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INTRODUCTION TO BANK OF BARODA

Bank of Baroda is a public sector bank established on July 20, 1908. It is one of the largest
banks in India and known as India’s International bank. A network of CBS branches, offices and
ATMs. Bank of Baroda offers wide range of banking products and financial services to corporate
and retail customers through a variety of delivery channels and through its subsidiaries and
affiliates in the area of investment banking, credit cards and assets management, in its international
expansion. Bank of Baroda followed the Indian Diaspora, and especially that of the Gujrates. The
bank has received RBI approval to open various offices in the overseas territory. Its products
includes loans, Credit cards, Savings, Investment vehicles etc. The Corporate office is situated in
Mumbai. Its shares are listed in BSE and NSE.

Backed by the great vision of the founding father, Maharaja Sayajirao Gaekwad III, Bank
has a rich heritage of many flagship achievements, pioneering endeavors and an undisputedly
strong place in the Indian Banking industry today. The Bank of Baroda has seen many ups and
downs over a period of 100 years but stood undaunted to surmount all hurdles, coming out with
flying colors and reinforcing its strong fundamentals. The world was convinced time and again
that this is the bank with impregnable foundation and immense potential to forge ahead to
contribute to the nation’s economic growth.

BRIEF HISTORY

Bank of Baroda has a long, eventful and glorious history of 100 years. Sir Maharaja
Sayajirao Gaekwad III founded the Bank.

The Bank made a humble beginning in 1908 in a small building in Baroda. On 20thJuly
1908. Bank of Baroda Limited was registered under the Baroda Companies Act of 1897, with a
paid up capital of Rs. 20 lacs and Shri Vithaldas Damodar Thackeray as the first Chairman.

In 1918, the Bank crossed the state frontiers by setting up Mumbai Main Office. In the year
1935, Bank became a scheduled Bank. RBI included the Bank in second schedule of RBI and
brought under direct control of RBI.
At the time of Independence in 1947, Bank of Baroda was a regional bank with 48 branches
and at the time of Nationalization in 1969 Bank of Baroda had 433 branches out of which 411
were Domestic and 22 were International.

Nine banks have merged with Bank of Baroda during its journey so far:

 Hind Bank(1958)

 New Citizen Bank of India (1961)

 Surat Banking Corporation (1963)

 Tamil Nadu Central Bank of India (1964)

 Umbergaon People’s Bank (1964)


 Traders Bank Limited (1988)
 Bareilly Corporation Ltd (1999)
 Benares State Bank Ltd (2002)
 South Gujarat Local Area Bank Ltd (2004)

NEW INITIATIVES OF BANK OF BARODA

In the pursuit of becoming a “multi-specialist bank”, the bank took a slew of business oriented and
customer-centric initiatives. The spree of CBS rollouts covering over many branches in India and
overseas, and expansion of ATM network. The bank launched biometric ATMs and took many
other technology driven initiatives such as online payment of direct taxes, Baroda easy pay and
online Railway booking facility.

The Bank believed that, in tune with the spirit of “multi-specialist banking”, the product offerings
should largely cater to the varied life cycle and life style needs of different customer groups. In
this backdrop a number of new assets and liability products were launched. Adding further to the
stream of new wealth management products, the Bank entered into tie-up arrangements with India
Info line Ltd. for offering to its customer’s online e-trading facility in equity and derivatives, and
with a few more global assets management companies for distribution of mutual fund products.
Fully aware of its social role, the Bank contributed materially to the cause of the rural development
of the country in terms of major initiatives taken in rural and agricultural banking. The Bank
identified 500 villages for 100% financial inclusion and adopted many rural areas for their
integrated and over all development.

BANK’S PROFILE

Bank of Baroda (BOB), India’s third largest bank and prominent among the global top 200
banks, It has a century’s financial experience backing it. With an expansion in global business
level by 30% to Rs 3, 36,383 crores, the bank has a network of many branches, offices, and ATMs.
Today Bank of Baroda has international presence across the continents, with a network of 74
offices in 25 countries, including branches of the bank, its subsidiaries and the representative
offices. The bank also has a joint venture in Zambia with 9 branches. The bank’s international
operations today contribute around 20% to its global business and well as 30% to its net profits.
Growing its presence across new geographies and strengthening its equity in existing markets,
Bank of Baroda is on the path to establish itself ’round the clock around the globe’. The bank is
exploring out of the box means to identify novel ways to tailor its growing repertoire of products
and services to meet segment- specific requirements across geographies. Automation-led process
and cost optimization, orchestration of the offices network and greater attention to compliance
with global regulations are aggressively being focused to help the bank achieve its ambitious goals.
Bank of Baroda, gearing to leverage the opportunities that the flat world presents and nimbly
skirting its threats, is charting a coherent strategy to not just cope but break path and emerge with
the winning edge, in the changing global business scenario.

BANK’S CORPORATE GOALS & STRATEGIES:

“To maximize quality growth and profit through enhanced customer orientation with
prudent risk and liquidity management policies and practices in our endeavor to consolidate Bank’s
financial strength”

MISSION STATEMENT:
Our new logo is a unique representation of a universal symbol. It comprises dual ‘B’ letterforms that hold the
rays of the rising sun. They call this the Baroda Sun. The sun is an excellent representation of what our bank
stands for. It is the single most powerful source of light and energy – its far reaching rays dispel darkness to
illuminate everything they touch. At Bank of Baroda, They seek to be the sources that will help all our
stakeholders realize their goals. To their customers, They seek to be a one-stop, reliable partner who will help
them address different financial needs. To our employees, They offer rewarding careers and to their investors
and business partners, maximum return on their investment. The single-color, compelling vermillion palette has
been carefully chosen, for its distinctiveness.
They also recognize that their bank is characterized by diversity. Their network of branches spans geographical
and cultural boundaries and rural-urban divides. Their customers come from a wide spectrum of industries and
backgrounds. The Baroda Sun is a fitting face for their brand because it is a universal symbol of dynamism and
optimism – it is meaningful for their many audiences and easily decoded by all.

Their new corporate brand identity is much more than a cosmetic change. It is a signal that they recognize and are
prepared for new business paradigms in a globalised world. At the same time, they will always stay in touch with
their heritage and enduring relationships on which their bank is founded. By adopting a symbol as simple and
powerful as the Baroda Sun, They hope to communicate both.

International Presence- Along with a huge network of its branches spread across India, Bank of Baroda has its
overseas branches located in 14 other countries, which include Bahamas, Bahrain, Belgium, China, Fiji Islands,
Hong Kong, Mauritius, Republic of South Africa, Seychelles, Singapore, Sultanate of Oman, United Arab
Emirates, United Kingdom and United States of America. Apart from it, the bank has established its subsidiaries
in 7 countries viz. Botswana, Ghana, Guyana, Kenya, Tanzania, Trinidad & Tobago and Uganda, and its
representative offices in 3 countries which are Australia, Malaysia and Thailand.

Business & Financial Metrics


Retail Business continued to be one of the thrust areas for achieving business growth during FY18. In order to
achieve the sustained growth of assets/ liabilities, the Bank had improved and customized several retail lending
products.

Retail Loan outstanding as on 31st March 2018 was Rs 24,247.71 crore as against the level of Rs 19,627.55 crore
as on 31st March, 2017. A growth rate of 23.54% (Rs 4,620.16 crore) was registered during FY18 as against the
growth rate of 16.19% (Rs 2,723.35 crore) posted during FY17. The amount of Non Performing Assets as on 31st
March, 2018 under the Retail Loan segment is Rs 511.77 crore (2.11%) as against the level of Rs 487.25 crore
(2.48%) as on 31st March 2017 and Rs 507.72 crore (3.01%) as on 31st March 2016

Bank of Baroda has announced its audited results for the fourth quarter of 2017-18 (or Q4, FY18) and for the
entire year 2017-18 or FY18 (April-March), following the approval of its Board of Directors on April 28, 2018

RESULTS AT GLANCE

Results for Q4, 2017-18(result at glance)

Q4 (2017-18) Q4(2016-17) Change (in %)

Total Income# 5,120.73 4,992.41 2.57


Interest Income 4,353.84 4,138.78 5.20
Other Income# 766.89 853.63 -10.16
Total Expenses 3,573.40 3,687.93 -3.11
Interest Expenses 2,608.89 2,667.99 -2.22
Operating Expenses 964.51 1,019.94 -5.43
Operating Profit# 1,547.33 1,304.48 18.62
Total Provisions (incl. Tax prov.) 722.50 551.79 30.94

Net Profit 906.28 752.69 20.41

BANK’S VISION:
 To double its global business size within next 2-3 years

 To regain the leadership spot among the public sector Banks in India.

 To acquire at least 2 million customers every year.

 To double the retail assets and fee based income.

 To bring at least 300 to 400 of the top 500 Corporate in the Bank’s Loan book.

 To transform the top 500 branches into best of the breed sale and service centers, through
improved ambience, processes, people and technology.

 To pursue best global practices for delivering best value to the customers.

OTHER GOALS:

 To increase advances by 24% and to record an incremental rise of Rs. 20705 crore.

 To affect recoveries of at least Rs. 350 crore in the prudentially written-off (PWO)
accounts.

 To increase the customer- product ratio through aggressive cross selling and up-selling of
bank’s products, as well as third party products, to at least 1:2.

 To improve usage of ATMs to reach at least 300 transactions per ATM per day.

 To increase Priority Sector Credit by 22%.

 To increase advances to SME by 21%.

 To increase outstanding Retail Credit by 20% i.e. by Rs. 3300 crore.

 To improve Return on Average Assets (ROAA) to 1.25%.

 To generate fee income of Rs. 100 crore from Wealth Management Services.

Business Strategy
 Focusing upon customer needs and preferences and fulfilling them in a cost effective manner
by leveraging strong technology platform
 Attain a well balanced growth in its loan book across different sectors like retail, SME,
agriculture, wholesale etc. and across different geographies
 Further strengthen its systems for credit origination and monitoring
 Maintain a high provision coverage ratio to protect the quality of its asset portfolio from any
downside growth risks
 Develop innovative products and services that attract targeted customers and address
inefficiencies in the Indian financial sector
 Back office functions moved to hub, so branch staff can spend time with customers

RETAIL BANKING: AN OVERVIEW

Retail banking refers to the banking in which banks undergo transactions directly with
consumers, rather than corporations or other banks. It can also be defined as typical mass market
banking in which individual customers are local branches of large commercial banks. Services
include Savings and checking account, Mortgages, Personal loans, Debit card, Credit card.

Retail banking aims to be the one shop for as many financial services as possible on behalf
of retail clients. Some retail banks have even made a push into investment services as wealth
management, brokerage accounts, private banking and retirement planning. While some of these
ancillary services are outsourced to third parties (often for regulatory reasons), they often intervene
with retail core banking accounts like checking and saving to allow for easier transfers and
maintenance.

Retail banking is, however quite broad in nature. It refers to dealings with commercial
banks with individual customers, both on assets and liability side of the balance sheet. On the
liabilities side, it includes fixed/current, savings accounts and on assets side the most important
products offered by the banks are mortgages and loans (personal, housing, auto education) related
ancillary services include credit cards and depositor services.
Today’s retail banking sector is characterized by three basic characteristics:

 Multiple products (deposits, credit cards, insurance, investments and securities).

 Multiple channels of distribution (call centre, branch, internet and kiosk).

 Multiple customer groups (consumer, small business, corporate).

Across the globe, retail lending has been the most spectacular innovation in the commercial
banking sector in recent years. Retail loans comprise consumer credit for specific purpose and
credit for general use. The surge in credit to the retail segment across developing as well as
developed economies has occurred due to commercial bank shifting from traditional banking
activities to a broad based lending portfolio.

RETAIL BANKING IN INDIA

Retail Banking in India is not a phenomenon. It has always been prevalent in India in various
forms. For the last few years it has become synonymous with main stream banking for many banks.

Within the retail segment, the housing loans, which formed nearly 48% of total retail
portfolio had the least gross asset impairment at 1.9 % while consumer durables segment had the
highest gross asset impairment at 6.3%.While retail banking has always been prevalent in various
forms (for instance, co-operatives) for last few years it has become synonymous with main stream
banking for banks.

While new generation private sector banks (ICICI bank, accounting for nearly 20% of
domestic retail growth) have invested in creating and sustaining a retail brand, their public sector
counter parts too, have, have not lagged behind. Leveraging their vast branch and outreach, public
sector banks like SBI whose retail segment constitutes 20% of the total advances have aggressively
forayed to garner a larger slice of retail pie. However, There are various corners as to whether
retail lending has emerged as an efficient channel for improving access to credit and promoting
broad based development. At present retail lending is largely confined to urban and metropolitan
regions. Expressing concerns about the high growth witnessed in the consumer credit segments
the Reserve Bank has, as a temporary measure, put in place risk containment measures and
increased the risk weight from 100% to 125% in case of consumer credit including personal loans
and credit cards.

The typical products offered in the retail baking segment are housing loans, consumption
loans for purchase of durables, auto loans, credit cards and educational loans. The loans are marked
under attractive brand names to differentiate the products offered by banks. The loans are marketed
under attractive brand names to differentiate the products offered by banks. The loan values
typically range between Rs. 20,000 to Rs. 1.00 lacs. The loans are generally for duration of five to
seven years with housing loan granted for a longer duration of 15 years.

An important characterstic of retail banking assets in the comparatively low loan values.
In order to appraise such loans, banks are using more refined credit assessment methods. These
include credit scoring models and income surrogate models. In addition, banks are also using data
sharing as a means of improving the selection of customers and reduction of credit losses. In the
absence of fully fledged Credit Bureaus, The negative data sharing extends to sharing of data on
hot listed credit cards besides using bank’s own internal black lists.

After all retail loans constitute less than 7% of GDP in India vis-à-vis about 35% for other Asian
economies- South Korea(55%), Taiwan(52%), Malaysia(33%), and Thailand(18%). As retail
banking in India is still growing from modest base, there is likelihood that the growth number seem
to get somewhat exaggerated. One thus has to exercise caution in interpreting the growth of retail
banking in India.

Advantages of Retail Banking:


Advantages of Retail Banking are given below
 Retail deposits are stable and constitute core deposits.They are interest insensitive and less
bargaining for additional interest.
 They constitute low cost funds for the banks.
 Effective customer relationship management with the retail customers built a strong base.
 Retail banking increases the subsidiary business of the banks. It results in better yield and
improved bottom line for a bank as a retail segment is a good avenue for funds
development.
 Consumer loans are presumed to be of lower risk and NPA perception.
 Retail banking helps economic revival of the nation through increased production activity
as Retail banking improves lifestyle and fulfils aspirations of the people through
affordable credit.
 Retail banking involves minimum marketing efforts in a demand-driven economy

RETAIL LOAN
Before discussing about retail loan, we should clear the meaning of a loan.

What is a Loan?

A Loan is a type of debt. It can be described as the act of giving money, property or other
material goods to another party in exchange for future repayment of the principal amount along
with interest or other finance charges.

A borrower may be subject to certain restrictions known as loans covenants under the terms
of loan. The terms of standardized loan are formally presented (usually in writing) to each party in
transaction before any money or property changes hands. If any lender requires any collateral, this
will be stipulated in the loan documents as well. Most of the loans also have legal stipulations
regarding the maximum amount of interest that can be charged, as well other covenants such as
length of time before repayment is required. Loans can come from individuals, corporations,
financials and governments. They are a way to grow the overall money supply in an economy as
well as open competition, introduce new products and expand business operations. Loans are the
primary source of revenue for many financial institutions such as banks, as well as some retailers
through the use of credit facilities.
Types of Loans

Secured Loans

A secured loan is loan in which the borrower pledges some asset (e.g. a car or property) as
collateral for the loan.

A mortgage is a very common type of debt instrument, used by many individuals to purchase
housing, sin this arrangement, the money is used to purchase the property. The financial institution,
however, is given security – a lien on the title of the house- until the mortgage is paid off in full.
If the borrower defaults on the loan, the bank would have the legal right to repossess the house and
sell it, to recover sums owing to it.

Unsecured Loans

Unsecured loans are monetary loans that are not secured against the borrowers assets. Or we can
say that an unsecured loan is a loan that is not backed by collateral. Also known as a signature or
personal loan.

These may be available from financial institutions under many different guises or marketing
packages:

 Credit card debt.


 Personal loan.
 Bank Overdraft.
 Credit facilities or lines of credit.
 Corporate Bonds

The Interest rates applicable to different forms may vary depending on the lender and the borrower.
These may or may not be regulated by law. Now after we have understood the real meaning of a
loan, let’s proceed towards the meaning of retail loan.
 What is Retail Loan?

Retail loans are the loans which offered to individual customers to fulfill their personal
needs.

The key components of retail loan portfolio are:

 Housing Loan

 Education Loan

 Auto Loan

 Traders Loan

RETAIL LOAN FACTORY


THE BEGINING

With the advent of economic reforms in the country, retail lending has emerged as one of
the key thrust area of banking. Almost all banks are repositioning themselves as retail banks.
Housing is a growing and major sector under retail segment, in which every bank is trying to
increase its share as per its ability and competitiveness in delivering timely credit. Bank of Baroda
which has been making rapid strides to emerge as a truly customer- centric and technology enabled
initiatives is fast extending its foot prints in service of retail customers. Through a business
transformation program called Project Parivartan, which means change, the bank is endeavoring
to reposition itself as a Sales and Service Organization.

GENESIS
By virtue of large amount per account and relatively higher demand, housing loans have
grown speedily and their proportion in the total retail loans has been around 15% at the industry
level. However, it has been observed that processing of housing loan proposals takes very long
time. Diagnostically speaking, one such reason is the inability of the branch to handle all aspect of
loans starting with marketing/mobilizing loan proposals to finally disbursing and servicing it
thereafter. With multifarious functions, handling large number of accounts poses difficulty to
branches and often results in longer turnaround time of proposals, which irritates the customer and
ultimately may mean loss of business to the bank.Therefore a need was felt for setting up a
structure, which may help in establishing standardized appraisal and evaluation techniques and
adoption of risk management practices. Specialization in due diligence functions will help the bank
in preventing occurrence of frauds and commission of irregularities. Speedy delivery of decisions
will automatically enhance customer satisfaction and customer services standers.

Banks above concern has given evolution to Retail Loan Factory, a unique customer centric
initiative being taken under Project Parivartan. Through Retail Loan Factories, the bank is aiming
to deliver a global standard of service through a committed team of employees, by using simplified
processes that are fast, accurate and efficient and are supported by state of the art technology. The
retail loan factory comprises of two complementary units i.e. Sales wing and Centralized
Processing Cell (CPC).

PROCEDURE OF LOAN

Loan application and appraisal flow

Incoming application

File Creation & Order Data Entry Operators


Processing
Advocate/value
Field Officer/ order for
verification report
inspection

Credit Officer Completion of Loan file

Document preparation Files for Storage

Courier stamped
Fax Sanction Letter
documents

Branch Network

RETAIL LENDING PRODUCTS

GENERAL PROVISIONS: The following are the provisions genrally followed by


bank:-

1-“KNOW YOUR CUSTOMER”

 KYC guidelines for advances should be scrupulously followed.


2-AGE:

 Principal borrower must have attained, except in case of education loan, age of 21 years.
However, a co-borrower having age of 18 years and above may be accepted.

 The present age of the borrower plus tenure of the loan should not exceed the cut off age
at which regular cash flow ceases. Therefore, in case of salaried persons, the date of
superannuation/retirement may be taken as cut- off date, whereas, for self- employed, it
may be taken as 65 years except loan to pensioners

3-EMPLOYMENT/INCOME STATUS:

 Bank should lend to the applicants who are employed or self employed and have stable
source of income except where specifically approved under the schemes viz. Loan to
pensioners/defense pensioners and education loans to students.

 Maximum eligible amount of loan under any retail product is computed/ determined on the
basis of present/ current income.

4-REPAYING CAPACITY:

 Any loan should be considered according to debt repaying capacity of the borrower. It is
presumed that an individual will require 40% of his gross income for his/her subsistence
needs. Therefore total deduction including repayments towards existing and EMI of
proposed loan should not be more than 60% of income of the applicant.

5-NATURE & CONDITION OF THE PROPERTY:

 As per the Act, in most of the states, agricultural land cannot be charged/mortgaged for
securing debts other than agricultural purposes.

 Therefore, agricultural land should not be taken as security in retail loans, except where
ever permitted under the Act of respective State Government.
 A property under litigation with the court of law/dispute with the local authorities/ family
dispute should not be considered for finance or taken as security.

 The branch should not lend to an applicant against the existing property, which is in poor
condition. The branches should also refrain from considering an advance against the
property occupied by tenants except as specifically provided in the concerned products.

6-CONDUCT OF THE ACCOUNT & DEALINGS OF THE APPLICANT:

 If the applicant is dealing with our bank/ branch, conduct of the account for a minimum
period of 6 months and repayment of existing loans should be pursued and satisfy about
satisfactory conduct of the accounts.

7-CREDIT RATING:

 Credit rating has been stipulated in the following Retail Products, hence, while considering
any proposal relating to these products, credit rating is a relative module should be carried
out and proposal be considered if applicant secures minimum “C” category except
Education loan proposals.

 Credit rating of the customers are very important as now a days there are a lot of frauds
are happening in the economy
8-DISCRETIONARY LENDING POWERS:

 All retail loans to public may be considered by sanctioning authority up to the amount
secured/ unsecured advances normal discretionary lending powers as his/her substantive
rank.

 Staff Related a/cs – Branch managers/ Other sanctioning authorities may consider all retail
loans to the relatives of staff members, other relatives of senior officers i.e. officers in grade
of scale IV and above, as per normal lending discretionary powers of their substantive rank.

 As per extent guidelines, the staff members can avail following loans only under public
schemes.

Baroda Home Loan.


Vehicle Loans i.e. Car & Two wheeler.
Baroda Advance against Securities.
Baroda Education Loan (Till son/ daughter of the staff is minor)

9-INSPECTION OF SECURITIES:

 Following periodicity should be followed by the branches for inspection of securities in


respect of Retail Loans:

Baroda Housing Loan: At the time of every disbursement in case of construction


purchase of the house, thereafter once in three years, is the account is regular.

Baroda Advance Against Property: Once in two years.

Baroda two Wheelers/ Car Loans: Yearly.

Baroda Traders Loan: Yearly in March.

Baroda Professional Loan: Yearly in March.

10-VALUATION OF IMMOVABLE PROPERTY:

Value of property to be financed/ mortgaged should be assessed at prevailing market rates;


overvaluation of the property should be avoided.

 Condition of Valuation of properties once in three years has been waived in respect of those
Retail Loan a/cs which are regular and classified as Standard except cases mentioned here
under.

Valuation of immovable properties mortgaged in respect of retail products extended for


professional/ Business needs i.e. Baroda Traders Loan, Baroda loan to Doctors, Baroda
professional Loan should be got done once in every three years.

Properties charged to Bank in Overdraft facility under any Retail Product should also be
got valued once in three years.

Valuation in NPA a/cs will be got done once in three years as per existing guidelines.
 Subsequent valuation should not be entrusted to the same valuer, who had valued the
property earlier.

11- RECOVERY:

 Except where advance is self liquidating and repayment is fixed or deduction of


installments is assured by employer at source, the branches should invariably obtain PDCs
in all cases to ensure regular recovery in retail loans.

12-DEVIATIONS FROM THE NORMS OF ANY PRODUCT:

 In case of any bulk business or any proposal of existing valued customer warrants any
deviation from the norms stipulated in any scheme, such cases should be referred to
competent authority.

 On the approval of deviations by competent authority, credit decision will be taken as per
lending discretionary power of sanctioning loan.

13-PRIORITY SECTOR CLASSIFICATION:

In terms of guidelines issued by RBI, following retail loans will be classified and categorized
as priority sector advance.

 Housing Loan:-

Loans up to Rs. 20 lacs irrespective of locations, for construction of houses.

Loans for repairs and renovations up to Rs1 lac in rural and semi urban areas and up to
Rs 2 lacs in urban areas.

 Education Loans: - All loans granted to individuals for educational purposes.

 Traders Loan: - Credit facilities granted to individuals for educational purposes.


 Loan to Doctors:-
Credit limits up to 10 lacs of which not more than Rs. 2 lacs should be working capital
requirement.
Credit limits up to 15 lacs with a sub ceiling of Rs. 3 lacs for working capital
requirement.
Loans granted to business enterprises for purchase of equipments for their business up
to Rs. 20 lacs.
 Professional Loan:-
Credit limit up to Rs.10 lacs of which not more than Rs. 2 lacs should be for working
capital requirement.
Credit limits up to Rs.15 lacs with a sub ceiling of Rs.3 lacs for working capital
requirement.
Loans granted to business enterprises for purchase of equipments for their business up
to Rs.20 lacs.

14-OTHER PROVISIONS:

 Branches should ensure not to sanction more than one retail loan on the same property
except where ever specifically allowed in any retail product.

 The terms and conditions should be advised to the borrower / guarantor, if any in writing
and his/their acceptance should be obtained.

 If there is more than one branch at the centre, the branch should ensure before considering
the loan application, that the applicant is not enjoying any loan from any other branch at
the centre with the help of “Borrower wise search utility programme” based on ASCROM
data.

 The branches sanctioning authorities should access CIBIL report to assess the present
borrowing of the applicant and conduct of repayment.

 Personal Accidental Insurance- Bank as a value preposition provides Personal Accidental


cum Property insurance in some retail products. The liability of insurance company in such
cases is restricted to the following:

Amount outstanding in concerned loan accounts on the date of eventuality. For this
purpose amount outstanding will be determined on the basis of repayment schedule
(i.e. excluding default in repayment).
Actual loss assured(in case of property)

Sum insured.

15-NORMAL DOCUMENTS TO BE OBTAINED IN ALL CASES:

 For Salaried Individuals:

Passport size photograph

PAN card.

Proof of residence

Salary certificate/3 salary slips from employer of which one should be of latest month.

Form no. 16.of three years.

 For Self-Employed & Professional:

Passport size photograph.

PAN card.

Proof of office Address, which may include Shop and Establishment Certificate/Lease
Deed/ Telephone bills etc.

IT returns and financial statements for the last three/ two financial years, as specifically
provided in the product.

Copy of registration/License/Govt. approval required to pursue the profession if any.

Proof of qualification, where ever required.

16- OTHER PROVISION:

 Value of property to be financed/ mortgaged should be assessed at prevailing market


rates. Overvaluation of property should be avoided..
 The terms and conditions should be advised to the borrower/guarantor, if any, in writing
and his/their acceptance should be obtained.

 If there is more than one branch at the centre , the branch should ensure before
considering the loan application, that applicant is not enjoying any loan from any other
branch at centre with help of ”Borrower wise search utility programme” based on
ASCROM data.

 The branches/ sanctioning authorities should access CIBIL report to assess the present
borrowing of the applicant and conduct of repayment.

Retail loan products: A Description


Previous Products Existing Products

1.Baroda Home Loan Baroda Home Loan


2.Baroda Home Improvement Loan
3.Baroda Home Loan to NRIs/PIOs
4.Baroda AAA to residents/ NRIs

8.Baroda Car Loan Baroda Auto Loan


9.Baroda Car Loan to HNIs/Corporate
10.Baroda Loan for two Wheelers

11.Baroda advance against property Baroda Mortgage Loan


12.Baroda advance against property to NRIs
13.Baroda loan to Professionals
14.Baroda Marriage Loan
15. Baroda Personal Loan Baroda Personal Loan
16. Baroda Vaibhav Laxmi
17.Baroda loan to Pensioners
18.Baroda loan to defence Pensioners.
19.Baroda loan for Earnest money deposit
20.Baroda loan for consumer durables
21.Baroda loan for Laptop and PCs
22.Baroda Desh Videsh Yatra loan

23.Baroda Ashray Baroda Ashray


(Reverse Mortgage Loan) (Reverse Mortgage Loan)

24.Baroda loan to Doctors Baroda loan to Doctors

25.Baroda Traders loan Baroda Traders loan

26.Baroda Loan against Security Baroda Loan against Security

It is clear from the above that the existing 26 products are realigned into 9 products. For the existing
accounts it may continue under its existing classification but in case of fresh loans, it should be
sanctioned under any of 9 realigned products only depending upon security and purpose.
BARODA HOME LOAN
PURPOSE:

 Purchasing of new residential house /flat and construction of new dwelling unit

 Purchase of old dwelling unit(not more than 25 years old).Beyond 25 years regional head
permission required subject to ascertaining structural soundness/residual life of the
building(5 yrs more than the repayment period)

 Purchase of plot of land, subject to construction thereon 3 years

 Takeover of loan already availed from any other bank /HFCs and/or other sources, provide
documentary evidences are produced.

 Reimbursement for houses/ flats constructed / purchased (not prior to 24 months) from own
sources.

 Loan for purchase /construction of second house can be considered

ELIGIBILITY:

 All individuals singly or jointly.


 Principal applicant must be employed minimum for three (03) years.

 Minimum Age – Principal Borrower – 21 yrs and Co-borrower - 18 yrs (Salaried Person -
repayment period shouldn’t be beyond retirement age and for others – 65years).

LIMIT:

 The maximum limit is Rs 100 lacs. (Branches have to seek approval from higher authority,
if loan exceeds Rs 50 lacs).

INCOME CRITERIA:

Monthly Income Modified Criteria

Up to Rs. 20,000/- 36 times of monthly income

Rs.20,000- Rs1 lac 48 times of monthly income

More than Rs. 1 lac 54 times of monthly income

MARGIN:

Amount of loan Purpose Margin

Up to Rs.20000/- Purchase of plot 20%

House/flat already constructed from own resources 25%

All other cases 20%

Above Rs.20,000/- Purchase of plot 20%

House/flat already constructed from own resources 20%

All other cases 15%

Floating Rate
Tenure <30 lacs >30 lacs
Up to 5 years 3.50% below BPLR 2.75%below BPLR
i.e. 8.50% i.e. 9.25%
5-15 years 3.25%below BPLR 2.50%below BPLR
i.e. 8.75% i.e. 9.50%
15-25 years 3.00%below BPLR 2.25%below BPLR
i.e. 9.00% i.e. 9.75%

Fixed Rate

Tenure <30 lacs >30 lacs


Up to 5 years 2.50% below BPLR 1.75% below BPLR
i.e. 9.50% i.e. 10.25%
5-10 years 2.25% below BPLR 1.50% below BPLR
i.e. 9.75% i.e. 10.50%
10-15 years 2.00% below BPLR 1.25% below BPLR
i.e. 10.00% i.e. 10.75%

REPAYMENT:

 Maximum 25 years ( including moratorium period of 18 months )

 Age of the borrower plus repayment period should not exceed :

Retirement age in case of salaried

65 years in case of others

 The repayment period in case of salaried persons can be extended up to 65 years in case
drawing pension subject to condition that 40% of the pension is sufficient to pay EMI.

 Interest charged during the pre – EMI period is to be recovered as and when debited, before
commencement of recovery by EMI
SECURITY:
 Mortgage of the property constructed/purchased. If mortgage is not available, branch can
accept, at its discretion, security of adequate value in the form of collateral as may be
deemed adequate include third party from guarantee from individual.

 Create equitable mortgage by obtaining following documents duly supported with the
advocates search report and opinion of titles of the land as also on the agreement to sale.

Duly stamped and registered original agreement to sale executed by builder in favor of
borrower.

Original receipt in respect of registration of “Agreement to sell”

Copy of the map of the building duly approved by the appropriate authority.

NOC from the builder for creating mortgage and noting of Banks lien if the building is
under construction.

Share certificate, if society is formed, duly supported with NOC from the society for
creation of mortgage and noting of our lien in society’s record.

PROCESSING CHARGES:

 For Loan up to Rs.20 lacs – 0.35 % on loan amount + Service tax

 For loan above Rs.20 lacs – 0.40 % on loan amount (Max Rs.15000.00 +Service tax )

 Normal processing charges for take over of loans from other banks / financial institutions
@ 0.10 % - maximum Rs.5000/- (incl. Documentation & Post Inspection charges)

PRECLOSURE CHARGES:

 No pre closure charges for part / full payment from own resources.

 Loan sanctioned on or after 01.12.02 @ 0.50 % of balance outstanding each year of year
of the residual period of loan subject to maximum of 2 %
HOME IMPROVEMENT LOAN

KEY BENEFITS:

 Loan available for repairs / renovation / improvement / extension of the existing house.
 Loan available for purchase of furniture / fixtures / furnishing / other gadgets such as fans,
geysers, air conditioners etc. required, to:
Our existing housing loan borrowers
New borrowers
 Free Credit Card (complementary for first year) will be issued to borrowers with loan limit
above Rs.2/-lacs.

TERMS & CONDITIONS

 The house should not be older than 25 years. Residual life of the house may be minimum
repayment period plus 5 years to be certified by approved architect / valuer vis-a-vis total
repayment period of the loan.

ELIGIBILITY:

 All individuals (resident Indians) singly or jointly owing a dwelling unit in their name/(s).
 Age:-
Minimum age 21 years.
Maximum Age of the borrower plus repayment period should not be beyond
retirement age, in case of salaried persons and 65 years in case of others.
 Principal applicant must have consistent and stable source of income minimum for last
three years.

INCOME CRITERIA:
 The maximum amount of loan will not exceed the following:
Salaried person - 2 times of gross annual income.
Other than salaried persons i.e. professionals / self-employed / business persons
etc., 3 times of net (average of last three years) annual income plus depreciation
claimed individual capacity (and not the depreciation claimed by the business unit).

MARGIN:

 25% of the Project cost (Project cost will include - estimated cost of
repairing/renovation/extension, cost of furniture/fixtures/furnishing other gadgets and also
the stamp duty payable for criteria of equitable mortgage).

SECURITIES:

 Mortgage of the property to be repaired / renovated.

REPAYMENT PERIOD:

 Maximum-10-years by Equated Monthly instalments.


 Moratorium period maximum-6-months or one month after completion of
repair/renovation work whichever is earlier.

SERVICE CHARGES FOR FULL PREPAYMENT/PREMATURE CLOSURE:

 1% on amount prepaid including any such amount prepaid in the last financial year.
 No penalty on part pre-payment.

INTEREST RATE:

 1.50% below BPLR i.e. 10.50%\


HOME LOAN TO NRIs /PIOs

KEY BENEFITS:

 A loan product tailor-made for NRI / PIO needs.


 Opt for Flexi Rate plan to hedge the interest rate risk by breaking the loan into two separate
accounts.
 Free property insurance and personal accident insurance.
 No pre payment / foreclosure charges for part as well as full prepayment (when repaid from
own sources by the borrower)

ELIGIBILITY:

 Non-Resident Indians (NRIs) holding Indian passport or Persons of Indian origin (PIOs)
holding foreign passport, singly or jointly. For this purpose Person of Indian Origin means
a citizen of any country other than Bangladesh / Pakistan / Sri Lanka / Afghanistan / China
/ Iran / Nepal & Bhutan if -
a. He at any time held Indian passport or
b. He or either of his parents or any of his grandparents was a citizen of India by virtue
of the constitution of India of the Citizenship Act 1955, or
c. The person is a spouse of an Indian citizen or a person referred to in sub-clause (a)
or (b) above.
 Must be employed/self-employed or having a business unit and staying abroad at least for
2 years.
 Must have minimum gross annual income equivalent to Rs. Five lacs per annum.
 In case of salaried persons - 48 times of monthly income (average of last 2 years income
including incentive, commission, bonus etc.)
 For others - 4 times of average (last 2 years) annual income.

AGE:

 Minimum age must be 21 years. Age of the borrower plus repayment period should not be
beyond retirement age or 65 years whichever is earlier.
MARGIN:

 For purchase of new/ old dwelling unit or Construction of the dwelling unit: 15%.
 For purchase of plot: 20%.
 For repairs / renovations / extension in existing home: 20% of the project cost.

SECURITY:

 Equitable / legal mortgage of the property constructed / purchased or property to be


renovated / repaired etc.
 Personal guarantee of spouse / family member, residing in India. In case the spouse is also
residing abroad, personal guarantee of one / two persons resident in India shall be obtained.

REPAYMENT PERIOD:

 Maximum 15 years including moratorium.


 Payment to be remitted from abroad through normal banking channels or out of funds in
NRE/ NRO accounts.
 Post-dated cheques drawn on NRE/ NRO account of the borrower are to be obtained.
 Close relatives of the borrower in India may also repay the installments of such loans,
interest and other charges, if any, through their bank account directly to the borrower's loan
account.

PART PREPAYMENT / PREMATURE CLOSURE CHARGES:

 No pre-payment / fore-closure charges if the amount is partly or fully repaid from own
sources by the borrower/s.
 In case of takeover of the account by other Bank / HFCs. - The charges @ 0.5% of balance
outstanding for each year of the residual period of housing loan subject to maximum of
2.00%
PROCESSING CHARGES :- 1.Loan up to Rs 20 lacs-0.35%

2.Loan above Rs 20 lacs-0.40%


BARODA EDUCATION LOAN
As we are aware that our Bank was having different products related to Education Loan.
These Loan Schemes have been realigned for operational convenience under the name “BARODA
EDUCATION LOAN” as below:
1) Baroda Education Loan (Baroda Vidya / Gyan / Scholar)
2) Baroda Loan for Career Development
3) Baroda Loan for Skill Dev. of Construction Workers.

 BARODA VIDYA
 Bank of Baroda presents a one of its kind finance option for parents of students pursuing
school education. These loans are available for studies from Nursery to Senior Secondary
School.
 No processing & documentation charges.
 No Margin.
 No security required.

ELIGIBILTY:

 Should be an Indian national residing in India.


 Student should have secured admission to a recognized school / High school / Jr. College
(including CBSE / ICSE / State Board) for any of the following courses

1. Stage I: Nursery to V th STD.


2. Stage II: VI th to VIII STD.
3. Stage III: IX th to XII th STD.

COVERAGE OF EXPENSES FOR:

 Fee payable to college / school.


 Examination / Library / Laboratory Fee.
 Fee and other charges payable to hostel.
 Purchase of books / equipments / instruments / uniforms.
 Personal Computers / Laptops wherever required.
 Caution deposit / building fund / refundable deposit supported by institution bills / receipts.

MAXIMUM LOAN AMOUNT:

 Rs 4 Lacs

REPAYMENT PERIOD:

 Loan for each yearly sub limit is repayable in 12 equal monthly installments. First
installment to be due 12 months after first disbursement of each year's loan component.
SECURITY:

 No security

 In case the loan is given for purchase of computer the same is to be hypothecated to the
bank.

RATE OF INTEREST:

 1% concession in rate of interest to loans for girl students.


 Interest to be serviced as and when applied during moratorium period.
 Penal Interest @ 2% on overdue amount if the loan amount exceeds Rs. 2/- lacs.

 BARODA GYAN

A loan product specially designed for students pursuing Graduation, Post - Graduation,
Professional & Other courses in India. Bank of Baroda extends a helping hand to energize your
studies and promote education of the youth.

 No processing charges.
 No Margin on loans up to 4 lacs.
 Free Debit Card.

COURSES ELIGIBILITY:

 All Graduation courses.


 All Post Graduation courses & Doctorate courses.
 Professional Courses viz. Engineering, Medical, Agriculture, Veterinary, Law, Dental,
Management, Computer, Ayurved, Homeopathy, Physiotherapy, Hotel Management,
Hospital Management, Interior Designing, Architecture, Event Management, Mass
Communication, Fashion Technology, etc.
 Computer certificate courses of reputed institutes accredited to Dept. of Electronics or
institutes affiliated to Universities.
 Courses like C.A, ICWA, CFA, CS, etc.
 Courses conducted by IIM, IIT, IISc, XLRI. NIFT etc.
 Regular Degree/ Diploma courses like Aeronautical, pilot training,
shipping etc., approved by Director General of Civil Aviation/shipping.
 Other courses leading to diploma / degree etc. conducted by
colleges/universities approved by UGC/Govt./ AICTE/ AIBMS/ ICMR etc.
 Courses offered in India by reputed foreign Universities.
 Evening courses of institutes approved by
State/Central/Govt./UGC/AICTE/AIBMS/ICMR/ICAR.
 Courses offered by National Institutes and other reputed private institutions. The
College/Institute must have been approved by the State/Central Govt./UGC/AICTE, etc.

STUDENT ELIGIBILTY:

 Should be Resident Indian.


 Secured admission to either of above courses

COVERAGE OF EXPENSES:

 Fee payable to college / Institution / University.


 Examination / Library / Laboratory Fee.
 Fee and other charges payable to hostel.
 Purchase of books / equipments / instruments.
 Personal Computers / Laptops wherever required.
 Caution deposit / building fund / refundable deposit supported by institution bills / receipts.
 Any other expenses required to complete the course - like study tours, project works, thesis,
etc.

MAXIMUM LOAN AMOUNT: Rs.10.00 Lacs.


MARGIN:

 Above Rs. 4.00 lacs: - 5%


 Margin is to be contributed on pro rata basis on year to year basis as and when
disbursements are availed.

REPAYMENT/MORATORIUM PERIOD:

 Course period + 1 year or 6 months after getting job, whichever is earlier.

 The loan is repayable in 5-7 years after the moratorium period.

SECURITY:

 Up to Rs.4 lacs : No security


 Above Rs. 4.00 lacs and up to Rs. 7.5 lacs: Collateral in the form of a suitable third
party guarantee along with assignment of future income.
 Above Rs.7.5 lacs: Tangible collateral security equal to 100% of the loan
amount along with assignment of future income

RATE OF INTEREST:

 Simple interest to be charged at monthly rests during the repayment holiday / moratorium
period.
 1% interest concession is provided if interest debited during repayment holiday is serviced.
 1% Concession in rate of interest to loans for girl student.
 Penal interest @ 2% p.a. on overdue amount, if the loan amount exceeds Rs.4.00 lacs.

 BARODA SCHOLAR

Bank of Baroda presents financial assistance to students going abroad for Professional /
Technical studies. The loan offering is designed to empower you with the financial capability to
realise your dreams Achieve your goals. Reach out to the maximum limits.

COURSES ELIGIBLE:
 Graduate/Post Graduate / Doctorate / Job Oriented Professional / Technical Courses
offered by reputed Universities overseas.
 Regular Degree/ Diploma courses like Aeronautical, pilot training, shipping etc. The
Institute should be recognized by the competent local aviation / shipping authority and
Director General of Civil Aviation/shipping in India.

STUDENT ELIGIBILTY:

 He/sheShould be an Indian National.


 Secured admission to Professional/Technical Courses at foreign Universities/Institutions.

COVERAGE OF EXPENSES (for overseas studies):

 Admission/Tuition fees to College/University.


 Hostel/Mess charges.
 Examination/Library/Laboratory fee.
 Purchase of books/equipments/instruments.
 Caution deposit/building fund/refundable deposit supported by institution bills/receipts.
 One way travel expenses/Passage money.
 Purchase of computers if essential for completion of the course.

MAXIMUM LOAN AMOUNT: Rs. 20.00 Lacs.

MARGIN: 15%

REPAYMENT /MORATORIUM PERIOD:

 Course period + 1 year or 6 months after getting job, whichever is earlier.


The loan is repayable in 5-7 years after the above period.

SECURITY:

 Up to Rs.4.00/- lacs : No security


 Above Rs. 4.00 lacs and up to Rs. 7.5 lacs: Collateral in the form of a suitable third
party guarantee along with assignment of future income.
 Above Rs.7.5 lacs: Tangible collateral security equal to 100% of the loan
amount along with assignment of future income

RATE OF INTEREST:

 Simple interest during repayment holiday/moratorium period.


 1% interest concession, if interest debited during the repayment holiday is serviced.
 1% Concession in rate of interest to loans for girl student.
 Penal interest @ 2% p.a. on overdue amount if loan exceeds Rs.4/- lacs.

 BARODA CAREER DEVELOPMENT

Gainfully employed persons intend to pursue higher education, vocational courses, trainings, pilot
trainings, skill up gradation, diploma or degree courses offered in aviation, hospitality and travel
management, executive development etc. in India / abroad.

To help the future management leaders acquire higher specialized managerial skills and dominate
the global arena, Bank of Baroda brings Baroda Career Development, a unique loan facility for
working persons.

ELIGIBILTY OF COURSES:

 Graduate, Post Graduate, Diploma, Professional Courses, Specialization courses offered


by reputed Universities/ Institutions (Indian or Overseas), having assured employment
prospects,
 Skill up gradation courses offered by various institutes (Indian/Overseas), having assured
employment prospects,
 Courses offered by Hospitality Management Institutes for Skill upgrade/Short course/
Training etc.
 Pilot Training Courses, offered by reputed Institutions (Indian or Overseas), approved by
Director General of Civil Aviation (DGCA) /International Civil Aviation Organization
(ICAO).

STUDENT ELIGIBILTY:

 Should be an Indian National.


 Have secured admission to the course through entrance test / merit based selection process.

MAXIMUM QUANTUM OF LOAN:

 Need based finance subject to repaying capacity of applicant, based on present / expected
income after completion of the course.
 In India: Rs. 10.00 Lacs.
 Abroad: Rs. 20 Lacs.

COVERAGE OF EXPENSES:

 Tuition Fees, Examination/ Library fee etc. charged by the Institution.


 Hostel fees.
 Cost of Books, equipments, instruments, etc.
 Personal Computers/ Laptops, wherever required.
 Any other expenses required to complete the Course e.g: Study Tours, Project works etc

MARGIN:

 15% (Any scholarship / assistantship, if received, would not be included in margin).

REPAYMENT PERIOD:

 Maximum 60 EMIs.

SECURITY:
 100% tangible collateral security by way of mortgage of property or assignment of
securities NSC, KVP, LIC policy, FDR etc.
 Personal guarantee of Father / mother of the applicant or any other person having sufficient
worth

INTERST RATE:

 0.75% Above BPLR i.e. 12.75%

PROCESSING CHARGES :- 0.50% of Loan amount


BARODA AUTO LOAN
As we are aware that our Bank was having different products related to Auto Loan sector.
These Loan Schemes have been realigned for operational convenience under the name “BARODA
AUTO LOAN” as below:
1) Baroda Car Loan
2) Baroda Car Loan to HNIs /Corporates
3) Baroda Loan for Two Wheelers

PURPOSE:
 For purchase of any new four wheeler, car, jeep, station wagon etc. and two wheeler for
private use.
 For purchase of second hand car / Two Wheeler ( not more than 3 years old )

ELIGIBILITY:
 Salaried Employees / Directors of private, Public Limited Companies, Proprietorship
/Partnership firms and Government Employees / individuals, high salary earners
/Businessmen / Professionals.
 Prior account relationship not essential. However, statement of account for last six months
should be studied to satisfy that the conduct of the account is satisfactory.
 Minimum age – 21 years
 Maximum age –
Salaried: Present age + repayment period should not exceed retirement age.
Others: Present age + repayment period should not exceed 65 years.
 Minimum Employment – one year / stable business.

LIMIT
 New Vehicle: Rs.15.00 lacs
For HNIs/ Corporate: Rs.100 lacs
 Old Vehicle: Rs.10.00 lacs,
INCOME CRITERIA:

Monthly Income Modified Criteria

For salaried 24 times of monthly income

Other than salaried 3 times of gross annual income

 For Two Wheeler: Rs.1.00 lac or 5 times of gross monthly income which ever is lower
subject to repayment capacity.

MARGIN:
Amount of loan Purpose Margin

Up to Rs.15 lac Purchase of new car 15%

Purchase of old vehicle 40%

Purchase of two wheeler 10%

Above Rs.15 lac Purchase of new car 20%

INTEREST RATE

 Concession of 0.50% in rate of interest will be provided to those who offer minimum 50
% of liquid security e.g. NSC, KVP, LIC Policy or Fixed Deposit of our Bank as collateral.
 Concession to existing housing loan customers of 0.25%
REPAYMENT:
 New Car- 84 EMIs
 Second Hand Cars -36 EMIs
 Two Wheeler- 60 EMI
SECURITY:
 Bank’s charge to be noted with RTO.
 Comprehensive Insurance of vehicle with Bank clause.

INSURANCE:
 Comprehensive Insurance of the Vehicle with Bank’s Clause. In case of second hand car,
the existing insurance policy be got transferred to the name of the borrower with bank’s
clause.

POWER OF DEVIATION:

 Powers of Financial Deviations which have a direct impact on Profit & Loss A/C of bank
shall not be exercised below the level of Baroda Corporate Centre(BCC). However non
financial deviations may be considered as per powers delegated.
POST SANCTION FOLLOW UP

The cardinal principle of good lending is that the amount lent, should be repaid along with
interest thereon within the stipulated time. In order to ensure the safety of the funds lent and
its prompt repayment, it is necessary that, the banker should follow-up the credit, supervise
and monitor it. The banker should therefore remain always watchful that, the funds lent are
properly utilized and that at no time he is exposed to the risk of contaminated portfolio.

1. Proper Documentation
The importance of documentation lies in the fact that if at any time, a filing of a suit against
the borrower becomes necessary; the documents obtained will form the basis on which the
decree would be passed by the court. In view of this, it is important that the documents are
properly executed, they are properly stamped as per the law in force, and the blanks in the
documents are duly filled in, and are duly authenticated by the borrower. Besides, the
documents should be checked to see that they are not barred by the law of limitation.
To keep the documents alive, it is necessary that either periodically letter of acknowledge
of debt, or balance confirmation or fresh documents are obtained.
The basic objective of the process of documentation is to formally write down the contract
with the borrower with all stipulations of sanction in a legally binding form Documents
establish the legal framework for the relationship of a bank with the borrowers.
Following are some of the guidelines for documentation:
(A) Board resolution accepting the Letter of intent issued to the company
(B) Draft loan agreement prepared in two parts to convey the following points:
i) Definitions – Loan Agreement and General Conditions
ii) Amount and terms of Loan:
Interest, security, validity for drawal, repayment, conversion option with specific clause in
case of default or mismanagement, etc. may be specific.
Security:
First charge on all movable and immovable assets, present and future of the company,
subject to prior charge in favour of the company’s bankers for working capital
advances.
iii) Clause relating to appointment of nominee director(s).
iv) Effective date of Agreement
Execution of loan agreement after Company accepts the Draft Loan Agreement Deed of
hypothecation etc.
Execution of necessary undertaking relating to Non disposal of share or overrun etc.
Following are some of the features of Loan Agreement / Documents:
- Stipulations in agreement are not to inhibit but to aid for successful implementation.
- Flexible approach to use discretion to invoke regulatory mechanism analysing situations
warranting intervention.
- Not to have suppression control but to create an efficient tool for bringing influence on
proper implementation/operation of projects in view of large stake.

2. Proper Disbursement Procedure :


The loan should be disbursed only after obtaining the necessary documents. It is preferable
to disburse the funds, keeping in view the end-use of the funds. In case of demands or term
loan facilities, direct payment can be made to the suppliers of machinery and equipment. In
case of accounts such as overdraft and cash credits should be scrutinized to ascertain that the
funds are utilized for the business purpose only. Cash withdrawals should be discouraged.
Credit is a scarce resource and it is the moral obligation of every banker to see that the funds
are utilized for the purpose, for which they are borrowed. However, lending is a difficult area and
the circumstances under which a banker is required to lend are different from each other. Credit
management is a difficult area not only at the time of granting an advance but also, at every stage
of follow-up of the advance till it’s recovery in fully made.
It thus shows that one important area of follow-up of an advance is to ensure that the funds
lent are used for the exact purpose for which the loan is given. Borrower however, tend to apply
the funds to the most pressing items of expenditure with the result that, often bank funds are
sometimes used for the purpose other than the one for which they were made available. Funds used
in a business may either be short-term or long-term. Short term funds are expected to be utilized
only for building up current assets and long term funds for acquisition of fixed assets.
The utilization of funds for purposes other than for which they are intended is diversion.
When the funds are utilized outside the business of the firm, it is known as diversification, more
particularly, the utilization of short-term funds for long-term purposes is called diversion of funds.
Diversion of funds may take place due to variety of reasons. More important among them are:
(i) Delay in getting long-term finance from the term lending institutions or commercial
banks.
(ii) Non-availability of long-term finance.
(iii) Lack of control by short-term financers (usually bankers) over the utilization of short-
term finance. There is an area where proper post sanction follow-up helps a banker in
detecting and preventing diversion of funds.
(iv) Bad financial management of the unit.
(v) Failure on the part of bankers to assess the short term financial requirements properly
and as a consequence, over financing of short-term needs, thus giving an opportunity to
the borrower to divert the excess funds for long-term use.
(vi) Tendency among the borrowers to accumulate fixed assets, such as assets giving a feeling
of security. This tendency may result in diverting short-term funds towards acquisition
of fixed assets – sometimes unproductive assets.

3. Importance of Inspection
Periodically the unit and the securities charged to the bank should be verified physically. At
the time of granting the advance, the banker stipulates various terms and conditions. The banker
should continue to keep a close watch that, these terms and conditions are duly observed.
Inspection of the unit and securities throw light and the banker can have a first hand report on its
comfort level.
FOLLOW-UP TOOLS
for close monitoring of the unit there is a need to have the follow up process to be carried out in a
structured manner. Following are some of the tools.

(i) Progress Reports:


During the construction stage and after the unit goes into production and the reports are obtained
quarterly. The reports received during the construction period reveal progress achieved towards
the implementation of the project and the schedule of construction estimated at the time of the
appraisal of project. Delays as revealed by the reports are expeditiously taken up with promoters
to find out the reasons thereof and to initiate corrective action. The reports submitted during the
operation stage reveal important information like production, sales, inventory, receivables,
profitability order book position etc. Any undesirable features revealed by a report e.g., low
capacity utilisation, decline in sales, accumulation of inventory, blocking up of funds in
receivables, decrease in orders in hand and adequate profits are taken up with the unit concerned,
reasons ascertained and remedial measures suggested. Every progress report should be thoroughly
scrutinised and an office note should be put up highlighting important issues.

(ii) Nominee Director’s Reports:


The institution appoints nominees drawn from panel on the Board of the assisted units. The
nominees are expected to safeguard the interest of institutions and ensure financial and operational
discipline in the units by effective participation in the deliberations of the Board meeting. The
nominees also submit reports on the proceedings of the Board Meetings, Attends Audit Sub-
Committee Meetings and keep the institutions informed about the important developments in the
unit concerned.

(iii) Annual reports - Analysis of Balance Sheet Profit & Loss


Account, Auditor’s Observations:
These are very important tools available to us which are used to assess the progress of the
unit as compared to the previous years. The Directors report accompanying the annual report often
provides valuable information regarding the working of the unit and projections for the future.

(iv). Periodical Visits:


Institutional visit each assisted unit generally once a year. Visiting team usually comprises
officers from the lead institution and one representative each from the participating institutions I
banks. A quarterly follow-up visit program is chalked out in advance. The team is expected to
physically verify the progress achieved by the unit and check, at random the correctness of the
progress reports submitted by it. Besides, the team holds discussion with the management about
the problems if any, faced by the units, its general performance and any special features. The
findings of the team are communicated to the management of the unit for comments and
rectification. If the team points out irregularities of a serious nature they are discussed at senior
level to evolve a common approach for rectification thereof.

(v). Visits by the Senior Executives:


The senior officers of the institutions sometimes visit the associated units to maintain close
contact with the entrepreneurs and understand their problems.

(vi).Annual general meetings, Chairman’s Statement:


The representatives of the financial institutions would attend the annual general meetings
of the assisted unit to obtain some idea of the thinking of the shareholders about the performance
of the unit and calibre of the management.

(vii).Discussion with the entrepreneurs:


To have a feed back about various aspects of implementation and operations of the unit not
only to take timely corrective action but also to serve as a guide for future appraisals.
Besides above tools of follow-up, institutions generally use the following tools to achieve
effective follow-up:-
i) Health of the industry /market reports.
ii) Feed back formal/informal from
- Competitors
- Consumers
- Others (collaborators, sub-contractors, suppliers, consultants)
iii) Special audits - concurrent, stock, energy, management, social
iv) Special study/review of operations/inter firm comparison
v) Effective communication
The monitoring mechanism evolved by the institutions is all embracing, capable of
detecting the warning signals of incipient sickness. Even then, the institutions have generally not
been able to detect, sickness in the assisted units until it is fairly advanced. The main reason for
this appears to be a lack of communication between the borrower and the bank particularly in
regard to adverse developments in a unit.
Further, the business community at times tends to avoid disclosing vital information to the
institutions and banks in the initial stages and try to consolidate their personal wealth before
dropping the terribly sick unit in the laps of the banks/institutions. The institutions,
notwithstanding their sympathetic approach to the entrepreneur, and their problems, have not been
able to do much in resolving the impasse. Another reason for the institutions not being advised
about adverse developments could be the absence of proper management information systems in
the units so that the management themselves are not in a position to diagnose incipient sickness
on time. Whatever may be the reason, the fact remains that the progress reports have seldom been
submitted to the institutions in time. Often they contain incomplete/incorrect information defeating
the very purpose for which they are obtained. When called for discussions, the entrepreneurs find
out convenient excuser to put off the meetings for long periods. The information required for
undertaking inspection is generally delayed and the irregularities pointed out by the term are not
promptly attended to.
It is felt that while the existing monitoring mechanism has been adequate, to make it
effective its implementation would have to be more aggressive and purposeful. It is also felt that
for any monitoring system to be successful, there should be a proper rapport with the entrepreneurs.
It is observed that the general sympathetic approach, adopted by the institutions towards the
entrepreneurs and their difficulties has gradually started building up mutual confidence and the
entrepreneurs have started confiding in the institutions about their problems at reasonably early
stages. It the commercial banks could also build up similar rapport the atmosphere of hesitancy
and distrust could be avoided facilitating prevention and eradication of industrial sickness.

(b) Early warning signals:


We now present some of the early warning signals which apart from the use of financial ratios
with high predictive value may be received which will have to be detected for suitable action.
These are:
a) Increase in fixed assets without corresponding long term funding
b) Difficulties experienced in realizing company’s dues from dealers or customers;
c) Receipt of adverse comments on the working of the company from consumers or
competitors
d) Increase in payable accounts;
e) Increased litigation;
f) Intentionally delaying plant visit by official of the institutions and non-cooperation with
them once they are in the factory;
g) Irregular payment of institutional dues;
h) Increase in stocks of finished goods;
i) Failure to meet statutory and depositor’s liabilities;
j) Declining availability of funds as reflected in the cash flow statement.
k) Irregular submission of periodical reports by the assisted concerns.
l) Thoughtless expansion of operations;
m) Worsening or the debt-equity ratio
n) Operational losses
o) Lack of interest on the part of the management in the company’s affairs;
p) Inability of the lead commercial bank to fully keep the institutions appraised of the
problems faced by the company.
The above list is quite comprehensive and points to various potential problem areas. Once
these signals are received the institutions can place the account under intensive care and initiate
suitable measures to bring the position under control.