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1. Preamble & Objectives of the loan policy. 2

2. Strategies to achieve the objectives. 3
3. Thrust / Restricted Areas of Lending And General Industries 4
4. Restrictions on certain type of Loans and Advances 17
5. Concept of Group/ Allied /Sister concern Account and delegated authority. 21
6. Policy in regard to Financing of Fresh Borrowers whose group concerns 22
have been classified as NPA.
7. Exposure management measures. 23
8. Credit Delivery system 27
9. Appraisal of Credit Proposals 30
10. Consortium Financing/Syndication & Multiple Banking Arrangements 34
11. Focus on Non-Fund based Income. 36
12. Granting of Adhoc limits/temporary enhancement to borrowers 37
13. Guidelines for Takeover of Borrowal Accounts From Other Banks 39
14. Post-sanction monitoring, control and follow-up-Loan Audit, BCC, Unit 41
visit, Stock Statements, MO Reports, QIS Returns & Stock Audit.
15. Renewal /Review of Accounts 50
16. Prevention and reduction of NPA & Identification of SMA –Guidelines 51
17. Policy for Foreign Currency Loans to Residents (New Chapter) 55
18. Policy for Import of Gold (New Chapter) 56
19. Policy for charging of interest on withdrawals against uncleared effects 58
(New Chapter)
20. Policy guidelines on issuance of bank guarantees (New Chapter) 60
21. Type of Non Banking Financial Companies (New Chapter) 63
22. Policy guidelines for opening of Letter of Credit including Standby LCs 68
23. Financing against Gem, Diamonds & Jewellery 70
Oriental Bank of Commerce, Credit Administration Department, Head office.

24. Credit Risk Management - Implementation of RBI guidelines. 71

25. Sub-BPLR Lending 77
26. Bank Finance to Film Industry 80
27. Loan Review Mechanism 81
28. Bridge Loans 82
29. Flexibility /Deviations/ Exemptions from the Laid –down policy guidelines. 83
30. Introduction of concept of New Business Group (NBG) 84

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Oriental Bank of Commerce, Credit Administration Department, Head office.




The Lending Policy of the Bank exists and is well documented in the form of circulars,
instructions and periodic guidelines issued from time to time. The Lending Policy of the
Bank is aimed at effective and efficient management of the credit portfolio of the Bank and
continuous growth of assets while endeavoring to ensure that these remain performing and
standard. It is also aimed at providing a general guideline for handling new credit proposals
as well as existing credit portfolio so as to reduce new generation of NPA to a minimum
level, to ascertain risk profile of the credit portfolio, to ensure reasonable yield on advance
consistent with safety of funds.


The main objectives of the loan policy would be: -

1. Due compliance of all regulatory requirements, such as capital adequacy, exposure
norms, income recognition and asset classification, asset-liability management
guidelines, etc.
2. To ensure healthy growth of loan portfolio and achieve an optimal CD ratio after meeting
the statutory pre-emptions and avoiding asset-liability mismatches while keeping the
NPA level to the minimum and improving the yield on advances and make it the main
driver of Profit.
3. Wherever required, to review improvement and simplification of systems and procedures,
reduce documentation requirements and decentralize decision-making for ensuring
expeditious decision making at all levels.
4. To have a well-balanced and diversified loan portfolio with dispersed credit risks
covering various sectors of the economy and different industries/ sectors.
5. Special emphasis on flow of credit towards segments of Priority Sector i.e. agriculture,
retail trade, retail credit schemes and the housing finance to Individuals.
6. To increase the non-interest/non-fund based income so as to at-least reach the average
industry levels.
7. To strengthen and improve the reliability / robustness of the Risk Management,
Management Information System (MIS) and Supervisory Reporting System in tune with
the RBI guideline for switching over to a risk-based supervision approach from a
traditional transaction based approach.
8. To ensure that aggregate risk in loan assets in not allowed to increase by stabilizing and
percolating credit risk management system.
9. To enlarge client base of corporate and non-corporate (SME) segments through
aggressive credit marketing.
10. To meet the multi-channel needs of customers through product development and
11. Timely and adequate flow of credit to meet the genuine needs of existing and
prospective borrower, to fulfil socio-economic obligations; and also to meet the
genuine credit needs of the existing clients by ensuring quicker and prompt credit
decision. **********
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Oriental Bank of Commerce, Credit Administration Department, Head office.



a) Effective supervision and Monitoring

 Toning up the existing system for effective supervision and monitoring of the credit
portfolio to maintain highest quality of loan assets.

 Preferred attention to loan assets in high-risk category e.g. SMA accounts and re-
structured accounts in order to avoid their slippage into NPA category.

b) Intensive and Focussed Marketing :

 Aggressive credit marketing through specialized branches i.e. Industrial Finance

Corporate / Specialized SSI/ Foreign Exchange branches etc. for securing new business
connections and high quality loan assets.

 Tapping the potential in Rural & Semi-urban Branches for securing new business
connections and high quality loan assets.

 Designing customer-friendly and flexible loan products/ special credit schemes and
offering package of financial services.

c) Diversification of credit Portfolio :

 Exploring the possibility of entry into the industries / sectors/ segments/ activities hitherto
not financed or unrelated to the present exposures or where the current exposure level
allows scope for further exposure.

 Harnessing core competencies to enter into newer areas such as general purpose
corporate loans, bridge loans and infrastructure financing etc.

d) Cost-effective Pricing :

 Competitive approach in pricing with due regard to the nature of risks, cost of funds, cost
of services / operating costs and market forces.

e) Competence Building :

 Developing a team of competent officers by imparting necessary training and by

providing exposure to the nuances of credit management / credit administration.

f) Sound Borrower Standards :

 Prescribing general norms/ minimum standards for existing as well as new borrowers
and considering exceptions to the laid down norms only on proper justification.

g) Corporate Initiative :

 Providing timely support and guidance from the corporate office.

The strategies enumerated above will be fine-tuned to suit the changes in the banking
environment and customer demands.

*** ****

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Oriental Bank of Commerce, Credit Administration Department, Head office.




Priority Sector Lending.

Priority Sector shall continue to be a thrust area of the Bank’s lending and our endeavor
shall be to be above the overall share of 40% of the net bank credit with sub-sector
achievement as follows:

PRIORITY SECTOR 40% of the Net Bank Credit

Agriculture 18% of Net Bank Credit

Weaker Section 10% of Net Bank Credit

Women Entrepreneurs 5% net Bank Credit

DRI Scheme 1% of previous year’s Net

Bank Credit

Small Scale Industries 10%

Cottage Industries, Khadi & Village Industry, Artisans 40% of the total credit to SSI
& Tiny Industries with investments in Plant & Machinery
upto Rs.5.00 Lac

SSI units with investment in Plant & Machinery between 20% of total credit to SSI
Rs.5 Lac & Rs.25 Lac

Other SSI units with investment exceeding Rs.25 Lac 40% of total credit to SSI

Exports 10% of Net Bank Credit


Within priority sector advances, agriculture shall continue to be our main thrust area and for
improving performance under this sector the focus shall be on the following:

 Endeavour to reach 18% lending norms.

 In terms of Govt. of India guidelines, bank shall achieve in credit flow to agriculture an
increase of atleast 30% over the last year’s disbursement.

 Each rural and semi urban branch shall add at least 100 new farmer borrowers during

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 Each rural and semi urban branch shall direct at least 40% agri-credit for investment
purpose for 2-3 new investment projects in the area of plantation and horticulture,
fisheries, organic farming, agro-processing, live stock, micro-irrigation, sprinkler
irrigation, watershed management, village ponds development and other agricultural

 Every rural and selected semi urban branch shall form atleast one Farmer’s Club each.

 Extensive publicity in rural areas shall be given at branch/RO level and would be used as
an effective tool for marketing of agriculture products.

 Rural branches will continue to hold credit camp at each Non Public Business Working
Day (NPBWD) and semi urban branches on fortnightly basis.

 Reactivate & strengthen Agriculture Credit Cells at all ROs.

 A minimum of 40% of fresh credit to small & marginal farmers.

 Target for issuing OKGC/OGCs to be completed by July 2005.

 During the current year, special focus will be on the following:

 Contract farming financing

 Financing Agri- clinics & Agri business.

 Financing under Area Specific Schemes.

 Intensified training programmes for rural & semi urban Branch Incumbents & Officers.

 Financing of SC/ST borrowers will be given priority.

 Scope of Micro Finance / self-help Groups (SHGs) lending shall be enlarged with the
assistance of reputed Non-Governmental Organizations/Micro Finance Institutions.


Definition of SSI
The definition of SSI has undergone changes over the term of investment limits. At present
original investment in plant & machinery upto Rs.1.00 crore falls under SSI category. In the
following groups of industries investment in plant & machinery has been enhanced to
Rs.5.00 crore.
No. of items Group with effect from

27 Hosiery 9.10.2001
14 Hand tool 9.10.2001
13 Stationery 5.6.2003
10 Drugs & pharmaceuticals 5.6.2003
7 Sports goods 13.10.2004

Further units with investment in plant & machinery upto Rs.25.00 Lac irrespective of location
are treated as tiny enterprise. Industry related service & business enterprises with

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Oriental Bank of Commerce, Credit Administration Department, Head office.

investment in fixed assets excluding land and building upto 10 Lac w.e.f. 19.9.2000 come
under Small Scale Service & Business (Industry related) Enterprises (SSSBEs).


 Periodically reviewing the relaxation to the SSI sector in terms of quantum, rate of
interest, margin requirements etc.
 Re-location of the existing SSI branches in cases where such branches are not properly
located to tap the potential.
 Activating the SSI cell already formed at all the RO's
 Taking up with all the RO's/Branches having substantial exposure in SSI sector for
proper classification of the SSI Advances as per the latest definition of SSI.
 Imparting on the job training to the officers posted at Specialized SSI branches and
Regional Offices. The Branch Incumbents of Specialized SSI branches to be given
special focus for training related to SSI.
 Providing adequate infrastructure to branches having large exposure to SSI Sector.
 Revising policy guidelines for the Riceshellers/Cotton ginning units in tune with their
special requirements based on market trend and to make them client friendly.
 SSI clusters identified by Govt. of India/Upcoming Centres having concentration of SSI
units to be identified for opening of Specialized SSI branches.
 Those branches, which are not specialized SSI branches but having large SSI advances
and adequate potential, to be focused and targeted.
 Each Specialized SSI branch to build up a minimum portfolio of Rs. 20 crore to SSI


Retail Credit segment has been identified as one of thrust areas of lending. Bank has
envisaged a credit target of 13.32% and 5.20% of net bank credit for housing and other retail
credit schemes respectively, assuming net working credit of Rs.34500.00 crore as on

As many as 14 Retail Credit products are available with the branches to fulfill credit
requirements of various segments of customers. There shall be special emphasis to
increase Retail Credit portfolio to achieve the envisaged targets for which Regional Offices
will designate focal branches to cater to the credit needs in thrust areas and special targets
shall be entrusted to them. Promotion of newly formulated scheme for financing travel
expenses viz. ‘OBC-BON VOYAGE’, scheme for financing medical expenses viz.’OBC-
Medfin’ and scheme for purchase of shops besides the other existing schemes where the
performance is good shall be accorded special focus.


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The level of NPAs in some products have crossed tolerable limit i.e. 2% in case of housing loans and
5% (each) in case of Clean demand loans to Govt./ Other PSU employees and scheme for financing
Defence Personnels. Such schemes shall be reviewed and credit flow through those schemes be
restricted till the recovery of NPA amount, is ensured. Special emphasis shall be laid for
recovery of NPAs

Retail Credit Products of the Bank comprise of the following:

• Education Loan Scheme,
• Vehicles Loans to individuals / borrowal firms/companies,
• Consumer finance to individuals,
• Housing Loan Scheme to Individuals,
• Scheme for financing small traders,
• Scheme for financing defense personnel,
• Clean Demand Loan Scheme for Central/State Government and other institutions
including School/College Employees.
• Oriental Mahila Vikas Yojna
• Retail Credit Scheme for Doctors and other Professionals
• Retail Credit Scheme for part financing Medical Expenses of Handicapped
• Retail Scheme for Transport Operators.
• Advances Against Govt. Securities.
• For Purchase of Shops.
• OBC -BON VOYAGE – (Scheme for financing travel expenses)

1. The schemes of the Bank would be reviewed on an ongoing basis and upgraded so
as to offer most competitive terms in the market after comparing with the respective
schemes of other banks;
2. The Bank would participate in various exhibitions directly and indirectly connected
with promotion of the Bank’s Retail Credit Schemes.


In order to achieve the stipulated target, a sustained approach for increasing the export
advances would be required in all regions of the Bank. The strategy for achieving the above
would inter-alia include the following: -

 Conducting regular exporter meets at the Regional level to understand the needs of
exporters and sort out the problems, if any.

 Tapping new export customers since the growth in export credit from existing customers
is limited.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 Diversifying the industrial sectors/commodities in which the export finance of the bank is
spread. The bank’s major export finance consists of lending to Basmati Rice, Cotton
yarn & garments, Dyes and Chemicals, metal and metal products, Gems & Jewellery,
Leather and Merchant Exporters. The country’s major exports are in agriculture and
allied products such as cashew, rice, tea, coffee, spices etc. marine products, primary
and semi-finished iron and steel products, dyes and intermediates, Organic, Inorganic
and Agro-chemicals, Petroleum products, gems and Jewellery, cotton yarn,
fabrics/made-ups and computer software. The export advances should be diversified to
the above mentioned sectors in which there is further scope for the bank to increase

 Lending to units set up in Agri-Export Zones being set up in various states in co-
ordination with the Central Government for export of agricultural products processed
shall also be made a focus area.

 Setting up of Offshore Banking Units in Special Economic Zones may also give impetus
to increase export credit.

 Increasing flow of foreign currency funding to exporters.

 Special priority to disposal of proposals relating to export credit.

 Exploring the possibility of increasing the number of authorized branches at untapped

centres having export potential.

Ad hoc Limits to Exporters

 At times, exporters require ad hoc limits to take care of large export orders, which were
not foreseen earlier by them. Branches should respond to such situations promptly.
Apart from this, branches should adopt a flexible approach in respect of exporters, who
for genuine reasons are unable to bring in corresponding additional contribution in
respect of higher credit limits sought for specific orders. Keeping in view the above
situation, the discretionary powers for allowing adhoc limits to exporters the extent of
maximum 20% of the fund based / Non-Fund Based limits respectively (as per
discretionary power chart), sanctioned by them under their powers / sanctioned by the
higher authority, shall be exercised only by the Overseas Branches and Exceptionally
large branches. These branches shall process and record on office note while permitting
such adhoc facility and report the same to Regional Office in STM-41.

 No additional interest is to be charged in respect of ad hoc limits granted by way of pre-

shipment / post-shipment export credit as already advised vide HO.circular No. ADV /
77 / 2002-03/314 dated 30th November, 2002 (Effective from 1.12.2002, Annexure –5,
Guidelines on charging Penal Interest)

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Gold Card Scheme for Exporters

The Government (Ministry of Commerce and Industry), in consultation with RBI had
indicated in the Exim Policy 2003-04 that a Gold Card Scheme would be worked out by
RBI for creditworthy exporters with good track record for easy availability of export credit
on best terms. Accordingly, in consultation with select banks and exporters, a Gold Card
Scheme has been drawn up. The salient features of the Scheme as already circulated to
the branches are as under:

(i) all creditworthy exporters, including those in small and medium sectors with good
track record would be eligible for issue of Gold Card by individual banks as per the
criteria to be laid down by the latter;

(ii) requests from card holders would be processed quickly by banks within 25 days / 15
days and 7 days for fresh applications / renewal of limits and adhoc limits,

(iii) in-principle' limits would be set for a period of 3 years with a provision for stand-by
limit of 20 per cent to meet urgent credit needs;

(iv) card holders would be given preference in the matter of granting of packing credit in
foreign currency;

(v) Branches would consider waiver of collaterals and exemption from ECGC
guarantee on the basis of card holder's creditworthiness and track record, and

(vi) The concessive rate of interest on post- shipment rupee export credit applicable upto
90 days may be extended for a maximum period upto 365 days.


Financing of the Trade Sector also merits the attention of the Bank and will be given due
emphasis. The basic credit parameters will remain same as applicable to other sectors. The
assessment of working capital limits for trade financing will also be on turnover / traditional
method basis for limit upto Rs.5.00 Crore and as such need-based limits be made available
to the borrowers.



Any credit facility in whatever form extended by lenders (i.e. Banks, Fls or NBFCs) to an
infrastructure facility as specified below falls within the definition of "infrastructure lending".
In other words, a credit facility provided to a borrower company engaged in developing or
operating and maintaining, or developing, operating and maintaining any infrastructure
facility that is a project in any of the following sectors, or any infrastructure facility of a
similar nature:

i) a road, including toll road, a bridge or a rail system;

ii) a highway project including other activities being an integral part of the highway Project;
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iii) a port, airport, inland waterway or inland port;

iv) a water supply project, irrigation project, water treatment system, sanitation and
sewerage system or solid waste management system;

v) Telecommunication services whether basic or cellular, including radio paging, domestic

satellite service (i.e. a satellite owned and operated by an Indian company for providing
telecommunication service), network of trunking, broadband network and Internet

vi) An industrial park or special economic zone;

vii) Generation or generation and distribution of power

viii) Transmission or distribution of power by laying a network of new transmission or

distribution lines.

IX. Construction relating to projects involving agro-processing and supply of inputs to


X. Construction for preservation and storage of processed agro-products, perishable goods

such as fruits, vegetables and flowers including testing facilities for quality; and

XI. Construction of educational institutions and hospitals.


RBI has since prescribed the operational guideline for financing infrastructure projects
particularly in key areas like road, transport, power & communication. The Bank will follow
the guideline while participating in such projects. However, while participating in such long-
term financing the bank's asset-liability position shall be kept in view to avoid liquidity
mismatch on account of lending to such projects. The exposure in this project will be guided
by the following norms:

a) The amount sanctioned should be within the overall ceiling of the prudential
exposure norms prescribed by Reserve Bank of India

b) The projects must have adequate income generation capacity with an average
DSCR not below 1.5 during the tenure of the loan

c) The loan shall be sanctioned after proper risk mitigation evaluation process by way
of appraisal with regard to technical feasibility, economic viability keeping in view
the asset liability mismatches through cash budgets during the project period.

d) The TOL / FNW shall not exceed 6:I

e) The repayment period shall not exceed 15 years (including moratorium period)
provided it does not create asset-liability mismatch in the long run and there is
financial viability of the project.

f) The credit rating of the borrower shall be atleast "A"

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g) The loan should not be in lieu of or to substitute budgetary resources envisaged for
the project. The term loan could supplement the budgetary resources if such
supplementing was contemplated in the project design.

h) All infrastructure and large projects should accompany due diligence report
including techno-economic viability study by a reputed organization.

i) All proposals of infra structure finance shall be sanctioned at Head Office only
except for advance under the following category of infrastructure finance:

♦ construction of educational institutions and hospitals

♦ construction related to projects involving agro processing and supply of inputs to

agriculture, and

♦ construction for preservation and storage of processed agro products, perishable

goods such as fruits, flowers, vegetables including testing facility for quality

The projects covered under the above three categories of infrastructure activities
may also be sanctioned by the officers at branches/ROs on merit provided it is
within the delegated financial power of such functionaries as approved by the

j) The credentials of the foreign participants in the project should be obtained from
accredited agencies approved by the Bank, such as Dun & Bradstreet Corp.

k) The total fund and non-fund exposure per borrower should not exceed 6 times of
the net owned fund.

l) The financial closure/fund tie-up for the project should be completed before
release of fund.

m) The moratorium period should not generally exceed 3 years depending on the
gestation period of the project.

n) The Bank may enter into take-out financing arrangement with IDFCl other FIs or
avail of liquidity support from IDFC/other FIs.


Software and Information technology is one of the upcoming areas and has got a
tremendous potential in our country. Bank’s policy shall be to continue with financing of
viable projects of the entrepreneurs of proven track record.


A major contributor in generation of income and employment to the nation, small and
medium scale enterprises are a major source of deployment of bank credit. Our endeavor,
therefore, shall be not only to retain existing clients but to market fresh accounts in this area.

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Promoter's contribution towards Equity Capital of a company should come from their own
resources and Bank finance is not granted for this purpose. Further, advance against shares
to enable the borrower to acquire or retain controlling interest in a company is also not
permitted. Reserve bank of India has however made an exception in the case of PSU

a. Bank finance for acquisition of shares of PSU under a divestment program approved by
Government of India, Including the secondary stage mandatory open offer, and can be
made available.

b. With the second round of PSU divestment already completed, there is ample scope for
extending finance for acquisition of shares of reputed companies. In view of the above
Acquisition financing is being included in the chosen area.

c. The finance would be available under a divestment program approved by Government of

India, including the secondary stage mandatory open offer.

d. Only Corporates with good financials and excellent track record of servicing loans
availed from the Banking system would be eligible for Acquisition Financing. However,
the same would not be available for subsequent acquisition of shares.


Lending to the traders against the security of immovable property has also attracted
attention of the bankers in the recent past because of the safety criteria. These advances
are granted to the extent of 50% of the value of Immovable property and hence considered
safer as compared to other advances. Therefore, Bank shall continue to provide finance
against immovable property at potential centres.


At those centres in the country where the construction of commercial centres/ real estate
business is in full swing, there is immense potential for financing rent receivables. The
Bank shall continue to explore such areas and deploy credit subject, however, to compliance
of regulatory guidelines pertaining to ALM and Risk Management. Therefore, Bank shall
continue to provide finance against rent receivable at potential centres.


In view of the top priority being accorded to the Infrastructure structure by our Govt. there is
immense scope for deployment of credit in Construction Industry. More than the fund-based
business, non-fund business is having tremendous potential for banks. We shall therefore,
continue to consider viable proposals for equipment finance as well as letter of credit and
bank guarantees etc.

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Oriental Bank of Commerce, Credit Administration Department, Head office.


Financing against gem, diamond and Jewellery shall continue to be the thrust area of bank
lending. The cases pertaining of this category shall be considered on similar lines as
applicable to advances under other thrust area of bank lending. However, export cases
under this category shall be dealt on priority.


Gems, Diamonds & Jewelry
Automobiles & Auto-ancillaries,
IT & Software
Electronics & Electrical Equipment
Infrastructure sector as per definition including Power.
Food Processing
Service Sector


Looking to the Bank's present exposure, as also level of NPAs witnessed during the past,
uncertain prospects leading to higher risks, certain areas were identified as low priority
areas. In view of the revival of the economy and in light of the latest developments the
position has been reviewed and the borrowers from the following sectors will have low

Though the undermentioned sectors are identified as low priority, fresh exposures can be
taken on case to case basis in respect of good rated borrowers having sound financials and
track record.

a) List of restricted Industries : (where cautious approach is to be adopted)

Chemicals & Dyes
NBFCs (Leasing & Hire Purchase Finance)

The provisions regarding lending to restricted industries shall not apply to the
following: -
 Trading activities undertaken in respect of the list of restricted industries.

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 Small Scale Industrial (SSI) Units / other activities falling under Priority Sector
undertaken in respect of the list of restricted industries.
 All existing accounts covered under the list of restricted industries.

 Advances to New Units under the restricted list and enhancements in existing limits shall be
considered by the respective sanctioning authority on a very selective basis based on merits/
working results / performance of individual unit.

b) Lending to Sensitive Sectors :


 Lending to capital market sector including investments 5% of total advances


 Real Estate sector 10% of total advances

 commodities sector 5% of total advances


 Industries not specified above either in thrust area or restricted area shall be categorized
as general industries:

 The branch Incumbents shall continue to consider advances under these sectors
applicable to general type of advances.


Term Loans :

 In case of term loans and deferred payment guarantees, the project report should be
obtained from the customer which may have been compiled either in-house or by a firm
of consultants/merchant bankers.

 The technical feasibility, economic viability and bankability of projects with particular
reference to risk analysis and sensitivity analysis should be critically appraised by the
Bank and wherever the Bank does not have the requisite expertise, necessary
assistance of the reputed consultants or appraisal made by IDBI or SBICAP or PNBCAP
or ICICI Bank / other Public Sector Banks may be considered for appraisal of a project.

 For infrastructural development projects it must be ensured that these are being
implemented without the support of budgetary allocation i.e. projects funded out of
budgetary resources, or where a firm commitment for budgetary support has been made
and is in operation, such projects shall not be entertained.

 Promoter's contribution of at least 20% in the total equity is normally expected.

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 The other basic parameters would be the net debt service coverage ratio, i.e. exclusive
of interest payable, which shall normally not go below 2. On a gross basis average
DSCR shall not be below 1.5.

 As regards margin on security, this will depend on Debt Equity gearing for the project
which should not normally be above 2:I, i.e. Debt should not be more than 2 times the
Equity contribution. However, in case of capital intensive industries the same may be
considered upto a level of 4:1, and in case of infrastructure projects upto 6:1. These
parameters are indicative in nature and shall be applied depending upon the nature of a
particular project.

 Exposure in term loan including new term loan proposals beyond Rs.25 crore with
repayment period more than 7 years (Including moratorium period) shall be decided on
the basis of the Bank's overall position of Asset Liability Management. The term lending
per borrower may be restricted to Rs.200crore and maximum tenure of the loan will be
10 years including moratorium or as per the decision of the consortium. For
infrastructure projects the amount may be larger subject to prudential norm stipulated by
RBI and repayment period may go upto 15 years including moratorium or as per
consortium's decision.

 The tenure of housing loans may be even longer depending on the market trend.

 Bullet payment repayment shall be avoided as far as possible except in case of short
term loans for one year or less.

 In case of Term loans for a period more than 3 years having fixed rate of interest, a reset
clause after at least every 3 years at mutually agreed rate depending on the prevailing
market competition or an exit route is preferred.

 In order to avoid liquidity mismatches for long term loans repayable beyond a period over
7 years, effort shall be made to keep term loan of Rs.10 crore and above repayable in
more than 7 years within 25% of the total term loan of the Bank. This norm is subject to
review from time to time depending on Asset Liability Position of the Bank.

 Repayment dates shall be made specific

 Other parameters governing working capital facilities would also govern Term Loan
facilities to the extent applicable.

Project Financing

Besides the provisions as laid down in the Lending policy with regard to term loan and
working capital read along with various other benchmark parameters, the following
requirements are also to be fulfilled in case of project financing involving a term loan of more
than Rs.10 crore from our Bank:

a) The techno-economic viability study of the project is required to be vetted by

competent consultants of repute. In case of projects where all-India Financial
Institutes (like IDBI and also ICICI Bank, erstwhile ICICI) are the major lenders, the

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Bank may go by the findings of above institutions/bank. The Bank may also go by the
finding of reputed agencies like CRISIL, ICRA, Price Water House, etc.

b) The Bank may also proceed on the basis of the finding of the reputed loan
syndicators like SBI Cap.

c) The Bank will also appraise the project independently even if those are appraised by
other FIs / agencies as stated above.

d) As the gestation period of large size projects in certain cases is very high,
moratorium upto 3 years may be considered under project finance.

e) Usually large projects warrant long repayment period. Term loan tenure upto 15
years may be considered provided it does not create adverse effect on the Asset
Liability Management of the Bank.

f) In case of fixed rate of interest for project finance (term loan) for more than 5 years it
is preferable to have a reset or exit clause after every 5 years.

g) In case of project finance where borrower is enjoying aggregate term loan limit of
Rs.50 crore and above from more than one bank, consortium arrangement should be

h) In case of project cost more than Rs.200 crore there should be structured system of
monitoring of the progress of project implementation.

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In terms of RBI circular RBI / 2004-05 / 79 Ref No. DBOD. Dir. BC. 20 /13.03.00/2004-05,
July 30, 2004, the statutory restrictions and regulatory restrictions have been placed on the
following type of credit facilities. The branches/ Regional offices shall continue to comply
with all the statutory and regulatory restrictions on lending as stipulated by RBI from time to

1.1 Advances against bank's Own Shares
1.2 Advances to bank's Directors.
1.3 Restrictions on Holding Shares in Companies
I.4 Restrictions on Credit to Companies for Buy-back of their Securities
2.1 Granting loans and advances to relatives of Directors
2.2 Restrictions on Grant of Loans & Advances to Officers and the Relatives of Senior
Officers of Banks.
2.3 Restrictions on Grant of Financial Assistance to Industries Producing/Consuming
Ozone Depleting Substances (ODS)
2.4 Restrictions on Advances against Sensitive Commodities under Selective Credit
Control (SCC)
3.1 Loans and Advances against Shares, Debentures and Bonds
3.2 Advances against Money Market Mutual Funds
3.3 Advances against Fixed Deposit Receipts (FDRs) Issued by Other Banks
3.4 Advances to Agents/Intermediaries based on Consideration of Deposit
3.5 Loans against Certificate of Deposits (CDs)
3.6 Bank Finance to Non-Banking Financial Companies (NBFCs)

3.7 Bank Finance to Equipment Leasing Companies

3.8 Bank Finance for Purchase/Lease of Existing Assets
3.9 Financing of Infrastructure /Housing Projects
3.10 Issue of Bank Guarantees in favour of Financial Institutions
3.11 Discounting/Rediscounting of Bills by Banks
3.12 Advances against Gold/Silver Bullion
3.13 Loan system for delivery of bank credit.
3.14 Working Capital Finance to Information Technology and software industry.
3.15. Guidelines for Bank Finance to PSU Disinvestment of Govt. of India.

The branches/ Regional Offices shall continue to comply with all the statutory and regulatory restrictions

on lending as stipulated by RBI from time to time.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Besides the bank shall not lend to the following categories of borrowers unless
otherwise specified: -

1. Borrowers or their associates appearing in the defaulters list / caution list circulated from
time to time by RBI, IBA, ECGC, other Banks / Institutions, Government of India etc. The
Management Committee of the Board shall be the sole competent authority to allow any
exception / relaxation in case of Fresh borrowers whose name(s) appears in the
defaulters list / caution list etc. circulated from time to time. However, the existing
borrowal account falling under the above categories shall continue to be disposed of by
the respective sanctioning authorities.

2. The Bank should not deny credit facilities to constituents merely on the ground that any
of their directors happens to be the professional director on the board of defaulting

3. Credit facilities for units/product group under the banned list / negative list of All India
Financial Institutions, Government of India, RBI, IBA, other authorities etc.

4. Fresh borrowers who are incurring losses for the past two years unless otherwise
justified with valid reasons for the loss. (Such borrowal accounts shall be disposed of by
the respective sanctioning authority).

5. Granting credit facilities to borrowers classified as NPA with other Banks/ Institutions.

6. Borrowers/Guarantors who have defrauded our bank / other banks / Institutions.

7. Borrowers against whom suit(s) are/were filed by the Bank.

8. Guarantors who have not fulfilled their commitments to the Bank.

9. Any type of facility prohibited by RBI guidelines issued from time to time.

10. Sanction of Fresh Credit facilities to Ex-Clients of our Bank / Clients of other Banks who
had adjusted their accounts under compromise / negotiated settlement /OTS shall be as
per the policy approved by the Board from time to time. (For details Branches / Regional
Office may refer to guidelines contained in Recovery Policy of the Bank).

11. No loan proposal shall be considered with the negative lien as the prime or collateral
security. Regional Heads / Branch Incumbents shall review all such cases so that they
could obtain alternate security at the time of renewal / review of account.

12. Sanction of facilities to partnership firms having HUF as partner. The existing
borrower(s) shall be advised to take steps for effecting necessary change in the
constitution till next review / renewal.

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The definition of Group/Allied/Sister concern to be adopted by the Bank based on RBI

guideline was approved in the May 2001 vide BR No.C-4 dated 18.05.2001. This group
definition shall continue for the purpose of exercise of discretionary powers of the
functionaries at all levels in the Bank for individual and group exposure.

Delegated authority / Discretionary powers for individual / Group exposure

The discretionary powers for loans and advances to be exercised by all functionaries at all
levels shall be strictly governed by the definition/Concept of Group given below and within
the per borrower and per group exposure levels fixed for each functionary as mentioned in
the Discretionary Power Chart.

Group Definition of the Bank:

The following shall be the criteria for determining the group concept based upon RBI

a. In respect of Borrowers covered under MRTP Act, for identifying the group to which a
company registered under section 26(2) of MRTP Act 1969 belongs, a reference may be
made to the Industrial House-wise list of Companies registered under the Act. The
relative list is given in Annexure-2 attached to the Reserve Bank of India Circular. In
respect of borrowers not covered by the MRTP Act.

b. The group affiliation may be decided on the basis of the principle of commonality of
management and effective control as well as on the basis of the relevant information
available with the Bank.

c. In the case of a split in the group if the split is formalized the splinter groups will be
regarded as separate groups. In case of doubts about the bonafides of the split a
reference may be made to Reserve Bank of India (through Head Office) for its final view
in the matter to preclude the possibility of split being engineered in order to prevent
coverage under the group approach.

Besides the above the Group/Allied/Sister Concern shall include the following:

 Two concerns having one or more common proprietors/partner(s); or

 The proprietor/partner of a firm being director in a Private / Public ltd. company and vice-
versa shall be taken as one for the purpose of group concept.

 Any of the directors of the Private Limited Company is the director of another private
limited company; or

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 A Limited Company is subsidiary of another limited Company within the meaning of the
companies Act , 1956; or

 A limited Company is closely held company with substantial interest i.e. more than 20%
of the equity share capital of the company is owned by the other concern(s); or

 Professional Directors of the Board shall be excluded for the purpose of the concept of
the Group.

 The member of an HUF is a proprietor/partner of a concern or director of a private limited


 The facilities sanctioned to the guarantor(s) shall be taken into account for the purpose
of exposure per group. However the two concerns shall not be termed as
allied/associate/sister concerns merely because of having a common guarantor if the
guarantor is not enjoying any credit facilities as individual or as a
proprietor/partners/directors of a firm/company.

 In case the Managing Member of a Samiti / Society or Trustee of a Trust or Managing

person of a Club is a proprietor/ partner/ director / Karta of HUF/ Managing Member or
Managing Person in any other constituent body of similar nature in the firm/ company /
Society/ Trust etc.

 In determining the Group Concept the definition of group as advised by Reserve Bank of
India shall be followed and the guiding principle shall be commonality of Management
and effective control

Competent Authority In Case of any Doubt / Clarification as to Group Definition:

Inspite of above broad based definition of Group/allied/associate/sister concerns, if the

sanctioning authority still feels that the two firms/companies are suspected to be connected
but not covered under the above definition, specific instructions from the General Managers'
Committee shall be invariably sought before making own interpretation.

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Oriental Bank of Commerce, Credit Administration Department, Head office.




 Loan Proposals belonging in any way to the willful defaulters of other banks/ financial
institutions shall not be accepted.

 An undertaking shall be obtained from all fresh borrowers to the effect that none of their
associate/ group concerns are classified as willful defaulters by other banks/ financial

 Branches/Regional Offices shall invariably obtain list of group concerns from all fresh
borrowers alongwith the names of their banks / financial institutions besides
classification of accounts.

 All fresh proposals from borrowers whose group concerns have been classified as NPAs
with other Banks/ Financial Institutions shall be placed before the Management
Committee of the Board for consideration and sanction.

 However, existing borrowal accounts shall continue to be disposed of within the

respective sanctioning authority.

(Approved vide item No.C-1 dated 14 th June, 2004 by the Board of Directors).

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Category/ Segment Bank’s Ceilings

Maximum Exposure - 15% of capital funds of the Bank for individual
Individual Borrower/ Group borrower (+ 5 % additional exposure i.e. upto20%
for Infrastructure sector) and 40% for Group
exposure (in case of additional exposure of the
bank to infrastructure, group exposure relaxed
upto 50%)
Further, additional exposure upto 5% can,
however, be assumed subject to consent by the
Borrower and also approved by the Bank’s Board
of Directors.
Unsecured exposure Bank’s outstanding unsecured guarantees + total
(as defined by RBI for this purpose) of outstanding unsecured advances shall not
exceed 25% of total outstanding advances as
approved by the Board . ‘Unsecured exposure’ has
been defined as an exposure where the realizable
value of the security, as assessed by the Bank /
Approved valuers / Reserve Bank Inspecting
Officers, is not more than 10% ab-initio (i.e. at the
time to sanction) of the outstanding exposure.
‘Exposure’ shall include all funded and non-funded
exposures (including underwriting and similar
commitments). ‘Security’ will mean tangible
security properly charged to the bank and will not
include intangible securities like guarantees,
comfort letters etc.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Category/ Segment Bank’s Ceilings

Overall exposure to Capital market by The overall exposure to capital market in all
way of direct investment by a bank in forms (i.e. fund based and non-fund based
equity shares, convertible bonds and including investments/ commercial paper etc.)
debentures and units of equity oriented made by the bank shall be restricted to 5 per
mutual funds; advances against shares to cent of total outstanding advances as on
individuals for investment in equity March 31 of the previous year.
shares ( including IPOs / Employee
Stock Option Scheme), bonds and
debentures, units of equity-oriented
mutual funds etc and secured and Within this overall ceiling, banks investment in
unsecured advances to stockbrokers and shares, convertible bonds and debentures and
guarantees issued on behalf of units of equity oriented mutual funds should
stockbrokers and market makers; not exceed 20 percent of banks networth.

The branches / ROs are required to adhere to

the above ceiling of 5 % on an ongoing basis.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Category / Segment Bank’s Ceilings

Bank has not defined the Internal The exposure limits proposed to a particular unit / borrower
exposure limit to a particular unit are as under:
within the overall exposure limit Individuals / Proprietorship / HUF Concerns: Max.
defined for single / group borrower aggregate credit facilities to the extent of 2% of bank's
by RBI. capital funds reckoned for the purpose of calculation of
Prudential Exposure Limits.
Non-Corporate Borrowers i.e. Partnership Firms / Trusts
/ Regd. Societies: Max. aggregate credit facilities to the
extent of 5% of bank's capital funds reckoned for the
purpose of calculation of Prudential Exposure Limits
Corporates / Statutory Bodies: Max. aggregate credit
facilities as per prudential norms prescribed in Bank's Loan
Policy. This will apply to both under sole banking
arrangement or consortium arrangement.
NOTE: Loans and advances granted against the security of
Bank's own term deposits are to be excluded from the purview
of exposure ceilings.

Exposure against shares either 30% of Company’s Paid-up capital or 30% of Bank’s
by way of Loans and Advances Paid-up capital + Reserves whichever is less.
against shares or where the
Bank is a pledgee of the shares. To individuals
Loans at all the offices of a bank, against the security
of shares, debentures and PSU bonds to individuals, if
held in physical form should not exceed the limit of Rs.
10 Lac per individual borrower (Rs20 Lac per individual
borrower, if the securities are held in demat form).
The maximum amount of finance that can be granted to
an individual for financing his subscription to an Initial
Public Offering (IPO) is Rs.10 Lac and Employee
Stock Option Scheme (ESOP) is Rs. 20 Lac.

Finance extended by a bank for IPOs / ESOPs is also

reckoned as an exposure to capital market and
reckoned within 5% ceiling indicated in para 3.4.2 of
RBI circular referred above.

Advances against units of mutual funds including units

of Unit-64 scheme would attract the quantum and
margin requirements as applicable to advances against
shares and debentures wherever stipulated

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Oriental Bank of Commerce, Credit Administration Department, Head office.


Sr. No. Name of the Industry Proposed Cap of

Exposure in %age terms
of Gross Advances
1. Infrastructure (including 15% for Power) 50%
2. Fertilizers Not more than 10%
3. Iron & Steel Not more than 10%
4. Textile Not more than 10%
5. Cement Not more than 5%
6. Ship-breaking Not more than 5%
7. Chemicals, Dyes/Paints Not more than 5%
8. Drugs and Pharmaceuticals Not more than 5%
9. Petrochemicals Not more than 5%
10 Sugar Not more than 5%
11 NBFCs ( HP & Leasing) Not more than 5%
12 NBFCs (others) Not more than 5%
13 IT & Software Not more than 10%
14 Engineering Not more than 5%
15 Food Processing Not more than 10%
16 Hotel Not more than 5%
17 Film Industry Not more than 1%
18 Tea Not more than 2%
19 Jute Not more than 2%
20 Coal & Mining Not more than 2%
21 Other Industries not specified above Not more than 2% each
of Industry
22 Sensitive Sectors 20%
 Real Estate 10%
 Capital Market including investments 5%

 Commodity Sector 5%
1% Exposure translates to Rs. 272.48 crore as on 31.3.2005 and is estimated to Rs. 370.00 crore as per
Corporate Budget as on 31.3.2006.

** CMD may be permitted to allow exposure beyond 15% to Power Sector within the overall 50%
Exposure Ceiling meant for infrastructure sector.

* Ceiling was increased from 30% to 35% and 35% to 50% by the Board of Directors in its meetings held
in June and July-2004 respectively.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Term Loan Exposures

Term Loans are essentially long-term exposures compared to working capital facility. These
would now be governed by Asset Liability Management (ALM) guidelines of RBI. The policy
to be followed by our Bank for term loans (i.e. Loans repayable over a period of 3 years or
more) shall be covered by the following: -

a. Term Loan exposure to a borrower/group shall be within the prudential norms of capital
adequacy and per borrower/group exposure stipulated by RBI.

b. The Term Loan exposures will be taken up in tandem with ALM guidelines.

c. Term Loans for priority sector such as SSI, Agriculture, and Exports shall be

d. The overall Term Loan component of the Bank’s Credit Portfolio (Excepting Term Loans
covered under Agriculture, SSI & Exports) shall be controlled so as not to normally
exceed 50 % of the Bank’s total advances.

e. The Bank shall take steps to strengthen in-house term loan appraisal or get the term
loan proposals appraised by ICRA, CRISIL, CARE, SBI Caps etc. etc. and similar
institutions, wherever required, keeping in view the exposure of the bank.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



1. Specialized branches

The Credit Delivery System of the Bank is operated through the Branch net work spread over
the country and more particularly through the specialized branches, viz. Overseas Branches,
SSI branches, Industrial Finance Branches, Corporate Branches as well as very large and
extra large branches which contribute more than 60% of the banks credit business (both
fund based & non-fund based). The credit delivery on reasonable terms to all sectors and
particularly to agriculture, exports, SSI, micro-credit institutions, housing is proposed to be
achieved by simplification and decentralization of credit delivery mechanisms. The periodic
review of the functioning of the SSI branches and Overseas branches is undertaken by the

2. Delegation of Discretionary Powers for Advances

 The discretionary powers for granting loans & advances are vested with Branch
Incumbents, Regional Heads, and Asstt. General Managers/ Deputy General Managers
posted at Regional Offices, the General Managers’ Committee at Head Office, the
Executive Management Committee headed by Executive Director, Central Management
Committee headed by the CMD. These were last revised vide Board Note No. C-7 dated
4 th May 2004 and made effective from 5 th May 2004.

 Further, with a view to increase bank’s advances and to enable the branches to market
good borrowal accounts, the branches were also delegated discretionary powers for
takeover of borrowal accounts vide BR No. C-7 dated 7 th July-2004.

 Keeping in view the banking scenario and to remain competitive in the industry and for
expeditious dispensation of credit and based on the feed-back received from the
branches/field functionaries and with a view to having an overall control necessary
changes/ modifications would be undertaken from time to time in the discretionary
powers for loans and advances after obtaining necessary approval from the Board
/Competent Authority.

 The existing delegation of powers to various functionaries/committees as approved by

the Board of Directors for sanction of various types of credit facilities -fund and non-fund
will continue till next review.

3. Processing / Appraisal of Loan Proposals :

 The loan proposals falling within branch powers shall be processed /appraised at the
branch level and decision thereon shall be taken and conveyed to the applicant borrower
at the Branch level itself.

 In case of proposals falling within RO/HO powers, they will be duly recommended and
finally sanctioned by the competent authorities.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 The emphasis shall be to avoid duplication of efforts and expedite decision-making

process while at the same time not compromising with the quality of lending. All efforts
shall be made to cut down delays wherever possible and to bring in necessary
improvements in the credit delivery system based on changing and emerging scenario.
It shall be ensured that the Audited Balance Sheet and Profit and Loss Accounts etc. are
submitted within a period of maximum eight months of the close of its financial year.

4. Time Schedule for Disposal of Loan Applications of Small Borrowers and Other
Categories of Borrowers

a) Loan Applications upto Rs.5.00 Lac

RBI vide their circular RPCD/PLNFS/BC.No.24/06.02.77/2002-03 dated October 4, 2002

had advised that with a view to provide better customer service and to ensure that all loan
applications for loans upto Rs. 5.00 Lac; from all categories of borrowers are disposed off
expeditiously, the following norms are to be adhered to, provided the loan applications
received are complete in all respects and duly accompanied by check list.

Category of Borrower and Size of Limit Time norms for disposal

Loans upto Rs. 25,000/= to Small Borrowers Within two weeks of receipt of loan
application provided it is complete in all
respects and duly accompanied by a
check list

All other cases for loans upto Rs. 5.00 Lac Within four weeks of receipt of duly
completed loan application provided it is
complete in all respects and duly
accompanied by a check list

All such Loan applications which are complete in all respects and accompanied by a
checklist should also be acknowledged by the bank branches on the same day i.e. on the
day the application is received by the branch.

b) Loan Applications other than those covered above :

Proposal for Export Credit Non-Export Credit

Existing Existing

Sanction of fresh/enhancements : 30 days 45 days

Renewal of existing credit limits : 21 days 30 days

(*)Sanction of adhoc credit facilities : 7 days 15 days

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 The time frame indicates the maximum number of working days from the date of receipt
of loan application within which the decision has to be conveyed to the customer.

 (*) Sanction of adhoc credit facilities shall be subject to prevailing guidelines issued from
time to time.

The Branches and Regional Offices shall adhere to the above time schedule for disposal of
Loan applications and also to the Instructions for acknowledgement of all Loan applications

5. Rejection of Loan Proposals

The loan applications pertaining to SC/ST, SSI and Exports cannot be rejected by the
sanctioning authority under whose powers the same falls. Only the next higher sanctioning
authority can reject the same. Branch Managers may reject applications (except in case of
SC/ST)/ SSI /Exports provided the cases of rejection are verified subsequently by the
Regional Heads.

6. Sanction of Loan Proposals declined by Higher Authorities :

If some higher authority has declined a proposal, the lower sanctioning authority cannot
exercise his discretionary powers in that particular case without the permission of higher
authority in writing.

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The bank has at present three methods of assessing working capital needs of the borrowers.

i)TurnoverMethod Upto Rs. 5.00Crore:

The working capital limits of the borrowers with working capital limits upto Rs.5.00 Crores in
case of SSI units/other units is computed on the basis of 20% of their realistic projected
turnover subject to the condition that a minimum margin of 5% of turnover shall be brought in
by the promoters/borrowers as their own contribution. The projected turnover submitted by
the borrower is accepted subject to realistic attainment of the turnover, past track record,
orders in hand and all other relevant factors. Where the margin contribution of the borrower
is lesser than the minimum 5% prescribed, the working capital limits shall be assessed
correspondingly lower in proportion to (1:4) the ratio of the margin being brought in by the
borrower. In case, the margin available is higher than the minimum required margin, the
same shall be accordingly taken into consideration (deducted) for arriving at MPBF.
Wherever the nature of business activity so warrants, the branches may also apply
traditional method of lending (based on holding levels of Inventory, receivables and
Creditors) and sanction need-based limits. However, in no case the concept of chargeable
security laid down for calculation of Drawing Power (DP) on monthly basis is diluted.

ii) MPBF System (Above Rs.5.00 Crore):

The MPBF system is proposed to be continued and uniformly followed for all borrowers with
working capital limit above Rs.5.00 Crore. This will be valid where the bank is a sole banker
and under multiple banking arrangements. In cases where the working capital limits are
under consortium arrangement, the lead bank’s practice for assessment of the same shall be

In cases where the Bank acts as the Lead Bank, the MPBF system or the system agreed to
by all the Member Banks on the basis of consensus shall be applicable.

iii) Cash Budget System:

The cash budget system is applied to certain seasonal industries such as tea & sugar and to
specific industry such as Information technology and software (for limits upto Rs.2.00 crore).
The cash budget system envisages the providing of working capital by the bank based on
the peak deficit projected as per the cash flow statement.

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Borrower Standards:

Financial strength/ Bench Mark Ratios

 The financial strength of the borrower client shall be adequate in relation to the project
size/volume of operations proposed to be undertaken and risks involved therein.

 Though it is very difficult to evolve industry-wise bench marks for Current and
Debt Equity Ratio, Profitability Ratios and Debt Service Coverage Ratio or any
other specific ratios, yet, the benchmark Current Ratio in case of working capital
limits upto Rs.5.00crore should be 1.17 and above, for working capital limits
beyond Rs.5.00 crore should be 1.33. And for sugar industry 1:1 during the peak

 Debt Equity Ratio (DER) less than 2.00:1 Total outside Liabilities to Net worth Ratio
of less than 4:1. However in respect of SSI and capital intensive industries,
relaxation in DER would be considered.

 In case of term loan, minimum Average DSCR of 1.5:1 will be considered as

reasonable requirement for any new connection. Relaxation may however be
considered on merits of the case by the respective sanctioning authority.

Market Enquiries

The activity of the borrower should be within the ambit of the regulatory framework.
Discreet enquiries about the borrowers/promoters/guarantors' background shall be
made through independent sources and from other banks/financial institutions in the
case of clients under consortium/multiple banking arrangement to ensure satisfactory
track record, before granting any credit facility.

Export Receivables/Domestic Receivables against bill negotiated under Usance letter

of credit

 As per the existing policy for export oriented units, the amount of export receivables and
the funding thereof are deducted from both current assets and current liabilities. Besides
this, relaxation in current ratio may be permitted by the sanctioning authority in deserving
cases with valid reasons.

 Similarly, receivables arising out of domestic/inland sales by drawing bills of exchange

under usance letter of credit and negotiated strictly in accordance with the terms of letter
of credit are proposed to be shown separately under “current assets” for arriving at
Maximum Permissible Bank Finance (MBPF). The stipulated minimum level NWC (i.e. 25
% of the current assets) under the second method of lending may be reckoned after
excluding the quantum of such bills. It is therefore, proposed that while calculating
NWC/current ratio, we may deduct amount of receivables under L/C from current assets
and corresponding short term bank borrowings under L/C from current liabilities. This
policy may be continued.

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Treatment of margin under L/C

Margin money provided by the borrower against L/C and bank guarantee is excluded from
the build up of projected current assets while assessing working capital needs of the
borrower. This is with a view to avoid financing against margin, which has been taken as risk
cover for L/C and Bank Guarantee. This policy may be allowed to be continued.

Treatment of advance payment to suppliers of Raw-Materials

Advance payment made by the borrowers to suppliers of Raw Materials is one of the
components of current assets. Such advance payments to suppliers of goods are inevitable
in nature and by not allowing any finance thereagainst the borrower’s working capital
requirements remain under financed. It is therefore, proposed that while calculating Drawing
Power against stocks, advance payment made to suppliers of goods may also be considered
till the goods are actually received by the borrowers and declared in the stock statement.
This may be made applicable in case of domestic as well export finance against
hypothecation of stocks.

Loan System for Delivery of Bank Credit - (Working Capital Demand Loan (WCDL)
Based on the RBI guidelines the bank’s policy for the Loan System for delivery of Bank
Credit i.e. bifurcation of the Cash Credit Limits into WCDL component and the CC
component was formulated and approved by the Board vide C-1 dated 28.11.2001. The
salient features of the policy approved and which is to be continued are as follows:

Fund Based Working Capital Limits of Rs.10.00 Crores and above

In order to provide flexibility and quick decision making at the field level so as to attract good
Corporates, the respective sanctioning authority has been vested with powers to stipulate
the composition of the cash credit component and the loan component after discussion with
the borrower depending on their requirements of working capital finance during the course of
the year. The loan component of the working capital finance shall be priced at 0.50% p.a.
below the rate that would be applicable to cash credit facility of that borrower as an incentive
for better credit off-take.

Fund Based Working Capital Limits less than Rs.10.00 Crores

The Regional Head and the respective sanctioning authority at Head Office have been
vested with powers to stipulate the composition of the cash credit component and the loan
component after discussion with the borrower depending on their requirements of working
capital finance during the course of the year. The loan component of the working capital
finance shall be priced at the same level as that applicable to cash credit facility of that
borrower. In other words the rate of interest on the Cash Credit component and the loan
component shall be same in case of borrowers enjoying fund based working capital limits of
less than Rs.10.00 crore.

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Permitting the borrower to invest Short-term Surplus Funds

The discretionary power has been vested with the Regional Heads (in cases falling under
RO powers) and the respective sanctioning authority at HO (in cases falling under HO
powers) to permit the borrowers to invest their short-term / temporary surplus funds in short-
term money market instruments like Commercial Paper (CP), Certificates of Deposit (CD)
and in Term Deposit with banks, etc.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



1. Consortium Financing/ Syndication :

The RBI guidelines for mandatory formation of consortium in respect of working capital limits
of Rs.50.00 Crore and above from the Banking system stand withdrawn. However,
considering the risk involved in large exposures, it will be the bank’s endeavor to ensure that
wherever possible, the large advances are made in consortium or on syndication basis.

 Bank will prefer to have, subject to prudential norm, at least 5% share as a member of
consortium for a meaningful participation in the consortium. However, It will be the sole
discretion of the Bank to take up enhanced share on pro rata basis irrespective of its
status in the consortium.

 Bank will take its own credit decision on the borrower. Bank may consider opting out of
the consortium in case it is not satisfied with the performance / financial operations of
the borrower. Interest rate will be as per the consortium's decision.

 Bank's own appraisal method of lending as mentioned above will be followed in case of
consortium arrangement where Bank is leader of the consortium. However, in cases
where Bank is not the consortium leader, the appraisal done by Consortium Leader will
be given due importance, but the Bank will also have to carry out its own assessment
and if it shows major variation from that assessed by the leader, necessary clarification
should be obtained from the leader and a need based limit will be sanctioned.

 Pending execution of consortium documents, Bank's individual documents should be

executed supported by exchange of pari passu-letter between all members of the
consortium. Bank will file its individual hypothecation charge based on such pari passu
letters. The Bank will follow other operational formalities as agreed in the meeting of all
consortium members, subject to approval from the sanctioning authority.

 Bank will always prefer to have non-fund business of the borrowers and pro-rata share of
the non-fund business of the borrowers under consortium finance.

 In case of borrowers having multiple divisions or engaged in Equipment Leasing/Hire

Purchase, multiple banking arrangement may be undertaken. Financing under Multiple
Banking will be provided if the borrower is inclined to avail finance from the Bank
division-wise subject to Bank's own assessment of the risk rating of the borrower.

 For syndication of loan Bank will be free to decide its own terms and conditions rate of
interest. Bank will go for loan syndication in project financing depending on its Asset-
Liability position and risk profile of the portfolio. Bank will prefer such proposals for loan
syndication which will facilitate earning of substantial revenue in the form of Handling
Charge/Syndication Fees. The Bank shall avoid taking undue large share in such

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 Where our Bank is the lead bank in the consortium, assessment of credit needs as well
as on other related matters, decisions will be taken on the basis of consensus in the
meetings. For exchange of information, review meetings will be held on quarterly basis.

 Regional Heads shall appraise, sanction and dispose of such proposals at their end if it
falls within their discretionary powers.

 Where our Bank is a participating member in the consortium, the joint decisions taken by
the consortium with regard to various aspects including calculation of drawing power
shall be followed.

2. Multiple Banking Arrangement :

 As a matter of policy, the Bank shall not encourage disbanding of an account under an
existing consortium arrangement and switching over to multiple banking arrangement.
However, where there are convincing reasons and business is considered remunerative
by the bank, then the bank may entertain such a request for switch over to multiple
banking arrangement from existing consortium arrangement provided other consortium
members similarly agree to the same.

 When a borrower desires to have multiple banking arrangement within the framework of
RBI guidelines, the bank may meet part of its additional requirement through multiple
banking arrangement on compliance of all laid down norms & guidelines to the extent
applicable in this proposed credit policy.

 For participating under existing consortium or under multiple banking arrangement or

taking over entire account, the bank shall take into account the following aspects: -

a. A comprehensive appraisal of credit requirement of the borrower shall be

undertaken by the bank alongwith detailed examination of financial parameters.

b. Only if the borrower’s additional financial requirement are justified by the

scale of it’s business operations and also when overall financial parameters are
satisfactory and as per norms and credit report from the existing bankers is
satisfactory, the bank shall consider allowing facilities to the borrower.

 In respect of borrowers enjoying credit facilities of Rs.I0.00 crores and above, under
Multiple Banking Arrangement, the avenues to finance the same through a formalized
Consortium arrangement be explored.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



 It will be the endeavor of the Bank to increase the income from Non-Fund Based
business, which at present is relatively less as compared to the leading banks and also
less as a ratio of total income. The spreads on fund based lending have been declining
due to increasing competition from new players as well as surplus funds with the Banks.
Many of the top-rated borrowers are demanding credit below Prime Lending Rate. In
order to maintain bank’s profitability, the bank bestows added focus on non-fund
business mainly by way of guarantee and L/Cs.

 The bank would try to have higher turnover of non-fund based business. In consortium
advances, efforts will be to increase our share of non-fund based business wherever
possible. While considering such facilities, normal safety precautions and necessary
safeguards shall be observed with a view to ensuring that the liability does not devolve
on the bank. Service charges and pricing of non-fund based credit and fee based
business will be reviewed and revised in response to market demands wherever

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Oriental Bank of Commerce, Credit Administration Department, Head office.



A) Where credit limits have been sanctioned by higher authorities :

Following guidelines to be complied with in case of adhoc / temporary limits allowed in
those accounts where credit limits have been sanctioned by higher authorities:

a) In emergent circumstances, the functionaries may exceed the sanctioned working

capital limits to the extent delegated by the Head Office. Such discretion shall only be
exercised in a borrowal account classified as Standard within the validity period of the
sanctioned limit, subject to satisfactory conduct of the account.

b) As per the system in vogue, the powers for allowing temporary / adhoc limit is
applicable to cases where the limits have been sanctioned by the higher authority only
(RO/HO). In case of exigencies, the Branch Incumbents of Exceptionally Large Branches
and Overseas Branches may also allow adhoc / temporary limits to exporters having good
track record to the extent of 20% of the discretionary powers vested with them (sanctioned
by Branch Incumbent within their powers) . However, the reasons for allowing limits must be
recorded with justifications.

c) The Branch Incumbent, shall however, report the such adhoc / temporary limits to
appropriate sanctioning authority viz. RO / HO on a case to case basis , for information only.
The same shall be recorded in the Individual file of the borrower at Regional Office/
Head Office respectively.

d) As a matter of policy, the sanction of adhoc limit / temporary enhancement shall be

kept to the bare minimum and to be allowed only where circumstances / business
considerations warrant.

e) Adhoc facility / temporary enhancement must be allowed strictly within the

discretionary powers vested with the functionary. These should be allowed selectively and
not as a matter of routine throughout the year .

f) The purpose of the adhoc facility / temporary enhancement should be clearly

identifiable and the same should be adjusted within the fixed time period normally not
exceeding 90 days . However, in deserving cases need-based limits beyond 90 days
period and upto a maximum period of 180 days may be considered.

g) The temporary enhancement permitted should be within the approved discretionary


h) The percentage of regular limits specified for allowing the temporary enhancement
shall be computed separately for fund based limits and non-fund based limits .

i) Temporary enhancement shall not be allowed in respect of Clean Overdraft / Clean

Demand Loan (except clean overdrafts to commission agents) limit approved by higher

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Oriental Bank of Commerce, Credit Administration Department, Head office.

j) The discretionary powers for temporary enhancement in respect of limits sanctioned

by Head Office shall not be exercised concurrently both by the branch as well as the
Regional Head.

k) The other conditions to be complied will include : -

 The Bank shall ensure before allowing the temporary enhancement/adhoc

facility that all the terms and conditions of existing sanction are complied with and
there are no major inspection/audit irregularities pending for rectification.

 The conduct and operation of the borrower’s account must be satisfactory

with due credit discipline.

 Adequate prime security with stipulated margins must be available to cover

the adhoc facility/temporary enhancement and prescribed documentation for the
same should also be obtained.

 As far as possible, unit must be visited before allowing the facility and the last
unit visit must not be more than 2 months old.

 The reporting routine prescribed as above must be followed.

l) The over–accommodation as above shall be allowed against available DP in cash

credit account or by way of purchase of cheque / discounting of bills arising out of genuine
business transactions.

m) For the purpose of allowing temporary over-accommodation, the fund based and non-
fund-based limits shall be grouped separately.

n) The Branches/Regional Offices shall allow adhoc/temporary enhancements in

permitted cases only in those accounts where the account has remained as Standard
Account for the last one year.

Review/Renewal /Enhancement and Conversion of Adhoc Limits into Regular Limits:

As per the policy approved by the Board, only the next higher authority is empowered to
review /renew/ enhance adhoc limits and permit conversion of adhoc limits into regular
limits. This is in terms of the implementation of the Narang Committee recommendations.
This condition shall continue to be operative. These provisions, however, shall apply to field
functionaries’ only i.e. Branches/ Regional Offices.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



The Board of Directors had vide item No: C-7 dated 4th May, 2004, followed by C-3 dated
14th June, 2004 and item No. C-7 of 7th July, 2004, approved following modifications in the
guidelines for takeover of borrowal accounts:

1. The formal processing and sanction shall be done by the respective sanctioning
authorities under whose discretionary powers the proposed limits fall.

2. The specific reasons for shifting the account from financial Institution I other Bank to
our Bank should be ascertained.

3. The account to be taken over should be classified as Standard by the previous

bank/financial institution.

4. Accounts of the associate concerns of the proposed borrower should not have any
overdue with financial institutions or other Banks/ Our Bank.

5. Audited Balance Sheet of the borrowal account to be taken over should not be more
than eight months old i.e. for a unit whose books close on 31 st March; audited
balance sheet should be submitted by 30 th November. In addition, provisional
Balance Sheet of a later date should also be obtained in such cases. Audited
Balance Sheet of the last financial year (April to March) at the time of take over
should not carry any cash/non-cash accumulated losses unless otherwise justified
with valid reasons.

6. Take over of the borrowal account shall be subject to the Loan Policy approved by
the Board and Asset Liability Management guidelines from time to time.

7. At the time of takeover of the borrowal account the project should not be in the
implementation phase.

8. The names of the Borrower/directors/guarantors should not be appearing in the

caution list/defaulter’s list of Reserve Bank of India/ECGC/IBA/CIBIL etc.

9. Prior to the takeover of the account, a certificate should be obtained by the Bank
from the existing Banks/FIs to the effect that the conduct of the account has been
satisfactory with them.

10. The limits of the borrowal account to be taken over both Fund Based and Non-Fund
Based should be taken over as far as possible only at the existing level as enjoyed
by the borrower with the previous banker/Financial Institution. However,
Enhancement in limits wherever deemed justified, can be considered while taking
over an account based upon proper independent assessment of the enhanced credit
requirements of the borrower as per norms of the Bank after obtaining all the relevant
operative and financial data of the borrower and due diligence.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

11. Payment towards adjustment / liquidation of the dues of the existing Financial
Institution/Bank shall be made by the Bank directly to them.

12. All the formalities such as fresh documentation, charging / transfer of securities,
compliance of terms & conditions of sanctions should be duly completed before the
release of the facilities.

13. The collateral securities charged to the existing bankers should not be diluted.
However, wherever deemed necessary the functionaries at Head Office and
Regional Offices may permit substitution of collateral security in the shape of
immovable or movable property previously charged to other banks by the
borrowers provided the tangible collateral security (immovable or movable
other than agricultural ) offered now by the borrowers to the bank is of the same
realizable value and free from all sort of encumbrances.

However, in case of direct agriculture advances (area specific agricultural loan

schemes) mortgage of land / property including residential / commercial
property / other than agriculture equal to the loan amount may be accepted.

14. The guidelines issued from time to time by the Head Office with regard to the
Housing Loan Scheme to the Public for individuals would apply to the takeover of
such Housing Loan accounts as already laid down in Bank’s Approved Loan Policy.

15. The Regional Heads and the Branch Incumbents shall continue to exercise the
delegated powers for takeover of accounts subject to the guidelines as mentioned

However, the Chairman & Managing Director / Executive Director are authorized to permit
relaxation in these norms based on merits of each case.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



The bank lays utmost importance on the need for post sanction monitoring, control and
follow up at all levels, once the facilities are disbursed to the borrower. The measures for
undertaking this include: -


All the ROs / H.O. of the bank have a Loan Audit Cell to be preferably headed by Scale IV
Officer. The Loan Audit Cells at RO ensure receipt and scrutiny of STM-41, 41A, 41 B, and
41C from the branches every month alongwith copies of process notes of the facilities (Fund
& Non-fund Based including Term Loans) sanctioned under their powers (except Staff Loans,
Advances against Bank deposits/ NSCs / LIPs/ Govt. securities/ Bonds and facilities secured
against 100% margin in the shape of unencumbered FDRs/CDRs) as under:-

Sending of copies of Process Notes (Fresh/Renewals/Enhancements/ Adhoc etc.)

alongwith STM-41 / STRO-16:-

It is our experience that adequate expertise in appraisal / processing of loan proposals has
since been developed at the Regional Offices and the branches. Moreover, this job involves
lot of avoidable paper work, and time. Therefore, we propose that copies of appraisal /
process notes of Rs.1.00 crore & above only be sent by the branches to Regional offices and
copies of appraisal / process notes of Rs.5.00 crore & above be sent by Regional Offices to
Head Office, alongwith STM-41 and STRO-16 respectively. The branches / Regional Offices,
shall however, continue to prepare the process notes on prescribed formats invariably, and
keep the same for verification of the Inspecting / visiting officials, who shall randomly check
the quality of appraisal.


 In case of non-receipt of the above statements from a branch for consecutive three
months, the matter will have to be reported by the Regional Head to Inspection & Control
Department, Head Office and Loan Audit Cell at HO for taking necessary action i.e.
suspension of powers of the Branch Incumbent.

 Loan Audit Cell at Head Office ensures receipt and scrutiny of STRO -16, 16 A, and 16B
from the Regional Offices, sanctioned under their powers. Similar action has also to be
taken by the Loan Audit Cell at Head Office in case of non-receipt of these statements
from Regional Offices for consecutive 3 months.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



All the branches are to submit the BCC of the documents executed by the borrower to the
respective sanctioning authority within 15 days of the release of the facilities. The
sanctioning authority should scrutinize the BCC and advise the branch of the discrepancies
within 30 days of the receipt of BCC. The branch should further ensure that discrepancies
pointed out by Regional Office are rectified within a period of 30 days.

Prior verification / vetting / clearance of documents (before disbursement) from the Local
Legal Counsel at Branches has to be got done in case of total limits of Rs.1.00crore and
above but upto Rs.5.00 crore. However, cases above Rs.5.00 crore shall continue to be
vetted by the Legal Retainer at ROs as per the system in vogue.

As regards the cases upto Rs.1.00 crore , the Branches shall compile BCC without being
vetted by the Legal Retainer for verification of the Inspecting officials.

The branches need not send photocopies of the documents either to the Regional Offices or
to Head Office in view of the fact that all the documents for credit facilities of Rs.1.00 crore
and above are now required to be vetted by the Legal Counsel / Retainer prior to the release
of facilities. However, only BCC as per prescribed format shall be submitted to the
appropriate sanctioning authority immediately after execution of documents confirming
therein that the documents strictly in conformity with the sanction have been obtained.


 Before sanction of any facility to the borrower, a visit to the borrower site / offered
securities (Pre-sanction) is mandatory in each and every borrowal account except
advances against bank’s own deposits and self-liquidating securities like shares/
debentures/ NSCs/LIPs /other Govt. securities etc.

 The pre-sanction visit has to be undertaken by the branch and / or by RO officials. Unit
visit report as per the prescribed format has to be compiled which would form part of the
loan proposal.

 Similarly , the visit (Post-sanction) must also be conducted after the release of the
limits for ensuring end use of funds. RBI has vide its circular No. DBOD.DL.BC.
16/20.16.003/2004-05 dated 23 July, 2oo4, advised that the Banks should not depend
upon entirely on the certificates issued by the Chartered Accountants for ensuring end
use of funds. Therefore, the visit should be undertaken at the prescribed intervals / as
per sanction terms. If any shortcomings are observed during the visit, these have to be
rectified in a time bound manner. The system of pre-sanction visit/post-sanction visit
shall continue to be done as before.

 All Staff Loans (except Housing Loans) shall, also, continue to be exempted from the
provisions of pre-sanction / post-sanction visit as per the system in vogue.

 Public Sector Undertakings (owned by the state/ central Govt.) raising corporate loans/
term loan etc. should also not be subjected to any pre-sanction / post-sanction visit.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



System of unit visit / Inspection as regards post-sanction visits, as reviewed and devised in
consultation with Inspection & Control Department shall be as under:

Purpose of the visit Monitoring and control to ensure safety of Bank’s

advance, check depletion or deterioration of securities
charged to the Bank.

Type of accounts Standard A/cs & Special Mentioned A/cs

Types of borrowers All categories of borrowers including Trading, Industrial,

Service Sector etc. (except retail schemes where the
procedure prescribed for the particular scheme should
be followed).
Types of facilities Term Loan and working capital facilities where fixed
assets / current assets are charged as prime security.

Banking arrangements 1. Sole

2. Multiple (in case the multiple financing banks have an
agreed arrangement for visits, the same shall be
3. Consortium (as decided by the consortium members).

Who shall conduct the visit Branch / RO/HO Sanctions - Branch Manager or Loans
Officer or Monitoring Officer of the account or any
Competent Officer authorized by the Branch Manager.
In order to avoid multiplicity of visits, the above
mentioned Officials may conduct such visits alongwith
the Inspecting Officials.

Periodicity of the visit For all borrowal accounts having Fund Based limits and
Non-Fund Based limits (where fixed assets/ current
assets are charged as prime security – atleast once in
three months for Standard A/c and atleast once in a
month for Special Mention Accounts.
Maintenance of unit visit Visits shall be recorded in unit visit register to be
register maintained at the Branch for all visits conducted by
Branch / Inspecting officials.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Compilation of unit visit report Unit visit report shall be compiled in the prescribed
– format, time limit for format within 10 days of the visit and to be submitted to
submission the competent sanctioning authority as the case may be.

Scrutiny of report and follow-up The report shall be put up to the respective sanctioning
action authority by the inspecting official to the Branch
Incumbent/Regional Office/Head Office as the case may
be, who shall get the same scrutinized for close follow-
up action.

The Branch Incumbents have to ensure that the spirit behind a unit visit is observed and
multiplicity of visits is avoided and proper co-ordination is done with the visiting officials so
that the purpose of the visit is ensured.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



Guidelines for Submission of Stock Statements

 The Board of Directors has vide Item No. C-2 dated 22.03.2003 had approved revision in
the periodicity of submission of Stock/Book Debts Statements to be submitted by the
borrowers to the Bank.

 The branches had to obtain Stock/Book Debts statements from the borrowers with
different periodicity, which was based on the size of the working capital limit. The revised
periodicity as approved by the Board of Directors for submission of Stock / Book Debts
Statements is Monthly irrespective of the size of the limit based on revised RBI

 The statement of stocks and book debts is to be submitted every month by the end of
third week . e.g. statement pertaining to September shall have to be submitted by the
borrower by the end of third week of October.


 The revised method for calculation of DP against stock and receivables etc. has been
given in stock statement / statement of book debts devised by the Head Office for credit
limits upto Rs.10.00 Lac and above Rs.10.00 Lac.

 In terms of bank’s loan policy, advances made/ given to suppliers are to be added to the
value of stocks. Similarly, the advances received from buyers, if any are to be deduced
for the purpose of calculation of drawing power.

 Secondly, stocks sent by the borrower for processing / job work etc. to other units may
be added in the value of stocks and stocks received for processing/ job work from other
units are to be deducted, provided that the borrower maintains proper record of the same
and produces evidence to this effect to the full satisfaction of the bank officials.

 Further, the facility against stock and receivables should be sanctioned in a

combined manner for all practical purposes viz. secured by way of hypothecation
of stocks and receivables. The said system is to be followed whenever the facilities
are renewed.

 Branches shall apply a uniform margin of 25% on stocks and book debts within
their powers. However, discretion for further reduction in the prescribed margins
shall continue to be vested with the Regional Heads as specified in the
discretionary power booklet (Circular No. HO/ADV/5/2004-05/ 66 dated 5 th May

 The sanctioning authority must clearly spell out the age of book debts to be taken
into consideration for calculation of DP. The age should be appraised keeping in
view of the nature of business/activity of the borrower vis a vis realization of book

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Oriental Bank of Commerce, Credit Administration Department, Head office.


 The system of submission of quarterly monitoring officer’s by the bank’s nominated

Independent Monitoring Officer in case of Standard accounts with limits of Rs.1.00 crore
and above and the monthly monitoring in case of Special Mentioned Accounts with limits
of Rs.50 Lac and above, is already in vogue as another tool for periodic monitoring of
the borrower’s operations. We propose to continue with the existing system.

 The report in the prescribed format covers review of the operations in the account during
the quarter under reference, documentation infirmities, pending inspection/audit
irregularities, submission of financial data by borrowers etc.

 The monitoring officers appointed has also to confirm that the unit visit has been made to
verify stocks and submit his observation in the report.

 The reports containing the monitoring officers observation as well as the views of the
branch incumbent is sent to the sanctioning authority/RO who follow up with the branch
for rectification of all shortcomings observed.

 The consolidated position indicating extent of its implementation is placed before the
departmental head at quarterly intervals.


The QIS provides for the quarterly review of borrower’s operations vis-à-vis the projections
alongwith half-yearly review of Balance Sheet/Funds Flow. The prescribed forms to be
submitted by the borrower are as follows: -
Form Periodicity & Purpose To be Applicable to
No. particulars of the form submitted by
I. Quarterly estimates of Fixing of One week Borrowers enjoying
the turnover, current quarterly before the start Fund Based working
assets and current operating of the quarter capital limits of Rs.
liabilities for the ensuing limits for the 5.00 Crore and
quarter ensuing above from banking
quarter system.
II. Actual quarterly Review of Six weeks from Borrowers enjoying
performance for the quarterly the date of Fund Based working
previous quarter vis-à-vis performance closure of the capital limits of
the estimates given in quarter Rs.5.00.00Crore
Form – I and above from
banking system
III. Half yearly Balance Review of Two months Borrowers enjoying
Sheet and Fund Flow Fund Flow from the date Fund Based working
Statement and Half of half year capital limits of
Yearly Rs.5.00Crore and
Balance Sheet above from banking

Non-submission/late submission of the above statements shall attract penal interest of 1% p.a. for the

quarter under reference. The system shall continue as before.

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Oriental Bank of Commerce, Credit Administration Department, Head office.


The Board of Directors have vide Item No.C-9 dated 4.7.02 approved revision in the Stock
Audit System of Borrowal Accounts for the Stock Audit to be conducted by independent
Chartered Accountants. The revised system approved by the Board is as under: -

Periodicity & categories of the borrowers to be covered

 If the Cash Credit limits against stocks and receivables is Rs.1.00 crore or
above and less than Rs.10.00 crore, the Stock Audit should be conducted once in a
year .

 In case the Cash Credit limits against stocks and receivables is Rs.10.00
crore & above but less than Rs. 25.00 crore, Stock Audit should be conducted at half
yearly intervals i.e. twice in a year .

 In case the Cash Credit limits against stocks and receivables is Rs.25.00
crore & above but less than Rs. 50.00 crore, Stock Audit should be conducted at
quarterly intervals i.e. four times in a year.

 In case the Cash Credit limits against stocks and receivables is Rs.50.00
crore & above, Stock Audit should be conducted at monthly intervals i.e. twelve times
in a year.

 The above would not apply to large reputed corporate borrowers where we
are participating bank. In case OBC is the lead bank the decision shall be taken in
consultation with other member banks.

Stock Audit of Sub-Standard Accounts

In the case of “sub-standard accounts” where the outstanding in Cash Credit

(Hyp)/Packing Credit is Rs.50.00 Lac and above such stock audit shall be conducted
at least twice a year.

Amount of fees to be paid to the Chartered Accountant for Stock Audit

The fees to be paid to the Chartered Accountant shall be Rs.5000/- per borrower.
Besides these charges Service Tax at the applicable rate shall also be payable.
However, TDS as per prevailing rules shall be deducted at source. All other
existing guidelines shall continue to be in force.

Audit of Term Loans sanctioned to Borrowers :

In case of term loan sanctioned to the borrower, audit should be conducted to verify:-

 The assets created out of the term loan disbursed on complete disbursement
of the term loan.

 Compliance of terms and conditions of sanction.

 This would be done on a one-time basis . This would apply to term loans
sanctioned of Rs.1.00 crore and above . The fees for this would be Rs.5000/- per

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Oriental Bank of Commerce, Credit Administration Department, Head office.

borrower. However, if working capital limits are also sanctioned no separate fees
would be payable since fees would be paid for verification of the stocks.

Selection & Appointment of the Chartered Accountants

 The Regional Heads shall be authorized to appoint the Chartered

Accountants for the purpose of stock audit in all cases whether sanctioned by
Branch / RO / HO. Further, the stock auditors must be rotated every year .

Stock Audit for Credit limit less than the cut off point specified

In case the Regional Head is of the opinion that the account warrants such stock
verification, they may consider stock verification for close monitoring and random
checking by firm of Chartered Accountant even if the credit limit is less than
Rs.1.00 crore (Standard Accounts).

Submission of Stock Audit reports by the Chartered Accountants

The Chartered Accountant shall submit the reports in the prescribed format to
RO/Branch in case the facility falls within the powers of RO and HO/RO/Branch in
case the facility falls within the powers of HO.

Scrutiny of the Stock Audit Report and follow up of action

The stock verification report submitted by the independent CA has to be

scrutinized by the Regional Office and the shortcomings/irregularities pointed out
therein have to be closely followed up for rectification.

 Immediate corrective steps have to be taken wherever the situation warrants

and wherever there is a shortfall in drawing power the branch must write to the
party and ensure to contain the drawings within the available drawing power. The
Branch must take necessary corrective steps. It has to be ensured that the
outstanding of the Bank are adequately covered by Stocks/Receivables,
insurance cover is adequate, securities are properly charged etc.

Branch Official to accompany the Stock Auditor

 Branch Official should accompany the Stock auditor and all issues should be
discussed with the borrower in the presence of the Stock auditor. Proper record
should be maintained at the branch for all the visits/audits conducted and copy of
the visit report should be compiled and submitted to the sanctioning authority.

Where receivables are charged to the Bank

 Wherever receivables are charged to the bank the stock auditor must verify
all factors relating to the same such as eligibility of debtors for allowing drawings,
age of debtors, matching of debtors in the borrowers books with those declared in
stock/receivables statements, registration of charge on book debts with ROC etc.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

Guidelines for Empanelling Chartered Accountants to Conduct Stock Audit of

Borrowal Accounts

The Board of Directors have vide Item No.C-4 dated 27.07.02 have approved the guidelines
for empanelling Chartered Accountants to conduct Stock/Book Debts audit of borrowal
accounts. The basic guidelines approved by the Board for empanelling of Chartered
Accountants to conduct stock audit are as follows: -

 The Chartered Accountants’ Firm should have been in existence for a

minimum period of three years and atleast one of the partners should be a Fellow of
the Institute of Chartered Accountants of India (FCA). The firm/partners should be
practicing full time and not part time. They should have adequate staff and
infrastructure with sufficient experience in conducting stock audit of banks. The firms
to be empanelled should preferably be on the approved panel of some of the leading
nationalized banks with a good track record.

 The Chartered Accountant Firm to be empanelled should be from a local or a

nearby area so as to reduce the cost of conducting the stock audit.

 The Chartered Accountant Firm who conduct concurrent audit of a particular

Branch of the Bank shall not be entitled to conduct the stock audit of borrowal
accounts pertaining to that Branch. Similarly, Statutory Auditors connected with
or belonging to the same group should not be allowed stock audit.

 The Chartered Accountant Firm shall conduct the stock audit on a rotation
basis. The Regional Heads shall ensure that the same Chartered Accountant Firm
does not conduct the stock audit for the same borrowal account continuously for
more than three times. The stock audit should be rotated between different
empanelled Chartered Accountant Firms.

 It shall be ensured that the stock audit is conducted by qualified Chartered

Accountant and not by articled clerks of the Firm. The Firm to be empanelled should
not have had any adverse case against them.

 The Chartered Accountant Firm to be empanelled should not have been

debarred by RBI/Institute of Chartered Accountants of India.

 As far as possible, at semi-urban/rural centres, the services of local

Chartered Accountants may not be engaged for conducting the stock audit of a
borrower located in the same place.

The policy as above is to be continued

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 All borrowal accounts enjoying working capital limits have to be reviewed / renewed
annually, till the file is transferred to Recovery & Law Department at Head office/
Regional Office for initiating action to recover bank dues. The review covers the conduct
of the account, financial position of the borrower, the achievement of projected turnover/
profits, the future outlook, inspection irregularities etc. If these are satisfactory, the
facilities are renewed and/or enhanced based on merits. In case the borrower is unable
to submit the renewal papers for renewal of the credit limits, this system provides for
extension of validity of the limit for a maximum period of six months, within which the
renewal exercise must be completed without fail.

 The Management Committee of the Board has vide MCR No.C-1 dated 26.07.02 directed
that in case of non renewal of limits for all borrowal accounts falling under the powers of
different functionaries, validity of existing sanction shall be extended for a maximum
period of 6 months within which renewal exercise must be completed without fail.

 As such, the validity of extension of credit limits sanctioned in any borrowal account can
be allowed for a maximum period of six months.

 The discretionary powers for extension of validity period upto six months in all
cases including those falling under the powers of Head Office functionaries &
Management Committee of the Board are vested with the Regional Heads as
directed by the Board of Directors in its meeting held on 14th June, 2004.

2. Terms & Conditions for Review of Accounts :

Review of account should be based on and subject to the following information/documents

a) Review of account format completed in all respects.
b) Schedule II of the account (Report on conduct of the account)
c) Latest Balance Sheet or atleast the Balance Sheet for the previous year.
d) No change in constitution of the borrower.
e) Borrowal unit is functioning well.
f) Securities are properly charged and there are no documentation irregularities.
g) No enhancement in limit is being considered.
h) Unit Visit should be conducted and visit report by Branch Incumbent / Designated Officer
should be held on record.
i) The validity of extension of credit limits sanctioned in any borrowal account can be
allowed for a maximum period of six months within which the renewal exercise must be
completed without fail.


The review of the term loan accounts with outstanding of Rs. 50 Lac and above has to be
done on annual basis as regards regularity in repayment of installments/interests, adequacy
of cash generation, review of financial position etc. The format in which the review has to be
done has already been circulated to the branches.

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The subject of NPAs is covered under a separate policy of the bank, viz. “Management of
NPA and Recovery Aspects”. However, the prevention of NPA has to start from the time
credit is considered for a borrower. It will be the bank’s endeavor to prevent NPA by
initiating all necessary steps. The following have already been taken:

1. Process Note to be used in case of limits falling under the powers of Head office has
already been standardized, got approved by the Board and is put to use for appraisal of
all such cases. The same format has now been prescribed for the cases falling under RO
powers. For limits falling under the powers of Branches the process notes are
standardized. These formats are being improved/ updated from time to time based on
suggestions/ feed back received from the field functionaries.

2. The system of pre-sanction visits and post-sanction visits by the officials of the bank as
well as the Stock audit system to be done by independent Chartered Accountants has
been recently revised and made rigorous.

3. The norms for takeover of borrowal accounts from other banks/financial institutions have
been tightened.

4. Special Mention Accounts are being monitored very closely with a view to avoid slippage
of such accounts into Sub-Standard Category.

5. The Credit Rating System of the Bank also helps in monitoring those accounts having a
lower rating closely and more frequently. The credit portfolio analysis based on Rating-
wise spread of the advances will also enable the bank to monitor the movement of
advances over different rating ranges over a period of time.

6. The discretionary powers of the field functionaries are being revised from time to time to
have a check and control on the exercise of discretionary powers for loans and

7. The Branch Certificate of Compliance system was also revised in September 2001 in
respect of submission of such certificates by the branches to the sanctioning authority
within 15 days of the release of the credit limits.

8. A separate Rescheduling/Restructuring Cell has been set up at HO and all the ROs for
rescheduling and restructuring Standard Irregular Borrowal accounts for valid reasons so
as to avoid slippage of such accounts.

9. The scrutiny and follow-up of the QIS Statements submitted by large borrowers also
ensures close monitoring and timely action wherever required.

10. The quarterly monitoring officer’s report in case of Standard accounts with limits of
Rs.1.00 crore and above and the monthly monitoring in case of Special Mention
Accounts with limits of Rs.50 Lac and above, is also another tool for periodic monitoring
of the borrower’s operations.

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Besides the above, the following steps shall also be taken:

1 Focus on proper appraisal, documentation, credit monitoring and follow up at the initial
stage itself and on an on going basis. Emphasis shall be laid on growth of quality credit
to bring about further improvement in the share of standard assets in the credit portfolio.
Borderline irregular accounts shall be identified and closely monitored to ensure their
early regularization.

2 Greater emphasis will be laid on regular contacts with the borrowers by field
functionaries and involvement of staff at all levels shall be sought to create better
awareness by discussing the subject in various conferences/ meetings with field
functionaries. Organizational set up will be further strengthened at all three Tiers viz.
HO/RO/Branch to achieve the desired results.

3 More attention will be focussed on selected accounts/branches with concentration of

NPAs. Borrower specific/Branch specific action points shall be evolved for yielding quick
results. Bank’s endeavor will be to rehabilitate viable sick units.

4 Borrowers found non-cooperative in either giving firm commitments for repayment of

bank’s dues or not honoring their commitments would be dealt with firmly by initiating
legal action through courts/recovery tribunals.

5 Efforts shall be made for recovery through compromise/negotiated settlements as per

norms laid down.

6 The monitoring of “Special Mention” borrowal accounts with aggregate exposure of Rs.
50 Lac and above is done at Head Office by calling for the quarterly position of such
accounts from all the Regional Offices. The status thereof and the action taken thereon
shall be submitted to the Board at quarterly intervals.

7 The Reserve Bank of India has in March 2001 revised the guidelines for
reschedulement / restructuring of both standard and Sub-Standard accounts without
downgrading of the asset classification of such accounts.

The Branches/Regional offices should, from time to time, identify all accounts needing
rescheduling/restructuring and ensure timely action to avoid slippage of asset quality.

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Oriental Bank of Commerce, Credit Administration Department, Head office.


The Reserve Bank of India, Department of Banking Supervision vide their Circular
DBS.CO.OSMOS/BC/4/33.04.006/2002-03 dated 12.09.02 have circulated the guidelines to
be followed by all Banks for preventing slippage to NPA. The Board of Directors have vide
BR No.F-8 dated 27.7.2002 approved the adoption of the RBI guidelines for implementation
by the Bank. Accordingly all the Branches and Regional Offices have been advised to
carefully go through the under noted instructions for strict and proper compliance.


The strategy for management of NPAs may be governed by the circumstances connected to
each individual case. Generally, the NPA is more likely to be resolved in terms of recovery if
the company is in operation. For this to be effective there must be a system of identifying the
weakness in accounts at an early stage.

Bank has now put in place an “Early Alert” system that captures early warning signals in
respect of accounts showing first signs of weakness. The branches are expected to exercise
greater control on the borrowal accounts in case the following deficiencies are observed
which may be construed as early warning signals showing signs of weaknesses in
operations and conduct of the account:


1. Non-Servicing of the Interest due / Installment due by the borrower within one month of
the respective due date.
2. Delay by more than one month from the scheduled date in submission of stock statement
/ Other control statements / financial statements.
3. Devolvement of DPG installments / Frequent devolvement of LC / Frequent invocation of
Bank Guarantees and non-repayment thereof within a period of one month from the date
the bank has paid the sum to the beneficiary (ies).
4. Regular Return of cheques issued by borrower from the Account (for want of insufficient
5. Return of bills / cheques discounted for which reimbursement has not been provided by
the borrower within one month of the date of the return of the instrument.
6. Continuous unauthorized overdrawal of the Cash Credit account beyond the sanctioned
limit / Drawing Power (whichever is lesser) for more than one month.
7. Overdue Packing Credit with overdue period exceeding one month / Overdue Export Bills
purchased / discounted with overdue period exceeding one month and / or returned
Export Bills purchased/discounted not reimbursed by the borrower. Non-payment of bills
discounted within one month of the due date of the respective bill.
8. Poor financial performance of the borrower in terms of consecutive declining for two
years by more than 15%, the sales and / or net profits of the borrower.
9. Non-compliance of the important terms & conditions of sanction such as charging of
prime / collateral security, Incomplete documentation in terms of creation / registration of
charge / mortgage.

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10. Cash losses and / or net losses not budgeted for by the borrower and / or erosion of net
worth by more than 30% of the borrower over the previous year’s position.
11. Poor operations in the account depicting only serving of interest.
12. Non-submission of audited financial statements (where audit is compulsory) beyond six
months from the date of balance sheet. In other cases the time limit shall be four

Branches shall compile list of such accounts of Rs.10 Lac and above and designate them as 'EAS'
Acccounts. They shall send the list to the concerned Regional Office for information and close follow
up on quarterly basis. The branches should also take up the matter with the respective borrowers for
rectification of irregularities so as to ensure that these accounts do not slip to SMA category.


The account shall be classified as SMA on account of one or more of the following
illustrative list of features even though the account may be regular:

If the irregularities mentioned at Sr. No.1 to 12 under the head "EAS" account persist for
more than one month, the account shall be designated as SMA. Besides this, following
points shall also be the indicators for treating an account as "SMA" :

1. Overshooting of the cost of the project as envisaged by the borrower by more than 25%
without proper arrangements for meeting the excess cost.

2. Erosion of the prime / collateral security by more than 25%.

3. Credit facilities sanctioned to the borrower are overdue for renewal for more than two

4. Change of management of the borrower without the consent of the bank.

5. Accounts of the borrower with other institutional / bank co-lenders running irregular.

6. Opening / operating of accounts by the borrower in other banks (without the consent of
the bank / branch) and diverting / routing the funds through such banks.

7. Where the delay of commercial production of any unit exceeds a period of two months.

Regional offices shall compile list of Special Mention accounts of Rs.50 Lac and above and send the
same to Head Office for information on quarterly basis. The branches should also take up the matter
with the respective borrowers for rectification of irregularities so as to ensure that these accounts do
not slip to NPA category.


Corporate Debt Restructuring mechanism has been institutionalized in 2001 to provide a

timely and transparent system for restructuring of the corporate debts of Rs.20 crore and
above with banks and FIs on a voluntary basis and outside the legal framework. Under this
system, branches may greatly benefit in terms of restructuring of large standard accounts
(potential NPAs) and viable sub-standard / Doubtful accounts with consortium / multiple
banking arrangements .

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As per the policy approved by the Board of Directors, the International Banking Division
(IBD) maintains Foreign Currency resources and deploys the same by way of Foreign
Currency Loans to Residents (importers / exporters) and corporates. The RBI has
liberalized the avenues for generating Foreign Currency resources so that the demand of the
Residents is met by the banks. These avenues are :

1. FCNR / EEFC / RFC funds.

2. Lines of credit for export funding only.

3. INR/ USD swaps (converting INR to USD for Export funding)

 The demand for foreign currency has increased manifold during the last six to eight
months, which has outpaced our resources generated through various sources permitted
by RBI. So far, we have managed the portfolio by considering/ sanctioning foreign
currency loan to the customers from existing/ raised resources. However the demand is
constantly going up.

 Presently, the rate of interest on lines of credit has increased to 50 to 70 basis points
over the prevailing LIBOR and FCNR deposits are dwindling due to regulated rate of
interest of LIBOR minus 25 basis points. The swap route is also at present not viable. It
is therefore, proposed that we should have defined priorities while considering the
requests of the constituents as under:

Priority shall be to increase our export portfolio, which is related to meeting demand in
foreign currency also.

Foreign Currency Loans (FCL) facility can be considered as under by the Internal
Banking Division (IBD) at Head Office depending upon availability of resources:

1. Manufacturing exporters/ Gold Card holders 100% conversion of rupee Export credit limit
in foreign currency.

2. Merchant exporters - 100% conversion of Rupee Export credit limit in foreign currency
equivalent to Rs.10 crores. Over and above the above limit, the bank may consider 50%
of the loan in foreign currency and 50% in rupee.

3. Import funding in DA LCs - 50% of the sanctioned limit shall be converted in foreign

WCDL in foreign currency - 50%of the sanctioned limit in foreign currency.

4. Term Loan in foreign currency - As per approval by Head Office on selective basis. .

In exceptional circumstances, where it becomes necessary to convert entire facilities

in foreign currency to retain the customers, ED may be empowered to allow full
conversion on merits.

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Bank’s Policy guidelines circulated vide circular letter No.101 / 2004 dated 11 th March 2004
issued by IBD, Head Office:-

 Letter of Credit is to be opened against 100% margin to be kept against the final price
fixed .

 Proper hedging i.e. Forward contracts are to be booked for the underlying transactions
within a reasonable time with the consultation of the Importer. However, the branches
and the regional offices are to ensure that no liability on account of exchange risk due to
unhedged transaction is devolved upon the Bank. In case of non-hedging of underlying
exposures by the Importer, an additional margin of 10% may be built up to take
necessary steps to mitigate the exchange risk liability under the circumstances . Non-
hedging be, however, avoided.

 At the time of hedging of subject LCs, the finest quote shall be quoted by the Dealing
Room, IBD for booking the forward contract. However at the time of sanctioning of
proposals, Regional office may agree to a minimum exchange margin of 1-2 paise over
the above prevailing inter bank rate.

 Since, large deposits shall be placed with the branches as margin money for opening of
LCs, any request for differential rate of interest on deposits shall be considered only by
the ALCO of the Bank. However, the Regional Head may ensure as far as possible to
obtain deposits on normal rate.

 The Regional Heads are requested to carefully negotiate the commission to be charged
on opening of LC & handling of documents as per market practice with minimum as
under :

 For LCs of 100kg of Gold (App. 5-6 crores), the charges are Rs.25000/- -Rs.50000/

 Any relaxation on the commission shall be considered by the General Manager (IBD) or
General Manager (Credit) at Head office.

Exposure Norms : Since PSUs are to be considered as Individuals, a maximum exposure of

15% of the Net worth of the Bank shall be allowed in this case. The exposures shall be
monitored by the Credit Administration Department at Head office.

New Exporters : on introduction of new exporters under the category of 100% EOU, their
profile & credentials are checked thoroughly & ensured that no credit risk is generated by
sanctioning of limits for Letter of Credit against 100% margin.

Amendments made in July 9, 2004:

Reserve Bank of India vide their circular dated AP (DIR Series) Cir. 2 dated July 9, 2004
have amended the above policy. Accordingly, the said policy circulated vide our circular No.
31/04 dated 25.4.2004 stands amended as under w.e.f. July 9, 2004:

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 The authorized branches can open Letters of Credit and allow remittances on behalf of
EOUs, Unit in SEZ in the Gem & Jewellery sector and nominated agency (Such as
MMTC, HHEC, STC & PEC) for direct import of gold provided import of gold strictly in
accordance with the Exim policy.

 The supplier & buyer credit included in the usance period of LCs opened for direct import
of gold should not exceed 90 days. In other words, all sanctions for opening of Letters of
Credit for usance period of 365 days stand withdrawn and henceforth, the branches can
establish letter of credit up to 90 days under sanctions issued to the nominated agencies
/ EOUs prior to 9.7.2004 against 100% cash margin or as per terms of sanction. All other
terms & conditions of the policy remain unchanged.

RBI guidelines on Import of goods and services /checking of Anti-money laundering:

1. The authorized branches should ensure that due diligence is undertaken along with
observance of 'Know Your Customer Norms'. This will enable the branches to check the anti-
money laundering activities.

2. In terms of guidelines issued on Import of goods and services, the branches have to
ensure credentials of the importer customers. The financial standing, line of business and
net worth of the importer customers should commensurate with the volume of business
turnover of import. The large value transactions or abnormal increase in volume of business
of importers should be closely examined to ensure that the transactions are undertaken by
them for bonafide trade.

3. Confidential report/opinion on the suppliers of the bullion should be obtained from their
bankers before undertaking any fresh transaction.

4. The branches are also advised to make discreet enquiries from other bankers to assess
the actual position of business of the importer.

5. The branches should maintain record of documents pertaining to import of bullion

transactions and preserve the same at least for five years for inspection /audit.

6. Authorized branches should follow strictly submission of bill of entry by the Importer as
per the RBI guidelines on import of goods and services.

7. The branches are to submit monthly statement as per the Performa enclosed as
Annexure-I to IBD for consolidation and onward submission of RBI.

8. The branches are further to ensure that interest portion payable under the bullion contract
is shown separately and should not be more than the prescribed limit of LlBOR+ 50 basis
points (all-inclusive).

For further equipping the Forex desk with updated RBI guidelines the branches visiting RBI

website from time to time. In case the branches find any difficulty in handling

the bullion transactions, the matter be referred to IBD for necessary clarifications.

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1. Facility of withdrawal against uncleared instruments/cheques etc. shall be treated at par /

similar to clean cheques / bills purchased facility and all terms and conditions as
applicable to discounting of cheques / bills shall be strictly adhered to while allowing this

2. The branches shall allow the said facility, even though temporarily, only to those
customers whose accounts are properly introduced / fulfill KYC (Know Your Customer)
norms and the following :

 To current account holders not enjoying any credit limits.

 To borrowers enjoying various credit facilities including working capital limits.

 No withdrawals against uncleared effects shall be allowed in Savings


3. Branches shall establish regular limits for the customers who make frequent requests for
such facility and appraise and assess the requirements as per the laid down system.

4. The limit of discretionary powers for withdrawals against uncleared effects shall form part
of clean DD/Third party cheque purchase facility. In other words the total of limit allowed
for withdrawals against uncleared effects + limit allowed for clean DD/Third party cheque
purchase shall not exceed the discretionary power of the functionary for purchase of
third party cheques. (For details refer Circular letter No. HO/ ADV/CAD/ 34/202-03 /42
dated 10th December, 2002)

5. Where the instruments / cheques are lodged in clearing but not yet posted in the ledger
account / credited to the customer’s account , the branches shall neither treat such
instruments against clearing nor allow any withdrawal against such instruments. Such
instruments shall be purchased/ discounted and service charges/ interest as applicable
to purchase/ discounting of cheques/ bills etc. shall be chargeable.

6. Methodology for charging of Interest :

In terms of RBI guidelines, Where withdrawals are allowed against cheques sent in
clearing i.e.- Uncleared Effects (posted in ledger accounts), which are in the nature of
unsecured advances, the banks should charge interest on such drawals as per directive
on interest rate on advances. These instructions, however, will not apply to facility
afforded to depositors for immediate credits in respect of cheques sent for collection as a
measure of customer service.”

In view of the above, and keeping in view the clearing system which is different at
different centres in the country, we propose charging of interest in such cases as under:

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A) Where a cheque / instrument is honoured / paid / realized :

 In cases of overdrafts and Cash credit Accounts, interest on the amount

withdrawn is to be charged, at the rate applicable to the facility; from the day facility
is allowed till the effects are cleared. For example, if the drawing power available is
Rs10.00 Lac, and balance outstanding is Rs.10.00Lac (debit), the customer deposits
a cheque of Rs.2.00 Lac and withdraws a sum of Rs.1.50 Lac, interest shall be
charged on Rs.1.50Lac viz. product for interest calculation shall be Rs.9.50Lac (the
closing balance/ day end product).

 In case of current accounts (with credit balances), if the withdrawals are

permitted against the cheques / instruments sent in clearing (posted in ledger
accounts), interest at the rate applicable to clean overdrafts as the case may be,
shall be charged on the withdrawn portion from the day facility is allowed till effects
are cleared.

B) In case a cheque/ instrument is dishonoured / returned unpaid ;

interest as applicable to the type of facility shall be charged from the day the facility
is allowed till the funds are reimbursed to the bank by the customer.


Whereas discretionary powers in respect of allowing withdrawals against uncleared cheques/

instruments shall be exercised by the functionaries as per the bank’s policy guidelines on
discretionary powers, the facility allowed by way of withdrawals against uncleared cheques /
instruments even if squared on the same day, shall be treated as overdrafts and reported in
STM-41 for information / confirmation, as the case may be, on monthly basis.

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1. Guarantees issued shall be specific and unequivocal as regards

i) Amount ii) Period iii) Beneficiary iv) Purpose.

2. The following type of guarantees shall not be issued:-

a. Guarantees having unlimited validity/ maturity of more than 10 years excepting in
favour of courts backed by 100% margin.

b. Guarantees in respect of deposits/ loans received by any person/ Non- Banking

Finance Companies from any source.

3. Guarantee shall not contain any onerous clause or liability for payment of interest and as
far as possible shall be issued on the 'Model Form' as approved by the Bank. The
liability of the Bank should be clearly determined in terms of amount and time. If deemed
necessary, the guarantee format may be got vetted from the Legal Retainer at Regional

4. In case of Export guarantees, the same shall be covered under ECGC’s advance
payment guarantee / export performance guarantee or as per rules of the ECGC and the
relative ECGC premium to be borne by the company. Borrower to comply with the
formalities for getting due coverage and all relative charges/fees of ECGC to be borne by
the borrower.

5. Consortium Cases: The borrower will be required to execute hypothecation agreement

extending charge over the company’s current assets to the extent of guarantee limit as a
cover for all guarantees issued and / or to be issued by the bank on behalf of the

6. Guarantees will be issued by the bank on behalf of the company without in any manner
implying a commitment to allow additional credit facilities to the company for payment of
claims against guarantees.


Branches may issue guarantees favouring other banks/FIs/other lending agencies for the
loans extended by the latter, subject to strict compliance with the following conditions.

I. The guarantee shall be extended only in respect of borrower constituents and to

enable them to avail of additional credit facility from other banks/FIs/lending

II. The guaranteeing branch shall assume a funded exposure of at least 10% of the
exposure guaranteed .

III. Banks should not extend guarantees or letters of comfort in favour of overseas
lenders including those assignable to overseas lenders , except for the relaxations
permitted under FEMA.

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IV. The guarantee issued by the bank will be an exposure on the borrowing entity on
whose behalf the guarantee has been issued and will attract appropriate risk weight
as per the extant guidelines.

V. Branches should ensure compliance with the recommendations of the Ghosh

Committee and other internal requirements relating to issue of guarantees to obviate
the possibility of frauds in this area.

VI. Branches extending credit facilities against the guarantees issued by other banks /
FIs should ensure strict compliance with the following conditions :

The exposure assumed against the guarantee of another bank / FI will be deemed
as an exposure on the guaranteeing bank / FI and will attract appropriate risk
weight as per the extant guidelines.

Exposures assumed by way of credit facilities extended against the guarantees

issued by other banks should be reckoned within the inter bank exposure limits
prescribed by the Board of Directors.

The exposure assumed on the guaranteeing bank / FI, should be monitored on a

continuous basis and ensure strict compliance with the prudential limits/sub limits
prescribed by the Board for banks and the prudential single borrower limits
prescribed by RBI for FIs.

Branches should comply with the recommendations of the Ghosh Committee (for
details please refer RBI Master circular on Guarantees and Co-acceptances) and
other internal requirements relating to acceptance of guarantees of other banks to
obviate the possibility of frauds in this area.



1. Issuance of guarantee in favour of IDBI, in the case of import of technical know-how

by way of drawings and designs under the Technical Development Scheme of the
IDBI, under certain circumstances and where no tangible security is available to IDBI.

2. In respect of infrastructure projects, branches may issue guarantees favouring other

lending institutions, provided the bank issuing the guarantee takes a funded share in
the project at least to the extent of 5 percent of the project cost and undertakes
normal credit appraisal, monitoring and follow up of the project.

3. Issuance of guarantees in favour of various Development Agencies / Boards, like Indian

Renewable Energy Development Agency, National Horticulture Board, etc. for obtaining
soft loans and/or other forms of development assistance from such Agencies/Boards with
the objective of improving efficiency, productivity, etc., subject to the following
conditions :

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 Branches should satisfy themselves, on the basis of credit appraisal, regarding the
technical feasibility, financial viability and bankability of individual projects and/or loan
proposals i.e. the standard of such appraisal should be the same, as is done in the case
of a loan proposal seeking sanction of term finance/loan.

 Branches should conform to the prudential exposure norms prescribed from time to time
for an individual borrower/group of borrowers.

 Branches should suitably secure themselves before extending such guarantees.

 Issue of guarantees favouring HUDCO/State Housing Boards and similar bodies for
loans granted by them to private borrowers who are unable to offer clean or marketable
title to property, provided banks are otherwise satisfied about the capacity of borrowers
to adequately service such loans.

 Issuance of guarantees by consortium member banks unable to participate in

rehabilitation packages on account of temporary liquidity constraints, in favour of the
banks, which take up their share of the limit.

 Branches should not grant co-acceptance /guarantee facilities under Buyers Lines of
Credit Schemes introduced by IDBI, SIDBI, Exim Bank, Power Finance Corporation
(PFC) or any other financial institution, unless specifically permitted by the RBI.


 Credit facilities extended to private/ public limited companies shall normally be supported
by the personal guarantees of the promoter- directors. Personal guarantees of
professional directors and nominee directors of term lending institutions shall not be
insisted upon.

 Personal guarantees of trustees in case of trust, Office bearers in case of a Society be


 Credit facilities to closely held concerns should normally be supported by the personal
guarantee of the owners.

 In case of other smaller loans especially in respect of new clients, suitable personal
guarantee shall generally be insisted upon except in cases where stipulation of third
party guarantee is specifically waived in terms of RBI/ HO guidelines, e.g. Govt.
Sponsored schemes.

 However, the sanctioning authority shall be competent to permit waiver of personal

guarantee of any such person on a case to case basis in view of the value of account
and other business considerations.

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There are three types of NBFEs as defined by RBI as under. The bank, so far, has been
considering the need-based requirements of NBFCs. However, finance to NBFC engaged in
the business of Hire Purchase and Leasing has been placed under restricted area of lending
as defined in Chapter-3, hereinbefore.

Non-Banking Financial Principal Business


I. Non-Banking Financial In terms of the Section 45-I(f) read with Section 45-I(c) of
Company the RBI Act, 1934, as amended in 1997, their principal
business is that of receiving deposits or that of a financial
institution, such as lending, investment in securities, hire
purchase finance or equipment leasing.

(a) Equipment leasing Equipment leasing or financing of such activity.

company (EL)

(b) Hire purchase finance Hire purchase transactions or financing of such

company (HP) : transactions.

(c) Investment company (IC) Acquisition of securities. These include Primary Dealers
(PDs) who deal in underwriting and market making for
government securities.

(d) Loan company (LC) Providing finance by making loans or advances, or

otherwise for any activity other than its own; excludes
EL/HP/Housing Finance Companies (HFCs).

(e) Residuary non-banking Company which receives deposits under any scheme or
company (RNBC) arrangement, by whatever name called, in one lump-sum or
in instalments by way of contributions or subscriptions or
by sale of units or certificates or other instruments, or in
any manner. These companies do not belong to any of the
categories as stated above.

II. Mutual benefit financial Any company which is notified by the Central Government
company (MBFC) i.e., Nidhi as a Nidhi company under Section 620A of the Companies
Company Act, 1956 (1 of 1956).

III. Mutual Benefit Company A company which is working on the lines of a Nidhi
company but has not yet been so declared by the Central
(MBC), i.e., potential Nidhi
Government, has minimum net owned fund (NOF) of Rs.10
company lakh, has applied to the RBI for CoR and also to
Department of Company Affairs (DCA) for being notified as
Nidhi company and has not contravened directions/
regulations of RBI/DCA.

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IV. Miscellaneous non- Managing, conducting or supervising as a promoter,

banking company (MNBC), foreman or agent of any transaction or arrangement by
i.e., Chit Fund Company which the company enters into an agreement with a
specified number of subscribers that every one of them
shall subscribe a certain sum in installments over a definite
period and that every one of such subscribers shall in turn,
as determined by tender or in such manner as may be
provided for in the arrangement, be entitled to the prize

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1.1 Reserve Bank of India has been regulating the financial activities of the Non-Banking
Financial Companies under the provisions of Chapter III B of the Reserve Bank of
India Act, 1934.

1.2 With the amendment of the Reserve Bank of India Act, 1934 in January 1997, in terms of
Section 45 IA of the said Act, all Non-Banking Financial Companies have to be
mandatorily registered with the Reserve Bank of India.


In the context of mandatory registration of NBFCs with the Reserve Bank, as also
consistent with the policy of bestowing greater operational freedom to banks in the matter of
credit dispensation, the ceiling on bank credit linked to Net Owned Fund (NOF) of such
companies has been withdrawn in respect of all NBFCs which are statutorily registered with
RBI and are engaged in principal business of equipment leasing (EL), hire-purchase (HP),
loan and investment activities.


In respect of NBFCs which do not require to be registered with RBI, [viz. i) Insurance
Companies registered under Section 3 of the Insurance Act, 1938; ii) Nidhi Companies
notified under Section 620A of the Companies Act, 1956; iii) Chit Fund Companies
carrying on Chit Fund business as their principal business as per Explanation to
Clause (vii) of Section 45-I(bb) of the Reserve Bank of India Act, 1934; iv) Stock
Broking Companies/Merchant Banking Companies registered under Section 12 of the
Securities & Exchange Board of India Act; and v) Housing Finance Companies being
regulated by the National Housing Bank (NHB) which have been exempted from the
requirement of registration by RBI], banks may take their credit decisions on the basis
of usual factors like the purpose of credit, nature and quality of underlying assets,
repayment capacity of borrowers as also risk perception, etc.


4.1. Residuary Non-Banking Companies (RNBCs) are also required to be mandatorily

registered with Reserve Bank of India. In respect of such companies registered with
RBI, bank finance would be restricted to the extent of their Net Owned Fund (NOF).

4.2 Net Owned Fund (NOF)

I. Net Owned Fund means

(a) The aggregate of the paid-up equity capital and free reserves as disclosed in the
latest balance sheet of the company after deducting therefrom

(i) Accumulated balance of loss;

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(ii) deferred revenue expenditure; and

(iii) Other intangible assets; and

(b) Further reduced by the amounts representing Investment of such company in shares
of its subsidiaries;

(ii) Companies in the same group;

(iii) All other Non-Banking Financial Companies;


(2) the book value of debentures, bonds, outstanding loans

and advances (including hire purchase and lease finance)
made to, and deposits with

(i) Subsidiaries of such company; and companies in the same group, to the extent such
amount exceeds ten percent of (a) above

II. "Subsidiaries" and "companies in the same group" shall have the same meanings
assigned to them in the Companies Act, 1956 (1of 1956).


5.1 Banks may assess and provide need-based finance to NBFCs referred to above, within
the prudential guidelines and exposure norms prescribed by the Reserve Bank subject
to the condition that the activities indicated in paragraph 6 are not financed by them.
Banks should lay down transparent policy and guidelines for credit dispensation in
respect of NBFCs with the approval of their Boards.

5.2 Banks should ensure that lending to Non-Banking Financial Companies (including bill
discounting / rediscounting) is part of the overall working capital credit limit sanctioned
to such companies after proper appraisal of their genuine working capital needs.

In the light of the above, the instructions/guidelines issued in the past by RBI regarding
assessment of working capital credit needs of equipment leasing and hire purchase
finance companies, based on the concept of Maximum Permissible Bank Finance
(MPBF), have ceased to be mandatory.


6.1 The following activities undertaken by NBFCs, are not eligible for bank credit:

(i) Bills discounted/rediscounted by NBFCs, except for rediscounting of bills discounted


NBFCs arising from sale of -

(a)commercial vehicles (including light commercial vehicles), and

(b)two wheeler and three wheeler vehicles, subject to the following conditions:

 the bills should have been drawn by the manufacturer on dealers only;

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 the bills should represent genuine sale transactions as may be ascertained

from the chassis/engine number; and

 Before rediscounting the bills, banks should satisfy themselves about the
bona fides and track record of NBFCs which have discounted the bills.

(ii) Investments of NBFCs both of current and long-term nature, in any company/entity
by way of shares, debentures, etc. However, Stock Broking Companies may be
provided need-based credit against shares and debentures held by them as stock-

(iii) Unsecured loans/ inter-corporate deposits by NBFCs to/in any company.

(iv) All types of loans and advances by NBFCs to their subsidiaries group

(v) Finance to NBFCs for further lending to individuals for subscribing to Initial Public
Offerings (IPOs)

(vi) Banks are precluded from granting term loans for acquisition of existing assets
(except imported second hand machinery). Bank finance to leasing concerns should
cover purchases of only new equipment. Banks should not extend finance against
existing assets whether by way of term loans for purchase of such assets or by way
of finance to leasing companies for purchase and release of such assets.

Leased and Sub-Leased Assets

(i) Banks should not enter into lease agreements

departmentally with equipment leasing companies as well as other Non-Banking
Financial Companies engaged in equipment leasing.

(ii) As banks can only support lease rental receivables arising

out of lease of equipment/machinery owned by the borrowers, lease rentals
receivables arising out of sub-lease of an asset by a Non-Banking Non Financial
Company (undertaking nominal leasing activity) or by a Non-Banking Financial
Company should be excluded for the purpose of computation of bank finance for
such company.

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7.1 Banks should not grant bridge loans of any nature, or interim finance against
capital/debenture issues and/or in the form of loans of a bridging nature pending raising
of long-term funds from the market by way of capital, deposits, etc. to all categories of
Non-Banking Financial Companies, i.e., equipment leasing and hire-purchase finance
companies, loan and investment companies and also Residuary Non-Banking
Companies (RNBCs).

7.2. Banks should strictly follow these instructions and ensure that these are not
circumvented in any manner whatsoever by purport and/or intent by sanction of credit
under a different nomenclature like unsecured negotiable notes, floating rate interest
bonds, etc., as also short-term loans, the repayment of which is proposed/expected to
be made out of funds to be or likely to be mobilized from external/other sources and not
out of the surplus generated by the use of the asset(s).

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(i) Letter of credit should not normally be opened for customers who do not enjoy credit
facilities with the branch but only maintain a current account.

(ii) If any request is received from such customers, the branch should subject the
proposal to thorough scrutiny and satisfy itself about the genuineness of the need of
the customer even though the cash margin offered by the customer is 100% or more.

(iii) Before establishing the credit, the branch should also be satisfied that the customer
would be in a position to retire the bills when received under the credit and not
approach the bank for credit facility in this regard. For this purpose branch should
examine the financial position of the customer, source of finance, prescribe a
suitable margin and obtain other securities.

(iv) Letter of Credit facility (Inland/ Import), for capital goods can be considered either by
earmarking Term loans sanctioned by our own bank OR against Term loans
sanctioned by other Term Lending Institutions provided the FIs undertake to remit the
amount directly to the Bank to honour the obligations. In both these situations,
branches must secure the account adequately by way of cash margin.

(v) Where the applicant enjoys credit facilities with other banks , the reason for his
approaching the bank for opening a letter of credit should be ascertained from the
concerned bank.

(vi) LC shall be issued on Standard Format of the Bank and no onerous clause shall be
incorporated in the Letter of Credit.

(vii) In case of LC issued on DA basis:

a. The sale proceeds shall be routed through the Cash Credit/ Current Account
and / or deposited with the Bank so as to ensure that the liability is honoured on the
due date.

b. The goods covered under LC but released on trust shall not be taken into
account for the purpose of calculation of drawing power in the CC (Hyp) account till
the bills drawn under LC are retired by the borrower.

(viii) In case of Import Letter of Credit :

a. While opening Import Letter of Credit on behalf of the customers, the

authorized dealers (Authorized Foreign Exchange Branches) should follow, the
normal banking procedures, UCPDC provisions, FEDAI rules and regulations and the
existing import control rules as per the EXIM policy.

b. The branches shall obtain an undertaking from the borrower/s to comply

with all the exchange / import trade control regulations of RBI in respect of the
imports under the import LC limit.
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c. The branches shall obtain an undertaking from the borrower/s that in respect
of transactions relating to the import LCs, the borrower will undertake to bear
exchange fluctuations risk, if any, and will arrange for necessary forward cover,
whenever called upon to do so by the bank.

ix) Devolvement of Letters of Credit:

Wherever the L/Cs are devolved on the bank, the branches may establish fresh L/Cs to the
extent of amount deposited by the borrower towards adjustment of irregularity in the
account, on a case to case basis, looking to the value of the account and other related


Issuance of Stand by LCs for imports into India are susceptible to certain attendant risks in
the absence of evidence of shipment / insurance cover. Hence the chances of abuse in such
cases are higher in case of standby LC rather than documentary credit. Branches, therefore,
must assess the credit risk in relation to standby LC and explain to the importer customers
the inherent risk in a standby LC covering import of goods.

 The facility of issuing standby L/C shall be extended on a selective basis and to the
following categories of importers:

a) who are independent power producers / importers of crude oil and petroleum products,

b) Special category of importers viz. Export Houses/ Trading Houses/ Star-Trading Houses/
Super Star Trading Houses/ 100% EOUs.

c) Public Sector Units/ Public Limited Companies with good track record.

 Since, unlike documentary credits, banks do not hold original negotiable documents of
titles to goods (such as original Bill of Lading), while assessing and fixing credit limits for
standby L/Cs, the limit must be secured by way of tangible security / cash margin etc.

 The Inland Standby LC shall also be issued on selective basis only where the beneficiary
is a reputed organization.

 The issuing branch should obtain satisfactory credit report from reputed organization like
Dun and Bradstreet on the beneficiary / supplier before issuing standbys OR shall open
standby L/C in favour of reputed organizations only.

 Branches shall fix separate limit for establishment of standby LC rather than permitting it
under the regular documentary LC limit.

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 Financing against gem, diamond and Jewellery shall continue to be the thrust area of
lending. The cases pertaining of this category shall be considered on similar lines as
applicable to advances under other thrust area of bank lending. However, export cases
under this category shall be dealt on priority.

 Gem, Jewellery and Diamond exporters often avail Discounting facility against export
bills. As per system in place the documents are sent through the bank of the Importer.
We are receiving requests from certain Regional Offices stating that other banks are
permitting negotiation of export documents evidencing despatch of goods directly
consigned to foreign buyers under the post-shipment limit. In such cases, the
consignment of diamond is generally of very high value and is sent directly by the
Exporter to the Importer, rather than sending them through the banking channel.

 In view of the nature of business and the system prevailing in other banks, we may
permit Regional Heads / Head Office functionaries to consider such requests of
borrowers on a case to case basis keeping in view the collaterals available in the
account and other related factors. However, buyer-wise policy on such drawees from
ECGC be obtained and kept on record invariably.

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An independent Credit Risk Management Department headed by General Manager, Risk

Management functionally not responsible for Credit sanction has been set up and has
started functioning at Head Office since last year. Credit Risk Management Policy to be
pursued has also been formulated and issued for implementation vide circular No.
110/Cr/Risk Mgmt/01/2004-05 dated 10.4.2004.


i) Rating of Large Corporate Borrowers

 The Credit Risk Rating Model for Large Corporate Borrowers (having aggregate non fund
based and fund based limit of Rs. 5 crore and above) developed by NIBM has been
modified and sharpened along with the experience gained and branches are rating all
Large Corporate Borrowers at the time of considering proposal for sanction of fresh
limit/renewal with enhancement or reduction/Annual review of limits etc. It is now
required that all branches ensure that all existing Large Corporate Borrowal Accounts,
even those whose limits are not due for renewal must have been rated by 31.03.2005
based on the latest balance sheet so as to ensure that all Large Corporate Borrowers are
rated at least once before 31.03.2005. In case it has not been done in any account, the
same must be completed before 30th September,2005.

 These ratings of individual borrowal accounts after authentication has to be sent to the
respective Regional Offices for verification. The Regional Offices will verify the same
and any divergence should be communicated to the branches. Regional Offices shall
confirm to Head Office, Credit Risk Management Department (CRMD) that this exercise
has been completed and shall also send the MIS on the ratings as per procedure by

 Accounts, which are falling due for renewal/review has to be rated as it is done now and
in this process, the second time rating of all existing accounts will be completed by

 It has been decided that for calculation of Probability of Default, rating migration analysis
shall be done for 5 years. Therefore, the branches are required to rate these accounts
for previous three years based on their audited Balance Sheet of the past three years.
This exercise has also to be completed by September 2005 and similar procedure of
verifying the rating by Regional Offices and confirmation to this effect and submission of
MIS on ratings to HO, CRMD has to be followed.

ii) Rating of SME Borrowers

 It has been advised that rating of SME borrowers has to be done for all fresh
sanction/renewal with enhancement or reduction/review of accounts etc. with effect from
01.12.2004. As in case of Large Corporate Borrowal Accounts, it is required that

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Oriental Bank of Commerce, Credit Administration Department, Head office.

branches complete the rating of all SME accounts including those cases which are not
due for renewal/review in their respective branches based on the latest balance sheet
and send the same to the Regional Offices for verification.

 This exercise might have been completed by 30.6.2005 and the procedure of verifying
and confirming the rating at RO might have been followed. Regional Offices shall then
send confirmation to this effect and submit the necessary MIS to HO, PS & SL
Department. This will ensure that all SME accounts have been rated at least once
before 30.6.2005 and the second time rating of all SME borrowers rating is completed by
30.6.2006. Back rating for previous three years based on past balance sheet has to be
completed by 31.12.2005.

 The procedure for rating at the time of fresh sanction/renewal with enhancement or
reduction/review of accounts will however continue simultaneously.

iii) Rating of Retail Loan Scheme Borrowers

 Rating of Retail Loan Scheme Borrowers has to be done once only before a loan is
sanctioned. Therefore, rating of each borrower under each Retail Loan Scheme has to
be invariably completed before sanction of such loan.

 The Regional Offices have to send a monthly MIS in this regard to Head Office, PS & SL

iv) Rating of Non-SLR Investments

As per RBI guidelines, all Non-SLR investment proposals have to be subjected to similar
credit risk assessment as is done in case of proposals for advances. A Model for assessing
Credit Risk in Non-SLR investments has been developed and implemented. It has,
therefore, to be ensured that all Non-SLR Investment proposals, whether the entity is rated
by outside agency or not, have to be subjected to the internal rating on the Model developed.


 As per Basel-II Accord and RBI guidelines, pricing should be based on Expected Credit
Loss (ECL) where ECL is a product of Probability of Default (PD), Loss Given Default
(LGD), Exposure At Default (EAD) and Maturity (M). In order to calculate PD, sufficient
data based has to be built up. The rating exercise of all the accounts has to be
completed. The back rating of the account for previous three years has to be carefully
compiled by the branches. In order to comply with the guidelines of RBI, minimum five
years data is required, which means that all the accounts are to be rated for further one
year besides the current year’s rating.

 The rating of each account category-wise has to be collated. This information has to be
made available for full 5 years so as to know the migration of rating to observe how
much the rating deteriorates or improves over a span of 5 years. A separate format for
compiling the MIS would be sent to the Branches and ROs shortly.

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 In the meantime, an interim policy for Risk Based Pricing of Large Corporate Loans has
been approved by the Risk Management Committee of the Board in its meeting held on
29.11.2004 for implementation with effect from 01.04.2005.

 As per the policy, Loan Pricing has to be done as follows:-

Category Rate

A++ 1% below PLR

A+ 0.5 % below PLR


B+ 1 % above PLR

B 2.5% above PLR

C&D 3 % above PLR

ii) In case of Govt. accounts/Govt. guaranteed accounts , Bank has already approved
upgradation of rating grade. However, experience of all banks had been that from Govt.
accounts, the loss is negligible as the Govt. takes sufficient measures to settle the dues.

Keeping in view, this criterion, the interest rates in loans pertaining to PSUs and
Govt. Accounts may be reduced as per the chart given hereinafter: -

Category PSU and Govt. Accounts All Other Large Borrowers

A++ PLR (-) 2% PLR (-) 1%

A+ PLR (-) 1.5% PLR (-)0.5%

A PLR (-) 0.5% PLR

B+ PLR (+) 0.5% PLR (+) 1 %

B PLR (+)1.5% PLR (+) 2.5%

C&D PLR (+) 2% PLR (+) 3%

iii) However, this decision should be taken after considering the loss of revenue and value
gained by the bank in retaining these large sized Govt. accounts and the liquidity
available vis-à-vis CD ratio of the Bank.

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a) Pricing Based on Type & Tenor of a Loan

As regards loan type, it has been the experience of the Bank that default in Pledge Account
is far less than in Hypothecation Account. However transaction cost increases in case of
Pledge account and it has some operational hazards also due to which lending under pledge
has reduced over time. This facility presently is being offered to few industries only like
Sugar, Tea etc and to certain clients under special circumstances. We, therefore, propose
reduction of interest by 0.5% in case of pledge account of the borrower.

b) Collateral Security

Availability or non-availability of collateral security does not influence cash generation and
therefore is not direct cause of default. However, it is recognized internationally, as a
deterrent for the borrower to default as the borrower’s unwillingness to pay will be kept in
check due to fear of losing the value attributed to the collateral provided .Further recovery
and therefore quantum of loss in an account has a direct co-relationship with the type and
amount of collateral security provided.

Amount of liquid collateral security provided is recoverable immediately in full on the event
of default and loss to that extent is reduced. Out of the tangible fixed assets offered as
collateral, the first and fast in realisability is the mortgage of residential house. Litigation in
factory land & buildings and other properties is generally prolonged.

c) Guarantees

Guarantors act as a moral pressure on the borrower and measuring its impact remains
subjective. Therefore guarantor has not been considered as a factor impacting the pricing.

d) Emerging interest rate scenario and market forces and competition

Emerging interest rate scenario and market forces and competition will always play its role in
influencing interest rate in general and for various sectors. As this can not be objectively
assessed, the same has not been considered here for impacting the interest rate chargeable
from a borrower.

e) Volume consideration vis-à-vis transaction cost

Higher the volume of loans the transaction cost per rupee of loan is lower. The transaction
cost in 100 number of loan in 100 branches of Rs 1.00 Lac each is almost 100 times more
than the transaction cost of a loan of Rs.1.00 crore in one single branch. This can be a
consideration in case of accounts having lower category of risk on a case to case basis.

f) Perceived value of accounts and its connection and Future Business Potential etc.

The assessment under these heads is made looking into the value of the account and future
business potential expected.

i) Types of advances subjected to Interim Risk Pricing Policy: -

Large Borrowers enjoying aggregate credit limits of Rs. 5.00 crores and above.

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ii) Types of advances not covered by Interim Risk Pricing Policy:

 Staff Loans

 Advances against Term Deposits, Govt. Securities, Postal Securities etc.

 Clean Overdrafts/Loans

 Agriculture advances

 Negotiation of Inland bills under L/C of reputed banks

 Export Advances


i) It is stipulated that the Office Note should mention reasons for allowing concessions
and a copy of the same must be kept on record at the concerned branch for verification
by Inspecting Agencies.

ii) The rating awarded by the branches has to be verified by the Branch Manager under
Specific Certificate to the effect be appended to the rating sheet, whenever the proposal
is sanctioned under branch powers. In those cases where the proposals falls under the
Regional Office and Head Office powers, the ratings will be confirmed by the Regional

iii) The branches headed by Officers in Scale V have been given powers to sanction
Advances upto Rs. 5 crore per borrower. Therefore, those Branch Managers are
also required to price the loans as per the rating.

iv) Similarly, the functionaries at Regional Office, who are authorized to sanction
Advances of Rs. 5 crore and above have to follow the pricing pattern. The Regional
Heads and other competent authorities at Head Office will exercise the pricing policy
based on Risk Rating within their discretionary powers.

iv) In case the rate of interest is to be reduced more than the above criteria, the proposal
would be forwarded along with full justification and value of the account to the General
Manager (Credit), Head Office to be considered by the General Managers’ Committee
at Head Office.


a) The type of advance must fall under the Risk Pricing policy of the Bank.

b) The borrower must be rated as per the relevant Credit Risk Rating Model approved by
the Bank as per instructions issued by HO from time to time.

c) Lower discretionary rate of interest below PLR would be available only to borrowers who
come under either of the ratings A++ OR A+ OR A.

d) The rating accorded to the borrower should be confirmed/verified by the next higher

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e) The Bank would reserve the right to withdraw the lower rate of interest at any time
without assigning any reason.

f) In case any changes take place in the rate of interest in the Indian Banking System
either based on RBI guidelines or market forces or otherwise the Bank can revise the
rate of interest.

g) The power is to be exercised at Regional Office for the proposal sanctioned at their end
and Head Office for the discretionary power exercised at Head Office.

h) Existing concessions enjoyed by a borrower should not be disturbed immediately on

sanction of this policy. The revised rate should be applied at the time of
renewal/review/enhancement after giving the borrower proper notice. In case the rate is
to be reduced more than the above criteria, it will be forwarded to the General Manager
(Credit) to be considered by the General Managers’ Committee at Head Office along with
full justifications and value of the account.

The Risk Pricing Policy will be effective from 01.04.2005.

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 In terms of RBI guidelines the rate of interest for loans to small borrowers with limit upto
Rs.2.00 Lac should not exceed the Benchmark Prime Lending Rate (BPLR). Besides,
Reserve Bank of India has further advised that rate of interest in agriculture upto
Rs.50000/- and in SSI advances upto Rs.25000/-, shall not exceed 8.5% p.a.
Accordingly, the interest rates for loans and advances to agriculture & SSI and other
small borrowers of our bank have been restructured suitably. The BPLR is fixed from
time to time keeping in view the cost of fund, transaction cost and liquidity position.

 As per the Monetary and Credit Policy for the year 2000-01 announced by RBI the bank
have been allowed to offer loans (above Rs.2.00 Lac) at below BPLR rates to exporters
or other creditworthy borrowers including public enterprises on the lines of a transparent
and objective policy approved by the Boards. With necessary approval by the
Management Committee of the Board of Directors lending at rates below BPLR to
commercial organizations will be considered on the merit of each case, Bank's asset
liability position and the prevailing competition in the market.

 Lending at rates below PLR to commercial organizations may be allowed on the basis of
(a) merit of each case (b) Bank's asset-liability position and (c) the prevailing competition
in the market.

 In terms of the RBI's guidelines a ceiling rate of 2.5% below BPLR of the respective
banks is set for all categories of pre-shipment and post-shipment export credit up to 180
days. The interest rate on export credit of our Bank has correspondingly been revised
and approved by the Board.

 Concession in the rate of interest may also be required to be allowed in certain sick
viable units under approved rehabilitation packages in fulfillment of terms of such
packages provided such package has been drawn up on the basis of RBI parameters or
BIFR order or under CDR mechanism. However, the possibility of recompensing such
sacrifices by the borrower once it turns around may be explored in deserving cases.

 All consortium advances where our Bank is not a leader, rate of interest charged shall be
as per decision of the consortium. In all multiple finance cases, rate of interest shall be in
line with other banks/institutions. In case of new accounts coming to us and already
availing credit facilities from other banks, interest rates lower than that being charged by
those banks may be charged to bring the business in our Bank provided other criteria for
taking over of accounts from other banks are fulfilled.

 The system of Credit Risk Rating has since been reviewed in the context of Risk
Management guidelines issued by RBI from time to time and the revised Credit Risk
Rating System has been discussed in a separate chapter.

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 The Bank is free to fix the rate of interest in all its Retail Credit products without linking
them with BPLR. In view of the competitive environment pricing of loans is to be fine-
tuned based upon the offer of other Banks. Concessional rates become necessary which
may be in variance with the Credit Rating Mechanism.

 Presently, Regional Heads are authorized to allow concessions in rate of interest upto
PLR i.e. 11.00% for cases falling under their powers. Committee of three General
Managers comprising GM (Credit), GM (SL &PS) and GM (Investments) is authorized to
allow concessions in rate of interest on all loans and advances including Retail credit
schemes upto PLR minus 3.5% i.e.7.5%. It is now proposed to change the system of
allowing concessions in rate of interest as under:

Discretionary Authority Existing Proposed

Regional Head for cases falling under BO upto PLR i.e. 11% Upto PLR i.e. 11%.
/ RO Powers (except under the Loan
Schemes where specific).
GM (Credit) for cases falling under HO upto PLR minus upto PLR minus 1%
Powers. 3.5% i.e. 7.5% i.e. 10%
Executive Director ------------ upto PLR minus 2%
Chairman & Managing Director or in his Below PLR minus Below PLR minus 4%
absence ED 3.5% i.e. 7.5% i.e. 7% at present.

 The competent authority for allowing any relaxation in the rate of interest in any specific
account beyond the above norms shall be Management Committee of the Board of

Penal Rate of Interest

Penal interest over and above the normal interest is applicable in following cases:

1. Default in repayment of loan instalments and / or 2%on irregular portion

servicing of quarterly interest
2. Overdrawing / excess drawings in CC I OD account 2% on irregular portion
beyond the available drawing power or sanctioned
limit including ad hoc/ temporary sanctions.
3. Overdue Bills (Demand / Usance). 2% for the overdue period.
4. Non-compliance of terms of sanction 2% from due date till compliance
minimum for one month.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

5. Non-submission of Stock / Book Debt 1% from due date till submission of the
Statements, QIS Statements within the such statement, subject to minimum one
stipulated time period. month in case of stock statement and one
quarter in case of QIS on entire

6. Adhoc Limits (Except Exporters finance & 1% on the adhoc portion for the
limits upto and inclusive of Rs.2.00 Lac.) stipulated period of facility.

7. Non-submission of requisite data for review 1% till submission of complete renewal

within the date of last sanction / review. proposal on entire outstanding.

8. Devolvement of LC / BG 2% on the irregular portion / or amount

not re- imbursed to the bank.

9. Irregularity in case of Advances against No penal interest is to be charged till the

Bank Deposits / other Paper securities like outstanding amount is within the value of
NSC/ LIPs/ security (including accrued interest).

In case the outstanding exceeds the

value of security, interest as applicable to
clean advances shall be charged.

 In cases where the penal rates are leviable for more than one type of default, the
aggregate of such penal rates shall not exceed 2%p.a and subject to the condition that
the overall rate of interest including penal charge shall not exceed BPLR plus 16.50%.

 No penal charge should be charged for loans under priority sectors upto Rs.25,000/-.
While communicating the sanction of limit to the borrower it must be ensured that 'penal
interest clause' is stipulated under the terms of sanction.

 No penal interest is to be charged after the date of classification of an account as NPA.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



1. Entertainment Industry including Films has been given industry status by the
Government of India. RBI has issued broad guidelines for providing bank finance for
making films. The banks have been advised to take their own lending decisions for
financing the film industry keeping in view their own experience and other relevant
2. Film Industry shall continue to be a restricted area of bank lending in view of the
uncertainties / risk involved. Exposure to this industry shall not exceed 1% of the Gross
Bank credit with Individual exposure limit of Rs.10crore.
3. Finance for production of feature films shall be provided only to corporate entities
promoted by the producers of satisfactory track record. Initially corporates with recorded
Net Profit during the last three years will be financed. However, projects, which do not
fall within the corporate or non-corporate category but are documentaries or films jointly
produced with National. Film Development Corporation may be financed. The Bank shall
finance producers with good track record like for those who made two / three profit
making movies as per their Audited Financial Statements
4. Finance shall be restricted to 50% of the estimated cost of the Film. The balance 50%
shall be met by the promoters’ contribution of not less than 30% of the estimated cost
and advances from distributors / sales of music/ video rights to the maximum extent of
20% of the estimated cost.
5. Expenses during the pre shooting stage should be met from the promoters’ contribution
and / or the promoters should have brought in about 50% of their contribution upfront
before drawing any disbursement from the lenders.
6. The loan is to be disbursed in line with the progress of shooting / processing of the film
in proportion to induction of promoters’ contribution and advances against sale of various

7. The number of projects of a producer financed at any point of time cannot exceed three;

8. A comprehensive industry specific insurance policy covering atleast 110% of the Bank
finance will have to be made available;

9. The financing scheme will cover production of Hindi, English and regional films and will
also extend finance to production of documentaries and TV serials.

10. The category of dubbing and distribution of foreign and Indian films has been kept out of

11. No exposure will be allowed to the producers under Multiple Banking Arrangement.
Consortium lending may, however be considered.

12. The Bank shall not allow any loans to be taken over from other Financial

13. The period of repayment shall be within 12 to 18 months in case of Hindi and English
movies and 6 to 12 months for regional movies.

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Oriental Bank of Commerce, Credit Administration Department, Head office.



In terms of RBI guidelines, the Bank has set up a Loan Review Mechanism Cell under the
aegis of Inspection & Control Department with the following objectives:

(i) Prompt identification of loans which may develop credit weaknesses and initiation of
timely corrective action

(ii) Evaluation of quality of the credit portfolio and identification of potential problem

(iii) Assessment of adequacy of and adherence to Lending Policy and monitoring of

compliance of various policy guidelines issued by Credit Policy Committee.

(iv) Providing information to Top Management about the credit administration including
credit sanction process, risk evaluation and post sanction follow up.

(v) Checking the veracity of risk ratings awarded by credit administration to large value

(vi) Review of existing loan covenants, loan documents and loan application formats to
improve their effectiveness and suitability.

The loan review or loan audit is presently covering Fresh sanctions, Renewals and
Renewal cum- Enhancements over a cut off limit of Rs.5.00 crore and above (both fund
based and non-fund based limit)

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Oriental Bank of Commerce, Credit Administration Department, Head office.



In terms of RBI's guidelines as contained in its Master Circular No. RBI/ 2004-05/60,
DBOD.DIR.BC.14/13.03.00 dated 21st July, 2004, the bank may also consider allowing Bridge Loan
to companies (other than NBFC) having risk rating of' '1' and above against public issue of equity as
also against the expected proceeds of Non-Convertible Debentures, External Commercial
Borrowings, Global Depository receipts and/or funds in the nature of Foreign Direct Investments,
provided the Bank is satisfied that the borrowing company has already made firm arrangement for
raising the aforesaid resources / funds and subject to the following conditions:

 Security to be obtained for the loan as per bank norms. However, bridge loans of unsecured
nature may also considered on merits of each case and exposure may be assumed subject to
bank's approved policy guidelines.

 The quantum of bridge loan sanctioned along with the investments in shares / debentures of
companies (including PSU) and units of mutual fund schemes, the corpus of which is not
exclusively invested in corporate debt instruments and loan sanctioned to corporates for meeting
the promoters' contribution to equity of new companies in any particular year, should be within
5% of the Bank's outstanding advances (Including commercial paper) as on 31st March of
the previous year prescribed for total exposure (Fund based and Non –fund based) to
Capital market in all forms.

 The maximum period of bridge loan shall not exceed one year.

 End use of the bridge loan must be ensured.

 Individual / group exposure norms must be complied with.

 No bridge loan should be extended for activities which are required to be legitimately met out of
Government resources / budgetary allocations.

 No bridge loan should be extended against any amount receivable from Central / State
Governments by way of subsidies, refund, reimbursements, capital contributions, etc. except
against receivables from Government by exporters (viz. Duty Drawback) which the bank may
continue to finance to the extent covered by the existing instructions.

 The sanction of bridge loan shall be accommodated within the ceiling of 5% to capital market as
stated above.

 The bridge loans as stated above shall be sanctioned at Head Office only.

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Oriental Bank of Commerce, Credit Administration Department, Head office.




 The policy recognises the need for allowing a degree of flexibility to the decision makers to
succeed in the competitive business environment.

 The deviation / exemption from the norms / bench-marks levels laid down in the Policy may
be permitted only in rare, genuine and exceptional cases, on account of emergent and
unavoidable business exigencies. Unless specifically provided otherwise in the Policy itself,
the authority to permit / approve such deviation / exemptions shall be vested with the
functionaries at Head Office not below the rank of General Manager (Credit) or General
Manager (SLPS) for their respective areas viz. Corporate Credit, credit to SMEs, Retail
Credit, and Priority Sector etc. as already approved by the Board of Directors in its meeting
held on 4th May, 2004.

 The deviations / exemption from the norms / benchmark levels shall be clearly
brought out in the appraisal note, duly recording the cogent reasons/ justifications
thereof and shall continue to be reported to the Board of Directors on quarterly

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Oriental Bank of Commerce, Credit Administration Department, Head office.



Brief Background:

Large Corporate borrowers constitute one of the major profit centres of the Bank. In the
emerging competitive market scenario, there is need to quicken the pace of decision making
to garner the business of good corporates. Under the existing system generally the branch
functionaries go for credit marketing and initiate either in principle or regular credit proposal
which have to cross several tiers in the Regional Offices/ Head Office before being placed
before the sanctioning authority. At times, corporate houses directly approach Regional
Office or Head Office for various credit facilities and expect from the bank quick responses /
approvals or otherwise. Thus the present system entails delays and many a time
consequential loss of business opportunities. Sometimes Bank's reputation in the market
also gets tarnished on account of inordinate delays.

In order to obviate such situations, the Board of Directors has since approved the concept of
constitution of a New Business Group (NBG) at Head Office comprising of the following
Chairman & Managing Director.
Executive Director
General Manager (Credit)
General Manager (Accounts &Risk Management)
General Manager (IBD)

Functioning of New Business Group (NBG):

 All fresh credit proposals envisaging exposure (Both fund–based and non-fund
based) of Rs.20.00crore and above from our Bank shall be referred first to Head Office
for placing before the proposed New Business Group comprising of the following

 NBG will discuss and reach a consensus about the proposal being support worthy or not,
based on the preliminary information memorandum put up by the Credit Administration

 Consensus will only be in the nature of expression of interest and not a commitment of
the Bank.

 Upon communication of such decision to the field, the full-scale appraisal of the proposal
will be undertaken to be ultimately placed before the competent sanctioning authority for
approval within shortest possible time.

 Normally NBG would meet every week or as and when there is urgency, even at short

 GM (Credit) will be the Convener of the Group.

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Oriental Bank of Commerce, Credit Administration Department, Head office.

 Even the references received directly from the corporates will also be placed before the
NBG by the Credit Administration Department before referring the same to Regional

 Regional Heads will be advised to make reference to Head Office about the fresh
business proposals received both at the branches as well as at the RO before
undertaking full-scale appraisal to cut short the delay in decision making.

 CMD may, however, induct any other General Manager at his discretion to be involved in
the group discussion on exigencies.

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