Credit Policy ,

Credit Information
Bureau
& Principle of
Lending
PGDM 2012-14

Idea Banks Balance sheet

Assets /Liabilities
Tier-I & Tier-II capital,
Top Line & Bottom Line
Capital adequacy ratio
Risk perception :Risk = Quantum of Loss

Types of Capital
Tier-I : Paid up Cap, Statutary Reserves &
other free Reserves,
Cap out of Sale proceeds of Assets
Tier II : Subordinated Debt, Hybrid Debts
Revaluation Reserve of F.A. at disc of
55% ,General Provisions & Loss
Resv .
to Maxm . Of 1.25% weighted Risk
Assets

Credit Policy
[RB 105 -123]

1.
2.
3.
4.
5.
6.
7.
8.

Objective : Why Bank Credit,

Cardinal Principles of lending for Quality
Loan Policy & Exposure Norms
Sector-wise deployment of credit
Lending Rates
Monetary & Credit Policy of RBI
Appraisal Techniques
Credit Administration.

(1)Basic Objective
Balanced growth with sound Risk
management culture and practices.
Focus on Qualitative credit
Attain Targeted C D Ratio
Enlarge clientele base through Credit
Marketing
To optimise yield on Advances ,
To increase NF & NI business
New & Innovative product development
Credit discipline at all levels
Due compliance of all regulatory
requirements.

(2)Cardinal Principal of
lending

Safety
Security
Profitability
Purpose
Liquidity
Diversification of Risks

(3)Exposure Management
Individual & Group Exposure limits:
1. Prudential exposure of the bank for its fund
and non-fund based activities for an individual
borrower and group should not exceed 15% &
40% respectively of the Banks capital fund.
2. It may go up to 20% & 50% for credit to
infrastructure projects.
3. The exposure of a bank to NBFC/NBFC- Asset
Finance Company should not exceed 10%/15%
resp., of banks capital funds (5% more for
infrastructure sectors)
4. 5% more, in exceptional circumstances with
the approval of MCBOD.

Exposure Management
Unsecured Exposure shall not exceed
25% of total outstanding advances.
PSC: 40% of ANBC
Agricultural Advances: 18% of ANBC,
of this indirect lending in excess of
40% of ANBC will not be reckoned for
computing perform under 18% target
Small Enterprise advances will be
under PSC.
Micro Enterprises within Small
enterprises: 40% for micro
(manufacturing) 5 lacs & micro
(service) 2 lacs
20% of SE to micro (manufacturing)
25 lacs & micro (service) 10 lacs.
Weaker sections:10% of ANBC

Exposure Managemnt
Portfolio basis
Based on RBI guide lines, Internal Caps on
aggregate commitment to different Specific
sectors are fixed for even spread of exposure.
Depending upon Economic scenario,
downturn
in specific sector, GDP growth, bank fixes
exposure level and Caps on different sectors.
Exposure / Targets for
(i) Priority sector credit

Exposure management.
Contd..

(ii) Retail Credit,

(iii) Infrastructure Lending
(iv) Commercial Real Estate Finasnce,
(v) Export Credit,
(vi) Joint Venture/Wholly own
Subsidiaries
(vii) to share and stock brokers.

Exposure Ceiling
Considering Banks perception of
growth prospects or downturn of any
particular industry, the appropriate
action on extending the required cap
or restricting the cap will be
considered from time to time.
The exposure to the various products
under Retail Credit Scheme to be
monitored based on the annual
budgets under each scheme
Customers guidance to hedge their
foreign currency loan amount.

Prohibited Category of
Exposure

A. STATUORY RESTRICTIONS :Advances against banks own shares

Advances to Banks Directors
Restrictions on holding shares in companies.
Restrictions to companies to buy back their securities.
B.REGULATORY RESTRICTIONS:Granting loan to relatives of directors.
Restrictions on grant of loans to officers & relatives of
senior officers
Loans agst share ,debentures and bonds
Advance agst money market M.Fs
Loan to industries producing/consuming Ozone depleting
substances (ODS)
Advances against Sensitive Commodities under SCC
Willful defaulters, and Promoters involved in
diversion/siphoning
of funds.

Other Restricted Category

of loans
Against FDRs issued by other
banks
Advances to agents based on
consideration of Deposit
mobilization,
Loans against CDs
Finance to NBFC
Issue of BG in favour of FIs,
Against Bullion,
Loans for acquisition of KVPs,
Loans for speculative purposes.

Thrust Areas For Credit

Expansion
Priority Sector Credit
Special Emphasis for SME Finance With CGTSME coverage
Direct Agril Targeted. Govt. Sponsored Schemes,SHGs,
Thrust on National Hort Proj, NABARD proj And
Loan against Ware House Receipt.
Retail Credit.
Exploring Tie ups with
I ) Car/Two wheeler Dealers, (ii) Edu Institutions
(iii) Reputed Builders (iv) Infrastructure Devp Companies
Extending Credit tp Innovative Products Like
(i) Open Term Loan . (ii) Travel loan (iii) Contractor
Finance.
(iii) Real Est Sect Finance(iv) Housg fin Schm for NRI/PIOs
(v) Banks Vehicle Loan etc
Export Credit
Infrastructure Credit
.

(4) Sector-wise deployment

credit.

Corporate Finance
Industry finance.
Wholesale Finance
Retail lending,
Priority Sector Lending
For further details ref to HB 119-120

(5) Lending Rate

BPLR (2003)
Sub- BPLR - A+ Proponents.
Base Rate Concept (wef 1st July 2010)
Floating Rate /Fixed Rate

Monitory &Credit Policy of

RBI

(7) Appraisal Techniques

Understanding borrowers demand
and lenders abiligy
Deciding about appraisal
methodology.
Sanction terms & Documentation.
Charge creation
Disbursement

Components of Credit
Appraisal
Volume & Area of Loan Delivery :Priority, Non Pr
Geographical Spread
Loan Evaluation Mechanism
(a) Industry scenario : Ind. Cycle, Demand
supply position, Threat from comprtitors,
Govt. Reg Guidelines etc.
(b)Op.Efficiency : Optg margin, Steady
growth, Mkt Share, Rm availability,Eco
need

(8) Credit Administration.

To ensure
(i) Strict compliance All the cardinal
principles
(ii) Maintenance of Cap Adequacy norms
(iii)Proper Risk assessment
(iv)compliance of RBI regulatory
requirements
(v) implementation of various Govt Economic
Developmental schemes.

Contd
(c) Financial Eligibility : Capital structure,
N.W, Asset & Liab position., Gr.company
status etc
(d) Financial Efficiency : Cost of Capital,
Coverage Ratios, Financial Leverages, Fund
raising Capacity, W.C. Management,
Quality Asset creation, In,tt rate Structure,
Intt. Rate Risk Management, Tax & Div
Planning. Profitability.
(e) Management efficiency : Experience, efficiency,
(f) Credit Risk Assessment
(g) Security Asessment