrender value of the policies shall be obtained and informed to the sanctioning authority. vi) In the case of equities offered as collaterals, average price during the immediate preceding 12 months as well as market price as on the date of proposal shall be furnished to the sanctioning authority. IV: Related to conduct of accounts in the case of existing borrowers: a) Overdraft limit: i) Details of transactions in the OD account in Form No 163/921 for full financial year i.e from first April to 31 March of previous year and also for broken period i. e from first April of current year to till the date of the proposal. Points to be discussed in connection with operations in OD account: a) Whether the credit summations in the OD account are in commensurate with the sales turnover of the borrower during the period under reference. If not, variations have to be explained/substantiated. b) Whether fluctuations are observed in the OD account or whether the limit is always fully drawn. c) Whether frequent over drawings are observed in the OD account and if so the reasons for such frequent over drawings and the details of approvals. d) Whether cheques issued by the borrower are returned for want of funds and if so reasons for the same and steps taken by the borrower to avoid recurrence of such instances. e) If cheques issued favouring the borrower is returned unpaid by their bankers and if so whether it has to do anything with the quality of product/service provided by the borrower. Bills Limit: a) List of the major buyers of the applicant on whom bills will be drawn. a) Whether confidential report on the drawees of the bills are obtained from their bankers and held in the case of non LC bills. b) In the case of LC bills whether LC are issued by prime banks and if not whether report is obtained and held. c) Whether bills are realized by due date. If not what is the average delay in realization of bills and what are the reasons for the same.

LC Limit: a) Whether the commitment under LC is honoured on due date by the borrower. If not what is the average period taken by the borrower to reimburse the liability. What are the reasons for not meeting the LC commitment on due date and what are the steps initiated by the borrower to avoid devolvement of LC bills. If the devolvement is on a regular basis and the firm does not give proper plan of action to avoid such situation it is better not to recommend LC limit at all. BG Limit: a) Whether any BG is invoked by the beneficiary. Reason for such invocation. Whether the amount of such invoked BGs are reimbursed by the borrower in time. b) If any invoked BG is not paid by the branch for any reason like court order or so, latest position of such cases. c) Details of expired BGs. Reasons for non reversing of expired BGs and steps taken to reverse expired BGs. Term Loans/DPN Loans: a) Whether interest and instalments on loans are serviced in time. If not reasons for delayed servicing of interest and instalments on loans. Control Returns: i) Whether stock and book debts statements in prescribed format are submitted regularly. ii) Whether QOS returns wherever applicable are submitted regularly. iii) If the above two control returns are submitted belatedly then whether penalty is collected as required. V: General: i. Application for credit facilities in appropriate form duly filled in and signed by the applicant/s. ii. Branch credit proposal in prescribed format all columns duly filled in and signed by the Branch Head. iii) Credit Report in Form No 149/1052 duly verifying the figures in relevant documents. iv) Individual credit Reports of all the partners in the case of partnership firm, of Directors in the case of Limited Companies, of co- obligants/guarantors duly filled in verified with supporting documents and certified by the Branch Head. v) Schedule of properties/ deposits/ life policies/ machineries/ Government securities/ shares etc in respective forms depending upon the nature of securities offered. vi) Copy of rent/lease agreement along with latest rent paid receipts of the premises where business is conducted and where stocks are stored. It should

be ensured that the lease agreement does not contain any prohibitive clause for entry of bank personnel nor house the assets financed by the Bank. vii) Letter of intent, dealership letter, sales tax/vat registration, registration with PWD/CPWD and similar documents supporting conduct of the proposed business depending on the nature of business activity of the borrower. viii) Declaration from the borrower regarding his relationship if any with the Directors/ Senior Executives of the Bank. ix) Information as to whether the borrower is in the defaulters list of RBI/CIBIL/ECGC/SAL etc. x) Information regarding any legal action taken and pending against the borrower by any other bank and financial institutions. xi) Details of group/associate concerns like names of partners/directors, nature of activity, bankers, credit limit enjoyed there, status of account etc. xii) If the credit limits are under multiple banking arrangements, then details of credit limits enjoyed with the other bank/s, information regarding conduct of the accounts there, status of the accounts there etc. xiii) If the credit limits are under consortium arrangements, then copy of the appraisal note prepared by the consortium leader along with details of credit limits enjoyed with other member banks and status of the accounts there. xiv) If the credit limits are to be take over from other bank, then confidential opinion from that bank and statement of account for one full year from that bank. Whether take over norms of the Bank are complied with. Copies of sanction orders of all the outstanding credit facilities shall be obtained and furnished. xv) Copies of statutory clearances obtained like from Municipal Corporations, Environment Department, Forest Department, Pollution Board etc. xvi) Copies of Rating obtained if any from any one of the external rating agencies for credit exposures exceeding Rs 10.00 crore. xvii) Deviations if any from the Loan Policy of the Bank and justification for the same. xviii) SWOT analysis of the applicant in the case of credit proposals exceeding Rs 1.00 crore. xix) Compliance to internal inspection/RBI inspection, Credit/Stock audit, Concurrent Audit, Offsite Surveillance by RMD observations. xx) Details of exchange of information between lending institutions in the case of lending under Multiple Banking Arrangements and under Consortium Arrangements. xxi) Insurance details on securities wherever required including renewal details. xxii) Confirmation to the effect that all previous sanction terms and conditions are fulfilled by the branch. If not, reasons for non compliance and reference of the permission obtained by the sanctioning authority for the same.

xxiii) Broken period/up to date EC and latest tax paid receipts on the property/ies mortgaged. xxiv) Sales Tax/VAT registration certificates containing Tax Identification Number (TIN), registration certificate under Shops & Establishments Act, Service Tax Registration etc. xxv) Telephone numbers and e mail ID of the applicant company/firm. Also residence telephone numbers, mobile numbers and e mail ID of individuals/partners, Directors, co-obligants, guarantors.