BOOK OF

INSTRUCTIONS ON
LOANS
 INDEX

Chapter No. Subject Page No.

1 General Instructions 01-17
2 Overdrafts and Demand Loan 18-30
3 Term Loans 31-47
4 Cash Credit Advances 48-65
5 Confidential Reports 66-74
6 Documentation 75-190
7 Mortgages – Immovable Property 191-273
8 Project Appraisal 274-292
9 Post Sanction Supervision & Follow Up of Loans 293-312
10 Credit Risk Management 313-330
11 Limitation 331-337
12 Management of Non - Performing Assets 338-352
13 NPA Management Through One Time Settlement (OTS) 353-361
14 SARFAESI Act 362-367
15 Legal Action 368-394
GENERAL INSTRUCTIONS

BOOK OF INSTRUCTIONS ON LOANS

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 CHAPTER – 1

GENERAL INSTRUCTIONS ON LOANS & ADVANCES

INTRODUCTORY

1. Efficient management of Loans and Advances portfolio has assumed greater

significance as it is the largest asset of the Bank having direct impact on its
profitability. In the wake of continued tightening of norms of income recognition,
asset classification and provisioning, increased competition and emergence of new
types of risks in the financial sector, it has become imperative that the credit functions
are strengthened. RBI has also been emphasizing banks to evolve suitable guidelines
for effective management and control of credit risks.

2. With a view to ensuring a healthy loan portfolio, our bank has taken various steps
to bring its policies and procedures in line with changing scenario which also aim at
effective management & dispersal of credit risks, strengthening of pre-sanction
appraisal and post-sanction monitoring systems. Further, bank has been
continuously endeavouring to strengthen the organisational set-up by imparting
intensive credit management training to staff. Bank has laid down detailed guidelines
to be followed while considering credit proposals, some of the important ones are
listed as under:

i) All loan facilities be considered after obtaining loan application(s) from the
borrower(s) and compilation of Confidential Report(s) on him/them and the
guarantor(s). The borrowers should have the desired background,
experience/expertise to run their business successfully.

ii) Project for which the finance is granted should be technically feasible and
economically/commercially viable i.e. it should be able to generate enough
surplus so as to service the debts within a reasonable period of time.

iii) Cost of the project and means of financing the same should be properly
assessed and tied up. Both, under-financing and over- financing can have an
adverse impact on the successful implementation of the project.

iv) Borrowers should be financially sound, enjoy good market reputation and must
have their stake in the business i.e. they should possess adequate liquid
resources to contribute to the margin requirements.

v) Loans should be sanctioned by the competent sanctioning authority as per the

delegated loaning powers and should be disbursed only after execution of all
the required documents.

vi) Projects financed must be closely monitored during implementation stage to

avoid time and cost overruns and thereafter till the adjustment of the bank's
loan.
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3. Bank extends Loan facilities by way of fund-based facilities and/or non- fund
based facilities. The fund-based facilities are usually allowed by way of term loans,
cash credit, demand loans, overdrafts, etc. Further, the bank also provides non
fund-based facilities by way of issuance of guarantees, etc.

4. The foregoing list contains the usual types of facilities undertaken by the bank.
In case loan application is received for any particular facility which is not specifically
mentioned above, the same should be forwarded to controlling office(s) for
consideration, provided the same can be transacted within the overall policy of the
bank.

5.1 The usual types of facilities sanctioned by the Bank to the borrowers, as also
other aspects like Project appraisal, Post sanction follow up, Management of NPAs,
Documentation, Limitation etc. are discussed in succeeding chapters. These are briefly
explained hereunder:

5.2 OVERDRAFTS AND DEMAND LOANS

OVERDRAFTS

All overdraft accounts are treated as current accounts. Normally, overdrafts are
allowed against the Bank's own deposits, government securities, life insurance
policies, etc.

Overdraft accounts should be kept in the ordinary current account head at branches.
Temporary clean overdrafts in current accounts should be maintained in the ordinary
current account ledgers.

DEMAND LOANS

A demand loan account is an advance for a fixed amount and no debits to the
account are made subsequent to the initial advance except for interest, insurance
premia and other sundry charges. As an amount credited to a demand loan
account has the effect of permanently reducing the original advance, any further
drawings permitted in the account will not be secured by the demand promissory note
taken to cover the original loan. A fresh loan account must, therefore, be opened
for every new advance granted and a new demand promissory note taken as
security.

Demand Loan would be a loan, which is repayable on demand in one shot i.e.
bullet repayment.

Normally, Demand Loans are allowed against the Bank's own deposits,
government securities, life insurance policies, etc. A separate account for each
demand loan should be kept in the appropriate demand loan ledger.

The detailed instructions/guidelines relating to Overdrafts and Demand Loans are

available in Chapter 2.

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5.3 TERM LOANS

Term loans are sanctioned for acquisition of fixed assets like land, building,
plant/machinery, office equipment, furniture-fixture, etc., for purchase of transport
vehicles & other vehicles, for purchase of agricultural equipment, machinery &
other movable assets e.g. tractors, pump sets, cattle etc. under various schemes of
agricultural advances introduced from time to time, for purchase of house,
consumer durables, etc. under Special Schemes introduced from time to time.

The Term loan would be a loan, which is not a demand loan and is repayable in
terms i.e. in instalments irrespective of period or the security cover.

Term Loans are normally granted for periods varying from 3 to 7 years and in
exceptional cases beyond 7 years. The exact period for which a particular loan is
sanctioned depends on the circumstances of the case.

The detailed instructions/guidelines relating to Term Loans are available in Chapter 3.

5.4 CASH CREDIT ADVANCES

Cash Credit account is a drawing account against credit granted by the Bank and is
operated in exactly the same way as a current account on which an overdraft has
been sanctioned. The various types of securities against which cash credits are
allowed are pledge/ hypothecation of goods or produce, book debts, etc. In cash
credit accounts the borrower is allowed to draw on account within the prescribed
limit, as and when required.

The detailed instructions/guidelines relating to Cash Credit are available in Chapter 4.

5.5 GUARANTEES

Guarantee is a contract to perform the promise, or discharge the liability of a third

person in case of his default. In the ordinary course of business, Bank often
issues guarantees on behalf of its customers in favour of third parties. When
Bank issues such a guarantee, it assumes a responsibility to pay the beneficiary, in
the event of a default made by the customer.

5.6 CONFIDENTIAL REPORTS

Confidential Reports (CRs) on borrowers and guarantors are required to be compiled

(excepting the cases where compilation of CRs is exempted) and reviewed (except
brief CRs). CRs should contain full and reliable record of character, estimated
means, business activities and credit-worthiness of all Individuals, firms and
corporate bodies who are under any form of liability to the Bank, whether as direct
borrowers or guarantors. CRs must be recorded in the confidential reports binders
under the names of the parties to whom they refer. Brief particulars of any
business known to be conducted by the borrowers or guarantors at other office(s)
of the bank should also be noted.

Non-review of confidential/credit reports in time, not only delays consideration of

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loan proposal but may expose the Bank to risk in case of unnoticed deterioration in
the means and financial position of the borrowers/co-obligants.

The detailed instructions/guidelines relating to Confidential Reports are available in

Chapter 5.

5.7 DOCUMENTATION

No advance should be disbursed until documents have been properly executed

strictly in accordance with the prescribed guidelines. Proper documentation in a
Loan Account is very essential from Banker's point of view. The prime
consideration to be kept in mind while executing the documents is that these are
enforceable in a Court of Law in case the Bank decides to initiate legal action to
recover its dues.

A bank generally takes some assets as security for advances made by it. The
purpose is to realise the assets so taken in case the borrower defaults in making
payments of the dues. This is possible only when documents are complete in all
respects (i.e. correctly drafted, stamped and properly executed) so that the bank can
prove its rights over the property/ies in court of law.

The detailed instructions/guidelines relating to Documentation are available in

Chapter 6.

5.8 MORTGAGES – IMMOVABLE PROPERTY

A mortgage of immovable property can be taken either as a primary security or as

an additional/collateral security for Bank's advances as may be provided in the
sanction. Before a mortgage is taken, Managers should satisfy themselves by an
examination of deeds that the title is prima facie in order and property is
unencumbered. The title deeds offered should be original and not copies unless
specific sanction of the competent authority is obtained. A sale certificate issued by a
court is a valid document of title to the property and can be accepted to secure
an advance. If the chain of deeds is incomplete, a certified copy of the missing
documents from the Office of Assurances should be supplied by the intending
borrower with an explanation for non-production of the original deeds.

A full report on the title should be obtained from the Bank's approved lawyer.
Where non-encumbrance certificate from the Office of Assurances is not
produced, Bank's lawyer should make a search of records and ensure that no
prior mortgage, charge or any other encumbrance on the property exists. The
result of this search should be incorporated in his report. Enquiries must also be
made regarding the persons occupying the property & if they are not the owners, the
terms on which they have the possession. A complete record must be kept of all such
reports and investigations.

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5.8.1 VALUATION OF PROPERTY AND PLANT & MACHINERY

The detailed instructions/guidelines relating to Mortgages are available in Chapter

7. Guidelines for valuation of property and empanelment of valuers, as contained in
Credit Cir. 69/09 dated 19.10.2009 followed by other relevant circulars on the
subject, be observed meticulously in all borrowal accounts.

5.9 PROJECT APPRAISAL

Project Finance is one of the key areas for any lending institution. As such,
before taking a final decision about financing any project, whether individually or
jointly, a detailed and critical appraisal of the project is necessary.

The appraisal methodology of the Bank should keep pace with ever changing
economic environment and also address the various types of risks viz. industry,
business, financial, management etc. Bank has to ensure that the people behind the
project have the required knowledge & expertise in the proposed line of activity,
enough owned funds to meet the promoter’s contribution. The projections
submitted by the promoters should be realistic and achievable and the project
must have enough surplus generation to service the debt in a reasonable period of
time after meeting the normal business expenditures.

While doing appraisal of any project, the following four fundamentals should be
carefully studied and examined:

a) Market and Economic aspects.

b) Technical aspects.
c) Financial aspects.
d) Managerial aspects.

The detailed instructions/guidelines relating to Project Appraisal are available in

Chapter 8.

5.10 POST SANCTION SUPERVISION & FOLLOW UP OF LOANS

Post Sanction Supervision & Follow up of Loans is an important function as it

helps in keeping a watch on conduct and operational/ financial performance of the
borrowal accounts. Further, it also helps in detecting signals/symptoms of
sickness & deterioration, if any, taking place in the conduct of the account for
initiating timely corrective action to check slippage of accounts to NPA category.

The detailed instructions/guidelines relating to Post Sanction Supervision & Follow

up of Loans are available in Chapter 9.

5.11 CREDIT RISK MANAGEMENT

“Credit risk,” means the possibility of loss associated with diminution in the credit
quality of borrowers or counter parties. These counter parties may include an
individual, corporate, bank, financial institution or a sovereign. In a bank’s portfolio,
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losses stem from outright default due to inability or unwillingness of a customer or
counter party to meet commitments in relation to lending, trading, settlement and
other financial transactions.

Similarly to evaluate risk in Agriculture and R etail segment, credit scoring models
are being used. The scoring models supplement credit appraisal and result in
increase in consistency of lending decisions. The outcome is based on personal
characteristics and past behavior. The cut-off level for sanction of all the loan
applications has been kept at the score of ‘50 & above’ for all the retail loan
schemes covered under the scoring models. This cut off shall be revised from
time to time based on experience gained.

Bank has also taken necessary steps to monitor it’s entire portfolio periodically on an
ongoing basis so as to maintain the portfolio quality.

5.12 LIMITATION

Every suit, appeal and application shall be filed, preferred and made within the
period of limitation as prescribed under the Limitation Act, 1963. Care and caution
must be exercised to ensure that the recovery of debts due to Bank & the
enforceability of the related securities do not get time-barred. Else, the Bank will be
left without any legal remedy.

The detailed instructions/guidelines relating to Limitation are available in Chapter 11.

6. Besides, the specific areas and subjects covered in various chapters briefly
explained above, other important issues to be considered while allowing
loans and advances are explained in the following paragraphs.

7. CONSIDERATIONS BEFORE MAKING OR RECOMMENDING ADVANCES

Before granting any advance under their own delegated powers or while
forwarding proposals for sanction to a higher authority, Managers must satisfy
themselves or provide such of the following information as may be necessary to
take a prudent credit decision and give their own definite recommendations:

i) The means of the applicant and guarantors should be verified by

independent enquiries and by examination of their books.

ii) The details of the assets of the applicant, with specific reference to his liquid
assets viz. cash, book debts, stocks etc.

iii) The details of the liabilities of the applicant - whether short-term or long- term.

iv) The extent of the margin available with the applicant, which is indicated by the
excess of the liquid assets over the current liabilities.

v) The experience of the applicant in the business or the line of activity in

which he proposes to utilise the money to be borrowed from the bank.

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vi) The purpose for which the advance is required and the probable date of
repayment. The advance should be for productive purposes and not for
speculative purposes.

vii) The profitability projections/repayment schedule submitted by the applicant

should be critically analysed so as to ensure that the projections are not
optimistic.

viii) The details of the primary and collateral security offered to secure the loan need
to be ascertained.

ix) That amount of the advance is need based and is in relation to the applicant's
means. The same should also bear a reasonable relationship to the amount of
the self owned capital provided by him.

x) The details of all contingent liabilities related to the payment of disputed

cases of excise duty, income tax, sales tax and other statutory liabilities, need
to be ascertained.

xi) Comments on past conduct of the accounts covering the following aspects
should be ascertained:

 Inadequate availment of credit limits.

 Unauthorised accommodation, if any, allowed.
 Credit summations being disproportionate to sales.
 Non-payment of stipulated instalments.
 High returning of cheques.
 Non-submission of audited annual accounts.
 Non-compliance of terms and conditions of sanction.

8. PRE-SANCTION & POST-SANCTION FOLLOW UP CHECK LISTS

In order to strengthen the pre-sanction appraisal and post sanction follow up and to
avoid the quick mortality cases, checklists in the form of questionnaire on pre-
sanction appraisal and post sanction follow up have been prepared and circulated to
the field functionaries. Branches should comply with the laid down guidelines and
also ensure that points enumerated in the checklists are duly addressed/covered
at the time of loan appraisal.

9. FAIR PRACTICE CODE, CODE OF BANK’S COMMITMENTS TO

CUSTOMERS AND CODE OF BANK’S COMMITMENT TO MICRO AND
SMALL ENTERPRISES .

9.1 Based on the guidelines received from RBI, Fair Practice Code has been
devised by the Bank. The Fair Practice Code contains important declarations
such as the loan applications will be disposed of within a specified time period,
wherever possible the main reasons of rejection of the loan application shall be
conveyed to the applicant, need based credit requirement of the borrowers shall be
assessed as per bank’s guidelines, the terms and conditions of the sanction shall
be conveyed to the borrower and borrower’s acceptance thereof shall be obtained,
a copy of the loan agreement shall be invariably furnished to the borrower,
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information about all the charges/fees should be provided, changes in terms &
conditions including interest rates, service charges, etc. shall be advised to the
borrowers. Bank will not interfere in the affairs of the borrowers except for what is
provided in the terms and conditions of the sanction. Bank will not discriminate
on grounds of sex, caste and religion. It will not resort to undue harassment in the
matter of recovery of loans, etc.

9.2 Further, to comply with the Code of Bank’s Commitments to Customers

formulated by The Banking Codes and Standards Board of India (BCSBI), it has to
be ensured that:

a) Borrower will be informed that default/delay in deposit of the installment(s)/

interest as per agreed repayment schedule shall have adverse impact on its
credit rating and past conduct of the account.
b) Bank will have an unqualified right to pass on to the Credit Reference
Agencies the details of his loan account in such manner and through such
medium as the bank in their absolute discretion may think fit. However,
consent of borrowers and guarantors is to be obtained and kept on record.
c) All securities/ documents will be released within 15 days on receiving payment
of loan or realisation of loan subject to any legitimate right or lien for any other
claim, the lenders may have against borrowers.
d) All loan application forms in respect of all categories of loans irrespective of
the amount of loan sought by the borrower must contain information with
regard to the method of calculation of interest in the loan account.
e) Besides treating all the personal information of the customer as private
and confidential and revealing the information in exceptional cases as
mentioned in the Code, bank will not use the personal information of the
customer for marketing purposes, unless specifically authorized by the
customer to do so.
f) The written permission of the customer will be required before giving any
banker's reference about him/ them.
g) The customer will be explained of the extent of his rights under the existing
legal framework for accessing the personal records that the bank holds about
him.
h) The permission of the customer (borrower) will be obtained for giving
confidential information about his finances to the person giving the
guarantee or other security for his (borrower’s) liabilities or to their legal
adviser.

9.3 Moreover, the Bank has also adopted the Code of Bank’s Commitment to
Micro and Small Enterprises (BCSBI MSE Code – August 2015) developed by
BCSBI to give a positive thrust to the MSE sector by providing easy access to
efficient banking services; promote good and fair banking practices by setting
minimum standards in dealing with the customers and increase transparency so that
the customers can have a better understanding of what they can reasonably expect
of the services.

10. CREDIT INFORMATION BUREAU (I) LTD. (CIBIL)

With the aim of taking informed credit decisions, the bank has become a member
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of four Credit Information Companies (CICs) namely Credit Information Bureau
(India) Ltd., M/s Experian Credit Information Co. of India Pvt. Ltd., M/s Equifax
Credit Information Services Pvt. Ltd. and M/s CRIF High Mark Credit Information
Services Pvt. Ltd., which have been set up for creation of the database in respect
of the Borrowers, Guarantors & Co-obligants of banks/FIs and sharing the same with
its member banks.

Credit Information Report (CIR) should be drawn, while considering

fresh/enhanced/renewal proposal.

11. LOANING POWERS & RESPONSIBILITIES OF INCUMBENTS

11.1 In order to expedite the decision on Loan Proposals and quicker

dispensation of credit, Head Office from time to time lays down the powers of
officials at various levels in regard to granting of various types of advances,
guidelines for exercising these powers, the directions regarding submission of
returns etc. It is expected that the loaning powers are used judiciously with due care
and in good faith having regard to duties and responsibilities attached to the post
held by the sanctioning authority.

11.2 Sanctioning officials must exercise prudence and a wise discretion in the use
of powers delegated to them and must thoroughly satisfy themselves that all
advances granted by them (other than borrowings against Govt. Securities, Gold
ornaments, Bank's own deposits and Life Policies for personal purposes) are for
genuine business requirements, need based and that, in all cases, the bank's
interests are fully safeguarded. The fact that an advance has been specifically
sanctioned by higher authority in no way lessens the responsibility of the other
officials.

11.3 Branch Managers must see that the accounts of the borrowers are at all times
properly conducted, that the security therefore is adequate & in order and that
financial position of the borrowers and guarantors has not deteriorated. Should an
occasion arise, immediate remedial steps must be taken by them to protect the
interests of the Bank under advice to their controlling office, whose guidance should
be sought, wherever necessary.

11.4 The important guidelines and various aspects relating to loaning powers are
given hereunder:

a) Sanction of all loan facilities shall be governed by Bank's prevalent policy and
as per guidelines laid down in circulars issued by HO from time to time.
Sanction shall be subject to margin in force. Though, various facilities are
grouped for delegation purpose in the loaning power charts, the sanctioning
authority while sanctioning a proposal should clearly specify the nature of
facility, the security, margin, etc., alongwith other norms/terms and
conditions governing the facility sanctioned.

b) All loan facilities must be considered after obtaining a loan application

from the borrower(s) concerned and compilation of confidential report(s) on
him/them and the guarantor(s), if any, in accordance with the instructions
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 given in the separate chapter of CRs on Borrowers/Guarantors and other
instructions/guidelines issued from time to time.

c) Sanctioning authority will sanction facilities within his loaning powers on

regular loan proposals prepared by another officer of the office. Where
second officer is not available, such proposal may be prepared by Special
Assistant of the office, if available or in terms of extant guidelines issued by
HO from time to time.

d) Persons working in officiating arrangements shall be vested powers of the

officers one grade above than the person who is officiating and that such
higher power may also be exercised during the casual leave arrangements of
the permanent Branch Manager. However, Clerical Staff while officiating as
Spl. Asstt./Officer are not allowed to sanction any loan proposal.

e) Sanctioning authority should not sanction/set-up any limit in his own favour at
his own office. However, he may sanction certain specified facilities within
his own vested powers to any officer, other than himself, irrespective of the
fact that the borrowing officer is senior or junior to him.

f) Permission for taking over loan facilities sanctioned at another bank/financial

institution except for taking over of Housing Loan Accounts shall be
given by next higher authority of the authority under whose powers such
loan facilities are to be taken over.

g) Regional Manager and higher officers are authorised to withdraw powers,

for reasons to be specified, of their junior(s) wherever they feel that powers
so delegated are not being exercised judiciously or in Bank's interest. Next
senior authority is to be informed in case of such withdrawal of powers.

h) Sanctions in respect of Working Capital and Term Loan facilities shall be

valid for 6 months, from the date of sanction. Facilities not availed within the
above period should be treated as lapsed and borrower be advised
accordingly. Unless a lapsed sanction is revalidated by the competent
authority within a maximum period of 12 months from the date of sanction, no
facility should be released.

i) Powers will be exercised by Branch Manager according to the Bank’s

guidelines.

11.5 While exercising the loaning powers, the officials have to ensure that the
following instructions/guidelines are strictly complied with:

i) All the powers are exercised in terms of guidelines/instructions given in:

a) Various operative circulars & circular letters issued by the Bank from time to
time.

b) Specific powers vested under various Schemes in operation e.g. Priority

Sector Loans, Consumer Loans, Housing Loans, Staff Welfare Loans, etc.
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 c) Notes & other guidelines on exercise of powers issued through Credit Circulars
on the subject.

ii) The loaning restrictions circularised to the branches from time to time are to
be adhered to and restrictions should be strictly followed during the period
of abeyance.

11.6 All sanctioning officials are required to submit Monthly Statement of Limits
Sanctioned in respect of Sanctions falling within vested powers; Details of excess
drawings/limits permitted; Details of loan proposals rejected during the month and
confirmation of action required to the next higher authority within the stipulated
time. The Controlling authority should scrutinise the statement closely and the
serious irregularities/ discrepancies observed in the sanction should be reported to
the sanctioning official for rectification and avoiding recurrence in future. In case of
officials retiring in next three months, the statement of limits sanctioned is required
to be submitted promptly at fortnightly intervals.

12. CONFIRMATION OF ACTION IN SANCTIONS EXCEEDING

DISCRETIONARY POWERS

a) In case, officials in organisational interest exceed their vested loaning powers,

then after such a transaction has taken place (including the cases where
telephonic/oral sanctions were obtained from the higher authority for exceeding
the powers), it should be reported immediately to the controlling authority for
confirmation of action by the Competent Authority through submission of a proposal
on the prescribed format.

b) The competent authority will grant or reject requests for confirmation of action
within 15 days of the receipt of the proposal. In case, queries/clarification are
necessary for grant of such confirmation, the competent authority may take another
15 days for taking the final action in this regard. However, in all circumstances the
decision with regard to confirmation/rejection of the proposal has to be taken and
conveyed within a period of maximum one month of the receipt of the original
proposal. Otherwise, the transaction in question shall be deemed to have been
ratified/confirmed by the competent authority. In case a transaction has to be
ratified/confirmed under the powers of the Board/Management Committee, the
confirmation in respect of such a transaction may be obtained from the latter in its
next meeting and the same be conveyed to the concerned office immediately after
the meeting.

13. ADVANCES TO PARTNERSHIP FIRMS

13.1 When making an advance or setting up a credit limit in favour of a partnership

concern, all the loan documents must be signed by all the partners on behalf of the
firm. The Bank can proceed simultaneously against the firm as well as the partners
for recovery of its dues and the account opening form (AOF) be signed by all the
partners in their individual capacity while specimen signatures be obtained thereon
in their representative capacity. Similarly, specimen signatures of a third person
authorised to operate upon the account will be taken on the account opening form
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in his representative capacity. Also, particular care must be taken to ensure that the
declarations given in the penultimate paragraph of the account opening form (PGB
38) are in accordance with facts

13.2 When it is stated that a written partnership deed exists, a copy thereof
should be obtained and kept on the branch record. This is an important procedural
requirement and should be insisted upon. Where, however, customers of
undoubted integrity decline to exhibit such deeds and there is the risk of a good
account being lost, this formality may be waived provided the firm is a registered one
and a copy of the relative entry from the office of the Registrar of Firms is obtained; it
being understood that the loan documents will be signed by all the partners, the
prior sanction of the Regional Manager must in each case be obtained before this
relaxation of standard procedure is permitted.

13.3 If a partnership has been registered with the Registrar of Firms, a copy of the
relative entry should be obtained from the office of the Registrar of Firms which
should be compared with the particulars already on the branch record. As the
registration has the effect of public notice, the constitution declared to the
Registrar of Firms should necessarily be in conformity with that advised to the
Bank.

13.4 It is to be noted that the Indian Partnership Act provides for the registration of
partnership firms. However, registration is not compulsory. But, an unregistered firm
suffers from certain disadvantages, such as, it cannot sue third parties to enforce a
right arising from a contract or conferred by the Indian Partnership Act. The rights of
third parties against the unregistered firm are not affected and they can sue an
unregistered firm. It may be pointed out here that the registration of firm binds it to
the statement filed by it with the Registrar of Firms. Therefore, the manager should
enquire whether the firm is registered but need not insist registration against their
wish.

13.5 When a firm is established at more than one station under the same
constitution, and the credit facilities are required to be made available at different
station(s), the branch where firm has its main account will :

a) handle the loan proposals,

b) obtain one set of loan documents for the consolidated limits, and
c) allow apportionment of the limits as may be required by the firm under the
written instructions and after having obtained the approval of the competent
authority.

13.6 Partners of a firm residing at different stations will sign the documents and
indicate the date under their signatures. In such circumstances, no one date will be
indicated in the body of the document(s) in the space provided and the limitation will
run from the earliest date mentioned. Care should also be taken to see that the
document(s) is/are first executed at a place where the stamp required is the highest
and thereafter the same be sent to the place for execution by the other executants.
In case this is not done, the document(s) will require additional stamp duty to
make up the difference at the time of execution, if the stamp duty required at that
place is higher. This involves good deal of procedural difficulty as the additional
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stamp duty will have to be got embossed or made up from the Office of the Collector
of Stamps.

13.7 In case of death or insolvency of a partner, a partnership may or may not

dissolve depending upon the provisions of the partnership deed. If the partnership
stands dissolved, the operation in the account should be stopped and no further
withdrawals be permitted. In case there is no written partnership deed, the partnership
be taken as dissolved on death or insolvency of a partner. Subject to the provisions
of the AOF (PGB 38), the security may be delivered to the surviving partners on
behalf of the firm against payment of Bank's dues. But before doing so, other
liabilities of the firm to the Bank e.g. Guarantees or Letters of Credit etc. issued on
their behalf be kept in view.

13.8 If partnership does not stand dissolved on the death of a partner and the
Bank is satisfied with the means of the surviving partners and no recourse is
considered necessary against the legal representatives of the deceased partner, the
account can be allowed to continue with prior permission of the sanctioning
authority.

13.9 Further, in case of retirement of a partner, partnership stands dissolved on

issue of a notice of dissolution of the firm by the retiring partner. In such cases, the
operation in the account should be stopped.

13.10 A minor cannot be a partner in a firm but may be admitted with the consent of
the partners to the benefits of the firm. He is, in these circumstances, not personally
liable for the debts of the firm, but his share, both in the property and profits of the
firm, is liable for all acts of the firm

13.11 A minor may repudiate his liability as partner within six months of his
attaining majority or within six months of his knowledge that he was admitted to the
benefits of the partnership, whichever is later. His silence after the expiry of the
above period will be taken to mean in law that he has elected to become a partner.
It is, therefore, necessary to keep a proper record of the date on which a minor
attains majority and when this occurs, he should be requested to sign a
declaration that he has opted to become a partner and he stands liable for all the
obligations/dues of the firm to the Bank from the date he was admitted to the
benefits of the partnership while a minor.

13.12 On admission of a new partner, a letter should be obtained to the effect that
in consideration of the Bank's continuing the banking facilities, he agrees to be
liable for the amount due by the firm to the bank as on _ and
also for future advances made from time to time and is bound by the terms and
conditions agreed to by the other partners.

14. ADVANCES TO HINDU UNDIVIDED FAMILIES (HUF)

14.1 The Karta of a HUF has implied authority to borrow money and pledge
securities of the family for the ordinary purpose of the family business or for the
benefit of the joint family. Thus, advances against stocks should be limited to

14
goods and commodities which are regularly dealt with by the HUF during the
course of family business. Sometimes a collateral security of an immovable property
in the name of HUF may have to be offered.

14.2 Although the Karta is competent to bind the family, yet in practice, the loan
documents should be signed by the Karta & all major co-parceners of a HUF. By
signing the documents, the major co-parceners will become personally liable.

14.3 In terms of the Hindu Succession (Amendment) Act, 2005 the daughter of a
coparcener has been made by birth, a co-parcener in her own right, in the same
manner as the son. She has the same rights in the coparcenary property as she
would have if she had been a son. She is also subject to same liabilities in respect
of the said coparcenary property as that of a son. So, while assessing loan proposal
as well as while obtaining documents, the existance of female coparcener should
also be kept in view. Karta/all major male and female coparceners have to execute
the documents. While creating mortgage of the properties of HUF, all the major
coparceners (including female coparceners) have to create the mortgage.

14.4 The loan documents will be signed in the following form:

For self and M/s (HUF)

A. Karta
B. __________]
C. __________] Major co-parceners
D. __________]
E. __________]

14.5 Consequent upon the passing of the Hindu Succession (Amendment) Act,
2005 the share of the deceased co-parcener shall devolve on his/her heirs as
specified in the Act.

14.6 As by virtue of para 16.5 above, extraneous interest would be created in

HUF property, to protect the Bank's interest, managers should stop operations in the
account of a HUF firm as soon as the death of a co-parcener comes to their
knowledge. If the account is in credit, it should be dealt with as an ordinary claim
case, but in the event of the account showing debit balance, necessary steps
must be taken to have it adjusted as soon as possible. In case the surviving co-
parceners desire to avail of credit facilities, their application should be considered
afresh after taking into account the assets of the remaining co-parceners.

14.7 To enable the Bank to have the notice of the death of a co-parcener in a
HUF, Form No. PGB 440 includes a clause providing that the signatories i.e. the
Karta and the major co-parceners, undertake to report to the bank when a birth
and/or death occurs in the family. As an additional precaution, a declaration on
Form No. PGB 36 should be obtained every half-year in respect of each HUF
account.

14.8 A complete pedigree chart of the family giving the names of all the co-
parceners including the minors with their dates of birth and names of guardians
15
should be prepared and kept on record. The dates on which the minors attain
majority should be diarised and a minor on attaining majority should be asked to
sign appropriate declaration/supplemental loan documents and agree to operation by
the person(s) already authorised.

15. DRAWING POWER (DP) REGISTER

15.1 The drawing power of borrowers in cash credit and packing credit accounts
with limits below 10 lakh will be recorded in the drawing power register (Form No.
PGB 1061) which will be maintained as under:

i) A separate opening should be allotted to each account, and brief

particulars of the limit sanctioned, security held and the margin(s)
maintained on the account recorded.

ii) The current market value of the security and the drawing power (in words
and figures) should be stated in the appropriate columns.

(Note: It is to be noted that DP must not exceed the limit sanctioned

irrespective of the value of the security held)

iii Each drawing power must be initialed by the supervising official concerned
and signed in full by the manager.

iv) Drawing powers must be altered with every change in the security and
every important change in its market value.

15.2 In case of cash credit and packing credit accounts with limits of 10 lakh and
above, Drawing Power is to be calculated and recorded in the Drawing Power
Sheet (PGB-1062).

15.3 In CBS System:

 The Scheme type for CC A/Cs is CCA and for OD A/Cs it is ODA.

 Sanction limit and MIS codes to describe the purpose of advance are part of
account opening. Menu option to open accounts in these schemes is OAAC
which needs verification through OAACAU. Options H and V are mandatory
in addition to G and S while opening CC/OD accounts.

 Security details have to be captured separately, which can be attached to the

account. Menu option to capture and maintain Security Register is SRM.
SRM can be created at account level and/or at limit level.

 Drawing power indicators are D - Derived from Security, E-Equal to Sanction

limit, M - Maintained by or P - Parent, which can be changed through menu
option ACLHM and verified by menu option ACLHMAU.

 Sanction Limit and Drawing Powers indicator (and drawing power) can be
16
 changed from time to time through menu option ACLHM.

 Facility is available to give TOD (Temporary Overdraft) during passing the

transaction if the amount being drawn exceeds the drawing power or account
is irregular. However, facility of granting TOD should be used judiciously in
Bank’s interest.

 To arrive at the Drawing Power, system takes into account various values, like
security value, margin money, sanction limit, ceiling limit, security type
(primary & collateral). Menu option ACCBAL can be used to see
components of available balance, or same can be seen through menu
option ACM – option M (components of available amounts).

 For detailed guidelines on the CBS aspects, reference should be made to

CBS Circulars/User Manual issued by Information Technology Division from
time to time.

16. RETURNS

The periodical returns related to advances as are required to be submitted to the

Regional Office and/or Head Office will be advised to branches from time to
time. Managers are responsible that the information given in all such returns is
correct and although the checking of details may be delegated to other
authorised officials, they must satisfy themselves before signing the returns
and the certificates appended to them that, each one of them is a true statement
of fact.

Various reports/statements related to loans and advances are generated in CBS

system through menu options RRBRPT. Reports available in CBS system can
be generated for all branches (SOLs) and some reports can also be generated
Region-wise.

**************

17
 CHAPTER 2
OVERDRAFTS AND DEMAND
LOANS

BOOK OF INSTRUCTIONS ON LOANS

18
1
CHAPTER – 2

OVERDRAFTS AND DEMAND LOANS

Different types of securities against which the Bank generally grants overdrafts and
demand loans are set forth in Chapter-1.

2. All overdraft accounts should be treated as current accounts, and the formalities
regarding current accounts as set forth in Book of Instructions - Routine are equally
applicable in case of overdraft accounts. These accounts should be kept in the
ordinary current account head at branches. Temporary clean overdrafts in current
accounts should be maintained in the ordinary current account head.

3. CLEAN OVERDRAFTS

3.1 Customers should not ordinarily be allowed to overdraw their accounts.

Branch Head, however, have discretion to allow temporary clean overdrafts within
specified limits and for short periods. Overdrafts thus allowed should not remain
outstanding for more than one month. However, instructions with regard to any
restrictions on exercising loaning powers on allowing clean overdrafts advised by
HO be strictly adhered to.

3.2 Under the Bank's current account rules, customers wishing to overdraw their
accounts are required to make prior arrangements with the Bank and Branch Head
should obtain an application on Form No. PGB 306 from customers to whom
temporary clean overdrafts are granted.

4. OVERDRAFTS/DEMAND LOANS AGAINST BANK DEPOSITS

4.1 Overdrafts and demand loans may be granted to customers against deposits
lying at the credit of the borrowers and/or third parties in the books of the Branch
making such advance or any branch of the Bank, subject to the observance of
the precautions mentioned in the following paragraphs.

4.2 Before an advance is allowed against fixed deposit/recurring deposit as

security, a letter of pledge/lien on Form No. PGB 308 signed by the depositor and fixed
deposit receipt/confirmation of deposit/recurring deposit pass book duly discharged
with revenue stamp of the appropriate value by the depositor should be obtained.

4.3 Bank's lien should be noted and authenticated by the competent officer on
Confirmation of Deposit, Recurring Deposit Pass Book and account in case of
advance against the credit balance in Current/SF Account/ Recurring Deposit
Account, as the case may be.

19
4.4 In case of term deposits under reinvestment plan, security for advances
made there against is not merely the amount of original deposit but also the
amount of interest accrued upto the last/preceding quarter. In such cases the
interest accrued may be determined at quarterly compounding basis till the preceding
quarter on the date of granting such advances and may be treated as deposit.

4.5 The prescribed margin as applicable from time to time be maintained on the
principal amount plus the accrued compound interest

4.6 When a credit balance in the current or savings fund account of the borrower
(or third party) is offered as security, an application on Form PGB-308 should be
obtained and advances permitted there against. The following guidelines may also
be observed:

i) Advances may be permitted by setting up regular limits after marking lien

under the signature of supervising official concerned and obtaining proper
documents.

ii) Advances may be permitted against the balance lying in the Current/Savings
Account after maintaining the prescribed margin.

iii) Advances may be permitted at interest rates as advised from time to time.

4.7 In case of advance against Joint Deposit Accounts, the following additional
guidelines should be observed if the revised Account Opening Form (AOF) is not
obtained:

a) Letter of Pledge/Lien (PGB 308) should be signed by all the depositors.

b) Fixed Deposit Receipt/Confirmation of Deposit/Receipt of Recurring Deposit

Pass Book be discharged by all the depositors.

4.8 In case the number of borrowers is two or more, a letter of authority signed
by all the borrowers to pay the consideration money to one of them should be
obtained.

4.9 In case of third party advances against deposits with the Bank, the rate of
interest to be charged may be different from that of advances against the borrower's
own deposits. The instructions issued by HO from time to time in this regard should
always be observed.

4.10 The following are considered advances against the borrower's own deposits:

i) Advance made to a partnership firm against a deposit in the name of one of the
partners.

ii) Advance made to a partnership firm against a deposit standing in the name
of partner of the firm jointly with another person who is not partner in the firm and
who may or may not be related to him or her.
20
 iii) Advance made to a proprietory concern against a deposit in the name of its
proprietor.

iv) Advance made to proprietorship concern against a deposit standing in the name
of the proprietor along with another person who may or may not be related to
the proprietor.

v) Advance made to a guardian against a deposit in the name of his ward

(where the guardian, being competent to borrow on behalf of the ward, does
so).

vi) Advance made to a depositor against a deposit standing in his name singly or
jointly with other depositors.

vii) Advances made to an HUF concern against the deposits standing in the name
of co-parcener.

4.11 No advance be allowed to customer against deposits of other banks.

4.12 Advances against deposits made by a Bank

Loans or advances against deposits made by a Bank viz. Banking Institutions or

Cooperative Banks other than a Land Development Bank may be treated as loan or
advance granted against deposit to any other customer and the following rules may be
observed:

Generally, such a loan or advance be discouraged. However, when a loan or

advance is required to be made to a Bank against its deposit:

- a margin as advised vide Credit Circulars issued from time to time should be
maintained;
- The rate of interest should be charged as advised vide Credit Circulars on
interest rates issued from time to time.; and
- no third party loan or advance should be permitted.

4.13 Advances against deposits in the name of minors

a) Advance against deposits in the name of minors are allowed to natural

guardian or guardian appointed by the Court, by way of demand loan and/or
overdraft by taking an undertaking from the guardian to the effect that the advance is
required for the benefit of the minor and that he/she shall indemnify the bank
against any claim or loss in consequence of having allowed the said advances.

In case of demand loan/overdraft, an undertaking is to be taken as per specimen

given below:

"That Shri/Miss is my son/daughter and I am his/her

natural guardian/guardian appointed by Court.

That the demand loan/overdraft facility for ________________________applied for

21
against the security of deposits of _ standing in the name of Shri/Miss
minor is required for the benefit of the said minor and
all the withdrawal (s) shall be utilised for the benefit of the minor and
payments/deposits made in the account shall be on account of minor as his/her
money. I undertake to indemnify the Bank against any claim, damages or loss
arising in consequence of the Bank having allowed the said facility at my request

DECLARANT"

b) Advances against deposits standing in the name of minor should be allowed to

the guardian only in his individual capacity for the benefit of the minor only and no
advance be allowed to a partnership concern against deposit standing in the name of
a minor.

4.14 Advance against deposits to blind persons

Advance may be allowed to blind persons against their term deposits subject to the
following guidelines in addition to the normal procedure followed in such type of
advances:

- Advances against term deposits standing in the name of blind persons, singly or
jointly with others, may be permitted after getting the term deposit discharged,
if he is literate. He should discharge term deposit in the presence of an
authorised official not below the rank of an officer and witnessed by two
responsible persons known to the bank and attested by the officer concerned;

- In case he is illiterate, his thumb impression be taken in the presence of

Branch Head and be supplemented by a certificate in the form as per
Annexure-I signed by the Branch Head of the lending office as well as two
independent witnesses;

- In case where an illiterate depositor can only sign in a regional language, but
cannot write such language, the loan document executed by him, should be
supplemented by a certificate signed by the Branch Head of the lending office as
well as two independent witnesses as per Annexure-II;

- Terms & Conditions of the loan, amount of loan, etc. should be read and
explained to the blind person in the presence of two witnesses. The
signatures of the witnesses for having done this, should be obtained on A.O.F.;

- Cash payment to a blind person should be made in the presence of two

witnesses. While these witnesses should preferably be customers of the bank,
bank officials other than the paying official may also sign as a witness. The
amount of loan received by the blind person should be confirmed to the blind
person orally.

4.15 NRE & FCNR Deposits

In case of loan/overdraft against security of a deposit under Non-Resident (External)

Account and Foreign Currency (Non-Resident) Account Scheme, Branch Head
22
should ensure that these advances are strictly in terms of instructions issued by
Exchange Control Department of RBI from time to time contained in the Exchange
Control manual/Circulars issued by International Banking Division.

Since the account holder of NRE Saving Deposits can withdraw saving deposits at
any time, banks should not mark any type of lien, direct or indirect, against these
deposits.

4.16 Rate of Interest

As advised through Credit Circulars on Interest Rates by HO from time to time.

4.17 Other Instructions

i. In CBS system, lien is marked/vacated automatically by the system when SRM

is created for new loan account/closed loan account provided the FD A/C No. is
given in the Lien Account field.

ii. Advance against fixed deposit should be liquidated on maturity. However, in

case of renewal of the fixed deposit on maturity, the advance against the fixed
deposit so renewed, may be allowed to continue as per the mandate given
by the depositor. Moreover, margin, rate of interest and new maturity date is to
be modified in the account procedurally.

iii. Balance confirmation letters in loan accounts against the security of bank
deposits will not be obtained unless the debit balance exceeds the value of
security and/or the deposit under pledge matures after two years and above
from the date of advance and/or where the depositor has given mandate for
auto renewal of FDR/Confirmation of Deposit.

iv. Whenever a Fixed Deposit is made on account of compensation awarded by

some Court/Tribunal, no loan or advance should be granted on the strength
of said FDR/Confirmation of Deposit without the express permission of the
Court/Tribunal which ordered the deposit. A note to this effect may also be
made on the Fixed Deposit Receipt/Confirmation of Deposit/F.D.ledger.

v. While granting advance against term deposits, where Tax Deducted at

Source is applicable, the total tax deductible U/s 194A of Income Tax Act on
interest of such deposits is also to be reduced from the amount of
advance/Drawing Power/Limit arrived at after applying the margin as prescribed
from time to time.

vi. While granting demand loan against third party term deposits, letter of
undertaking to repay the loan be taken from the borrower as per Annexure-
III.

5. LIFE POLICIES

5.1 Overdrafts and demand loans may be granted against the life insurance
policies issued by Private Sector Insurance Companies approved by IRDA (as
23
communicated by HO from time to time), in addition to Life Policies issued by LIC of
India. Before allowing an advance against the security of life insurance policy, it must
be ensured that:

i. there are no encumbrances on the relative policy.

ii. the age of the assured stands admitted in the books of the
Company/Corporation; and

iii. premia are paid up to date.

5.2 The limit should be fixed after ascertaining the surrender value of the
policy.

5.3 Advance against life insurance policy may be made to the extent permitted as
per Head Office guidelines.

5.4 Life Insurance Policy effected by a married man for the benefit of his wife
and/or children under Section 6 of the Married Women's Property Act, should not be
accepted as security.

Further, need based loans to the extent permitted by HO be allowed against

Money Back Policies of LIC of India having completed 3 years by way of Demand
Loan/OD Limit.

The periodical/terminal Survival Benefits to be received from LIC of India shall be

directly credited in the Demand Loan/OD account. The DL/OD limit shall be
appropriately reduced according to the fresh Surrender Value after receipt of
Survival Benefit from LIC of India.

5.6 Assignment of Policies

a) A policy accepted as security must be assigned in favour of the Bank by the

assured through the prescribed form (refer Part II of Chapter on Documentation).

b) When it is specifically stated in a policy that nomination has been made under
Section 39 of the Insurance Act, 1938, any subsequent assignment of the policy
has the effect of cancelling such nomination. In such cases, therefore, the
assignment in the Bank's favour should be made by the assured alone.

c) If the assured has already absolutely assigned the policy in favour of another
person, such assignee should reassign the policy in favour of the assured and
such reassignment be got registered with Life Insurance Corporation before an
advance is allowed.

d) The policy after incorporating the absolute assignment clause as per para 5.6
(a) duly signed by the policy holder and witnessed should be sent to Life
Insurance Corporation along with the notice of assignment in the prescribed form
(refer Part II of Chapter on Documentation).

24
 The acknowledgement receipt thereof should be kept with the documents.

e) On receipt of the policy back from the Life Insurance Corporation, it should be
verified that assignment has been duly registered by the Corporation and a
certificate to that effect is appended on the policy itself.

5.7 All life policies held as security should be recorded in the Life Policy Register
(Form No. PGB 307) and thereafter be placed together with the relative loan
documents in a fire-proof safe under the dual control of authorised officials.

5.8 On adjustment of loan account the policy should be reassigned in favour of

the assured by the authorised official of the Bank in the prescribed form (refer Part II
of Chapter on Documentation).

Reassignment should be made at the earliest so that the assured or his

nominee/heirs are able to secure the benefits thereunder.

6. GOVERNMENT SECURITIES

6.1 Subject to the exceptions referred to in paragraph 6.4, Government

promissory notes must be endorsed in favour of the Bank by the party to whom the
advance is granted and should be delivered by him to the Bank.

6.2 If the securities stand in the name of more than one person, they must,
unless all are party to the advance, be endorsed in the individual name of the
pledger before being endorsed by him to the Bank.

6.3 Margin as advised by HO from time to time should be maintained.

6.4 The occasion for endorsement by the borrowers does not arise when securities
held on his account have been issued in the name of the Bank (as in the case of a
new Government loan) or have been purchased by the Bank under his instructions.

6.5 All Government promissory notes tendered as security for advances must
invariably be sent to the appropriate Public Debt Office for examination in order to
ascertain that:

i) the endorsements are in order;

ii) the Notes are not stopped or confiscated, that none of them is a duplicate; and

iii) no alterations have been made in the principal amounts.

If necessary, they should at the same time, be enfaced for payment of interest at the
local treasury. The due dates for payment of interest should be appropriately diarised.

6.6 When the scrip bears several endorsements, they should generally require the
holder to have it renewed. This should be done before endorsement to the Bank as

25
subsequent renewal does not fully protect the Bank from the consequences of a
forged endorsement on the old note.

6.7 Stock certificates are not good security for advances unless they are transferred
into the Bank's name. The forms of transfer having been completed by the holders
and the Bank, the certificates should be forwarded to the appropriate Public Debt
Office for new securities to be issued in the name of the Bank. Alternatively,
intending borrowers should be asked to convert their inscribed stock into endorsable
Government paper.

6.8 Post Office certificates and some of the Unit Certificates of Unit Trust of India
also constitute approved securities and Branch Head are empowered to make
advances against such certificates to the extent of their loaning powers. Branch
Head should, however, ensure that before the advance is made, the pledged
certificates are transferred as security in the Bank's name in terms of the rules
governing such certificates.

8. DEMAND LOANS

8.1 Various precautions to be taken in respect of the different types of securities

against which overdrafts and cash credits are granted are equally applicable when
such advances are made by way of demand loans.

8.2 A demand loan account is an advance for a fixed amount which is repayable on
demand and in one shot i.e. bullet repayment and no debits to the account may be
made subsequent to the initial advance except for interest, insurance premia and
other sundry charges. As an amount credited to a loan account has the effect of
permanently reducing the original advance, any further drawings permitted in the
account will not be secured by the demand promissory note taken to cover the
original loan. A fresh loan account must, therefore, be opened for every new
advance granted and a new demand promissory note taken as security.

8.3 An existing demand loan must be liquidated when further loans are granted
against the same security. Thus, if the advance value of a borrower's security is
20,000/- and he wishes his existing loan of 8,000/- to be increased to 10,000/-, a
new demand loan account must be opened for 10,000/- out of which the amount of
the old loans plus any interest due and unpaid thereon, will be liquidated, the balance
being paid to the borrower.

8.4 A separate account for each demand loan should be kept in the CBS
system by filling up the particulars from the relative loan documents.

8.5 If the amount is simply secured against a demand promissory note as a

primary security, limitation of 3 years will start from the date of promissory note. If
the demand promissory note is simultaneously accompanied by other loaning
documents providing for a different repayment programme, the loaning documents
should be studied so as to ascertain that when the amount falls due for payment.
The period of limitation in the latter case will start from the date the amount falls due in
terms of the accompanying documents.
26
8.6 For the purpose of submitting Credit Information to Credit Information Companies
in respect of borrowal accounts pertaining to the above advances, the additional
information is also required to be obtained from the borrowers at the time of allowing
advances as well as in the existing accounts.

**************

27
 ANNEXURE - I

CERTIFICATE FROM BRANCH HEAD IN CASE OF BLIND ILLITERATE

BORROWERS

With reference to the loan/limit of _sanctioned by the bank to

_, it is hereby certified that the borrower has affixed his thumb
impression to the following relative loan documents, on date in our presence. The
contents of the documents were read and the implications thereof explained to him
and he has put his thumb impression after fully understanding the said contents and
implications:

a)
b)
c)
d)

Station _

Date MANAGER/OFFICER-IN-CHARGE

1.

Witness

Address_ _

2.

Witness

Address_ _

28
 ANNEXURE - II

CERTIFICATE FROM BRANCH HEAD IN CASE OF BLIND ILLITERATE

BORROWERS ONLY SIGNING IN REGIONAL LANGUAGE

With reference to the loan/limit of sanctioned by the bank to

it is hereby certified that the borrower has
signed in script, the following relative loan documents
on date, in our presence. The contents of the documents were read and the
implications thereof explained to him and he has put his signatures after duly
understanding the said contents and implications:

a)
b)
c)
d)

Station

Date _ MANAGER/OFFICER-IN-CHARGE

1.

Witness

Address_ _

2.

Witness

Address_ _

29
 ANNEXURE - III

LETTER OF UNDERTAKING FROM THE BORROWERS IN CASE OF ADVANCE

AGAINST THIRD PARTY TERM DEPOSITS

Place

Date

The Manager
PUNJAB GRAMIN BANK

Dear Sir

With reference to my/our Demand Loan on the basis of Demand Promissory Note
dated _against the security of the
* _ I/We agree to pay usual incidental/ service
charges at the rate fixed by the Bank from time to time, for every half year or part
thereof, and further undertake to notify the Bank as and when there be any change in
my/our address given below:

I/We agree to pay the amount of loan and interest due on Promissory note within two
days of the demand made in writing by you.

Yours faithfully

Signature(s)

Address_

*State description of the Security - Fixed Deposit Receipt with No. date and
amount thereof, balance of Savings Funds or Current Account, etc.

30
 CHAPTER 3
TERM LOANS

BOOK OF INSTRUCTIONS ON LOANS

31
1
 CHAPTER – 3

TERM LOANS
___________________

1.1 Term Loans are generally granted to finance capital expenditure, i.e. for
acquisition of land, building and plant and machinery, required for setting up a new
industrial undertaking or expansion/diversification of an existing one and also for
acquisition of movable fixed assets. Term Loans are also given for modernisation,
renovation, etc. to improve the product quality or increase the productivity and
profitability.

1.2 Term Loans are normally granted for periods varying from 3 to 7 years and
in exceptional cases beyond 7 years. The exact period for which a particular loan is
sanctioned depends on the circumstances of the case.

1.3 Term loan would be a loan which has a specified maturity which may be
payable in instalment or in bullet form. Further, Short Term Loans with maturity upto
one year be treated as demand loan and classified accordingly. As per the extant
guidelines Short Term Loans are allowed for maximum tenor upto one year.

1.4 The basic difference between short-term facilities and term loans is that
short-term facilities are granted to meet the gap in the working capital and are
intended to be liquidated by realisation of assets, whereas term loans are given for
acquisition of fixed assets and have to be liquidated from the surplus cash
generated out of earnings. They are not intended to be paid out of the sale of the fixed
assets given as security for the loan. This makes it necessary to adopt a different
approach in examining the application of the borrowers for term credits.

2. APPRAISAL OF TERM LOANS

2.1 Assessment of earning potentials and generation of cash surplus is the vital
ingredient in the appraisal of term loans. The unit should make enough surplus
earnings after meeting all the expenses, taxes and other necessary provisions and the
same should be adequate for servicing the loan and interest thereon within a
reasonable period of time. The appraisal of term loan broadly involves an analytical
assessment of the following:

i) Purpose, cost of project and how it is to be tied up,

ii) Future trends of production and sales,
iii) Estimates of costs, expenses, earning and profitability, and
iv) Cash flow statements during the period of the loan.

2.2 While appraising proposal for term loan, the following four fundamentals
should be carefully studied and analysed:

i) Technical feasibility of the project.

32
 ii) Economic viability of the project.
iii) Financial viability of the project.
iv) Managerial competence.

2.3 TECHNICAL FEASIBILITY

i) The technical feasibility analysis is an attempt to determine how well the

technical requirements of the project can be met. This comprises consideration of
availability of infrastructural facilities, raw materials, skilled and semi-skilled labour
and other utilities on the one hand, and the technology required for the
manufacturing process, on the other hand.

ii) Technical assessment should cover as to whether the product mix of specified
quantity and quality as projected can be manufactured and whether the projections
are realistic/achievable. The technical assessment should be made with an eye on
productivity on which depends the profitability of the unit. If considered necessary,
the services of Bank's technical officers may be utilised for the purpose. For
complex projects, assistance of outside consultants may be obtained.

2.4 ECONOMIC VIABILITY

i) Economic viability has a bearing on the earning capacity of the project and
earnings are dependent on sales. Therefore, the borrower's projection of sales
should be assessed keeping in view the following factors:

a) demand and supply position of the product and its substitutes (both local
produce and imports);

b) proposed selling price vis-a-vis prices of competing products (local as well as

imported); and

c) quality of the product as against quality of competing products (local as well

as imported).

ii) Assessment of gap between demand and supply and competitive factors at
future periods needs great care and Incumbent Incharge should make a close
reference to estimates prepared by the Government agencies and the industry.
However, for new products for which data are not available, an independent
reasonable assessment based on a study of various relevant variables, like size of
population, income levels, demand/availability of similar products etc. should be made.

2.5 FINANCIAL VIABILITY

i) The financial viability analysis seeks to determine:

a) Whether cost of project and means of finance as envisaged in the project report
are realistic;
b) Whether project is capable of profitable operations; &
c) Whether project is capable of generating adequate surpluses for servicing the
33
 debt and interest and can take care of future organisational
development/growth.

ii) The Incumbent Incharge should accordingly satisfy himself on the

following aspects:

a) Whether estimates of cost of production fully cover all items of expenditure:

There should be no omissions, over-statement and under statement. Various costs

should be critically examined to ensure that the same are need-based. If considered
necessary, the services of Bank's technical officers and outside consultants may be
utilised for proper assessment of the cost of the project.

b) Whether sources of finance are adequate:

It should be ascertained whether proper arrangements have been made for

necessary finance to be available during the period of construction, erection of
plant and machinery etc. as and when required. It should be noted that there may be
a tendency on the part of some borrowers to ask for a smaller amount of loan than is
actually required, while there are others who may ask for more than what is required.
Both approaches may either result in under financing or over financing which can
create problems for the Bank in the later stages.

c) Whether there is a reasonable basis for competitive profitable operations:

This necessitates estimation of sales, cost of production and other expenses. Here
again, there may be a tendency to under-estimate the cost and over-estimate the
sales with a view to increase the profit estimates, which should be viewed critically.
The knowledge of working of comparable units may be useful while examining the
estimates.

2.6 MANAGERIAL COMPETENCE

i) The performance of an industrial concern, under competition, measures the

quality of its management. Therefore, for existing concerns, the past performance in
terms of return on investment should help in relative assessment of its managerial
competence.

ii) It should be ascertained that the promoters have the desired background,
experience, and knowledge to successfully implement the project. Further, the key
persons working in the organisation should possess sufficient expertise in the
functional areas, such as production, purchases, sales, administration, finance etc.

2.7 The data relevant for study of above aspects should be collected from the
borrower. The main data required for appraisal would be available in application (the
prescribed application form is given at the end of this chapter). The data
comprises the following:

i) Cost of project and means of financing (whether the project is new or for
expansion)
34
 ii) Profitability projections covering revenue, cost of production/ expenditure etc.
iii) Cash-flow estimates (sources and uses of funds)
iv) Projected Balance Sheets (assets & liabilities)

2.8 While considering the cost of the project, the working capital requirements and
means of financing, it is necessary to know the stages/phases of the project and
ascertain the arrangements for raising funds from time to time. Further, if all the
money is not required at one time, a suitable time schedule for disbursement of the
loan amount should be drawn in consultation with the borrower.

2.9 While examining the cost of production & profitability, the break-even point of
the project should be worked out. This will indicate the minimum level of output
as percentage of full capacity at which losses cease & the project starts yielding
profits.

Break-even point can be calculated as under:

Break-even point = Total Fixed Cost (Sales volume in

units) (Sales price _ (Variable Cost
per unit) per unit)

Break-even point = Total Fixed Cost x Sales

Sales volume in rupees) (Sales) - (Variable Costs)

2.10 The cash flow statements giving sources and uses of funds over a period of
years should be studied to fix the repayment schedule according to the cash
accruals for the purpose, after providing sufficient margin of safety.

2.11 On the basis of the financial statements submitted by the borrowing concern,
the Incumbent Incharge should satisfy himself about the overall financial position of
the concern. In this context, he should study its capital structure, earning capacity
and profitability, in relation to the sales and the capital invested.

2.12 Some of the basic ratios which can guide Branch Heads and are useful from
the point of view of term lending are Debt-Equity ratio, Debt-Service Coverage ratio,
Tangible Net Worth-Outside Liabilities ratio, Profit-Sales ratio, Sales-Tangible
Assets ratio, Output-Investment ratio, Current ratio, which have been explained in
detail in the chapter on `Project Appraisal'

2.13 Debt equity norms and guidelines with regard to the timing of induction of
promoters’ contribution advised by the Head Office from time to time in case of
large/mid/small projects be followed.

2.14 Risk rating in the account be got done as per guidelines advised in the
chapter on Credit Risk Management and other related guidelines issued from time
to time.

35
3. PRE – SANCTION INSPECTION

3.1 Once the Incumbent is satisfied with the information furnished by the borrower
and finds that the proposal for the term loan is worth consideration, he should inspect
the factory/place of business to check the authenticity of the information supplied and
supplement it, wherever necessary. The inspection can bring into light certain factors
which are not normally revealed by mere study of financial statements. Even in
case of new unit, inspection of factory site is necessary.

3.2 The assets of the concern which are proposed to be charged should be
verified physically and the title of the borrowers on the same should also be
examined.

3.3 The books of the accounts and other relevant papers should be verified to see if
all liabilities, claims, contingencies, disputes have been admitted by the concern

3.4 Such an inspection can focus on the unfavourable aspects or weaknesses of the
unit and can help to a large extent in making an assessment of the proposal.

4. SECURITY

4.1 Term loans should be secured by mortgage of block assets comprising land,
building, plant and machinery, both present and future, unless otherwise stipulated
in the sanction. Whenever the sanction so provides, pari passu charge with other
financial institutions or second/subsequent charge may be accepted.

4.2 In case the machinery is not embedded to the ground, the machinery
should be hypothecated to the Bank. However, hypothecation of machinery installed in
a rented building, or on the land and building which is already mortgaged to some one
else, is possible only when no objection certificate from the owner of such rented
building or the mortgagee of land and building is obtained.

4.3 The advance against plant and machinery installed in rented premises
should be viewed against the background of the law prevailing at the station of the
property as the local Acts in some places do not permit the transfer of leasehold
rights.

4.4 Similarly, in case of leased premises, it should be ensured that the unexpired
lease is sufficiently longer than the period of the loan. As the title of the land would
affect the title to the super-structure on the land, it should be ensured that the
former title is clear and marketable.

4.5 The valuation of security i.e. Immovable Property be got done as advised in the
chapter of Mortgage. Further, valuation of Plant & Machinery be got done as per
prescribed guidelines of the bank which interalia provide as under:

a) In cases where new plant and machinery is to be financed, the cost price
indicated in the quotation/ supplier’s bill shall be reckoned as its value, which
36
 should be verified by making enquiries through other vendors supplying such
machinery.

b) In fresh borrowal accounts where credit facility is to be considered against the

principal/collateral security of existing plant & machinery to be charged to the
bank by way of hypothecation, mortgage, etc., valuation of such plant &
machinery be got done by branches from the valuer on the Bank’s approved
panel .

c) However, where the value of Plant & Machinery to be charged is 50 crore

& above, branches shall get valuation of such P&M done from minimum two
valuers on the Bank’s approved panel.

d) Valuation report should be submitted by valuers on the proforma prescribed.

While giving its report, the valuer has to indicate only the realisable value of the
plant & machinery.

5. INSURANCE

5.1 All the securities mortgaged or hypothecated to the Bank should be kept fully
insured against fire and other risks which may be considered necessary. The
insurance policies should be in the joint names of the borrower and the Bank with the
agreed Bank clause and remain in the custody of the Bank.

5.2 Under CBS system, the report relating to insurance of securities PNBRPT 3/2
can be generated and monitored on day to day basis. It should be ensured that the
policies are renewed at an appropriate time.

5.2.1 All insurance policies in respect of assets charged to the bank shall be
renewed on a common date i.e. 15th May, 15th August, 15th November and 15th
February. In case common date falls on Sunday/Holiday, insurance policies shall be
renewed on the preceding working day.

5.2.2 All insurance policies maturing/fresh policies taken for the advances granted on
various dates shall initially be taken for full one year and on ensuing common date
say 15th February/15th May/15th August/15th November, the concerned insurance
company shall be requested to replace the policy by another policy for 12 months
effective from the above common date. The pro-rata advance premium held with the
insurer for the unexpired term would be adjusted/refunded by the insurer at the time
of replacement of the existing policy.

5.2.3 The Consortium Accounts shall be exempted from the above system of
changeover as in these cases, bank will have to fall in line with the practices
followed by the Consortium.

6. MARGIN

Margins are kept to cover various risks e.g. fluctuations and to ensure borrower’s
stake in the project financed. The margin should be fixed in accordance with the
37
guidelines issued by the Head Office from time to time.
7. PERIOD OF LOAN

7.1 Term Loans are normally granted for periods varying from 3 to 7 years and
in exceptional cases beyond 7 years, depending upon type and nature of project.
Term Loans for Infrastructure Projects can be allowed even with longer repayment
period.

7.2 The period of the loan should be fixed keeping in view the cash generation
capacity of the borrower. The repayments should be made in monthly, quarterly, half
yearly or yearly instalments. The instalments need not necessary be equal. The
amount of instalment should preferably increase depending upon the cash
generation in later years.

7.3 While stipulating the repayment schedule, the sanctioning authority should
clearly specify the date of first instalment in the repayment schedule to avoid any
ambiguity.

7.4 The existing cases where the specific date for first instalment towards repayment
of term loan is not prefixed at the time of framing of terms & conditions of the
sanction, the first instalment (monthly/quarterly) will fall due as on the last day of the
corresponding month/quarter as the case may be, after the completion of the
prescribed moratorium period.

8. RATE OF INTEREST

The interest on term loans should be charged in accordance with instructions issued
by the Head Office from time to time.

9. DOCUMENTATION

9.1 The title deeds of the properties and other documents relating thereto
should be obtained from the borrower and be forwarded to the Bank's Lawyer for
making necessary search and investigation of title and preparation of mortgage
deed. The mortgage deed should state the maximum amount to be secured.

9.2 The rate of interest to be charged on the loan amount and the repayment
programme (No. of instalments and amount of each instalment) should also be
clearly spelt out in the mortgage deed.

9.3 Apart from incorporating other terms and conditions of the loan in the
mortgage deed, the mortgage deed should contain a clause empowering the
Bank to recall the loan upon the happening of any of the following or any other
event likely to jeoparadise the interests of the Bank:

i) Any instalment of the principal amount being unpaid on the due dates for
payment thereof.

ii) Any interest remaining unpaid and in arrears for a period of 3 months after
38
 the same shall have become due, whether demanded or not.

iii) The borrower committing any breach or default in the performance or observance
of the covenants of the mortgage deed executed by him or any other term or
condition relating to the loan.

iv) The borrower entering into any arrangement or composition with his creditors or
committing any act of insolvency.

v) Distress sale being entered or levied against the whole or any part of the
borrower's property.

vi) The borrower's (if Company) going into liquidation (except for the purpose of
amalgamation or reconstruction).

vii) Any of the partners of the borrower (if a firm) being adjudicated insolvent.

viii) A Receiver being appointed in respect of the whole or any part of the
property of the borrower.

ix) The borrower ceasing or threatening to cease to carry on the business.

x) The occurrence of any circumstance, which is prejudicial to or impairs,

imperils or depreciates, or is likely to prejudice, imperil, or depreciate the
security given to the Bank.

xi) The occurrence of any event or circumstance which would or is likely to

prejudicially or adversely affect in any manner the capacity of the borrower to
repay the loan, and

xii) On the question whether any of the above events has happened, the
decision of the bank to be conclusive and binding on the borrower.

9.4 The guarantee deed and other agreements and undertakings, if necessary,
should also be drafted by the Bank's Lawyer (only in those cases where
prescribed formats are not available), keeping in view the circumstances of each
case.

9.5 When the assets of the borrower are to be hypothecated to the Bank for
securing the term loan, the prescribed form PGB 576 should be obtained. However, if
the circumstances (terms and conditions etc.) so warrant, the above form should be
suitably amended in consultation with the Bank's Lawyer.

9.6 The borrower should be asked to give an undertaking to the effect that during
the currency of the loan, no further charge, in any manner whatsoever, on the security
given to the Bank will be created without the written consent of the Bank.

9.7 All legal expenses, such as Lawyer’s charges, stamp duty, registration
charges and other incidental expenses incurred in connection with the loan should be

39
borne by the borrower.

10. PROCEDURE FOR DISBURSEMENT

10.1 On receipt of sanction of a term loan from the competent authority it must be
ensured that the terms and conditions as embodied therein are complied with.

10.2 Before actually disbursing the loan, the Incumbent must satisfy that the
borrowing concern has contributed sufficient capital to provide the required margin for
the loan.

10.3 The disbursement should be made in instalments depending upon the

borrower's actual requirements in connection with acquisition of fixed assets or
otherwise for which the loan has been sanctioned. This can help in avoiding a
possible diversion of funds. At each stage of disbursement, it should be ensured that
margin stipulated is maintained/provided. The payments should preferably be made
directly to machinery suppliers, contractors, etc.

10.4 In case of limited liability companies, charge under Section 77 of the Companies
Act 2013 should be registered with the Registrar of Companies within 30 days from the
date of creation of charge by filing the prescribed `forms' within the period as may be
prescribed from time to time. This protects the Bank's interests against liquidators
and other creditors of the Company in liquidation and provides constructive notice to
subsequent encumbrances.

11. FOLLOW UP

11.1 A well-designed follow up of a term loan is as important as pre-sanction

financial appraisal. As the Bank is concerned with the success of the project, it is
necessary to keep a close watch on the progress of the project during the currency of
the loan. The Incumbent should keep the following objectives in view, for a
systematic follow-up and supervision of term loans:

i) Whether the end-use of funds is in accordance with the sanction;

ii) Whether the construction of building, installation of plant and machinery, and
commencement of commercial production have proceeded as per the schedule;

iii) Whether the sales, profits and generation of funds are in line with the
projections furnished to the Bank earlier by the borrowers while seeking the
term loan; and

iv) Whether the repayment schedule is being adhered to etc.

11.2 To ensure that a term loan is properly followed up, the following procedure
should be adopted:

i) Borrower should be asked to submit a quarterly statement on utilisation of term

loan(s). The quarters should coincide with the party's financial year. The
40
 statement should be submitted by the borrower within a fortnight from the close
of the quarter to which it relates. A copy of the statement should be forwarded by
the Incumbent to the Regional office and if the loan is sanctioned by Head
Office, a copy thereof should also be forwarded to Head Office.

ii) The Incumbent should carry out inspection of the borrower's factory every
quarter and submit his report to the Regional office and if the loan is sanctioned
by Head Office, a copy thereof should also be forwarded to Head Office.

14. LOANS TO TRADERS

14.1 As per HO guidelines, Term Loans for acquiring of assets for furnishing of
shop & show room like partition, fixture and furnishing etc, purchase of air
conditioners, other gadgets and delivery van required for running the business
should be restricted to a maximum of 100 lac for metro/urban centre and 25 lac for
Semi Urban and rural centre. However, advance be restricted to 20% of the
entitlement (as mentioned above), in case the shop/showroom is rented/leased.

The term loan for acquiring fixed assets alongwith interest will be repayable in equal
monthly/quarterly installments within a period of 5 to 7 years including moratorium of
6-12 months.

14.2 While considering sanction of loans to traders, the guidelines/instructions issued

by Head Office from time to time must be strictly followed.

15. TERM LOANS TO MICRO, SMALL & MEDIUM ENTERPRISES (MSMEs)

15.1 The comprehensive criteria applied to term loan application from medium and
large scale industries as detailed above cannot be rigidly adhered to in respect of
micro, small and medium enterprises because of certain features inherent in their
structure. Though methodology for appraisal remains the same, certain relaxations in
the norms as advised by Credit Division, HO may have to be permitted.

15.2 While allowing Term Loans to MSME Borrowers, the special forms devised for
each sub-category calling for the essential information should be used.

15.3 Various credit schemes for micro, small and medium enterprises are circularised
by Credit Division from time to time. The Branch Heads should keep themselves
abreast of all the operative schemes and appraise the term loan proposals accordingly.

16. TAKEOVER OF LOAN ACCOUNTS FROM FIs/BANKS

Existing Term Loan accounts of other Banks/Financial Institutions may be taken over
after following the guidelines and procedures laid down in this regard and circularised
to the branches from time to time.

******************

41
 ANNEXURE – I
BALANCE SHEET

COMPARATIVE STATEMENT OF FINANCIAL POSITION FOR THE YEARS

ENDED/ENDING_

( in lakhs)
LIABILITIES AS AT AS AT AS AT AS AT

(ACTUAL) (ACTUAL) (PROJECTED) (PROJECTED)

I. CAPITAL & RESERVES
- Paid up Capital
- General Reserves
- Development Rebate
Reserve
- Other Reserves
- Balance in Profit & Loss A/c
(Profit)
TOTAL (I)
II.LONG & MEDIUM TERM
DEBT
- Debentures
- Term Loans
TOTAL (II)
III. CURRENT LIABILITIES
- Loans & Advances from
Banks:
(a) Secured
(b) Unsecured
(i) Deposits
(ii) Others
- Loans & Advances from
Others
(a) Secured
(b) Unsecured
- Current Liabilities
- Sundry Creditors
- Liability for expenses on
account of salaries, wages,
bonus, rent, interest etc.
- Other Liabilities
- Provisions
Taxation
Other Provisions
TOTAL (III)
TOTAL LIABILITIES (I+II+III)

42
ASSETS AS AT AS AT AS AT AS AT

(ACTUAL) (ACTUAL) (PROJECTED) (PROJECTED)

I.FIXED ASSETS

- Fixed Assets (Less

Depreciation)
- Capital Expenditure (Building
under construction, plant and
machinery under installation &
connected expenses)

TOTAL (I)

II.INVESTMENTS & CURENT

ASSETS

- Investment Quoted Unquoted

- Cash & Bank Balances

- Stocks, Stores, Spare parts

etc.
- Sundry Debtors
- Loans & Advances
- Others
TOTAL (II)

III. OTHER ASSETS & MISC.

EXPENDITURE TO THE
EXTENT NOT WRITTEN OFF.

- Balance in Profit & Loss A/C

(Loss)
- Others* (Specify)

TOTAL (III)

TOTAL ASSETS (I+II+III)

Contingent liabilities

* Capitalised expenses such as preliminary expenses, goodwill etc.

43
 ANNEXURE – II
PROFIT & LOSS ACCOUNT FOR THE
YEAR ENDED/ENDING_

( In lakhs)
PARTICULARS AS AT AS AT AS AT AS AT

(ACTUAL) (ACTUAL) (PROJECTED) (PROJECTED)

1. GROSS SALES
i) Domestic Sales
ii) Export Sales
TOTAL (1)
2. Less Excise Duty
3. Net Sales (1-2)
4. Cost of Sales
i) Raw materials (including
stores and other items
used in the process of
manufacture
(a) Imported
(b) Indigenous
ii) Other spares
(a) Imported
(b) Indigenous
iii) Power and fuel
iv) Direct labour (Factory
wages and salaries)
v) Other mfg. Expenses
vi) Depreciation
vii) Sub Total (i to vi)
viii) Add: Opening stocks-in-
process
ix) Sub Total (vii + viii)
x) Deduct: Closing stocks-
in-process
xi) COST OF
PRODUCTION
xii) Add: Opening stock of
finished goods
xiii) Sub Total (xi + xii)

xiv) Deduct Closing stock of

finished goods
SUB TOTAL (TOTAL
COST OF SALES)

44
 PARTICULARS AS AT AS AT AS AT AS AT

(ACTUAL) (ACTUAL) (PROJECTED) (PROJECTED)

5. Selling, general and
administrative expenses

6. SUB TOTAL (4+5)

7. Operating profit before

interest (3-6)
8. Interest
9. Operating profit after
interest (7-8)
10. Add other non- operating
(i) income
(a)
(b)
Sub Total (Income)

(ii) Deduct other non-

operating expenses
(a)
(b)
Sub Total (Expenses)

(iii) Net of other non-

operating income/
expenses
{net of 10(i) & 10(ii)}
11. Profit before tax/loss
{9 + 10(iii)}
12. Provision for taxes
13. Net Profit/loss (11 - 12)

14. Equity Dividend paid

15. Retained Profit (13 - 14)

45
 ANNEXURE – III

COST OF PROJECT SOURCES OF FUNDS FOR

FINANCING

1. Land including site, 1. Share Capital:

development expenses Preference Equity
etc.
2. Buildings (separately for 2. Debentures
factory and housing
colony)
3. Plant & Machinery: 3. Secured Medium & Long
Term Loans
Indigenous items
Imported Items
Import duty
Insurance and freight
Clearing and
transportation
4. Technical know-how 4. Unsecured Loans &
Deposits
5. Miscellaneous fixed 5. Deferred Payments
assets (Railway-siding, (including interest)
vehicles, furniture and
fixtures etc.)
6. Preliminary Expenses 6. Interest reserves
7. Pre-operative expenses 7. Bank Borrowings
(during construction
period upto the point of
normal production)
8. Contingencies* 8. Other sources (Please
specify)
9. Working Capital
TOTAL

* Please indicate basis of estimation. While estimating working capital, the

requirements of raw materials, stores and spares (imported and indigenous),
work-in-progress, finished goods, sundry debtors, less trade credit available
against purchase of raw materials etc. should be considered.

Particulars of unsecured loans and deposits, viz, (i) Period/s of deposit/loans,

(ii) Rate/s of interest, (iii) Nature and value of security, if any, and (iv) Other
terms, if any, should be furnished separately.

Note: Full details of foreign currency and source of financing should be given.

46
 ANNEXURE – IV

CASH FLOW STATEMENT DURING THE CURRENCY OF THE LOAN

( In lakhs)
CONSTR- OPERATING YEARS
UCTION
PERIOD
OPENING BALANCE OF CASH
ADD
1. Net Profit (before taxes with
interest added back but after
depreciation and development
rebate reserve)
2. Share Capital
3. Long-term borrowings/debentues
4. Deferred payments
5. Bank borrowings
6. Depreciation provisions for the
year.
7. Development Rebate
8. Others (specify)
LESS
1. Fixed Assets and Capital
expenditure
2. Increase in current assets
3. Repayment of current
assets/borrowings (please give
details separately for each loan)
4. Repayment of deferred payments.
5. Repayment of bank borrowings
6. Interest
7. Taxation
8. Dividend
CLOSING BALANCE OF CASH

Note: A note setting out the detailed data and calculations in respect of
depreciation, development rebate, interest and taxation should be attached.

47
 CHAPTER 4
CASH CREDIT ADVANCES

BOOK OF INSTRUCTIONS ON LOANS

48
1
 CHAPTER – 4

CASH CREDIT ADVANCES

_________________

Cash Credit is a facility granted against hypothecation and pledge of goods or

produce, book debts, bills, trust receipt etc. In cash credit accounts a borrower is
allowed to draw on account within the prescribed limit/drawing power, as and
when required. Also, when the advance is secured by the pledge or hypothecation of
goods, the security may be deposited/withdrawn by the borrower from time to time
to suit his business requirements.

2. Before any proposal for a cash credit facility is considered, the Branch Heads
must collect the necessary data as per the proforma prescribed by the bank. It is
to be noted that this requirement is to be complied with even if the limit is within the
discretionary powers of the Incumbent Incharge. Risk rating of the borrower is to be
ensured as prescribed in the Chapter of Risk Management.

3. ASSESSMENT OF WORKING CAPITAL

3.1 SIMPLIFIED TURNOVER METHOD

3.1.1 Under this method, bank credit for working capital purposes for borrowers
requiring fund-based limits upto 5 crore for Micro, Small & Medium Enterprises
borrowers and 2 crore in case of other borrowers, may be assessed at minimum of
25% of the projected annual turnover of which 1/5th should be provided by the
borrower (i.e. minimum margin of 5% of the annual turnover to be provided by the
borrower) and the balance 4/5th (i.e. 20% of the annual turnover) can be
extended by way of working capital finance.

3.1.2 Since in terms of Nayak Committee norms the banks are required to have
minimum 20% of turn over of the business enterprises as the bank finance and 5%
is to be obtained as margin, the current ratio comes to 1.25:1.Therefore while
considering working capital limits to Micro & Small Enterprises where working
capital requirement is computed based on simplified turnover method (Nayak
Committee’s norms), the maintenance of current ratio at the minimum level of
1.33:1 may not be insisted upon.

3.1.3 The projected turnover/output value may be interpreted as projected `Gross Sales'
which will include excise duty also.

3.1.4 Since the bank finance is only intended to support need-based requirement of a
borrower, if the available NWC (net long term surplus funds) is more than 5% of the
turnover the former should be reckoned for assessing the extent of bank finance.

3.2 MAXIMUM PERMISSIBLE BANK FINANCE (MPBF) SYSTEM

3.2.1 Assessment of working capital (WC) limits in respect of borrowers not

eligible to be provided fund based working capital limits under ‘Simplified Turnover
49
Method' (as explained at para 4.1), is to be done as per MPBF system (Second
Method of Lending), except in case of tea, sugar, construction companies, film
industry and service sector where credit requirement is assessed as per cash budget
system.

3.2.2 Under this method, for assessment of borrower's WC needs, the projections
submitted by the borrower in the various Forms mentioned at para
3.2 for the following year are relevant. The first step in assessing the quantum of WC
finance is to find out whether the projections given by the borrower are
reasonable. Any optimism or pessimism in accepting projections is neither desirable
for the bank nor for the borrower as it may lead to over-financing or under-
financing.

3.2.3 To assess the reasonableness of borrower's projections, the following factors

should be kept in view:

i) The branches can use with advantage the past data given by the borrower as
well as the data available with it. The comparison has to be made between
the past performance and the future projections. If the future projections are
markedly different from the past trend in relation to projected rate of growth, the
reasons for the same have to be ascertained before accepting the various
projections.

ii) The projections given by the borrower are normally based on certain assumptions
such as market demand, cost of raw materials, price, availability of inputs and
other environmental factors. The bank has to assess how far these
assumptions are realistic and likely to materialise.

iii) How limits, already sanctioned by the bank, have been utilised by the
borrower in the past? Has the conduct of the account been as per terms of
sanction or these have been frequently violated.

iv) While accepting the borrower's projections, it has to be ensured that the
projections do not go beyond the `Choking Factor' (i.e. the level beyond which
the operations start giving negative results), as this will inhibit the further
expansion.

v) Critical analysis of sales projections - The most important area to be looked into
is Sales. All other aspects are directly related to the projected level of sales.
Therefore, determining the projected level of sales is the first step in assessing
the working capital needs of a borrower. Once the level of sales has been
determined, the other data can be easily determined in relation to Sales. The
projected level of sales depends upon:

a) What is the installed and licensed capacity? Does it have any idle capacity
which can now be utilised?
b) Is the unit undertaking any expansion, modernisation or diversification
programme?
50
 c) Are essential inputs available to take care of projected production figures?
d) How the increase in production is going to affect the quality and cost of
production?
e) What are the present market conditions and terms of sales? What plans are
there to boost sales?
f) Is the unit proposing to tap the export potentials/markets? What are the
prospects for exports?
g) What is the position of order book/orders in hand?
h) From what sources increase in NWC will be met?
A higher than normal sales estimate for the following year can be accepted only
after the bank is satisfied on the basis of the above scrutiny that the projected level of
sales can be achieved and the available past data and future plans give positive
indications in this regard. The bank has also to ensure that the borrower is willing
to create the necessary support to achieve the sales target

vi) The branch, having satisfied itself to the projected level of sales, can determine
the other data in relation to sales. The following steps can be taken for
finalising other data:

a) The relationship between different items constituting cost of production can be

studied in relation to sales and cost of sales. It is to be ensured that the
projected increase in respect of any items is not out of proportion to the past
relationship. Valuation of various items should be based on current costs.

b) After finalising the above mentioned projections, the holding period of current
assets is to be determined. The holding period of chargeable current assets
can be determined based on the rule that the projected holding should be
preferably lower of norms or past practice.

c) The levels of other current assets can also be estimated on the basis of
the borrower's past trend

d) The bank is to bridge the gap between current assets and current liabilities
after ensuring the borrower's contribution. Therefore, the quantum of bank
finance is very much dependent upon availability of short term credit from
other sources i.e. other current liabilities. The bank should ensure that the
level of other current liabilities is projected properly.

e) The projected level of NWC should at least be 25% of total current assets
under second method of lending.

vii) Once the borrower's overall projections for the following year have been
accepted by the Bank, the actual requirement of working capital and bank
finance can be worked out on the basis of steps given in HO circulars
relating to computation of MPBF, mainly as follows:

51
 a) The actual requirement of working capital can be arrived at on the basis of
position of current assets and other current liabilities.

b) The bank is to partly meet the difference between current assets and other
current liabilities.

c) If the available NWC is more than the minimum stipulated working capital
under the second method of lending, the available NWC is to be taken into
account for arriving at the permissible level of bank finance i.e. Permissible
Bank Finance will be reduced accordingly.

3.3 CASH BUDGET SYSTEM

In case of tea, sugar, construction companies, film industries and service sector
requirement of finance may be at the peak during certain months while the sale
proceeds may be realised throughout the year to repay the outstanding in the
account. Therefore, credit limits are fixed on the basis of projected monthly cash
budgets to be received before beginning of the season. Branches should follow the
procedure/guidelines issued from time to time through various Circulars for financing
tea, sugar, construction companies, film industries and service sector.

4. FIXATION OF FUND-BASED AND NON-FUND BASED LIMITS

4.1 After arriving at the MPBF on the basis of Inventory and Receivable Norms and
appropriate method of Lending, the various Fund-based & Non-Fund Based Limits
and Sub-limits have to be decided. The fund-based limits should not exceed the
MPBF.

4.2 The bulk of the Inventory Limits are set up generally in the shape of Cash
Credit, the Receivable limits may be either by way of C/C against Book Debts or by
way of bills limit. Within the sanctioned limit, drawing power may be allowed on the
basis of monthly/quarterly stock statements, depending upon the regularity, reliability
and after ensuring there is no double financing.

4.3 In addition to the fund-based limits, non-fund based limits like Inland &
Foreign L/C, Guarantees and Acceptances are given keeping in view the needs as
well as the capacity of the borrower.

4.4 Assessment of Non Fund based facilities shall be subjected to the same
degree of appraisal, scrutiny as in the case of fund based limits. Need based
requirement of applicant should be assessed after reckoning the lead time, credit
period available, source of supply, proximity of supplier, etc. in case of LCs and
industry practices and business requirements in case of Guarantees. The working of
NFB assessment is to be incorporated in the appraisal note. While assessing non-
fund facilities, cash flow aspects should also be taken into account.

5. LOAN SYSTEM FOR DELIVERY OF BANK CREDIT

5.1 In order to bring out an element of discipline in the utilisation of bank credit and
gain better control over credit flow, a "loan system for delivery of bank credit" was
52
introduced by RBI for borrowers enjoying working capital credit limits of 10 crore and
above from the banking system and the minimum level of loan component for such
borrowers was fixed at 80 per cent. These guidelines have been revised by RBI, in
the light of current environment of short-term investment opportunities available to
both the corporates and the banks.

5.2 Loan Component and Cash Credit Component

Under this system, after the assessment of MPBF of a borrower, working capital
requirements are bifurcated into `Loan Component', {termed as Working Capital
Demand Loan (WCDL)} and `Cash Credit (CC) Component'. However, availment of
working Capital finance in the loan form (WCDL) would be voluntary meaning thereby
that loan component can be even 0% and consequently the cash-credit component
can go upto 100% and the Borrowers shall have freedom to decide the proportion of
both the components i.e Cash Credit and Loan Component of working capital limits,
period of such loans and renewal/roll over of loan component. Roll over may be
permitted by the Branch Manager at the request of the borrower for a period upto one
year from the date of sanction/renewal of the limits. The extant guidelines for annual
review of working capital limits are invariably to be strictly observed even under the
system of Loan Delivery. Branch Heads should follow the instructions advised
through HO circulars from time to time.

5.3 The Loan System would be applicable to borrowal accounts classified as

`Standard' or `Sub-Standard'.

5.4 Adhoc credit limit for meeting temporary requirements should be sanctioned
only after the borrower has fully utilized/exhausted the existing limit.

5.5 In the case of consortium, member banks are normally expected to share the
"cash credit component" and the "loan component" on a pro rata basis of their
individual shares of MPBF.

5.6 The bifurcation of the credit limit into 'Loan' and 'Cash Credit' should be
effected after excluding export credit limits (pre-shipment and post-shipment).

5.7 `Bills Limit' for inland sales is to be fully carved out of the 'loan component'.
Bills limit also includes limit for purchase of third party (outstation) cheques, bank
drafts.

5.8 Suitable clauses are to be incorporated in the "Loan Document" to provide for a
right to recall working capital credit facility including the "loan component".

6. DOCUMENTATION

6.1 Branch Heads are advised to refer Part II of Chapter on Documentation for
detailed guidelines on execution of documents. The documents taken from the
borrowers and the guarantors must be entered in the Balance Confirmation and
Documents Register (PGB 355), wherein a separate page should be allotted to each
account.

53
6.2 All the loan documents should be signed in the presence of Bank Officials. The
officials in whose presence the documents are executed should put their
signatures in the Balance Confirmation and Documents Register in the Column
provided for the purpose.

7. VALUATION OF STOCKS

7.1 The valuation of stocks accepted as security should be in accordance with the
guidelines given below:

i) Raw materials should be valued at cost price or market price, whichever is

lower.
ii) Stocks-in-process should be valued as in the case of raw materials or as
provided in the sanction, and

iii) Finished goods should be valued at cost of production or sale price less
trade discount or market price, whichever is lower.

7.2 In case of advances to traders, dealers and stockists of goods, the goods
should be valued at cost price or market price, whichever is lower.

7.3 Officials at the Regional Managers & above, while considering proposals
under their powers may take a view on case to case basis regarding valuation of
inventories in line with the Accounting Standard (AS2) issued by the Institute of
Chartered Accountants of India (ICAI) which, inter-alia provide as under:

Inventories should be valued at the lower of Cost Price/Market Rate/ Net Realizable
Rate.

The branches shall also ensure that the AS2 norms are being complied with by the
borrowers regularly at the time of submission of stock statement.

7.4 Market rates for the various commodities under pledge and/or hypothecation
to the Bank should be collected by the Godown Keeper and recorded in the daily rate
register (PGB 210). The advance rate, i.e., rate adopted for the purpose of calculating
the drawing power should also be recorded by the Incumbent in the daily rate
register.

7.5 When merchandise is accepted as security, the original invoice should be

inspected.

7.6 Incumbent should remain in touch with the price trends of such merchandise and
if any fall in rates occurs, the valuation of the security and the drawing powers in the
relative accounts must immediately be adjusted accordingly.

7.7 The current market values of the stocks held by the branch in each cash credit
account and the resultant drawing power in the account should be entered in the
drawing power register (PGB 1061) and should be revised with any material
change in the market value of the stocks.
54
8. MARGIN

The prescribed margin in cash credit account must be maintained, inter alia, to
provide for:
a) Any possible shortage in storage which might not be disclosed by
inspection.
b) Shrinkage, weevilling, etc.
c) Fall in prices, and
d) Borrowers' stake in the project.

9. RATE OF INTEREST

The rate of interest should be charged as advised by Head Office from time to time.

10. INSURANCE

10.1 The insurance of the stocks should be arranged by the borrowers themselves
with an insurance Co. In cases where the parties concerned neglect or refuse to
effect the insurance, the Bank has to exercise the right to insure the stocks. Ordinarily
therefore, the parties should themselves arrange for insurance with the usual bank
clause and advances against particular stocks should only be allowed after the
insurance has been effected and the necessary cover note or the insurance policy
has been deposited with the Bank. Uninsured stocks should not be allowed to mix
up with the insured stocks, because in that case, if any claim arises, the pro rata
clause will become applicable.

10.2 The insurance policies should be in the joint names of the borrower and the
bank with agreed bank clause and should remain in the custody of the Bank.

10.3 Particulars of all insurance policies should be entered in the Insurance Register
(PGB 348) and their due dates should be diarized to ensure that the policies are
renewed at an appropriate time and in this regard, following guidelines should be
observed:

a) All the insurance policies in respect of assets charged to the Bank shall be
renewed on a common date i.e. 15 February, 15 May, 15 August and 15
November. In case common date falls on Sunday/Holiday, insurance policies shall
be renewed on the preceding working day.

b) To facilitate the changeover, all insurance policies maturing/fresh policies taken

for the advances granted on various dates shall initially be taken for full one year
and on ensuing common date say 15th February/15th May/15th August/15th
November, the concerned insurance company shall be requested to replace the
policy by another policy for 12 months effective from the above common date. The
pro- rata advance premium held with the insurer for the unexpired term would be
adjusted/refunded by the insurer at the time of replacement of the existing policy.

55
c) The Consortium Accounts shall be exempted from the above system of
changeover as in these cases, bank will have to fall in line with the practices
followed by the Consortium

10.4 The terms of every insurance policy must be carefully examined and the
Incumbent Incharge must ensure that the stocks are sufficient to secure the Bank's
interests. He must also see that the description of the stocks and their place of
storage etc. are correct, and that the terms of the policy are complied with.

10.5 It should not be overlooked that when a claim has been paid under a fire
insurance policy, the sum insured is thereafter reduced by the amount of such
claim. If it is necessary to reinstate the policy to its original amount, extra premium on
the difference for the remaining currency of the policy must be paid, and an
endorsement on the policy obtained from the insurance company.

11. ADVANCE AGAINST WAREHOUSE RECEIPTS

11.1 To provide specific storage facilities, warehouses have been set up by the
Central and the State Warehousing Corporations at important business centres.
Advances against the pledge of warehouse receipts issued by these Corporations
may be permitted to traders/farmers who are either original depositor or the first
transferee of such receipts covering goods other than those under selective credit
control. Similarly, our bank has entered into tie up arrangements with different
Collateral Management Companies for financing against pledge of warehouse
receipts issued by the said companies. List of the Collateral Management
companies, with whom we have entered into a Tie Up arrangement, is issued by
Head Office from time to time. Advances against the pledge of warehouse receipts
issued by these companies may be permitted to farmers, traders, Processors,
Arthiyas, Exporters/ Importers who are original depositors covering commodities.
Scheduled margins in respect of each commodity are maintained.

11.2 The credit facility can be extended by way of Cash Credit/Demand Loan.

11.3 The branches should maintain complete party wise record of the warehouse
receipts against which advances have been made in the warehouse receipts register
(PGB 459). This register will also serve as a drawing power register for such
accounts.

11.4 As regards Demand Loan facility, individual account for each Warehouse receipt
be opened in Demand Loan segment, giving full details of account like name of
borrower, nature and value of security, address of warehouse where goods have
been stored, insurance particulars, date of inspection etc. Separate party wise
register should also be maintained which will depict the total outstanding against
any party at any given time.

11.5 Branches shall ensure genuineness of receipts issued by Central and State
Warehousing Corporations/Collateral Managers. Further, stocks covered under
Warehouse Receipts shall be inspected and physically checked/verified by the
branches before sanction/release of credit facility and thereafter, inspection of
stocks may continue to be conducted once in a month or more often, if so,
56
required in a particular case or subject to stipulations, if any, as per terms of
sanction.
11.6 No DP shall be allowed on goods kept in Central/State warehousing
corporations exceeding six months. In case of warehouse receipts issued by
Collateral Managers, demand Loan shall be sanctioned for a period not exceeding
12 months from the date of sanction. Cash credit running account facility shall be
valid for one year which can be reviewed / renewed annually. However, the period
of advance against individual Warehouse receipt shall not exceed 12 months.

11.7 Accounts in respect of advances against warehouse receipts should be

separately maintained. In no case such account should be mixed up with accounts
against other securities

11.8 Branch Heads should ensure that the warehouseman’s signature and the
endorsements on the receipt are genuine and in order in all respect. In cases,
where advances are made against warehouse receipts, which are pledged by the first
endorsees thereof, the pledgers should be required to produce a copy of the notice
(addressed to the warehouse man concerned) of the transfer of the warehouse
receipts to them, duly signed by the original depositors of goods covered by the
pledge of warehouse receipt. A copy of such notice should also bear the signature
of warehouseman concerned in token of his having received the original copy of the
notice.

11.9 In case the limit against pledge of warehouse receipts forms a part of
overall cash credit limit, a separate set of documents for warehouse receipts
should be obtained. Also a letter from the borrower should be taken to the effect that
the total advance in the two accounts will not exceed the amount of the
sanctioned limit.

11.10 Goods covered under Warehouse Receipts should be valued on the basis
of prevailing market rate or warehouse receipt value/Govt. Support Price, whichever
is lower.

11.11 WHR is marked Negotiable / Non Negotiable while issuing receipts to the
depositor of Goods. Warehouseman strikes out either negotiable or non negotiable
according to the instructions of the depositor. It should be ensured that only receipt
marked "Negotiable" are accepted as security and also there is no condition of
storage laid down by the Warehousing Corporation/Collateral Management
Companies, which is prejudicial to the interest of the Bank.

11.12 Before making advance, a notice of pledge of warehouse receipt should be sent
to the warehouse on Form No. PGB 461 and acknowledgement obtained thereof
should be kept with the documents.

11.13 The warehouse receipts issued by the Central/State Warehousing

Corporation and other approved Collateral Managers are issued subject to the
condition that “the warehouse shall from the proceeds of any sale made, satisfy its
lien and shall hold the balance, if any, in trust for the holder of the receipt”. In case of
advances against such warehouse receipts, the last para of the notice of lien from the
57
borrower to warehouseman – PGB 462, given below may be deleted:

“In case you decide to sell the goods deposited with you as a result of their
deterioration or any other cause whatsoever, you shall pay the proceeds to the Bank
on the basis of pledged warehouse receipt.”

11.14 Branches should inform the warehouseman concerned about the removal
of Bank’s lien on the warehouse receipts, on the prescribed proforma, when such
receipts are released. It should be noted that no such intimation need to be sent to
the warehouseman concerned when merely partial delivery of stocks covered by a
warehouse receipt is given.

11.15 The officer having custody of the pledged Warehouse Receipts shall ensure at
the close of each day that all warehouse receipts taken out during the day for part
delivery of stocks covered therein have been restored to the officer’s custody duly
endorsed by the warehouseman concerned. It should also be ensured that unlike the
warehouse receipts released to the borrowers on adjustment of advances against
them, the warehouse receipts delivered for part delivery of stocks covered therein
should not be endorsed by the bank in favour of the borrowers.

11.16 It should be ensured that the borrower regularly pays the rent and other
charges of warehouse/ Collateral Manager so that the security held with the Bank is
free of any lien for such charges.

11.17 Branches to maintain a daily rate register for the commodities in respect
of which advances against WHR have been extended by them. Whenever the rates
fluctuate abnormally and warrant for additional margin requirement / provision of
more stock or adjustment of DP, remedial measures are to be taken by way of
provision of additional cash margin or additional stocks by the borrower or the DP may
be reduced in consonance with the value of Security.

11.18 While considering finance against such warehouse receipts, the detailed
guidelines on the subject issued by MSME Division, HO from time to time should
invariably be referred to.

12. SALE OF STOCKS

12.1 In default of repayment of an advance recalled by the Bank, the Bank has the
right to sell the stocks pledged to it as security therefor after giving
reasonable notice to the borrowers (vide Section 176 of the Indian Contract Act).
What is a `reasonable notice' is a question of fact and the period of notice may vary
depending on the circumstances of each case. Such notice must be properly worded
in accordance with Form No. PGB 303 and should be sent under a registered
cover with acknowledgement due. In the event of the registered letter being refused,
it must be kept on record, unopened, so that it can be produced in court, if
necessary as evidence of notice having been given.

12.2 When notice is refused or ignored, the sale may be conducted after the period
stated in the notice has elapsed in consultation with the Regional Manager. A proper

58
record of the sale transaction should be kept and on the completion of the sale, the
borrowers should be advised on Form No. PGB 304 of the extent of the sale
conducted, the amount recovered and credited to his account and of the resultant
position depicted by his account

13. ADVANCE AGAINST HYPOTHECATION OF STOCKS

13.1 Operations in hypothecation accounts are allowed on submission of stocks
statements on the Form No. PGB- 938 by the borrowers. In order to obtain an
undertaking from the borrower that the valuation of the stock has been made as per
mandatory Accounting Standard (AS-2) prescribed by ICAI, the stock statement
format (PGB-938) has been modified and it be ensured to obtain the revised stock
statement.

The Incumbent Incharge should ensure that

i) Stocks hypothecated are as per the terms of sanction.

ii) Valuation is based on the guidelines given in paragraphs 7.1 to 7.7.

iii) Drawing power shall not be allowed against stocks which are unpaid for (including
those received credit DA-LCs) after netting with sundry debtors in terms of extant
guidelines.

iv) Facility of netting of sundry creditors against sundry debtors is allowed strictly in
terms of HO guidelines.

v) Sundry debtors and sundry creditors is made part of the stock statement in
order to arrive at the accurate level of drawing power. Further, sales and purchases
of the stock is included as per the revised proforma of stock statement.

13.2 The drawing power should be calculated after retaining the prescribed
margin in the account and recorded in the Drawing Power Register (PGB 1061) for
accounts below 10 lakhs. In case of accounts with limits of 10 lakhs and above,
drawing power is to be calculated and recorded in the drawing power sheet on
Form (PNB 1062). Drawing power indicators should be D- Derived from Security or P
– Parent depending on whether Drawing Power is required to be derived from the
value filled through menu option SRM or SRM is created on Limit Node. Insurance
details, inspection and charge details can also be filled in through menu option SRM.
For detailed guidelines in the CBS aspects, reference should be made to CBS
Circulars/User Manual issued by Information Technology Division from time to time.

13.3 The stock returns must be submitted by the borrowers at weekly, fortnightly or
monthly intervals as per the terms of sanction and the returns must be carefully
preserved. Moreover, the stock statement as on the date of closing of books of the
Company must be obtained and compared with the corresponding figures in the
balance sheet. Branches must insist upon the borrower for submission of stock
statement corresponding to the date of their balance sheets and the figures
reported in the stock statement should be subsequently cross checked with the
audited balance sheet figures and difference, if any, be got reconciled to the
59
satisfaction of bank.

13.4 The Incumbent should see that the balance of their accounts is within the
drawing powers. In case of any irregularity, remedial steps should be immediately
taken. The increased rate of interest as provided in the hypothecation agreement
may be charged in such cases.

13.5 In case of late or non-submission of stock returns by the borrowers, the

Incumbent should take necessary steps to safeguard the interests of the Bank.

13.6 In the case of limited liability companies, a charge under Section 125 of the
Companies Act, 1956 should be registered with the Registrar of Companies. This
protects the Bank's interest against a liquidator and other creditors of the company
in liquidation and provides constructive notice to subsequent encumbrances. For
detailed guidelines, Branch Heads are advised to refer Part II of Chapter on
Documentation.

13.7 Section 138 of the Companies Act, 1956 prescribes the procedure to be
followed for recording complete satisfaction of a debt due by a company for
which a mortgage or charge has been registered. It should be noted in this
connection that a cash credit advance is not satisfied by the account running into
credit as long as a drawing power exists.

13.8 Bank's name plates reading as under must normally be displayed on the
hypothecated goods and on the places of storage of hypothecated goods:

"HYPOTHECATED TO PUNJAB GRAMIN BANK"

However, exceptions may be allowed in cases such as hypothecated consumer

goods, stock-in-trade of retailers, equipment of professionals, implements of artisans,
hypothecation of standing crops and the like, where strict compliance with these
instructions may not be found practicable. The Branch Heads of lending offices have,
therefore, been vested with the discretion to decide as to whether or not it would
be practicable in a particular case in advances of the above mentioned nature to
display the Bank's name plate on the hypothecated goods.

14. ADVANCE AGAINST BOOK DEBTS

14.1 Cash credit facility against hypothecation of book debts should be granted only
after a careful assessment of the credit worthiness of the debtor. It is always
advisable to get additional collateral security by way of immovable properties and
obtain personal guarantees to safeguard bank’s interest besides the principal security
of book debts;

14.2 The book debts charged to the bank must arise out of the genuine trade
transactions and should be as per the books/registers maintained by the borrower;

14.3 The book debts should be unencumbered and not subject to any other lien,
claim or charge of any court;

60
14.4 Book debt facility is to be allowed only against those debts for which
borrowers have not availed bills purchased/discounted limits;

14.5 Wherever this facility is allowed, book debt should be spread over a reasonably
good number of parties;

14.6 No drawing power is to be allowed against book debts outstanding for more
than the period stipulated in the sanction;

14.7 The statement of book-debts hypothecated to Bank should be submitted by the

borrowers on the prescribed format (PGB-939), in time and regularly at the stipulated
intervals. The same should be checked from the borrowers’ books;

14.8 The statement should contain all the required information, such as realization
of book-debts during the period and their deposit with the bank, age of book debts and
debts outstanding for more than 90 days, etc.

14.9 In all cases of book debts limits, a suitable party-wise/purchaser-wise limit

should be fixed up after considering the borrower’s overall satisfactory operations;

14.10 Power of Attorney in bank’s favour (wherever prescribed) must be obtained

and got registered.

14.11 As sanction of facility to finance debtors of allied/associate concern

implies higher risk requiring vigorous credit appraisal, financing of Book Debts
arising out of the sales to allied and associate concerns may be considered on
merits by the sanctioning authority, subject to the prescribed conditions.

14.12 In terms of RBI guidelines, in all borrowal accounts enjoying working capital
limits (fund based) of 5 crore & above from the banking system, banks are required
to finance a minimum of 25% of the credit sales by way of bills. In other words, the
limits sanctioned to such borrowers against book debts should not be more than
75% of the aggregate limit sanctioned for financing his credit sales. With a view to
complying with these RBI guidelines, the following points should be kept in view:

 Separate limits for financing of inland credit sales should be fixed within the
overall permissible limits and the facility by way of bills and book debts should be
segregated.
 In case of consortium advances, the credit facilities for financing inland credit
sales should first be segregated from the overall permissible limits enjoyed by the
borrower from consortium. Each member of the consortium should be advised of its
share of the said facility (for financing inland credit sales) within the limit allocated
to it. Thereafter, the limit allocated to each member for inland credit sales should be
segregated in respect of bills & book debts.

14.13 The rate of interest on book debt limits shall be the same as is chargeable in
respect of the cash credit limits against stocks.

15. INSPECTION OF STOCKS

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i) A report of physical inspection/verification of stocks is to be submitted in the
prescribed proforma (PGB No. 941) in case of all Cash Credit (Hyp) and Packing
Credit accounts with limit of 5 lakhs and above. For accounts with limits below 5
lakhs, there is no need to submit this report and the necessary information about
inspection shall be recorded in the Stock Statement (Revised PGB 938) itself.

Branch Heads are advised to refer Chapter on "Post Sanction Supervision and Follow
Up of Loans" for detailed guidelines on physical verification, inspection of stocks and
Stock Audit.

ii) Branch Heads/Other Officials should always follow the detailed operational
instructions relating to inspection of stocks in respect of allocated limits, storage of
stocks, loose stocks, stocks stored with third parties, old stocks, imported stocks,
circularised through Head Office circulars from time to time.

16. DOUBLE FINANCE

i) Advances to a party having dealings with more than one bank has an
element of risk as the party can, when in difficulties, easily pledge the same
goods with another bank as well. Great caution is, therefore, necessary in such
accounts to ensure that the goods pledged to us, when lying in a factory compound
or in open godowns, are unmistakably demarcated so that they are not mixed up or
mistaken for those pledged to other banks. Our possession over the goods must at all
times be effective, constructive, apparent and undisputable.

ii) When a party is also dealing with other bank(s), the Branch Heads should keep
a careful watch over the dealings and business activities of such parties specially
when they avail themselves of hypothecation limits. For, it is easier for unscrupulous
parties to borrow from two or more banks against hypothecation of the same goods
or to pledge to one bank the goods already hypothecated to another. The safest
thing always is to try to secure the entire business of a party in order to eliminate
altogether chances of double pledging.

iii) The Branch Heads must also carefully watch the changes, if any, in the
financial position of the borrowers. The moment there is any deterioration in the
financial position of a party, immediate steps be taken to safeguard the interests of
the Bank by strengthening the watch and ward arrangements. The party's activities
should be kept under close watch as it is generally in times of financial difficulties
that parties usually resort to fraudulent practices of double pledging of goods. The
Godown Keepers and Chowkidars should always be very vigilant and should
frequently go round the godowns and the premises where goods pledged to the bank
by such parties are stored, so as to ensure that the bank locks and name plates
always remain in tact and are not removed or tempered with.

iv) Efforts should always be made to persuade borrowers to deal exclusively with
us, particularly when the accommodation is availed of on hypothecation basis as it
is possible for unscrupulous borrowers in such cases to borrow from more than one
bank against hypothecation or pledge of the same goods to another bank. In case of
hypothecation advances, it is essential that our charge on the goods should be very
clear and undisputed. Also we must insist in such cases that the borrower deals with
62
us exclusively. In exceptional cases, however, when a party is also dealing with other
banks and the arrangement is approved by sanctioning authority a letter should be
secured from the other bank or banks concerned admitting our hypothecation charge
over the goods which form our security from time to time.

v) In order to avoid double financing, following precautions are to be observed:

a) Before sanctioning any credit limit, the bank should ensure that the applicants
are not enjoying similar facilities with other banks. In case, it is found that he is
having any credit facilities from any other bank/banks, detailed information should be
called for by the bank from those banks. As far as possible, parties should be
advised to restrict their borrowings to only one bank.

b) The bank should obtain from the borrowers, written application accompanied by
a declaration about the existing credit arrangements and an undertaking that the
stocks will not be hypothecated to any other bank without the prior approval of the
bank. The undertaking should also be incorporated in the stock statements which
the borrower is required to submit to the bank periodically. The terms of sanction
should, inter-alia, stipulate that the advances will be recalled forthwith in case it is
subsequently found that he has made a false statement in this regard.

c) Before granting credit facilities to the party, as also during the pendency of the
advances, an officer of the bank should inspect the stocks with a view to ensure that
the same stocks have not been hypothecated to other bank(s); he should record such
information in his reports relating to his periodical inspection.

d) In case the borrower is allowed to avail himself of credit facilities against

hypothecation of stocks from various banks, it should be ensured that such stocks
are segregated/ demarcated in different godowns/shops and the same are properly
recorded in separate stock books so as to facilitate easy verification by the bank
officials.

e) Unlike in the case of limited companies where a charge on the goods

hypothecated by them can be registered under the provisions of the Companies
Act, 1956, there is no provision for registration of charge when advances on
hypothecation basis are granted to individuals and firms and, therefore, in such
cases, it is desirable that the bank's name boards are invariably displayed at the
shop/godowns where the stocks hypothecated to it are stored so that these will
serve as a notice to third parties of the bank's charge.

16.1 In order to avoid excess financing, following precautions are to be

observed:-

During the course of discussions on Long Form Audit Report (LFAR) of the bank,
the Central Statutory Auditors have pointed out certain irregularities, such as, non-
submission of stock statement on the prescribed format, delay in submission of the
stock statement, non-submission of stock statement as at 31st March i.e. as on date
of Balance Sheet or as on the last date of the month i.e. corresponding to the date of
their Balance Sheets and variation in the value of stock/book debt as per the audited
Balance Sheet and non-deduction of sundry creditors from the value of stock etc.
63
which lead to allowing of excess DP in the account.

In terms of the guidelines, branches must insist upon the borrower for submission
of stock statement corresponding to the date of their balance sheets. The figures
reported in the stock statement should be subsequently cross checked with the
audited balance sheet figures and difference, if any, be got reconciled to the
satisfaction of bank

Outstanding creditors to be included for direct expenses incurred in manufacturing

process such as job work charges etc. in addition to sundry creditors for purchase of
stocks. Henceforth, the borrowers to provide, as on date of inventory, complete
statement of stocks, sundry creditors (for purchase of stocks and for job-work etc.)
and sundry debtors (receivables).

In order to arrive at accurate level of drawing power sundry debtors and creditors
have been made part of stock statement along with sales and purchases of stock
which may be used for comparing the movement of stock. For calculation of
drawing power, guidelines conveyed vide L&A circulars on the subject from time to
time be referred. Branches should generate Appendix C on monthly basis and
compare the same with sales and purchases reported by the borrower in the stock
statement.

16.2 In order to avoid misuse of working capital, following precautions are to be

observed:-

As a matter of prudence, bank needs to ensure end-use of funds it has lent. It is

necessary to ensure that the bank does not depend entirely on the end-use
certificates issued by the Chartered Accountant but strengthens its internal
controls to ensure end-use of funds which would enhance the quality of the
assets.

It has been noticed that the borrowers particularly rice mills (especially in states
like Punjab, Haryana, Andhra Pradesh, Tamil Nadu and West Bengal) overstate the
stock to garner a disproportionate amount of credit facility from the banks. The
additional funds are diverted by these borrowers into activities like real estate and
stock market.

In view of the above branches are advised to verify the securities for working
capital loans strictly by :

 Regular inspection of securities charged to the bank as per sanction.

 Scrutiny of borrower’s books of account at the time of stock
verification.
 Annual Stock Audit in eligible accounts.
 Ensure timely receipt and meaningful scrutiny of QIS / QMS returns and
audited balance sheet of the borrower.

17. SAFEGUARDS ADVISED BY RBI FOR ADVANCES AGAINST

PLEDGE/HYPOTHECATION OF MERCHANDISE

64
In addition to the safeguards mentioned in the previous paragraphs, RBI has also
advised the following safeguards that may be observed while allowing cash credit
advances:

i) Godowns in which goods pledged to the bank are kept should be properly
secured under joint custody with locks made by well known manufacturers with the
bank's name engraved thereon. The bank's name plates/boards should be
invariably displayed at the shops/godowns where the stocks hypothecated to it are
stored. As even name plates/boards facilitate removal/replacement, more enduring
arrangements like painting/engraving clearly on the godowns/premises should be
considered.

ii) Periodical stock statements (in terms of the sanction) should be obtained from
the borrower in respect of hypothecated goods and scrutinized. Surprise inspection of
stocks hypothecated should be conducted at irregular intervals. The stock
statements should be compared with balance sheet figures.

iii) Meticulous verification of the borrower's title to goods pledged/ hypothecated

and their quality/quantity should be done periodically on regular basis.

iv) Adequate insurance cover should be taken for the hypothecated/ pledged
goods. The insurance should invariably be obtained with Bank Clause.

v) Controlling Offices should obtain a monthly statement from the branches

indicating that periodical stock statements are received and the
hypothecated/pledged stocks are verified by the branch officials, commenting on their
quality, turnover, value etc.

In our bank compliance of the aforesaid aspects is to be reported by the Branch

Heads through Manager's Monthly Certificate (MMC).

****************

65
 CHAPTER 5
CONFIDENTIAL REPORTS

BOOK OF INSTRUCTIONS ON LOANS

66
1
 CHAPTER – 5

CONFIDENTIAL REPORTS

Timely compilation and annual review of confidential reports on borrowers dealing

with our Bank as well as guarantors need not be over-emphasised. Non- review of CRs
in time can not only lead to delay in consideration of loan proposal(s) but may expose
the Bank to risks in case of unnoticed deterioration in the means and financial position
of the borrowers/co-obligants.

As per extant guidelines no credit proposal should be sanctioned or submitted to the

higher authorities for fresh sanctions unless CR has been collected and placed on
record as prescribed.

Since the compilation/review of CR forms part of due diligence exercise which helps
the bank to verify the antecedents of borrowers/co-obligants besides acting as a post
sanction follow up tool, it is imperative that the CRs should be invariably
compiled/reviewed in terms of laid down guidelines.

2. The CR Binders must remain in personal custody of the Manager who should
ensure that the system of maintaining upto date and accurate record of CRs is
observed strictly in terms of Head Office instructions issued from time to time. CRs
should contain full and reliable record of character, estimated means, business
activities and credit-worthiness of all Individuals, firms and corporate bodies who are
under any form of liability to the Bank, whether as direct borrowers or guarantors,
with the exception that CRs need not ordinarily be compiled in respect of the following:

i) Persons borrowing against security of Bank deposits,

ii) Persons borrowing against government securities and other trustee securities
upto 25000/-.

iii) Makers of bills of small amount which are re-discounted by third parties.

iv) Loans to staff members, including loans upto 15000/- against share/debentures of
approved company.

v) Advances upto 10000/-, against gold/silver jewellery/ ornaments.

vi) Borrowers to whom temporary overdrafts are sanctioned occasionally by the

Branch Heads within their vested loaning powers.

vii) Persons borrowing against the pledge of their life policies.

3. Although, in case of advances against government securities, close enquiries

67
into the applicants's circumstances may not be required, but Managers must make
sure that the borrowers are good for any short-fall which may arise from a fall in
prices and must see that adequate margins are always maintained.

4. The following forms are prescribed for preparing CRs:

i) PGB 905 (Revised) (Annexure I) - To be used for preparing brief CR.

ii) PGB 282A (Revised) (Annexure II) - To be used for Joint Stock Companies
and Co-operative Societies.

iii) PGB 282B (Revised) (Annexure III) - To be used for Borrowers/ Guarantors –
Individuals {other than those covered under (iv) below}, sole- proprietorship firms,
partnership firms, H.U.F. firms.

iv) PGB 282C (Revised) (Annexure IV) – To be used for Individual Borrowers/
Guarantors, in case of loans under Retail Lending Schemes (personal
segment) i.e. car, consumer, housing, etc.

In case there is more than one borrower/guarantor, a separate CR is to be prepared

for each of them.

Confidential Reports prepared and compiled on forms no. PGB 905 applicable for
certain priority sector schemes and PGB 282C applicable for Individual
Borrowers/Guarantors under Retail Lending Schemes (personal segment) are not
required to be indexed nor are their copies required to be sent to Regional Office.
Further, the same should be kept alongwith the other documents in the relevant
documents file.

5. The manner in which particulars against different heads of CRs are to be

completed is set forth in the CR Forms and Head Office circulars issued on the
subject from time to time. In addition, the following instructions may also be noted:

i) Information furnished in the loan application by the applicant forms the basis
for completing the confidential report. The details given in the application should
be independently verified through at least two reports from reliable sources,
uninfluenced by the party.

ii) It is sometimes difficult to extract correct and full details from applicants,
especially from good parties, who may resent what they regard as inquisitorial
enquiries. In such cases, the Managers should explain the Bank's position
tactfully and the relevant information sheet about the account should also be
extracted from the database of CIBIL/other Credit Information Companies as
prescribed.

iii) Some applicants are inclined to give exaggerated details of their assets and to
under estimate their liabilities. All such statements should, therefore, be carefully
verified from the books of the party(ies) and a conservative estimate of the
applicants' means be formed in order to determine their credit-worthiness.
68
iv) At least two reports on the party from the market should be obtained. It should
be noted that the name of the person with his position in the firm or the company
must invariably be given while incorporating market reports in the CRs.

v) Reports should also be obtained from all other banks with which the party has
had dealings. Such reports are however, usually very brief and drawn up in
general terms, and need to be amplified by enquiries from other reliable
sources.

vi) Immovable property declared by the applicants should be verified by examining

the title-deeds for ownership and a spot inspection be made for valuation
purposes. If title deeds are not forthcoming, Incumbent Incharge should put on
enquiry. Unless he is fully satisfied that the party is highly respectable and
enjoys good reputation in the market and may feel offended if production of title-
deeds is insisted upon, search on Registrar's office should be conducted to
ascertain that property is free from previous encumbrances. However, in genuine
cases if title-deeds are not available, other means of verifying ownership i.e.
municipal receipts, revenue records, rent deeds, electricity bills, receipts for
municipal taxes paid, be considered.

Sometimes, the Income Tax, Sales Tax and Wealth Tax authorities get the
properties of the parties attached for non-payment of arrears of taxes. Their
charge becomes operative from the date the attachment order is gazetted.

The Incumbent Incharge should, therefore, thoroughly satisfy themselves from

reliable sources at the time of compilation of confidential reports that arrears of
taxation, if any, have been accounted for on the liability side and no attachment
orders have been issued in respect of their properties. In reporting the
immovable assets of applicants for advances, properties standing in the name of
firm or Hindu Undivided Family (HUF) Firms and those in the names of
Individuals, must be separately stated. If any property stands in the joint names,
all of whom may not be liable to the bank, the value of the share belonging to
the liable person only, should be stated. Clarity in this regard can save a lot of
avoidable correspondence.
For valuation of immovable properties, laid down guidelines may be followed.
Information on the following points should also be given:

a) Place where the property is situated (name of the station and also name of
the street should be mentioned). If any property is situated at a small station,
the population of the place should be reported and whether the property is
easily saleable.

b) Whether rented out or self-occupied for business or residential purposes. If

rented, state the monthly or annual rent.

c) Name of the owner.

d) Value of the Property.

69
 e) If Landed property in a village is mentioned, state the realisable value and
report on the position regarding salability.

vi) Other assets such as stocks in hand, stocks pledged, cash etc., cannot be
accurately verified and only a rough estimate can be formed through enquiries
from outside sources and by examining the books of the applicants.

vii) Liabilities of the applicant should be ascertained and deducted from the assets.
Total assets of the applicant must exceed the total liabilities by a considerable
margin to indicate that the applicant's business is running on sound and
profitable lines and the proposal constitutes a legitimate banking risk.

viii) While compiling Confidential Reports on Borrowers/Co-obligants, it should be

ensured that statutory liabilities such as municipal taxes including house tax, etc,
if any, outstanding towards immovable properties mortgaged with the bank or
included in the net means of the borrowers/Co-obligants, should be shown
separately under “other liabilities”, specifying its nature.

In cases where there are arrears of municipal/property tax pertaining to IP

mortgaged to the bank or other IPs included in the net means of the
borrower/Co-obligants, branches are advised to take appropriate steps to
safeguard Bank’s interest.

ix) Concerns having one or more (but not all) common partners trading in
identical or different names at the same station or at more than one place are
allied or associate firms, while the concerns having all the partners common
are branch firms. The branch of the bank at the station where the firm has its
main account will finally consolidate the confidential report after obtaining
necessary particulars from other places of business of the party. Copies of the
reports will be furnished to branches at other stations where the party is doing
business and a cross reference to the index number should be entered under
item III of the standard form of confidential report (Form No. PGB 282 B
Revised).

x) Reports on limited companies are compiled (on Form No. PGB 282A Revised) on
the basis of their audited balance sheets and the market reputation of the
management. Branches should obtain the latest as well as the two previous
annual balance sheets and statements of profit and loss account along with
Directors and Auditors reports at the time of fresh compilation of CR. In case of
renewal, latest balance sheet and statement of profit and loss account should,
however, be accompanied. In case of private limited companies, besides the
balance sheets, confidential reports on the directors should accompany the CR.

xi) The Incumbent on transfer or otherwise after taking over charge of an office,
as soon as possible must conduct an investigation into the means and standing
of all borrowers as embodied in their confidential reports and either confirm their
accuracy or make such alterations as he may consider necessary under advice
to the Regional Manager. Inspectors on their visit to branches will also select
70
 and check a few confidential reports at random and satisfy themselves of their
authenticity.

xii) It is of paramount importance that confidential reports on borrowers should be

compiled by branches, and pay offices with the utmost possible accuracy. The
Incumbent Incharge may depute a member of the staff to assist him as `credit
reporter', but it must be clearly understood that the responsibility for the
compilation and the authenticity of details given in the reports is that of the
Incumbent Incharge.

xiii) In cases where the IP of borrower/guarantor is not to be mortgaged, NEC thereof

shall be obtained only if specifically mentioned in the terms of sanction. If the
terms of sanction do not provide for obtaining of NEC of IP, which is not to be
mortgaged, the same may not be obtained.

In such cases, a stamped affidavit declaring status with regard to

encumbrance/non-encumbrance of the property be separately obtained from the
borrower/guarantor and information to this effect alongwith factual position for not
having obtained NEC be reported in the CR format. However, spot verification of
such IPs shall continue to be conducted in terms of extant guidelines. For spot
verification of IPs located outstation, branches may take help of other sister
branches situated near to the location of IPs.

xiv) While compiling CR on borrower/guarantor, postal/e-mail address of

office/residence of individual/proprietor/partners/directors/etc. alongwith their
phone/mobile numbers should also be invariably incorporated in the CR form.

6. At least two reports on each party should be obtained from sources uninfluenced
by the party, & the Manager by keeping in close touch with the market should
ordinarily be in a position to set down his own opinion of the worth and integrity of
persons dealing with the bank.

7. It is nevertheless impressed upon managers and credit reporters that while

making enquiries, they must exercise all possible tact and discretion compatible with
end in view & avoid irritating the customers, particulars having high standing by
calling for inquisitorial details.

8. When limits are sanctioned by a competent authority, they must be recorded in

the confidential reports binders under the names of the parties to whom they refer.
Brief particulars of any business known to be conducted by borrowers or guarantors at
other offices of the bank should also be noted.

9. The principles on which records of confidential reports are to be kept are as

under:

i)(a) Confidential reports should be compiled by the branches on the prescribed format
as pre bank guidelines.

(b) The Regional Office will maintain a record of confidential reports and analysis of
71
 balance sheet of borrowers to whom credit facilities have been sanctioned by
the Regional office and Head Office, while the branches will have a complete
record of CRs in respect of proposals sanctioned at Branches, RO or HO level.

(c) Confidential reports should be divided into four categories, i.e. CRs relating to
advances within the powers of:

I Branch - Code BR
II ROCAC - Code RM
III HOCAC - Code HO

(d) The words "BRANCH POWER," "REGIONAL OFFICE POWER", AND "HEAD
OFFICE POWER" in bold type shall be got prominently superscribed on the face
of the relative CRs. Under each category, CRs be maintained in separate
binders. In case the number of CRs in an office is small, the same binder be
divided into three parts, one for each category.

(e) Category-wise index numbers should be allotted by taking only Ist alphabet of
the name, preceded by code of the category [as given at (c) above] and
followed by the serial number in the alphabet. Where a name starts with "THE"
the alphabet next to "THE" be taken. The index register should be divided into
three parts, one part for each category of CRs.

The following illustrations will fully explain the procedure:

- Shri R.L. Maheshwari will be indexed as BR/R/7, if the facilities are in the
powers of Branch Manager and there are already six CRs in "R" series
under this category.

- M/s. Ram Lal Sham Lal will be indexed as RM/R/7 if the facilities are within the
powers of Regional office and there are already six CRs in "R" series of this
category.

- The United India Mills Limited will be indexed as HO/U/6, if the facilities are
in the powers of Head Office and there are already five CRs in "U" series
under this category.

(f) Index number once allotted to a party should in no case be changed

irrespective of the fact whether CR remains on active record or not and the same
index number should not be allotted to another party.

(g) CRs will be complied in duplicate. One copy of CRs shall be kept in the Branch
binder and the second copy shall be sent to the Regional Manager for scrutiny at
Regional Office and discrepancies, if any, would be pointed out directly to the
branches. A copy shall be kept in the binder for ensuring timely review/ renewal by
Regional Office. However, while submitting loan proposals beyond the powers of
Regional Manager, Incumbents/ Regional Manager to give confirmation that CRs
have been compiled as per the laid down guidelines and one copy of CR has been
kept in the binder at theirs. Whenever required, the same can be called from the
72
 concerned branch/Regional Office.

ii) If the party reported on is also established elsewhere, copies of the relative
confidential report will likewise be sent to the concerned offices.

iii)(A) The Confidential Reports on borrowers and co-obligants must be reviewed

annually. While undertaking such review complete particulars of borrowers viz.
Names of Proprietor/Partners/ Directors, Guarantors, etc. and their addresses
and telephone/fax numbers should be obtained and kept on record after
verification.

(B) In case of no change in the position of assets and liabilities, a "NO CHANGE"
Certificate should be prepared and submitted to the Regional Office. It is
needless to emphasize the importance of timely review of CRs. With a view to
keep the CRs upto date, it is necessary that the cases are diarised for one
month earlier than their due dates of renewal to ensure that these are brought
upto date, in time. Similarly, no proposal should be sanctioned or submitted to
higher authorities for fresh sanction unless CR has been collected and placed
on record at all desired levels.

(C) Fresh CRs should invariably be compiled after the lapse of every two years
even though there may not be any change in the constitution and financial
position of the party. It should be carefully noted that `No Change' certificates
must not be sent for more than two years and fresh CR should be prepared in
the third year containing the information:

"Supersedes CR No._ _dated "

In case of adverse development, fresh CR may be compiled earlier as it may

provide additional information relating to the account which may be of help in
deciding future course of action. The relevant information sheet about the
account should also be extracted from CIBIL data base.

(D) A share of a co-parcener in the joint family property, movable or immovable,

owned by H.U.F. is taken into account while compiling CR on him in his
Individual capacity or as sole proprietor or partner of a firm. In this respect, it is
clarified that the shares of the members of H.U.F. in joint family property cannot
be exactly defined, but can only be ascertained notionally. Their shares
increase or decrease with the death or birth in the family. Moreover, on the
death of a male member, his female heirs also step in.

In view of the above, it is to be ensured that CRs, wherein shares of co-

parceners in H.U.F. property have been accounted for, are revised as soon
as there is a change in constitution of such H.U.F. i.e. on death or birth in the
family and the Controlling Office be advised accordingly.

(E) For term loan accounts above 25,000/- CRs may be reviewed once in two
years, instead of the annual review, subject to there being no arrears in
repayment of instalments beyond three months.
73
 In case of other term loan accounts of 25,000/- and below, annual review of
Confidential Reports need not be done except where instalments are in arrears
for more than three months.

(F) In respect of medium term advances granted to farmers, annual reviews of the
CR may not be made if the instalments, interest charges etc. are being regularly
paid by the borrowers.

(G) In case of Non-performing Advances account, the Confidential Reports may

continue to be reviewed/compiled. However, if it is not possible for any
reason to compile the information in any case, the reasons thereof should be
recorded.

iv) Revised confidential report should bear the original index number and the
words, "Supersedes CR No._ d a t e d _ _ _ _ _ _ _ s h o u l d b e given at the
top of the revised report.

In case there is increase/decrease in means, the reasons must be

incorporated in the CR.

v) The cancellation of confidential reports from the branch binder must be

advised to the Circle Head and other offices concerned with the reasons
therefor.

10. The instructions with regard to compilation of CRs on different type of

borrowers and guarantors and verification/valuation of the assets are conveyed in
detail through Head Office circulars, issued from time to time, which should be
meticulously followed.

******************

74
 CHAPTER 6
DOCUMENTATION

BOOK OF INSTRUCTIONS ON LOANS

75
1
 CHAPTER – 6

DOCUMENTATION
_____________________________

In this chapter general instructions governing execution of loan documents and

nature of documents to be obtained for various types of advances have been
discussed. In case of any doubt, the matter may be referred to Credit Section or
Law Section, HO, for guidance.

PART – 1

GENERAL INSTRUCTIONS
1. Documents are primary evidence. If any lacuna is found in documentation, this
will jeopardise the interest of the Bank and may even adversely affect the right of
recovery of the debt. It is, therefore, important to get the documents executed
properly and correctly. Further, the documents should be stamped, wherever
required, according to the provisions of Indian Stamp Act. They should also be duly
registered, wherever required (as applicable to the State).

2. The obtention of documents appropriately in the proper form and observing

all legal requirements may be described as documentation. The importance of
documentation is evident from the following:

a) Documentation is the source of rights and obligations.

b) Documentation helps to identify the concerned borrower/ guarantor.
c) It also helps to identify the security.
d) It provides written evidence.
e) Documentary evidence prevails before court of law.
f) It is a means of creating a charge over the security/assets.
g) Particular documents, if obtained, will facilitate filing summary suits.

3. The nature and type of documents to be executed depend on various

aspects viz. type of security, type of borrower, type of charge and type of facility. In
the matter of documentation, there are five essential points to be noted:

a) The document should be executed in the prescribed form of the bank.

b) The document should be properly stamped, if so required under law.
c) The person(s) executing the documents should have the legal capacity/authority to
do so.
d) The documents should be properly witnessed, if required, under law.
e) The documents should be registered, if required, under law.

4. It may be noted that execution of any security document of a bank by a

borrower either to undertake personal liability (e.g. a promissory note), charging of
some asset or property (e.g. a mortgage, a pledge, a hypothecation, an assignment,
etc.) or executed by a third party (e.g., guarantee, etc.) creates contractual

76
obligation. It is, therefore, essential that not only the documents are correctly
executed but also that the persons signing the documents have the legal
capacity/authority to do it. A minor, lunatic or an insolvent has no contractual
capacity. The contractual powers of a company are determined by its Memorandum
and Articles of Association; the company cannot transgress or overstep these powers.

5. EXECUTION OF DOCUMENTS BY VARIOUS TYPES OF BORROWERS

Once it has been ensured that the executants are legally competent then the
documents should be executed in the following manner:

5.1 INDIVIDUAL ACCOUNTS

Documents should be executed by the individual personally, or by his properly

constituted attorney.

5.2 JOINT ACCOUNTS

All the joint account holders should join while making an application to the bank for
any credit facility and on sanction of the facility all of them must join in executing
the loan & security documents. All the joint account holders are to execute the
documents undertaking "joint and several" liability in their personal capacity. In
addition, instructions should be obtained under the signatures of all the joint account
holders, as to whether securities are deliverable to “either or survivor” or to “any one
of them” or “any one of the survivors” or “the last survivor”, as the case may be. In the
absence of such instructions, securities are to be delivered against the joint discharge
of all the account holders.

5.3 SOLE-PROPRIETORSHIP CONCERNS

The documents should be executed by the sole proprietor preferably under the seal of
proprietorship concern. In the case of a pronote to be executed by a sole
proprietorship concern, the words "Jointly & Severally" should be deleted under
signatures of the executant.

Sole-proprietorship concerns intending to open accounts with us are required to sign

account opening form (AOF) No. PGB 1180 which contains a provision for the firm
concerned to give an authority, if it so desires, to an agent or nominee for operation
on the account.

It is clarified that the authority given by the sole-proprietorship concern in form No.
PGB 1180 to its agent or nominee holds good for operating the account and for other
purposes, a separate authority has to be obtained on Form No. PGB 49.

5.4 PARTNERSHIP CONCERNS

Loan documents must be signed by all the partners of the firm. However, Balance
and Security Confirmation Letter signed by one of the partners will be binding on
the firm unless there is anything contrary to the same in the Partnership Deed or in
the relative AOF.

77
In case the firm stands dissolved, it is preferable to obtain signatures of all the
partners on Balance and Security Confirmation Letter till the account is adjusted in full.

On admission of a new partner, a letter should be obtained to the effect that in

consideration of Bank's continuing the Banking facilities he agrees to be liable for
the amount due by the firm to the Bank as on _ _ and also
for future advances from time to time, and is bound by the terms and conditions
agreed to by the other partners, as per documents already executed by the firm.

A continuous watch be kept on the affairs and conduct of the firm. Any change in
the constitution of the partnership should not be taken lightly or ignored. Its legal effect
vis-a-vis provisions of partnership deed/s be checked up. Further action for
continuance of the facilities or recovery of outstandings has to be decided.

Declaration to be obtained from the minor attaining majority

In cases where minor has been admitted to the benefits of the partnership firm, a
declaration should be obtained from the minor, on attaining majority to the effect that
he has elected to become a partner of the firm and that he stands liable for all
obligations/dues of the partnership while admitted to the benefits of the firm as a
minor.

To have uniformity, a draft of the declaration to be obtained in this regard is given

below:

Proforma of declaration by a minor on attaining majority

The Manager,
Punjab Gramin Bank,
BO:

Dear Sir,

REG.: _(1)

In consideration of the Bank having allowed (2) of

(3) to _ _(4) against the security of
(5), the loan documents were signed by
(6).

During the period I was minor, I was admitted to the benefit of the partnership. As I
have since attained majority, I have elected to become the partner of the firm and
hold myself liable for all the obligations and dues of the Bank from the date I was
admitted to the benefit of the firm while a minor. Further, I agree to be liable for
future advances made from time to time and be also bound by the terms and
conditions of loan already agreed to by other partners.

I hereby also confirm the correctness of the balance of

(Rupee _ ) appearing to the
debit of above account as on and acknowledge my liability
78
for the same.
SIGNATURE
Name _____________
S/o Shri ________
Address __

1. State the name of the account.

2. State nature of the loan.
3. State amount sanctioned.
4. State name of the party.
5. State description of security in brief.
6. State name of the signatories.
5.5 HINDU UNDIVIDED FAMILY (HUF)
Hindu Succession Act, 1956 has been amended by the Parliament in the year 2005
and in terms of the Amended Act, the daughter of a coparcener is by birth, a co-
parcener in her own right, in the same manner as the son. She has the same rights
in the coparcenary property as she would have if she had been a son. She is also
subject to same liabilities in respect of the said coparcenary property as that of a
son. So, while assessing loan proposal as well as while obtaining documents, the
presence of female coparcener should also be kept in view. Karta/all major
coparceners have to execute the documents. While creating mortgage of the
properties of HUF, all the major coparceners (including female coparcener) have to
create the mortgage.

The loan documents should be signed by the Karta and all major co- parceners
of a HUF in the following form:

For self and as karta of HUF firm known as

and consisting of myself as karta and
2. B. _
3. C. _ Major co-parceners
4. D. _
5. E. _
With the inclusion of female(s) in the HUF as a co-parcener(s), all existing HUF loan
accounts/documents should be reviewed and in case of female co- parcener(s),
the terms and conditions of the loan should be got confirmed by them. The
female co-parceners should state that they also remain liable and confirm the
mortgage/other securities by supplementary agreement (Annexure- 1), as under:

i) Supplementary Agreement (Appendix I) to be executed by the major female

co-parcener(s) in case of HUF loans.
ii) If mortgage by deposit of title is held, the major female co-parcener(s) has to
make further declaration and execute letter of continuity as per Appendix II.

Balance and Security Confirmation Letter should be signed by Karta (for self and as
Karta) as well as other major co-parceners.

5.6 COMPANIES

79
Before allowing advances to a company, it is important to study its Memorandum and
Articles of Association, in order to find out whether the company has powers to
borrow, if so, to what extent. Although a trading company is implied to have power
to borrow for the purpose of carrying on its normal business yet it is always
advisable to verify its Memorandum to ensure that it has express powers to borrow.
In the case of non-trading company, such powers must be expressly stated in its
Memorandum.

As per Companies Act 1956, in the case of a newly constituted public company,
certificate of "Commencement of Business" is essential before credit facilities can be
allowed. This will, however, not be required in the case of private companies converted
into Public Ltd. companies or vice-versa.

However, as per The Companies (Amendment) Act 2015, No Commencement of

Business Certificate is required for New Companies.

Board of Directors of a public company or of a private company which is subsidiary

of a public company, cannot borrow beyond its aggregate of paid up capital & free
reserves, unless so permitted by an appropriate resolution passed by share-holders in
the company's general meeting. A certified copy of this resolution should be kept on
record. However, in the case of temporary loans (repayable on demand or within
six months from the date of loan), raised in ordinary course of business, such a
resolution is not required.

If the Incumbent Incharge is satisfied that the company has the power to borrow and
the directors have the power to raise loan and the Board has passed a proper
resolution for the same (on the lines given in Form No.PGB-293) copy of the resolution
should be certified in following Form:

"Certified that the above is a correct copy of the resolution passed on

(date) at a duly convened meeting of the Board of Directors of
Company and the same is
contained in the minutes book of the Company."

This certificate must be signed by the Chairman and/or Secretary of the company.
If the company has no Secretary, it may instead be signed by any other Director.

Name of the company and its registered office should be indicated on the pronote
and other agreements executed by the company. In case of a pronote to be executed
by a company, the words "Jointly & Severally" should be deleted under signatures
of the executants.

A Company may have several units under different names or one unit running in
another name. In such cases, the company will execute the documents in the
company's name only. If reference to units is desired for operating different units or if
unit-wise facilities are sanctioned and documentation is obtained unit-wise, it may
be stated in the documents that the facility is availed/to be availed for its unit/
division but the
documents have to be executed as "For ABC Ltd." The Account/s can be styled as:

ABC Ltd.

80
Unit

If securities are offered unit/division wise, care should be taken to mention that
securities are pertaining to unit of the company.

Charge created on the assets of the company except by way of pledge must be
got registered with Registrar of Companies. Such an application has to be made
within 30 days from the date of creation of the charge.

Similarly, in case of modification in the terms and conditions, or increase/decrease

in the amount of advance in respect of which a charge is already registered with
the Registrar of Companies, a memorandum of modification of charge has to be filed
with the Registrar of Companies within 30 days of such modification. Since ROC is
under e-governance, the registration/modification/ satisfaction of charge may be filed
electronically.

If the rate of interest is linked with the "Benchmark Prime Lending Rate/Bank Rate"
as per the loan documents and it is varied due to change in the "Benchmark Prime
Lending Rate/Bank Rate", there is no need to intimate this change to Registrar of
Companies as such variation has already been taken care of.

5.7 CLUB, SOCIETIES AND OTHER NON-PROFIT MAKING

ORGANISATIONS

An un-incorporated club, society, or the non-profit making organisation is not legal

entity and, therefore, it cannot enter into a contract. For this reason, the lending to
such organisations demands special safeguards, partly because of the fact that it is
difficult, if not impossible, to obtain redress against the association funds, and partly
because it is not easy to establish the personal liability of any particular member of
the association.

However, if a proposal is to be entertained as a special case, the bye-laws of the

society, club or other non-profit making organisation should be obtained and studied
with a view to ascertain its borrowing powers, the purpose for which the loan can be
raised by it, the powers of the managing committee to charge the assets of the
society/club, etc. A suitable resolution should be got passed preferably in the general
body meeting of the club/society.

5.8 LOANS TO MUSLIM CUSTOMERS

There is general practice prevalent among muslims to create encumberances of

their property in favour of their wives and/or for the benefit of their heirs. Before an
advance or loan is contemplated to be made to Muslim borrowers against the
security of their property whether as primary security or collateral security, it is
advisable to ascertain that the properties of Muslims have not been alienated under
Muslim Laws viz. `Waqf-ul-ulad' and/or `Haq-Mahr' etc.

Branch Managers are, therefore, advised that while assessing the means of Muslim
borrowers, they must ensure that the assets/ properties alienated by way of `Waqf-ul-
ulad' and/or `Haq-Mahr' are not taken into consideration.

81
The Branch Managers are further advised to obtain a declaration as per proforma
given below from muslim borrowers that no such encumbrance has been created
by them either in favour of their wives or any of their relations. The spouse of the
borrower should also join in the execution of such declaration. Such
declaration/affidavit should necessarily be made on non-judicial stamp paper (stamp
duty being ascertained locally and/or through Regional Office) and attested either
by a notary public or a magistrate.

However, as the attestation of the requisite declaration/affidavit is required to be done

by notary public/magistrate and the services of notary public/magistrates may not
be available at small stations and also to avoid inconvenience to small borrowers,
particularly to those belonging to weaker sections of the society, the Branch
Managers are advised not to insist upon obtention of such declaration in case of
loans to weaker sections of the society/small borrowers under Priority Sector
Schemes for loans upto and including Rs.5,000/- or as advised by Head Office from
time to time.

DECLARATION/AFFIDAVIT

We, _______________ _S/o_ ________________ aged______ R/o _______

_and__________
W/o _(Name of
borrower's wife)_____________aged _________R/o
_______ _________________ do hereby
solemnly affirm and declare:

1. That property (give description) belongs to

_ absolutely (or jointly with
_).

2. That the said property is free from and is not subject to any kind of
encumbrance, by way of:
i) HAQ-MAHR;
ii) WAQF; and
iii) WAQF-UL-ULAD

DEPONENT
VERIFICATION

Paras 1 and 2 above are verified to be true and correct to the best of my knowledge.

Place:_______________
Date:________________ DEPONENT

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5.9 LOAN FACILITIES TO PURDANASHIN WOMEN

While granting/sanctioning credit facilities and/or releasing the amount thereof,

Branches are advised to note not to insist upon production of photographs of
Purdanashin women in cases where such women take objection of the same.
Adequate precautions, such as production of proper identification of the parties
concerned, obtaining sureties or photographs of sureties/guarantors (where they are
also illiterate), where laid down should, however, be taken to ensure that funds lent
are in no way jeopardised.

6. EXECUTION OF DOCUMENTS

6.1 The liability of borrowers/guarantors can be enforced in a Court of Law on the

basis of documents executed by them and the entries made in the books of accounts
and registers of the Bank/computer system. As such all documents prescribed for
various facilities should be correctly drawn up/filled up, duly executed by the
borrowers before drawings are permitted.

6.2 Documents should invariably be executed in the presence of Bank Officer only.
The documents should not be handed over to the borrower for obtaining the
signatures of the other borrowers and or guarantor.

6.3 All blanks in the documents, including space for date should be duly filled in.
Date and place of execution of the loan documents should not be filled in the space
provided if the executants reside at different places and execute the same on different
dates. In such cases, each person should give the name of the place and date
underneath his signatures.

6.4 All alterations, additions, cuttings, overwritings, insertions, erasings, interlinings,

removal, tearings, deletions and cancellations must be authenticated by the
borrower/other executants under his full signature.

6.5 Documents should be got completed in one sitting only and in the same
handwriting using the same ink and pen, as far as practicable.

6.6 Documents should be of full value of sanctioned limit although only a part limit
might be disbursed initially.

6.7 All the documents should be executed in respect of an advance on one

common date that means that D.P. Note, Letter of Continuity, Deed of
Hypothecation etc. should bear the same date, as far as practicable.

6.8 Signatures of the borrowers/other executants must tally with the specimen
signatures supplied to the branch.

6.9 Generally, the borrowers/other executants put their signatures using the right
hand. If, however, a borrower/other executants signs in left hand, a note should be
annexed to/a narration to the effect may be given on the documents recording that
borrower/other executants has signed in left hand.

83
6.10 All loan documents, including guarantees executed by illiterate persons
should be supplemented by a certificate as per Annexure 2 signed by the Incumbent
Incharge and an independent witness.

6.11 All the executants should sign in the order as their names are appearing on
the face of documents, unless they execute at different places in which case
chronological order be observed.

7. DOCUMENTS AND THEIR STAMPING

7.1 If documents are required to be stamped, the same should bear stamp of
proper kind and value according to the law of the State wherein the same are
executed.

7.2 Documents must be duly stamped before execution. Proper stamp and of the
requisite value should be used. Where adhesive stamps are required, adhesive
stamps should be used and where non-judicial or special adhesive stamps are
required, these stamps should be used.

7.3 Documents such as DP Note, Balance Confirmation Letter, Letter of

Acknowledgement of debt, etc. depending upon the amount of duty may be stamped
with adhesive stamps (in the form of Revenue or other adhesive Stamps). Such
revenue or other adhesive stamps are to be cancelled by the executant in such a
manner that the same stamps cannot be used again.

7.4 Double signatures of all the borrowers, one across the revenue stamp and other
without stamp, should be obtained on the pronote or any other document requiring
adhesive stamp. The borrowers should cancel the stamp by signing across from
one side to the other.

7.5 Original payment voucher duly stamped with the revenue stamp of Re.1/- (or as
per the rates prevalent) would be kept with the documents and a true copy of the
payment voucher duly certified by an official of the Bank should be used for the Day
Book purpose.

7.6 The stamp duty in case of documents, such as agreements, indemnity

bonds, guarantees, mortgage deeds, power of attorney etc., varies from State to
State. Care should be taken to ensure that the documents are properly stamped.

In many states (like Maharashtra, Gujarat, M.P. & U.P.) where even mortgage by
deposit of title deeds (i.e. entry in the title deed register or letters exchanged or
memorandum given) are levied with stamp duty, care be taken to comply with the
provisions, having regard to the Rules as to how the stamps be affixed. If adhesive
stamps are not allowed, then the entry in the title deed register be made on non-
judicial stamps, etc. of requisite value which may be kept alongwith documents,
photocopy be affixed in the title deed register.

7.7 Loan documents should be obtained on the prescribed printed forms of the
Bank (embossed with stamp). In case the embossed printed forms are not
84
available, the instrument may be written/typed on the non-judicial stamp paper of
requisite value. At the time of execution, care should be taken to ensure that the
stamp paper does not bear the date of execution earlier than the date of its
purchase.

If the entire instrument cannot be written on the non-judicial stamp paper, plain paper
may be subjoined thereto. In every such case a substantial part of the instrument
should be written on the stamp paper before any part is written on the plain paper
subjoined. The stamp paper and also the plain paper subjoined should be signed by
the executant.

If the document is not to be written on the plain paper subjoined but the printed
prescribed form is to be used, then initial portion (say one or two) paragraphs of
printed format be written upon or typed out on non-judicial stamp paper and the non-
judicial stamp paper may be tagged to or be pasted over the portion of the printed
form to the extent it is written/typed out and both the non- judicial stamp paper and
printed form (if pasted, also at the joining place) be signed by the executant.

The reverse side of stamp paper should not be used for execution of the instrument.

7.8 Documents should neither be ante-dated nor post-dated nor without date.

7.9 It is advisable to debit the cost of stamps to the borrowers account.

7.10 Care should be taken to see that when the document is to be executed at
several places, the documents are first executed at a place where the stamp
required is the highest.

In case the document is executed at a place where the stamp duty is less, the deficit
stamp duty will have to be made up from Collector of Stamps at the place of
subsequent execution, where the instrument requires a higher stamp duty.

8. WITNESSING OF DOCUMENTS

8.1 The undernoted documents are required to be witnessed by law at the time
of execution:

a) Mortgage Deed
b) Guarantee Deed
c) Power of Attorney
d) Conveyance Deed
e) Gift Deed
f) Will

Besides signatures, the names and addresses of the witnesses should be obtained
on the documents.

8.2 The following documents, however, should not be witnessed:

a) Cash Credit/Overdraft Agreement PGB-727A

85
 b) Agreement of Pledge PGB-149
c) Agreement of Hypothecation PGB-148
d) Demand Pronote PGB-728
e) Usance Pronote or Bill of Exchange
f) Agreement of Hypothecation of Book Debts PGB-516
g) Hypothecation of movable/fixed Assets (Ist Charge) PGB-879
h) Combined Agreement For Hypothecation of Goods PGB-1031
and Book-Debts.

9. DOCUMENTS AND REGISTRATION

9.1 In case of certain documents (say mortgage deed), even if the bank has taken
correct and appropriate documents, an effective charge over the security cannot be
created unless it is registered as per the Registration Act. It is necessary, therefore, to
register such documents/ security as per the law in force.

9.2 REGSTRATION OF DOCUMENTS UNDER INDIAN REGISTRATION ACT, 1908

According to Sec.17 of the Indian Registration Act, the following documents are
required to be registered compulsorily with the Registrar or Sub- Registrar:

a) Instruments of gifts of immovable properties;

b) Other non-testamentary instruments which purport or operate to create,
declare, assign, limit or extinguish, whether in present or in future, any
right, title or interest, whether vested or contingent of the value of 100/- and
upwards to or in immovable property;
c) Non testamentary instruments which acknowledge the receipt or payment of
any consideration on account of the creation, declaration, assignments,
limitations or extinction of any such right, title or interest,
d) Lease of immovable property from year to year or for any term exceeding one
year or reserving in yearly rent.
e) Non-testamentary instruments transferring or assigning any decree or order of
a court or any award when such decree or order or award purports or
operates to create, declare, assign limit or extinguish whether in present or in
future, any right, title or interest whether vested or contingent, of the value of
100/- and upwards, to or in immovable property.
f) Mortgage of immovable properties (except by deposit of title deeds).
9.3 REGISTRATION OF CHARGES/SECURITIES UNDER THE COMPANIES ACT,
2013

9.3.1 As per section 77 of the of Companies Act 2013, It shall be the duty of
every company creating a charge within or outside India, on its property or assets or
any of its undertakings, whether tangible or otherwise, and situated in or outside
India, to register the particulars of charge signed by the company and the charge
holder together with the instruments creating such charge, on payment of such fees,
with the registrar within 30 days of its creation. As per the 2013 Act, all charges are
to be registered with the Registrar and as per the said provision, even ‘pledges’ will
have to be registered.
9.3.2 Thus charge created on the property of any company has necessarily to be

86
registered under this section. Charge includes a mortgage also. Therefore, charges
created on the properties of the company should be registered with the registrar of
companies as per the provision of this section.

9.3.3 Department of Company Affairs has informed by way of public notice ROC is
under e-governance and on-line registration requires signing by digital signatures
by company, bank and CA/Company Secretary. In view of the latest development
with regard to e-filing of charge, it is advised that filing/modification/satisfaction of
charge may be done electronically as per the details available on the website
www.mca.gov.in.

9.3.4 Where a company fails to register the charge within 30 days, the person in
whose favour the charge is created may apply to the Registrar for registration of the
charge alongwith the instrument created for the charge, within such time and in such
form and manner as may be prescribed and the Registrar may on such application
within a period of 14 days after giving notice to the company, unless the company
itself registers the charge or shows sufficient cause, why such charge should not be
registered, allow such registration on payment of such fees as may be prescribed.

9.3.5 If the company fails to register the charge within 30 days, the Registrar may,
on the application by the company, allow such registration to be made within a
period of 300 days of such creation on payment of additional fees.

10. BALANCE AND SECURITY CONFIRMATION LETTER

10.1 Under Law, a creditor has no legal remedy against the borrower after the expiry
of the period of limitation.

10.2 Balance and Security Confirmation Letter (PGB 139) is debtor's admission of
liability and acknowledgement of debt and security with the advantage of starting fresh
period of limitation from the date of signing the acknowledgement. An
acknowledgement of a barred debt cannot give a fresh period of limitation in favour
of a creditor. Therefore, acknowledgement should always be obtained well before the
expiry of the period of limitation.

10.3 Balance and Security Confirmation Letter from the borrowers and/or guarantors
should be obtained in the prescribed form which should be kept with the loan
documents and not in correspondence file.

10.4 An acknowledgement or confirmation of debt is not equal to a promise to pay

but only extends the period of limitation. Therefore, in case of a time barred debt
instead of obtaining the usual balance and security confirmation letter, an
acknowledgement with promise to pay should be obtained. This would revive the claim
for the principal amount to become enforceable. To claim interest also, it is necessary
to advance, say a token sum of 100 to provide consideration. Thus, for the revival of
the claim for the principal amount as well as interest of a time barred debt, an
agreement as per Annexure 3 should be obtained.

10.5 The Balance and Security Confirmation Letter from the borrowers and/or
guarantors, as the case may be, should be obtained at the close of each half year
87
or at such regular intervals as may be prescribed by the Bank.

10.6 The Balance and Security Confirmation Letter obtained periodically from the
borrowers as well as from the guarantors should be enter under account details
in CBS. The signatures of the borrower should be verified by an authorised official
and rubber stamp affixed on the Balance and Security Confirmation Letter to the
effect "Signature Verified".

10.7 The date and place of execution of the Balance and Security Confirmation
Letters should be filled in by the borrowers themselves and not by any member of the
staff. Date stamp should not be used. This precaution is very necessary lest the
debtor contends that the date was filled in by the creditor himself to save the
limitation.

10.8 All the signatories on the original documents should sign the Balance and
Security Confirmation Letters, unless otherwise provided.

10.9 The Balance and Security Confirmation Letters, if required, to be signed by

different persons at different places should be taken separately from each one of them
affixing the stamp according to the law of the state.

10.10 Balance Sheet published by companies can be relied as

acknowledgements. As the dues shown in the liabilities in the Schedule of Secured
Loans are an acknowledgement of debt, it may be ensured that the company
mentions bank-wise dues therein. For this purpose, the matter be taken up with
the borrowing companies requesting them to state bank-wise liabilities in the Balance
Sheet. Balance Sheets should be obtained for each year, the same be scrutinised
and be kept safely for use at the time of need.

10.11 Vide clause 9 of Agreement of Guarantee, viz. PGB-58, the authority of the
guarantor has been made specific. It is, therefore, necessary that where the
borrower/ borrowers acknowledges/ acknowledge on behalf of other borrowers(s)/
guarantor(s) or the guarantor acknowledges on behalf of co- guarantor(s), he/they
should acknowledge as such. That is, he/they should sign/execute balance
confirmation stating `for self and on behalf of........".

It should be ensured that the aforesaid requirement is invariably met with where the
agreement of guarantee is executed on form No.PGB-58.

11. AMENDMENTS IN THE TERMS AND CONDITIONS

11.1 Any change in the rate of interest, margin, etc. should be intimated to the
borrowers as well as guarantors by means of a letter delivered in person or sent
either through Registered AD or through courier and acknowledgement thereof
should be kept on record alongwith original documents.

11.2 All the loan agreements should contain a clause to the effect that interest rates
are subject to change from time to time at the discretion of the bank as indicated
below:

88
"Provided that the interest payable by the borrower shall be subject to change in
interest rates made by RBI/bank from time to time."

Whenever the enabling clause has not been incorporated in the loan agreements, the
retrospective revision of interest may be done after obtaining a stamped
supplementary agreement from the borrower as per Annexure 4. The stamped
supplementary agreement so obtained from the borrower should be kept with the
original documents.

A letter from the guarantor to the effect that he agrees to the change in terms and
conditions as regards interest as contained in the supplementary agreement
dated executed by the borrowers(s),
Shri/M/s be also obtained and kept on record. In case of
companies, wherever the aforesaid supplementary agreement has been obtained, the
modification of charge has to be filed appropriately with the competent authority.

12. LETTER OF CONTINUITY

12.1 In case of pledge advances, at the time of renewal of documents, the old
account should be closed and balance transferred to a new account. At that time, an
authority letter on Form No. PGB 350 should be taken, which, while authorising the
Bank to open a new account also confirms the balance due from the borrowers as
well as the security held in the said account. The procedure will be applicable in
respect of all pledge accounts excepting those which are against the security of
stocks and are collaterally secured by mortgage of immovable property for which
detailed instructions are given in Part II.

12.2 Borrowers, who have their business at different places and sanction provides
allocation of limits, will execute only one set of loan documents for the consolidated
limits at the office where their Head Office is situated. The distribution of the limit
at various stations should, however, be permitted only after obtaining the
necessary letter of authority from the party in this behalf. In such cases, while
obtaining fresh documents in case of renewal of loan facilities, a letter as per
Annexure 5 should be obtained along with other documents. As this letter also
contains the necessary authorisation for closing the old account and opening a new
account as well as confirming the outstanding balance and security thereof, letter as
per Form No. PGB 350 need not be executed in such cases. Letter as per
Annexure 5 makes provision for confirmation of aggregate balance due at all
branches on a particular date which may be a few days earlier than the date of
execution of fresh documents, so that the main branch may obtain this
information from the other branches well in time. After fresh documents have
been executed, the main branch should intimate other branches of the amount of the
limit allocated to them.

12.3 In cases where the partners of a firm reside at different places and all the
partners as per procedure already described have signed the documents, the
letter of continuity (PGB-350) can be signed by the partners residing locally.

13. GENERAL SAFEGUARDS TO BE OBSERVED DURING DOCUMENTATION

89
13.1 In all cases of Loan accounts, where advances are sanctioned to two or more
persons, letter of authority in favour of the person to whom the consideration
money is to be paid, should be obtained.

13.2 When an executant of documents knows one of the vernacular or regional

languages but does not know English/Hindi, a letter may must be taken from him,
written in his own hand writing, in whatever language he knows has signed the
documents to the effect that the contents of the documents (to be specified) were
explained to him by the Incumbent Incharge of the Office at the time of execution of
the documents by him and that he has signed after understanding the contents and
implications. Such a letter should be kept along with the loan documents.

In such cases, Branch Managers should supplement the documents by a certificate

as per appendix given below:-

With reference to the loan/limit of sanctioned by the Bank to

_ and guaranteed by
it is hereby certified that the borrowers and/or
guarantors have signed in _ language the following
relative loan documents, on date, in our presence. The contents of the documents
were read and the implications thereof explained to them and they have put their
signatures after fully understanding the said contents and implications:-
(a)
(b)
(c)
Manager/Officer Incharge
Station _
Date
Witness
Address_

13.3 When loan documents are signed by any of the borrowers in vernacular
language, transliteration of such signatures in English should invariably be made at
the time of execution of documents. Such transliteration should ordinarily be made
immediately below the vernacular signatures of the borrowers. In case, however,
where for want of space, it is not possible to do so, the transliteration of vernacular
signatures may be made on the reverse side of the documents signed.

13.4 If a partnership firm is guaranteeing the advance, it should be ensured that all the
partners sign the guarantee form unless giving of guarantee is the normal business of
the partnership firm.

13.5 The signature of the minor should not be obtained on the document, even
though he may be beneficiary in the partnership firm.

13.6 In case a Limited Company is a borrower, Directors need not sign D.P. Note
and letter of continuity in their personal capacity. It is advisable to take a separate
Guarantee form executed by them, if necessary.

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13.7 The signature of the borrower should never be obtained on the Guarantee Form.

13.8 In respect of all limits, branches should communicate the details of facilities
sanctioned alongwith respective terms & conditions to the borrower on the
prescribed letter and letter from the borrower regarding his acceptance of the same be
also obtained on the prescribed format.

13.9 Branches shall incorporate following clauses in the loan agreement to be

obtained from borrowers:-

“The borrower/s agree/s that

A) The disbursal of credit facility viz. is solely at the discretion

of the Bank.

B) i) The bank may disallow facility, keeping in view bank’s exigencies.

ii) The bank may disallow drawing beyond the sanctioned limits.

iii) The bank may dishonour/return cheques issued for the purpose other
than specifically stated in the credit sanction or in this agreement.

iv) The bank may disallow drawing in the account on its classification as a
non-performing asset or on account of non-compliance with the terms
of sanction or this agreement.
C) The bank does not have an obligation to meet further requirements of the
borrowers on account of growth in business, etc. without proper review of
credit limits.”

13.10 ACCEPTANCE OF TERMS AND CONDITIONS

The branch shall communicate the terms and conditions of sanction to the borrower in
respect of all loans. For this purpose, a letter as per draft enclosed (Annexure-5.1)
shall be sent to the borrower alongwith an annexure containing the details of the
facilities sanctioned and the respective terms and conditions. The borrower/s shall
convey his/their acceptance of the terms and conditions as per draft letter enclosed
(Annexure-5.2). It may be noted that such acceptance also includes the clause
authorising the Bank to get the documents scrutinised by solicitor/advocate.

In case of a Company, necessary resolution authorising the signing official(s) to give

such a letter, besides execution of documents be obtained and kept on record.

On execution of documents, another letter from the borrower addressed to the Bank
as per draft enclosed, (Annexure-5.3) is to be obtained inter alia for accepting
the terms and conditions as contained in the loaning and security documents and
also to confirm the execution of the documents out of free will and without any
influence.

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13.11 EXECUTION OF DOCUMENTS BY ATTORNEY

i) In the case of a person applying for accommodation who holds a valid

power of attorney to this effect from an individual, a company or partnership
or Joint Hindu Family Trading Firm, a notice on the prescribed proforma
(Annexure 5.4) should be sent to the principal. The necessary confirmation
from the principal should be kept alongwith the documents executed by the
Attorney. As regards the power of attorney, it has to be strictly construed.
Borrowing powers creating of security, operation of account, signing of B.C.
Letters and other powers must be kept in view.

ii) The attorney should sign the documents in the following form:

For and on behalf of (Name of the principal)

Sd/- Attorney

Before allowing operation in loan account by the attorney, Incumbent Incharge

should ensure that the power of attorney is properly stamped, executed and
is subsisting.

iii) A true copy of the power of attorney, certified as correct by the executant,
must also be kept alongwith the documents if the original power of attorney is
required back by the attorney.

13.12 AFFIXING OF REVENUE STAMP

In case of disbursement through transfer payment voucher, the revenue stamp

need not be affixed on the same. However, the transfer payment voucher(s) should
be got properly discharged from the borrowers(s).
13.13 DISHONOUR OF CHEQUES

While executing documents in respect of CC/OD limits, it should invariably be ensured

to put the under noted narration with a rubber stamp in all CC/OD agreements, till
the same is permanently incorporated in the relevant agreements:-

“It is open to the Bank not to issue fresh cheque book in the account or even to
consider its closure/discontinuing the credit facility therein at its discretion in the
event of frequent dishonour of cheques. The frequency of dishonour and minimum
amount of each such cheque/s so dishonoured shall be as prescribed by the Bank
from time to time.”
14. DRAFTING AND VETTING

In respect of all accounts having limits of 20 lakh & above, branches should get
all the documents vetted from the local approved advocate/solicitor, first before their
execution and again after execution but before disbursement of loan. Branches
should also obtain a letter/ certificate as per the proforma (Annexure 5.5) from the
Advocate. Sometimes, these certificates are submitted in a very casual manner

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and the deficiencies in the documents observed by Advocates have been narrated
in the certificate instead of removing the same. As such, the deficiencies in
documents, if any, observed be got removed before submitting the certificate by
the Advocates. The job of vetting of the documents should be done by observing the
laid down guidelines, so that it should be meaningful and serve the purpose.

15. CONSENTS OF BORROWERS AND SUBMISSION OF CREDIT INFORMATION

TO CIBIL

Branches should obtain consents of the borrowers/guarantors/co-obligants by

incorporating the requisite clauses as per Annexure 5.6 & 5.7, in the respective loan
agreements of the borrowers. This is necessary as a prudential requirement to obtain
the consent of the borrowers for disclosure of information to CIBIL, for compilation of
credit information data base accessible to member banks. All Suit filed & Decreed
accounts, RC filed accounts (under State Recovery Act) and staff loan accounts are
exempted from the purview of obtention of consents.

16. CHECKLIST FOR ASPECTS RELATING TO DOCUMENTATION

a) In all loan accounts, bank's standard documents be obtained. However, in case

of certain special provisions/conditions of the sanction, documents be got
drafted from Circle Office/HO.

b) Document should be executed by the person who has the legal capacity and is
duly authorised to do so.

c) Documents should be adequately stamped as per rate in force.

d) Alterations and cuttings etc. should be duly authenticated/ confirmed.

e) Signatures of witness (es) should be obtained alongwith their names and

addresses, wherever required.

f) In case of companies, it must further be ensured that:

i) The company should have powers to borrow as per provisions of

Memorandum & Articles of Association, Resolution of Company's General
Meeting etc.

ii) Where, the company gives a Guarantee, whether ‘object clause’ permits the
same and whether the requirements of Sec. 295 & 372A (if applicable) are
complied with.

iii) If common seal is affixed, it should be in accordance with the provisions in the
Articles and be supported by and be in line with the Board Resolution. The
person in whose presence the Seal is affixed will sign, state his name,
designation and name of the company.

iv) Particulars of charges/modification of charges duly filled should be filed with

Registrar of Companies in time.
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 PART – 2
In this part documents to be obtained in various types of advances are specified
according to the nature of the facility and the security. Branch Heads should ensure
that the documents specified under the respective heads are properly executed and
miscellaneous instructions given thereunder are strictly followed.
2. BANK DEPOSITS

2.1 DEPOSIT IN THE NAME OF THE BORROWER:

a) DEMAND LOAN

i) Application/Letter of pledge/lien (PGB-308)

ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (not to be signed
by the borrower).

iii) a. For advances against Fixed Deposit/Confirmation of Deposit – Confirmation

of Deposit duly discharged across revenue stamp of the appropriate value.

b. For advances against Recurring Deposit-Receipt in Recurring Deposit Pass

Book duly discharged across revenue stamp of the appropriate value alongwith
Pass Book.

iv) Letter of Undertaking from the borrower to repay the loan as per
Annexure 6

b) OVERDRAFT

i) Application/Letter of Pledge/Lien - PGB-308 (The pronote portion will not be

executed).

ii) Overdraft Agreement PGB 727-A (Stamped).

iii) Account Opening Form and Specimen Signature Slip.

iv) a. For advance against Fixed Deposit/Confirmation of Deposit - Confirmation of

Deposit duly discharged across revenue stamp of the appropriate value.

b. For advance against Recurring Deposit - Receipt in Recurring Deposit

Pass Book duly discharged across revenue stamp of the appropriate value
alongwith the Pass Book.

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2.2 DEPOSIT IN THE NAME OF THIRD PARTY

a) DEMAND LOAN

Documents to be executed by the borrower:

i) Demand Pronote - PGB 728 (Stamped).

ii) Letter of Undertaking to repay the loan as per Annexure 6.

iii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

Documents to be executed by the depositor:

i) PGB 308 - Letter of Pledge/Lien (The pronote will not be executed).

ii) a. For advance against Fixed Deposit/Confirmation of Deposit – Confirmation of

Deposit duly discharged across revenue stamp of the appropriate value

b. For advance against Recurring Deposit – Receipt in Recurring Deposit Pass

Book duly discharged across revenue stamp of the appropriate value alongwith
pass book

b) OVERDRAFT

Documents to be executed by the borrower:

i) Overdraft Agreement - PGB 727 A (Stamped).

ii) Account Opening Form and Specimen Signature Slip.

Documents to be executed by the depositor:

i) PGB 308 - Letter of Pledge/Lien (The pronote will not be executed).

iii) a. For advance against Fixed Deposit/Confirmation of Deposit – Confirmation of

Deposit duly discharged across revenue stamp of the appropriate value

c. For advance against Recurring Deposit – Receipt in Recurring Deposit Pass

Book duly discharged across revenue stamp of the appropriate value alongwith
pass book

2.3 MISCELLANEOUS INSTRUCTIONS

i) In case of advances against joint deposit accounts, the following guidelines
95
be kept in view:
a) If revised Account Opening Form (AOF) has not been obtained for the deposit
account, then
- Pledge portion of the form no. PGB 308 would be signed by all the
depositors, and
- Confirmation of Deposit/ Receipt in Recurring Deposit Pass Book would be
discharged (on revenue stamp) by all the depositors.
b) If revised AOF has been obtained for the deposit account, then
- In case of deposit payable to ‘Former or Survivor’, advance may be made to
‘Former’ without reference to ‘Survivor’, & further:

 Pledge portion of form no. PGB 308 may be signed only by ‘Former’ and
 Confirmation of Deposit /Receipt in Recurring Deposit Pass Book may be
discharged (on revenue stamp) only by ‘Former’.
- In case of deposit account payable to ‘Either or Survivor’/Anyone of us or
Survivor’, advance may be allowed to any one of the joint account holders,
during the life time of the joint holders, & further:

 Pledge portion of form no. PGB 308 may be signed only by the depositors
making request for advance, and
 Confirmation of Deposit /Receipt in Recurring Deposit Pass Book may be
discharged (on revenue stamp) only by the depositor making request for
advance.
ii) Bank's lien in terms of party's letter in red ink would be noted/ stamped on the
relative deposit receipt/pass book & in the respective account by an authorised
official of the Bank by entering appropriate option. In CBS system, lien is
marked/vacated automatically by the system when SRM is created for new loan
account/closed loan account provided the FD A/C No. is given in the Lien Account
field.

iii) In case the number of borrowers is two or more, a letter of authority signed by all
the borrowers to pay the consideration money to one of them would be obtained.

iv) In case of third party deposits while application and pronote will be signed by
the borrower the pledge portion will be signed by the depositor(s) for demand loan.
For overdraft account, form no. PGB 727A will be executed by the borrower(s)
instead of pronote portion.

v) Advance against fixed deposit should be liquidated on maturity. However, in

case of renewal of the fixed deposit on maturity, the advance against the fixed
deposit so renewed, may be allowed to continue as per the mandate given by the
depositor. Moreover, margin, rate of interest and new maturity date is to be modified
in the account procedurally.

vi) Balance confirmation letters in loan accounts against the security of bank
deposits will not be obtained unless the debit balance exceeds the value of security
96
and/or the deposit under pledge matures after two years and above from the date
of advance and/or where the depositor has given mandate for auto renewal of
FDR/Confirmation of Deposit.

vii) In case of advance against deposits in the name of the minor, the following
guidelines should be kept in view:

a. Advances against term deposits in the name of the minor should only be granted
to the natural guardian or guardian appointed by court.
b. An undertaking from the guardian would be taken to the effect that the
advance is required for the benefit of the minor and that he/she shall indemnify the
Bank against any claim or loss in consequence of having allowed the said advance.
c. While granting advances by way of overdraft to the natural guardian or guardian
appointed by the court against bank's own deposits standing in the name of the minor,
the following undertaking may be obtained:

"That Shri/Miss _ is my son/daughter and I am

his/her natural guardian/appointed by the court.

That the overdraft facility for applied for against the security
of deposits of _ standing in the name of Shri/Miss ______
minor is required for the benefit of the said
minor and all the withdrawals shall be utilised for the benefit of the minor and
payments/deposits made in the account shall be on the account of the minor as
his/her money. I undertake to indemnify the Bank against any claim, damages or
loss arising in consequent of the Bank having allowed the said facility at my request.

DECLARANT"
3. LIFE POLICIES

3.1 POLICY IN THE NAME OF BORROWER

a) DEMAND LOAN

i) Demand Pronote - PGB 728 (Stamped).

ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

iii) Letter of Undertaking from the policy holder to keep the policy alive (for each
life policy) - PGB 338.

iv) Notice of Assignment as per Annexure 7 (in duplicate). The Policy after
incorporating the absolute assignment as per Annexure 8 duly signed by the
policy holder and witnessed should be sent to Life Insurance Corporation/
Insurance Company along with the notice of assignment (Annexure 7) for

97
 getting the assignment registered.

V) Latest premium receipts.

vi) Undated letter of authority for surrendering the policy as per Annexure 9 (This
should be taken for each life policy separately which can be dated at the time of
actually surrendering the policy to the Life Insurance Corporation/ Insurance
company).

b) OVERDRAFT

i) Overdraft Agreement - PGB 727 A (Stamped).

ii) Letter of Undertaking from the policy holder to keep the policy alive (for each
life policy) - PGB 338.

iii) Notice of Assignment as per Annexure 7 (in duplicate). The Policy after
incorporating the absolute assignment as Annexure 8 duly signed by the policy
holder and witnessed should be sent to Life Insurance Corporation along with
the notice of assignment (Annexure 7) for getting the assignment registered.

iv) Latest premium receipts.

v) Undated letter of authority for surrendering the policy as per Annexure 9. (This
should be taken for each life policy separately which can be dated at the time of
actually surrendering the policy to the Life Insurance Corporation/ Insurance
company).

vi) Account Opening Form and Specimen Signature Slip.

3.2 POLICY IN THE NAME OF THE THIRD PARTY

a) DEMAND LOAN

Documents to be executed by the borrower:

i) Demand Pronote - PGB 728 (Stamped).

ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

iii) Letter of Pledge for Policy - PGB 491

Documents to be executed by the assured of the life policy:

i) Letter of Undertaking from the policy holder to keep the policy alive (for each
life policy) PGB 490.

98
ii) Notice of Assignment as per Annexure 7 (in duplicate). The Policy after
incorporating the absolute assignment as per Annexure 8 duly signed by the
policy holder and witnessed should be sent to Life Insurance Corporation/
Insurance Company along with the notice of assignment (Annexure 7) for
getting the assignment registered.

iii) Undated letter of authority for surrendering the policy as per Annexure 9. (This
should be taken for each life policy separately which can be dated at the time of
actually surrendering the policy to the Life Insurance Corporation/Insurance
company).

b) OVERDRAFT

Documents to be executed by the borrower:

i) Overdraft Agreement - PGB 727 A (Stamped).

ii) Letter of Pledge for Policy - PGB-491.

iii) Account Opening Form and Specimen Signatures Slip. Documents to be

executed by the assured of the life policy:

i) Letter of Undertaking from the policy holder to keep the policy alive (for each
life policy) - PGB 490.

ii) Notice of Assignment as per Annexure 7 (in duplicate). The Policy after
incorporating the absolute assignment as per Annexure 8 duly signed by the policy
holder and witnessed should be sent to Life Insurance Corporation/Insurance
company along with the notice of assignment (Annexure 7) for getting the
assignment registered.

iii) Undated letter of authority for surrendering the policy as per Annexure 9. (This
should be taken for each life policy separately which can be dated at the time of
actually surrendering the policy to the Life Insurance Corporation/Insurance
company).

3.3 MISCELLANEOUS INSTRUCTIONS

i) Advance against Life Policies be considered after taking into account the
purpose of advance and repaying capacity of the borrower.

ii) The Periodical/Terminal Survival Benefits to be received from LIC of

India/Insurance Company in respect of the Policies assigned in Bank’s favour
shall be directly credited in the Demand Loan/OD account. Accordingly, the
Demand Loan/OD limit shall be appropriately reduced according to the fresh
Surrender Value after receipt of Survival Benefit from LIC of India/Insurance
Company.

iii) It is the practice of the Life Insurance Corporation/Insurance Company to call

99
for the power of attorney granted in favour of the bank official requesting for
assignment/re-assignment. Branch Heads are advised that Power of Attorney issued
by the bank in their favour, to conduct the bank business, may be got registered with
the LIC of India/Insurance Company or may be forwarded to them as and when
called for, for assignment/re- assignment of bank’s lien on the insurance policies.

iv) On adjustment of relative loans against Life Policies, such policies be re-
assigned by the bank in favour of the person from whom the assignment was taken.
The re-assignment may be made in the form as per Annexure- 10.

v) When re-assignment of Life Policies is made after adjustment of the relative

loan, the Bank's official signing such re-assignments must give his name in BLOCK
LETTERS within the bracket, underneath his signature.

vi) The notice of reassignment along with re-assigned policy should be sent to
Life Insurance Corporation/Insurance Company under Registered A.D. cover with
instructions to send the policies to the respective policy holders after registration of
the re-assignments, under advice to the branch concerned. Copies of forwarding
letters sent to the L.I.C./Insurance Company in this regard should be endorsed to the
borrower concerned.

vii) Branch Heads are advised that whenever any policy is to be surrendered to the
LIC of India/Insurance Company towards adjustment of their loan, it should be
ensured that such request be accompanied by either a letter of concurrence from the
assured assignor, or a notice issued by the bank to the borrower with regard to
surrendering the policy.

viii) LIC Policies effected by a married man for the benefit of his wife and/or
children under Section 6 of the Married Women's Property Act, should not be
accepted as security. Hence no advance should be allowed against such policies.

ix) All life policies held as security should be recorded in the Life Policy Register
(PGB-307) and thereafter be placed together with the relative loan documents in
a fireproof safe under the dual control of authorized officials.
4. GOVERNMENT/POSTAL SECURITIES

4.1 DEMAND LOAN

i) Demand Pronote - PGB 728 (Stamped).

ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

iii) Application for advance against shares and government securities - PGB 334

iv) Agreement of advance against shares and Govt. securities PGB-151 stamped.
100
v) Government/Postal securities duly endorsed/pledged/transferred in favour of the
Bank.

vi) Letter Of Lien PGB-308, wherever applicable.

4.2 OVERDRAFT

i) Overdraft Agreement - PGB 727 A (Stamped).

ii) Application for advance against shares and government securities - PGB 334

iii) Agreement of advance against shares and Govt. securities PGB-151 stamped.

iv) Government/Postal securities duly endorsed/pledged/transferred in favour of the

Bank.

v) Account Opening Form and Specimen Signatures Slip.

vi) Letter Of Lien PGB-308, wherever applicable.

4.3 MISCELLANEOUS INSTRUCTIONS

i) While allowing advances against Government/Postal Securities the procedures

prescribed by Public Debt Office of RBI and/or Postal Authorities must be strictly
followed.

ii) Government promissory notes must be endorsed in favour of the Bank.

iii) All Government promissory notes tendered as security for advances must
invariably be sent to the appropriate Public Debt Office for examination in order to
ascertain that the endorsements are in order, that the notes are not stopped or
confiscated, that none of them is a duplicate, and that no alterations have been
made in the principal amounts.

iv) When the scrip bears several endorsements, they should generally require the
holder to have it renewed. This should be done preferably before endorsement to the
Bank as subsequent renewal does not fully protect from the consequences of a
forged endorsement on the old note.

v) Stock certificates are not good security for advances unless they are transferred
into the Bank's name. The forms of transfer having been completed by the holders
and the Bank, the certificates should be forwarded to the appropriate Public Debt
Office for new certificates to be issued in the name of the Bank. Alternatively,
intending borrowers should be asked to convert their inscribed stock into endorsable
government paper.

vi) While allowing advances against National Saving Certificates (NSCs)/Kisan

Vikas Patras (KVPs), the relevant securities must be got duly pledged &

101
transferred in bank’s favour. Lien on NSCs & KVPs should be got marked by sending
the same through Registered Letter or through a staff member. In no case should
such securities be handed over to the borrower for getting the lien marked in favour of
the bank.

5. UNITS OF UNIT TRUST OF INDIA

5.1 DEMAND LOAN

i) Demand Pronote - PGB 728 (Stamped).

ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

iii) Application for advance against shares and government securities - PGB 334

iv) Blank transfer deeds duly signed on forms prescribed by Unit Trust of India.

v) Letter of Authority (in duplicate) as per Annexure 11. A copy of this letter
should be sent to Unit Trust of India along with a forwarding letter as per
Annexure 12.

vi) Agreement of advance against shares and Government securities PGB- 151
stamped.

vii) Pledge of the original unit certificates.

viii) For units in demat form, documents as applicable in case of advance

against shares in demat form may be obtained

5.2 OVERDRAFT

i) Overdraft Agreement - PGB 727 A (Stamped).

ii) Application for advance against shares and government securities - PGB 334

iii) Blank transfer deeds duly signed on forms prescribed by Unit Trust of India.

iv) Letter of Authority (in duplicate) as per Annexure 11. A copy of this letter
should be sent to Unit Trust of India along with a forwarding letter as per
Annexure 12.

v) AOF and Specimen Signatures Slip.

vi) Agreement of advance against shares and Govt. securities PGB-151 stamped.

102
vii) Pledge of the original unit certificates.

viii) For units in demat form, documents as applicable in case of advance

against shares in demat form may be obtained.

NOTE: While allowing advances against Units of approved Mutual Funds, Branches
should obtain Documents as advised through L&A Circulars on the subject, from
time to time.
6. SHARES (ADVANCES TO INDIVIDUALS)

6.1 IMPORTANT GUIDELINES

i) Advances against the security of Shares (both in physical and dematerialised

form)/Debentures and PSU Bonds can be permitted only by the ‘Selected
Branches’.

In terms of Section 19(2) and (3) of the Banking Regulation Act, 1949, a Bank
cannot hold shares in any company whether as pledgee, mortgagee or absolute
owner, of an amount exceeding 30% of the paid up share capital of the company
or 30% of the own paid up share capital and reserves, whichever is less.

Further a bank cannot hold shares, whether as pledgee, mortgagee or absolute

owner, in any company in the management of which any Managing Director or
Manager of the bank is in any manner concerned or interested.

iii) In order to abide by the statutory provisions mentioned at (ii) above, ‘Selected
Branches’ are at present required to seek prior clearance from the Share Section,
Credit Division, HO for allowing any advances against shares (excluding
debentures and bonds) as primary security and also for shares to be accepted as
collateral security. It may be noted that such clearance is required for shares to be
held both as primary security or collateral security. The prescribed proforma (refer
chapter on "Overdrafts & Demand Loans") is to be used for seeking clearance from
HO for allowing advances against shares only (excluding debentures and bonds),
invariably quoting the Index No. as given in the list of the companies (circularised
from time to time), whose shares are approved for financing thereof.

iv) While granting advances against shares (both in physical form and
dematerialised form)/debentures and PSU Bonds, a declaration must be obtained
from the borrowers indicating the extent of loans availed by them from other banks
against such securities. Care should be taken to ensure that a single borrower or a
group of borrowers do not obtain large credit against shares/debentures from
different banks. It would also be necessary to ensure that such accommodation
from different banks is not obtained against shares of a single company or a group of
companies.

v) The sanctioning authority should satisfy himself about the marketability of the
shares and the net worth and working of the company whose shares are offered as
security.

103
6.2 SHARES IN PHYSICAL FORM

A. DEMAND LOAN

i) Demand Pronote - PGB 728 (Stamped).

ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

iii) Application for advance against Shares and Government Securities PGB - 334.

iv) Agreement of advances against shares and government securities - PGB- 151
(Stamped).

v) Share scrip

vi) Blank transfer deeds duly signed and witnessed. Witness should not be
husband/wife of borrower.

B. OVERDRAFT

i) Overdraft Agreement - PGB 727 A (Stamped)

ii) Application for advance against shares and government securities - PGB 334.

iii) Agreement of advances against shares and government securities - PGB- 151
(stamped).

iv) Share scrip

v) Blank transfer deeds duly signed and witnessed. Witness should not be
husband/wife of borrower.

vi) AOF and Specimen Signature Slip.

C. MISCELLANEOUS INSTRUCTIONS

i) It is to be noted that share certificates, blank transfer deeds, government

promissory notes and allotment letters are not to be impressed with the name of
the Bank.

ii) In case of limits of over 10 lakhs, shares should be transferred in the name
of the Bank.

iii) Partly paid shares should not be accepted as security.

104
iv) Incumbent Incharge must see that shares offered as security are
accompanied by undated blank transfer deeds signed by the registered holders
and witnessed; the witness, who must not be the husband or wife of the borrower,
should state his or her address on the forms.

v) Notice of the Bank's lien on shares should be sent by registered AD post to the
Companies concerned. The notice should be in the following form:

"We hereby give you notice that _

of _has deposited
with us by way of pledge, share certificates for shares in
your company standing in his name, particulars of which appears below, and has
executed and deposited blank transfer deeds with the said share certificates. Please
make the necessary entry in your company's records and acknowledge receipt of this
notice.

Nos. of Certificates Nos. of Shares"

Copies of the notice, the postal acknowledgement, and any letter from the Company
in this regard, when received, should be attached to the relative scrip.

vi) The share scrips accepted as security and the relative blank transfer deeds
should be sent separately to the companies concerned for verification of
genuineness of the scrips and signatures of the registered holder on the transfer
deeds.

However, the Sanctioning Authority at all levels to the extent of their respective loaning
powers may permit waivement of verification of genuineness of share scrips and
signatures of registered holders on transfer deeds in exceptional cases where
borrowers possess substantial means, enjoy high standing and good reputation in the
market.

vii) The share scrip should be in lots which are usually negotiated on Stocks
Exchange in which scrips held as security are dealt in, as odd lots may not be easily
disposed of if the necessity arises or may fetch lower than the market price.

viii) While transmitting share scrips with the share transfer deeds to the company
concerned for registration of shares in the name of the Bank, Branch Heads should
indicate their names in block letters underneath their signatures and also send their
power of attorney to the company concerned, so that it may be able to verify the
authority of signatories for signing such documents on behalf of the Bank.

6.3 SHARES IN DEMATERIALISED FORMS

A. DEMAND LOAN

i) Demand Pronote - PGB 728 (Stamped).

105
ii) a. Payment voucher duly receipted across revenue stamp of the appropriate
value.

b. Certified true copy of the payment voucher for Day Book (Not to be signed by
the borrower).

iii) Application for advance against shares and debentures

iv) AGREEMENT of Deposit (by way of Pledge) of Securities/to create security

interest on Securities (stamped).

B. OVERDRAFT

i) Overdraft agreement 727 A (stamped).

ii) Application for advance against shares and debentures
iii) AGREEMENT of Deposit (by way of Pledge) of Securities/to create security
interest on Securities (stamped).
iv) AOF and Specimen Signature Slip.

C. MISCELLANEOUS INSTRUCTIONS

i) Copy of Pledge Creation/Pledge Closure/Pledge Invocation Report, as received

from BO: Sansad Marg, New Delhi should also be kept alongwith the documents.
ii) The copies of various forms/documents as mentioned above for allowing
advances against dematerialised shares have been circularised through Loans &
Advances circular.
iii) While allowing advances against the security of dematerialised securities, the
formalities prescribed under SEBI Regulations must be complied with.

7. GOVERNMENT SUPPLY BILLS - OVERDRAFT

i) Overdraft Agreement PGB 727 A (Stamped).

ii) Application for advance against Bill for Collection - PGB 339.
iii) Power of attorney in favour of the Bank as per Annexure 13 (duly attested by
Notary).
iv) Letter for excluding old bills from drawing power - PGB 390.
v) Letter as per Annexure 14.
vi) AOF and Specimen Signatures Slip.

MISCELLANEOUS INSTRUCTIONS

i) Government supply bills tendered as security should be duly receipted and

assigned by the borrower in favour of the Bank. It should be ensured that notice of
such assignment as per Annexure 15 in respect of each transaction is sent to the
government department concerned, by the borrower. A copy of the same should be
endorsed to the Bank.

ii) Railway Receipts and other documents accompanying the bills tendered as

106
security should also be endorsed in favour of the Bank.

iii) The bills and accompanying documents should be sent to the Government
Department concerned with a covering letter as per Annexure 16 under registered
cover with acknowledgement due.

iv) All Government supply bills and the accompanying inspection notes should be
minutely examined to ensure that they are genuine and are free from all defects.

8. ADVANCES AGAINST BILLS FOR COLLECTION (ABC) – CASH

CREDIT

i) Cash Credit Agreement - PGB 727 A (Stamped)

ii) Application for advance against Bills for collection - PFB 339.
iii) Letter of Indemnity - PGB 222.
iv) AOF and Specimen signatures Slip.
v) Letter from the borrower for excluding old bills from the Drawing Power- PGB-
390.
vi) Letter from the borrower on Form No. PGB-393.
9 . STOCKS

9.1 PLEDGE OF STOCKS

9.1.1 Without any collateral security by way of Mortgage of Immovable

Property

CASH CREDIT

A. FRESH EXECUTION

i) Agreement of pledge - PGB 147 stamped.

ii) AOF and specimen signature slip.

B. CHANGE IN THE TERMS AND CONDITIONS

i) Letter from the borrower agreeing to the changes in the terms and
conditions.
ii) Letter of continuity - PGB 350 (If the borrower is also availing a portion of the
limit at some other office of the Bank, letter of continuity as per Annexure 5 instead of
PGB 350 should be taken).
iii) Old account should be closed and the balance transferred to new account.
iv) AOF and Specimen Signatures Slip.

C. ENHANCEMENT IN THE LIMIT

i) Agreement of Pledge - PGB 147 (Stamped) - For the entire limit.

ii) Letter of continuity - PGB 350 (If the borrower is availing a portion of the limit
at some other office of the Bank letter of continuity as per Annexure 5 instead
of PGB 350 should be taken).
107
iii) Old account should be closed and the balance transferred to new account.
iv) AOF and Specimen Signatures Slip.

9.1.2 Collaterally secured by Mortgage of Immovable Property CASH CREDIT

A. FRESH EXECUTION

i) Agreement of Pledge - PGB 147 (stamped).

ii) Agreement in respect of collateral security (please refer Chapter on Mortgage).
iii) AOF and Specimen Signatures Slip.

B. CHANGE IN THE TERMS AND CONDITIONS

i) Letter from the borrower agreeing to the changes in the terms and
conditions.
ii) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to
be securities for the renewed limit also.
iii) The account already running should not be closed.

C. ENHANCEMENT IN THE LIMIT

i) Agreement of Pledge - PGB 147 (Stamped) - For the enhanced portion of the
limit only (Opening para of Form No.147 old should be taken as per
Annexure 17).
ii) Supplementary agreement in respect of collateral security to cover the
enhancement in the limit. (Please refer Chapter on Mortgage).
iii) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to
be securities for the enhanced portion of the limit also.
iv) The account already running should not be closed.

NOTE: In some States, the document `Agreement of Pledge' attracts ad valorem

stamp duty on certain types of goods. To obviate the same, the following
documentation procedure should be followed unless the sanction specifies that the
documents are to be taken with ad valorem stamp duty.

9.2 HYPOTHECATION OF STOCKS

9.2.1 CASH CREDIT

A. FRESH EXECUTION

i) Agreement of Hypothecation - PGB 148 (stamped).

ii) Agreement of collateral security, if any (please refer Chapter on
Mortgage).
iii) AOF and specimen Signatures Slip.

B. CHANGE IN THE TERMS AND CONDITIONS

108
i) Letter from the borrower agreeing to the changes in the terms and
conditions.
ii) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to
be securities for the renewed limit also.
iii) The account already running should not be closed.

C. ENHANCEMENT IN THE LIMIT

i) Agreement of Hypothecation - PGB 148 (stamped). For the enhanced portion of

the limit (opening para of PGB 148 should be taken as per Annexure 18.

ii) Supplementary agreement in respect of the collateral security to cover the

enhancement in the limit (please refer chapter on Mortgage).

iii) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to be
securities for the enhanced limit also.

iv) The account already running should not be closed.

9.2.2 In States where agreement of pledge attracts ad valorem stamp duty on

certain type of goods

CASH CREDIT

A. FRESH EXECUTION

i) Agreement of Hypothecation - PGB-148 (Stamped).

ii) Letter of Undertaking for no withdrawal against hypothecated stocks - PGB 331.
iii) Letter giving possession of stocks - PGB 332
iv) Agreement in respect of collateral security (please refer Chapter on Mortgage),
if any.
v) AOF and Specimen Signatures Slip.

B. CHANGES IN THE TERMS AND CONDITIONS

i) Letter from the borrower agreeing to the changes in the terms and conditions.
ii) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to
be securities for the renewed limit also.
iii) The account already running should not be closed.

C. ENHANCEMENT IN THE LIMIT

i) Agreement of Hypothecation - PGB 148 (Stamped). For the enhanced portion

of the limit (opening para of PGB 148 should be taken as per Annexure
18.
ii) Letter of Undertaking for no withdrawal against hypothecated stocks - PGB 331.

109
iii) Letter giving possession of stocks - PGB 332.
iv) Supplementary agreement in respect of collateral security to cover the
enhancement in the limit (please refer Chapter on Mortgage).
v) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to
be securities for the enhanced limit also.
vi) The account already running should not be closed.

NOTE: i) In case of advance to limited companies, Bank's charge should be

registered with the Registrar of Companies.

ii) Form No.331 should be taken along with hypothecation agreement on the same
day and Form No.332 should be taken on a subsequent date.
10. SPECIAL CASES

10.1 ADVANCE AGAINST TRUST RECEIPTS

Additional Documents:

i) Trust Receipt Agreement as per Annexure 19

ii) Receipt on Form No. PGB 480 with revenue stamp of the appropriate value.
(It should be taken for each delivery of goods/documents)

If the borrowers deliver the goods to a third party for processing etc., an undertaking
should be taken from the latter to the effect that they are holding the goods in trust for
the Bank and would deliver the goods to the order of the Bank.

10.2 ADVANCE AGAINST STOCKS LYING IN THIRD PARTY FACTORIES

Additional Document - Letter as per Annexure 20 addressed to the factory owner

and endorsed by the latter to the Bank.

10.3 ADVANCE AGAINST STOCKS LYING IN NON-INDEPENDENTLY

ACCESSIBLE GODOWNS (BELONGING TO THIRD PARTY)

Additional Document - Letter of access as per form No. PGB 391 from the third
party.

10.4 ADVANCE AGAINST EXCISABLE GOODS

Additional Document - Letter as per Annexure 21 from the borrower.

10.5 ADVANCE AGAINST RAILWAY RECEIPTS (RRs)/MOTOR TRANSPORT

RECEIPTS (MTRs) OF APPROVED TRANSPORT COMPANIES/BILLS OF LADING

a) RRs/MTRs/Bills of Lading Pledged with the Bank. Additional Documents:

i) Letter from the borrower on Form No. PGB 393.

110
ii) RR/Bill of Lading duly endorsed in Bank's favour.
OR
MTR of approved transport company with Bank's name as consignee.

b) RRs/MTRs/Bills of Lading delivered to borrower for clearance of stocks and

storage thereof under Bank's possession.

i) Letter of indemnity indemnifying the Bank against any loss due to delay in
collection, transmission, etc. - PGB 222.

ii) Letter from the borrower for excluding old bills from the Drawing Power- PGB-
390.

Additional Document - Letter as per Annexure 22 from the borrower.

10.6 SALARY OF GODOWN KEEPER/SUPERVISOR/CHOWKIDAR TO BE BORNE

BY THE BORROWER

Additional Document - Letter from the borrower authorising the Bank to debit the
agreed charges.

10.7 ADVANCE AGAINST GOODS RECEIVED UNDER ILC/FLC (DA BASIS)

Deed of Hypothecation (PGB 1027) to secure LC on DA basis and charge be got

registered wherever applicable.

10.8 MISCELLANEOUS INSTRUCTIONS

i) Where cash credit facility is desired to be bifurcated into Demand Loan and
Working Capital Term Loan, under new lending system recommended by Reserve
Bank of India, agreement on Form No. PGB 726 or 729, as the case may be, should
be obtained.

Also description of advance and interest Clause in the agreement Forms No.- PGB
147 and PGB 148 - PGB 1031 should be accordingly modified/substituted.

ii) In case of advance to limited liability companies, the charge in respect of

hypothecated/mortgaged securities should be registered with the Registrar of
Companies.

Similarly, modification of charge should be registered with the Registrar of

Companies.

11 WARE HOUSE RECEIPTS – CASH CREDIT

11.1 i) Loan Application – PGB 325

ii) Agreement of Pledge - PGB 149 (Stamped).

111
 iii) Warehouse receipt (The receipt should be duly endorsed in favour of the
Bank). Form No. PGB 446 or 447 (whichever is suitable).

iv) Letter from the borrower addressed to warehouse man intimating the
pledge of the warehouse receipt with the Bank - PGB 462.

v) Before making advance, a notice of pledge of Warehouse Receipt should

be sent to Warehouse on Form No. PGB 461 and acknowledgement
obtained thereof should be kept with the documents.

vi) Insurance Certificate from the warehouse man as per Annexure 23.
OR
Indemnification certificate from the warehouse man as per Annexure 24.

DEMAND LOAN

i) Loan Application (Annexure-24 B)

ii) Demand Pronote PGB 728 (Stamped)

iii) Warehouse receipt duly endorsed in favour of the Bank alongwith a letter from
the borrower as per Form No. PGB 446 or 447 (whichever is suitable).

iv) Before making advance, a notice of pledge of Warehouse Receipt should be

sent to Warehouse on Form No. PGB 461 and acknowledgement obtained thereof
should be kept with the documents.

v) Letter from the borrower addressed to warehouseman intimating the pledge

of the warehouse receipt with the Bank - PGB 462 as per prescribed format.

vi) Insurance Certificate from the warehouseman (Annexure-23).

OR
Indemnification certificate from the warehouseman as per prescribed format.

vii) Negative lien on immovable properties of borrower/guarantor on the prescribed

format for advances upto 10 lacs (Annexure-24).

11.2 MISCELLANEOUS INSTRUCTIONS

i) A notice of pledge of warehouse receipt should be sent to warehouse on Form

No. PGB 461 and acknowledgement obtained thereof should be kept with the
documents.

ii) It should be ensured that only receipts marked "Negotiable" are pledged as
security with the Bank and also there is no condition of storage laid down by the
Warehousing corporation which is prejudicial to the interests of the Bank.

iii) Accounts in respect of advances against warehouse receipts should be

separately maintained. In no case such accounts should be mixed up with account
against other securities.
112
In case the limit against pledge of warehouse receipts forms a part of overall
cash credit limit, a separate set of documents for warehouse receipts should be
obtained. Also a letter from the borrower should be taken to the effect that the total
advance in the separate accounts will not exceed the amount of the sanctioned limit.
12. BOOK DEBTS

CASH CREDIT

A. FRESH EXECUTION

i) Agreement of Hypothecation of Book Debts - PGB 516 (Stamped).

ii) Agreement in respect of collateral securities.

iii) AOF and Specimen Signatures slip.

iv) Guarantee Deed – PGB 58 (H) from the guarantor(s), if any.

B. CHANGE IN THE TERMS AND CONDITIONS

i) Letter from the borrower agreeing to the changes in the terms and
conditions.

ii) Letter from the borrower to the effect that the operation may continue to be
allowed in the existing account and that the existing securities shall continue to be
securities for the renewed limit also.

iii) The account already running should not be closed.

C. ENHANCEMENT IN THE LIMIT

i) Agreement of Hypothecation of Book Debts - PGB 516 (Stamped). For the

enhanced portion of the limit (opening para of PGB 516 should be taken as per
Annexure 25).

ii) Supplementary agreement in respect of the collateral security to cover the

enhancement in the limit (please refer Chapter on Mortgage).

iii) Guarantee Deed – PGB 58(H) for the additional limits from the
guarantor(s).

13. COMBINED LOAN DOCUMENT, WHERE FACILITIES ARE GIVEN

AGAINST SECURITY OF BOTH – STOCKS AND BOOK DEBTS

i) A single document i.e. PGB 1031 is to be obtained to secure the credit

facility sanctioned against hypothecation of stocks and book debts.
Further, branches are to follow following instructions in this regard
113
ii) Existing Hypothecation Agreement viz. PGB-148 or PGB-516 shall continue to be
obtained where facility is allowed either against the security of stocks or book debts
alone.

iii) In cases where any or all the facilities, i.e. CC facilities (relating to stocks, book
debts or bills) against security of both stocks and book debts, are given to a
borrower or security of both the stocks and book debts are desired to be obtained
for any such facilities, hypothecation agreement as per (PGB-1031) be obtained. In
respect of CC (ABC), PGB-222 shall also be obtained.

iv) In cases where facilities have already been allowed against the security of book
debts and security of stocks is proposed to be obtained, in such cases
supplementary agreement as per Annexure 26 be obtained in addition.

In cases where facilities have already been allowed against the security of stocks and
security of book debts is proposed to be obtained, in such cases supplementary
agreement as per Annexure 27 be obtained in addition.

D. MISCELLANEOUS INSTRUCTIONS

In case of advance to limited liability companies, Bank's charge should be registered

with the Registrar of companies.
14. BILLS PURCHASED AND DISCOUNTED

14.1 PURCHASE OF DEMAND BILLS (CLEAN DD & DOCUMENTARY DD

LIMIT)

Letter of indemnity - PGB 222 (stamped).

14.2 DISCOUNT OF USANCE BILLS (BD LIMIT)

Letter of Indemnity - PGB 222 (stamped).

15. PACKING CREDIT

15.1 i) Packing Credit Agreement (Pledge) - PGB 723 (Stamped)

OR
Packing Credit Agreement (Hyp.) - PGB 724 (Stamped)

ii) Letter of Request - PGB 437.

iii) Original Irrevocable Letter of Credit/Original Firm Order in favour of the

exporter.

iv) AOF and Specimen Signatures Slip.

15.2 MISCELLANEOUS INSTRUCTIONS

114
In case the advance is to be covered under Whole Turnover Pre-shipment Guarantee
Scheme of ECGC, guarantee to that extent should be obtained through IBD, HO, New
Delhi.
16. LETTER OF UNDERTAKING

As per RBI guidelines, Authorised Dealer Banks are permitted to issue Letters of
Credit/guarantees/Letter of Undertaking (LOU)/Letter of Comfort (LOC) in favour of
overseas supplier, bank and financial institution, up to USD 20 million per
transaction, for the purpose of Buyers’ Credit, for a period up to one year for
import of all non-capital goods permissible under Foreign Trade Policy (except gold)
and up to three years for import of capital goods, subject to prudential guidelines
issued from time to time. The period of such Letters of credit/guarantees/LOU/LOC
has to be co-terminus with the period of credit, reckoned from the date of shipment.
For the purpose the following documents should be obtained:

i) Application for issuance of Letter of Undertaking should be as per

Annexure 28.

ii) Counter Indemnity (stamped) as per Annexure 29 whereby customer

indemnifies the Bank against any payment made, claim/loss/liability incurred in
consequence of having issued the Letter of Undertaking.

iii) Agreement of Hypothecation of Goods (stamped) as per Annexure 30.

17. UNIFORM DOCUMENTS FOR TERM LOAN FOR LENDING UNDER

CONSORTIUM

In case of Term Loan facilities under consortium arrangement, a set of uniform

documents prepared by the IBA Working Group for Joint Documentation is to be
obtained. The set of documents is comprehensive and provides user guidance on
various legal aspects on execution of documents including joint documentation in
all situation of Consortium Term Lending and for exposure to large projects,
infrastructure projects in particular.

The set of documents contain short user notes, Agreement (for loan facilities),
Standard terms as applicable in various documents, resolutions, security
documents, undertakings, letters, Power of Attorney and other formats. The uniform
set of documents has been uploaded on the website “PGB Knowledge Centre” of
IT Centre, Faridabad.

18. GUARANTEED ACCOUNTS

i) In case of guaranteed accounts, a stamped guarantee deed (PGB 58 H)

should be obtained.

ii) In case of change in the terms and conditions of the advance, a letter of
consent from the guarantor agreeing to the changes should be obtained.

iii) In case the loan documents are renewed, the guarantee deed should also be
115
simultaneously renewed.

iv) In case the limits are enhanced, guarantee be obtained on PGB 58 H to cover
the enhanced limit.

v) On the basis of queries raised by Banks, RBI has given certain clarification for
inclusion of names of guarantors who are either individuals (not being directors of
the company) or Non Group Corporates in the list of wilful defaulters. It is advised
that in terms of section 128 of the Indian Contract Act, 1872, the liability of the
surety is coextensive with that of principal debtor, unless it is otherwise provided by
the contract. Therefore, when default is made in making repayment by the principal
debtor, the banker will able to proceed against the guarantor/ surety even without
exhausting the remedies against the principal debtor. As such, that where banker has
made a claim on the guarantor on account of default made by principal debtor, the
liability of the guarantor is immediate. In case the said guarantor refuses to comply
with the demand made by creditor/banker, despite having sufficient means to make
payment of the dues, such guarantor would be treated as wilful defaulter.

On the basis of above, addition has been made in Agreement of guarantee i.e
PGB-58 as item no. 20 which reads as under :

“The guarantor(s) hereby further agree(s) that in case demand / claim is

made on him/her/them by the Bank for repayment of the dues under the
Facilities/ Limits and the guarantor(s), despite having sufficient means,
refuse(s)/neglect(s) in discharging his/her/their obligation under this guarantee,
he/she/they will be treated as a wilful defaulter and Bank/RBI will have an
unqualified right to declare the name of such guarantor as wilful defaulter and
to initiate further action as per Bank/RBI guidelines or applicable law/statute,
in respect of wilful defaulters.”

Branch Heads are also advised that this position is made known to all prospective
guarantors at the time of accepting guarantees.

Amended agreement of guarantee (PGB-58) is enclosed as Annexure 31.

19. STANDARDIZED DOCUMENTS FOR SYNDICATION &
UNDERWRITING BUSINESS

In order to facilitate the branches to mobilize Syndication/Underwriting business,

which is a very good source of Fee based Revenue to be retained entirely by the
branch, the formats of Syndication Business have been standardized. Formats of Offer
Letter of Syndication to be issued by branches and Terms & conditions & Mandate
letter to be signed by the party are annexed (Annexure - 32, Annexure - 32.1 &
Annexure - 32.2). A copy of the `Confidentiality Agreement’ (Annexure - 32.3) to
be executed by the branches is also annexed which is to be executed only in case
insisted by the client.

******************

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 Annexure - 1

Appendix-I

To be executed by major female co-parceners in case of existing HUF Loans

TO BE STAMPED AS AN AGREEMENT
NOT TO BE WITNESSED
----------------------------------------

Punjab Gramin Bank

SUPPLEMENTARY AGREEMENT

This supplementary Agreement is executed at _______________ on this ________ day

of 20 ___ by _____________________ between (1) Ms./Smt. ____________________
D/o/W/o _________________________ R/o __________________________________
(2) Ms./Smt. ________________________ D/o/W/o ____________________________
R/o ________________________________ (hereinafter referred to as the
Coparcener/s) of the one part and Punjab Gramin Bank, a body corporate
constituted under the Regional Rural Bank Act, 1976 having its Head office at
Jalandhar Road, Kapurthala-144601 and inter-alia BO at _____ (hereinafter
referred to as `Bank’ which expression, unless repugnant to the context, shall
include its successors and assigns) of the other part.

Whereas Hindu Undivided Family, by name & style, (hereinafter

referred to as `Borrower’) has availed the following facilities.

Name of the facility Amount

------------------- ---------------
------------------- --------------
------------------- ---------------

Whereas after the amendment of the Hindu Succession (Amendment) Act, 2005, the
daughter of a coparcener is by birth, a coparcener in her own right, in the same
manner as the Son. The female coparcener has the same rights and liabilities in the
property as she would have if she had been a son.

WHERAS the Borrower(s) has/have executed Loan and security agreement/s on

.

WHEREAS the said loan is secured by .

NOW IN CONSIDERATION OF THE BANK continuing/agreeing to continue the

banking facilities as aforesaid and keeping in view of amendment in The Hindu
Succession (Amendment) Act, 2005, the coparcener/s agree/s as under :

1. The coparcener(s) confirm(s) that the balance due in the above said loan
117
 account is _ as on _ _ and acknowledge
liability to repay the same.

2. The coparcener(s) confirm(s) that all the terms and conditions as already
agreed to and mentioned in the loaning and security documents executed on in
respect of loan/s granted to borrower are to continue and remain in force. The
coparceners further confirm(s) that the security created to secure loan are to
continue and remain in force.

3. The coparcener/s agree/s to execute such further documents or do such

further act to confirm her / their liability in respect of the above said loans.

4. This agreement is supplemental to and not in-derogation of earlier

agreements/documents executed in favour of the bank.

In witness whereof, the parties here to have signed these presents on the day,
month and year above mentioned.

(Borrower(s)

For Punjab Gramin Bank

Manager

118
 Appendix-II

LETTER OF CONTINUITY TO BE EXECUTED BY FEMALE COPARCENER/S

Place :
Date : _

The Manager
Punjab Gramin Bank

Dear Sir,

Reg: Limits against security of _________sanctioned to M/s

______________________( HUF)

The Karta /male coparceners have already on deposited with you

in your Office the original title deeds of the HUF property situated at _with
intent to create equitable mortgage of the same as security for the total amount of
under the diverse
heads such as cash credit and other limits sanctioned for HUF business, as
under:

1. Cash Credit by enhancement from Rs

2.
3.

I/We confirm having already agreed with you on _ _that the title deeds
of the immovable property already deposited with you on ___ shall
continue to be held with you as security on my/on behalf for the liability of M/s
___________ _ (HUF) due from
time to time in respect of the aforesaid limits besides interest and other charges.

DETAILS OF THE TITLE DEEDS DEPOISTED

AND OF THE PROPERTY COVERED THEREBY
Yours faithfully,
1. __________________
2.______________ _
3. _________________

(Signature of all major female coparceners)

119
 Annexure-2

CERTIFICATE IN CASE OF ILLITERATE BORROWERS

PUNJAB GRAMIN BANK

20
_

With reference to the loan/limit of __ sanctioned by the

Bank to and guaranteed by
________________________, it is hereby certified that the borrowers and/or
guarantors have affixed their thumb impression to the following relative loan
documents, on date in our presence. The contents of the documents were read
and the implications thereof explained to them and they have put their thumb
impression after fully understanding the said contents and implications:

a)

b)

c)

d)

Station
Date
Witness
Address_ _

MANAGER/SUB-MANAGER/
OFFICER INCHARGE

120
 Annexure-3
To be stamped as
An Agreement

AGREEMENT TO REVIVE CLAIM FOR A TIME BARRED DEBT WITH INTEREST

This agreement entered into between Punjab Gramin Bank hereinafter called
`Bank' which term shall include their successors and assigns and M/s
hereinafter called `borrowers' which term
shall include their heirs, executors, administrators and assigns.

Whereas the borrowers have availed of banking facilities by way of ________and a sum
of _______ (Rupees _______________________is due from them as on
____ and whereas the said balance of _______ has become time barred, but the
borrowers are willing and have agreed to pay the same. Whereas the Bank has agreed
to grant fresh advance by way of to the borrowers at their request.

Now this agreement witnesseth as follows:

This pursuant to the above and in consideration of the Bank agreeing to grant
fresh advance by way of upto a sum of _ ,
the borrowers promise to pay the said Bank after demand made at any time, the
sum of _ which sum the borrowers confirm as correctly
due from them being the debit balance in the Account No._ _ as on
together with the amount now borrowed with interest as
provided herein. The borrowers agree to pay interest on the entire amount of
at the rate of % p.a. over Bank Rate/BPLR with a
minimum of _% p.a. with rests till repayment in full.

That the borrowers agree to execute the loaning documents for the loan of __________
now agreed to be advanced by the Bank.

The borrowers hereby agree and confirm that securities detailed in the schedule
hereunder shall remain hypothecated/pledged for the said amount, interest costs and
other charges. In witness thereof the borrowers have set their hands at _ _on____
day of _20

BORROWERS
SCHEDULE

121
 Annexure-4
SUPPLEMENTAL AGREEMENT
(Where enabling clause is not incorporated)

This agreement is executed on this day of 20___

Between _ _____________________ *(hereinafter called the borrowers which term
shall include its Successors and assigns) and Punjab Gramin Bank, a body corporate
constituted under the Regional Rural Bank Act, 1976 having its Head Office at
Jalandhar Road, Kapurthala-144601and inter-alia amongst others a Branch Office at
(hereinafter called the bank which term shall include its successors
and assigns).

WHEREAS the borrowers are availing the _ facility

(hereinafter referred to as the said facility) for _ (Rupees _
_only) from the Bank as per the terms
and conditions of the Agreement dated _ _ (hereinafter referred
to as the said agreement) executed by the borrowers with the bank.

WHEREAS the borrowers and bank have agreed to modify certain terms and
conditions of the said Agreement as provided herein:

NOW THIS AGREEMENT WITNESSETH:

1) With effect from , interest chargeable to the said facility shall

be_________% over Bank Rate/BPLR with a minimum of _______% p.a. with
_______ rests. The borrowers agree to pay the interest as enhanced.

2) The borrowers further agree that the interest chargeable shall be subject to
change in interest rates made by the RBI as well as by the Bank from time to
time.

3) All other terms and conditions as contained in the said Agreement continues
to be in full force and virtue.

4) This agreement is supplemental and in addition to the said Agreement

executed by the borrowers.

IN WITNESS WHEREOF the party hereunto have set their hands on the day,
month and year above mentioned.

BORROWER(S)

For Punjab Gramin Bank

* Write name, parentage/constitution and regd. office/address, etc.

122
 Annexure-5

LETTER OF CONTINUITY
(In case of renewal of facilities in respect of allocated limits)
Place_ _
Date_ _
The Manager
Punjab Gramin Bank

Dear Sir,
Reg: MY/OUR CASH CREDIT/OVERDRAFT ACCOUNT

I/we have today executed loan documents in your favour for cash credit/ overdraft
limit of . I/We request you to allow me/us to avail of the
said cash credit/overdraft upto the limits respectively shown against the branches
stated as under, out of the said total limit:-

1. Upto a limit of _ at your branch.

2. Upto a limit of _at_ _branch.
3.
4.

The operation/s of the account/s at the aforesaid branch/es will be in terms of and
be a part and parcel of aforesaid overall limit of .

A sum of _ is due from me/us in my/our existing account

No. _ with you at _____ b r a n c h e s a s on ____.

I/We agree that the Bank may close my/our existing account/s by transfer of the
amounts due from me/us to the new account/s and also transfer the securities to be
held for the new account.

I/We further agree that securities already pledged/hypothecated by me/us along with
further securities shall remain pledged/ hypothecated with the Bank as security for
the amounts due or which may be due at any time or from time to time in the
aforesaid account/s.

I/We also authorise Shri _and Shri _severally to

pledge and to take delivery of the goods and securities against payment or against
pledge/hypothecation of fresh securities and also acknowledge liabilities and
securities, sign stock reports and any other documents on my/our behalf and on
behalf of the me/us from time to time as required by the Bank in my/our
account with you and at the branches aforesaid.

Yours faithfully,

123
 Annexure-5.1
B.O._________________

DATE:

(Name & Address of the Borrower)

Dear Sir/s,

REG.: SANCTION OF CREDIT FACILITIES

Pursuant to your application dt._________, the bank is pleased to sanction the

facilities on terms and conditions as detailed in Annexure enclosed.

Please send your acceptance of the terms & conditions of the sanction on the
enclosed letter.

Yours faithfully,

For Punjab Gramin Bank

MANAGER

124
 Annexure-5.2

The Manager
BO _ _________

Dear Sir,

REG.: CREDIT FACILITY SANCTIONED IN OUR FAVOUR

I/we accept the terms and conditions as prescribed in the sanction of credit facilities as
communicated vide your letter dt. __________and annexure thereto.

I also authorise the Bank to get the required documents drafted and/or to get the
documents scrutinised/vetted by bank's solicitors/advocates at my cost. I/we authorise
the Bank to produce the required details and other documents as are needed by
the solicitors/advocates for such drafting/scrutiny/vetting. I/we will also produce the
required details/ documents which are in my/our possession or make available the
required details/ documents as may be required by the solicitor/advocate.

We also submit herewith a copy of the resolution of the Company in terms of

which we have been authorised to confirm the acceptance of the terms and
conditions of the sanction, besides execution of the loaning and security
documents.

Yours Faithfully,

BORROWER/S
PLACE:
DATE:

125
 Annexure-5.3

The Manager
BO __________

Dear Sir/s,

REG.: CREDIT FACILITY SANCTIONED IN OUR FAVOUR

I/we have executed the loaning and security documents as required having regard
to the terms and the conditions of sanction in respect of the credit facilities sanctioned
to me/us, out of free consent and without any influence.

Yours faithfully,

BORROWER/S

PLACE:
DATE:

126
 Annexure-5.4
PROFORMA OF NOTICE TO BE SENT TO THE PRINCIPAL

PUNJAB GRAMIN BANK

Dt:

To

M/S
_
_

Dear Sirs,

Mr. _holding a registered P/A dated ______from

your company (in case of partnership from
M/s trading under the name and
style of ; and in case of Jt. Hindu
Family Trading Firm from M/s being member of the Joint
Hindu Family Trading Firm) has applied for loan or accommodation to the Bank on
behalf of your company (partnership/Joint Hindu Family Trading Firm). Kindly let us
know as to

i) Whether you have executed the aforesaid power of attorney in favour of

Shri .

ii) Whether the said Power of Attorney is still subsisting and valid and
whether you confirm the authority given to him.

It is to be distinctly understood that the Bank shall be entitled to consider the

Power of Attorney and the powers exercisable therein subsisting and valid until a
written notice of its revocation is given to the Bank by yourself or by your legal
representative.

Yours faithfully,

MANAGER

127
 Annexure-5.5

The Manager,
Punjab Gramin Bank
BO:

Dear Sir,

Reg : Vetting of Documents relating to Loan Account of _____________ (Name of

the Borrower)

Following facilities have been sanctioned to the captioned borrower:

*Nature of Facility Sanctioned Amt./Limit Documents

Obtained

1.

2.

3.

4.

* Indicate the nature of facility sanctioned i.e. cash credit, bills facility, term loan,
demand loan, overdraft, packing credit, LC/LG, etc.

As desired, I have examined the aforesaid loan/security/other documents

pertaining to the above facilities sanctioned and certify as under:-

“The scrutiny of the documents in the account of

_ has been done keeping in view the aspects,
as stated in the check list (annexed). It is certified that documents as obtained
cover all the facilities/securities and are in accordance with the law having regard to
the terms/conditions of the sanction.”

Thanking you,

Yours faithfully,

(NAME, SIGNATURE & SEAL OF THE ADVOCATE)

PLACE: _
DATE:

128
 Annexure-5.6
Text of the Consent Clause to be included in the Loan Documents to be
executed by Borrower/s

I/We, understand that as a pre-condition, relating to grant of the

loans/advances/other non-fund based credit facilities to me/us, the *……………
bank, requires my/our consent for the disclosure by the bank of, information and
data relating to me/us, of the credit facility availed of/to be availed, by me/us,
obligations assumed/to be assumed, by me/us, in relation thereto and default, if
any, committed by me/us, in discharge thereof.

2. Accordingly, I/We, hereby agree and give consent for the disclosure by the
*……………….. bank of all or any such;

(a) information and data relating to me/us;

(b) the information or data relating to any credit facility availed of/to be availed,
by me/us, and

(c) default, if any, committed by me/us, in discharge of my/our such obligation,

as the *…………. Bank may deem appropriate and necessary, to disclose and
furnish to Credit Information Bureau (India) Ltd. and any other agency authorized in
this behalf by RBI.

3. I/We, declare that the information and data furnished by me/us to the
*…………….bank are true and correct.

4. I/We, undertake that:

(a) the Credit Information Bureau (India) Ltd. and any other agency so
authorized may use, process the said information and data disclosed by the
bank in the manner as deemed fit by them; and
(b) the Credit Information Bureau (India) Ltd. and any other agency so
authorized may furnish for consideration, the processed information and data
or products thereof prepared by them, to banks/financial institutions and other
credit grantors or registered users, as may be specified by the Reserve Bank
in this behalf.

* The expression ‘bank’ includes lending institutions for the purpose.

129
 Annexure-5.7

Text of the Consent Clause to be included in the Loan Documents to be

executed by Guarantors

I/We, understand that as a pre-condition, relating to grant of the

loans/advances/other non-fund based credit facilities to………….. *(name of the
borrower/s) and furnishing of guarantee in relation thereto, the *…………… bank,
requires consent of the guarantor/s of the credit facility granted/to be granted, by the
bank for disclosure of information and data relating to the guarantor/s, any credit
facility availed of by the guarantors, obligations assumed by the guarantors, in
relation thereto and default, if any, committed in discharge thereof.

2. Accordingly, I/We, hereby agree and give consent for the disclosure by the
*……………….. bank of all or any such;

a) information and data relating to me/us;

b) the information or data relating to my/our, obligations in any credit facility

granted/to be granted by the bank and guaranteed by me/us, as a guarantor,
and

c) default, if any, committed by me/us, in discharge of my/our such obligation,

as the *…………. Bank may deem appropriate and necessary, to disclose and
furnish to Credit Information Bureau (India) Ltd. and any other agency authorized in
this behalf by RBI.

3. I/We, declare that the information and data furnished by me/us to the
*……………. bank are true and correct.

4. I/We, undertake that:

a) the Credit Information Bureau (India) Ltd. and any other agency so authorized
may use, process the said information and data disclosed by the
bank in the manner as deemed fit by them;
and
b) the Credit Information Bureau (India) Ltd. and any other agency so authorized
may furnish for consideration, the processed information and data or products
thereof prepared by them, to banks/financial institutions and other credit grantors
or registered users, as may be specified by the Reserve Bank in this behalf.

* The expression ‘bank’ includes lending institutions for the purpose.

130
 Annexure-6
LETTER OF UNDERTAKING TO REPAY THE LOAN

Place _

Date _

The Manager
Punjab Gramin Bank
BO: ______________

Dear Sir,

With reference to my/our Demand Loan of the basis of Demand Promissory Note
dated _against the security of the aforesaid* _________________.
I/We agree to pay usual incidental/ service charges at the rate fixed by the Bank
from time to time, for every half year or part thereof, and further undertake to
notify the Bank as and when thereby any change in my/our address given below:

I/We agree to pay the amount of loan and interest due on Promissory note within two
days of the demand made in writing by you

Yours faithfully,

Signature(s) _
Address_

* State description of the security - Fixed Deposit Receipt with No., date and
amount thereof, balance of Savings Funds or Current Account etc.

131
 Annexure-7

NOTICE OF ASSIGNMENT
(In case of advance against Life Policies)

Place _

Date _

The Manager
Insurance Company (Name)
Divisional Office/Branch Office

Dear Sir,

Policy No. own life

I hereby give you notice that I have assigned the above policy to Punjab Gramin Bank
_ _on . Please acknowledge receipt of this
notice and forward the enclosed Policy/Deed of Assignment to Punjab Gramin
Bank _ after registering the assignment therein in your books.

Yours faithfully,

(Signature of Assignor)

Signature of witness

Occupation

Address

132
 Annexure-8

TEXT OF ABSOLUTE ASSIGNEMENT BY THE LIFE POLICY HOLDER

I the within named_ _(here give the name and full address
of the party) for valuable consideration hereby absolutely transfer and assign all my
rights, title and interest in the within named policy and all moneys due thereon
including bonuses already accrued or hereafter to accrue which shall become
payable thereunder and the benefit of all powers and remedies for enforcing the
same to Punjab National Bank and its assigns and declare that the receipt or
receipts of the said Bank shall be a good and valid discharge for all the moneys
payable under the said policy as if the receipt or receipts were signed by myself, my
heirs, executors and assigns.

Signature of the party

Signature of witness

Occupation

Address

133
 Annexure-9

LETTER OF AUTHORITY FOR SURRENDERING THE LIFE INSURANCE

POLICY

Place _______

Date __________

The Divisional Manager

Life Insurance Corporation of India Divisional
Office
__________________________

Dear Sir,

Reg: My policy No. for _____________________

I hereby authorize you to accept surrender of policy No. __________for _____of your
Corporation whenever made or affected by Punjab National Bank in whose favour
I have made an absolute assignment of the said policy. This authority should be
considered irrevocable.

Yours faithfully,

(Signature of the assured)

134
 Annexure-10
TEXT OF REASSIGNMENT BY THE BANK

We, Punjab Gramin Bank (Branch), the assignees of

this policy hereby reassign unto Shri (Life assured)* his/her
heirs, executors, administrators and assigns, this policy of insurance issued by the
Life Insurance Corporation of India / Insurance
Company bearing No. dated for _ together
with the sum assured thereby with all our rights, title, and interest to recover and
realize the sum assured and other moneys, benefits and advantages payable
thereunder.

This day of 200

For Punjab Gramin Bank

Manager

Signature of witness

Occupation

Address

*Delete, if inappropriate.

135
 Annexure-11

LETTER OF AUTHORITY FROM HOLDER OF UNITS OF UTI

The Manager
Punjab Gramin Bank
BO: ______________

Dear Sir,

In consideration of the Punjab Gramin Bank ____________ agreeing to grant me/us

loan of _____________ (Rupees only) against
the security of units Nos. issued by
the Unit Trust of India of which I/we am/are the holder/holders and on the
understanding that you will be given necessary authority to ask UTI to note a lien in
your favour against these units in the Books of UTI as also to collect the income
becoming payable on the said units from time to time (wherever applicable) and
adjust the same towards the repayment of principal and payment of interest on the
said loans. I/we the holder/holders of the said units hereby authorise you to collect
on my/our behalf the income becoming due and payable to me/us on the said units
by the Unit Trust of India and pass necessary receipts to the Trust in full discharge of
the said payments (applicable for U.S.’ 64 only). Further since the post-dated
income/dividend warrants have already been issued to me/us on the certificates, I/we
have submitted all the income/dividend warrants to the bank and authorise them to
collect the same regularly and credit the proceeds to my/our Advances Account
(applicable for other units of UTI, where repurchase facility is available).

This letter of mine/ours automatically authorises UTI to note a lien against the
units mentioned herein in favour of the bank till the same is vacated by the bank as
expressed in a letter. Further this letter also authorises the UTI to pay the capital
amount of the said units including any accretions/accruals thereon to the said bank
in case of my/our default in repayment of the loans/advances availed by me/us, on
such communication and demand from the bank to that effect. This authority in your
favour shall not be revoked by me/us except with your prior approval in writing.

A copy of this letter is being endorsed to the Unit Trust of India for payment to you
of the income/dividend on the Units stated above as also the value of units in case of
my default in repayment of the loan.

Yours faithfully, Unit Certificate Nos.

1.
2.
3.

136
4. _______________
(Name & Signatures of all the unit holders)
Copy forwarded to the Unit Trust of India_ _

The income/dividend becoming due and payable from time to time on Unit Nos.
_______________held by me/us may hereafter be paid until further instructions to
the Manager, Punjab Gramin Bank, whose receipts shall be full discharge to the
Trust for such payments.

137
 Annexure-12

FORWARDING LETTER IN CASE OF ADVANCES AGAINST UNITS OF UTI

The Unit Trust of India

Dear Sir,

ADVANCE AGAINST THE SECURITY OF UNITS

We forward herewith a letter(s) dated _ from the Unit holder (s)

mentioned hereunder who has/have executed blank signed dated/undated transfer
deeds and submitted the unit certificate(s) No(s) mentioned hereunder in original as
also the post-dated income/dividend warrants. We have sanctioned loans/advances
against the security of the units mentioned hereunder. You are, therefore, requested
to note a lien in our favour against those units in your books and continue the same
till you hear from us in the matter. The income/dividend warrants issued by you
relating to the units that may be issued/payable hereafter, may also be forwarded to
us till the authority is revoked by the unit holders and confirmed by us. We fully
understand that future dividend warrants only when dividend is declared and paid
annually, will be forwarded to us till revocation of this authority, whereas in respect
of schemes, where postdated income/dividend warrants for the entire scheme period
have been issued in advance will be taken in our custody at our risk and the UTI
will not be responsible in any way for forwarding the same to us. Please also note
to inform us in case you receive any request for issue of duplicates of the units
covered by the mandate letter(s) enclosed and/or duplicate income/dividend
warrants.

Please acknowledge receipt.

Name of holder (s) Unit Certificate No.

1.
2.
3.
4.
Yours faithfully,

MANAGER
(Seal of the Bank)

138
 Annexure-13
To be stamped as power of attorney
according to the Stamp Law prevailing
in the State in which it is executed

GENERAL POWER OF ATTORNEY

TO ALL WHOM THESE PRESENTS shall come I/we _

son of resident of ________send
greetings, WHEREAS I/We _carrying on business as
contractors having office at _have a
standing contract for the supply of______ to_ _ (mention Govt. or
Deptt.) AND WHEREAS for the purposes of the said contract Punjab Gramin
Bank, a body corporate constituted under the Regional Rural Bank Act 1976
and having its Head Office at Jalandhar Road, Kapurthala - 144601 and a
Branch Office at ______________(herein after referred to as `the Bank') has
agreed to lend and advance to me/us money for my/our said business on
overdraft or cash credit account or otherwise on the security of contracts and
also against bills drawn on _in my/our favour including the proceeds thereof,
to be endorsed or assigned in favour of the said Bank on my/our agreeing to
execute an irrevocable power of attorney in favour of the said bank on terms
and in the manner hereinafter mentioned.

NOW THESE PRESENTS witnesseth as follows:

That I we hereby nominate, constitute and appoint Punjab Gramin Bank

to be my/our true and lawful attorney to do the following acts and things:

1. To collect, recover and receive from the all and

any money and moneys now or hereafter to be due or payable to me/us
in respect of contracts or on any account whatsoever on presentation of
the aforesaid bills endorsed and handed over by me/us to the said bank.

2. To execute, sign and endorse any of the bills if necessary on my/our

behalf and receive payment of the same.

3. To give valid discharge and receipt for every realisation made on any of
the bills.

4. To do all acts, deeds, matters and things as may be necessary for the
purpose of recovery or realisation.

This power of attorney is irrevocable on account of the attorney's interest in the

said bills and the proceeds thereof.

139
IN WITNESS WHEREOF I/We have set my/our hands to the deed of
this _day of _20 in the presence of

EXECUTANT

Witness

1.

2.

140
 Annexure-14

LETTER FROM THE BORROWER

The Manager
Punjab Gramin Bank
BO: ______________

Dear Sir,

I/We beg to apply to you for a Cash Credit/Overdraft limit of (Rupees

_ _only) against the security of Govt. Supply Bills duly endorsed in your
favour with receipted challans with such margins as the Bank may decide, which
have been/may be handed over hereafter from time to time. I/We agree to pay
interest at_ _% over Reserve Bank of India rate with a minimum of % per
annum or such other interest as the Bank may specify from time to time. In
consideration of the same, I/We charge to and hypothecate with the Bank all the
Govt. Supply Bills drawn/to be drawn by me/us in respect of my/our contracts with the
Govt. together with benefits rights and amounts thereof so as to enable you to
realise the amounts of the said Govt. Supply Bills directly from the Govt.
/Department concerned. You will have first lien on all moneys received under these
bills and on goods securities, documents and moneys belonging to me/us that may
come into your possession for all claims and demands due or which may become
due from me/us to the Bank from time to time in respect of the limit of _____ .

2. You will not be responsible to me/us for any damage caused for loss of
documents or for delayed presentation of bills to the Govt. Department for any
reason whatsoever and in case the bills are sent for collection to other Banks at
places where your Bank has no branch you will not be responsible in any way
unless the remittance is actually received or realised by your Bank. I/We hereby
declare that the bills drawn/to be drawn on the Govt. Department will be according
to the terms of the contract/s and for goods supplied under the contract/s.

Yours faithfully,

Signature of the borrower

141
 Annexure-17

AGREEMENT OF PLEDGE – FOR ENHANCED PORTION

(Opening para of PGB 147)

In consideration of Punjab Gramin Bank, Kapurthala, through its office at

(hereinafter referred to as "Bank" which expression shall include its
assigns and successors in interest) allowing me/us (hereinafter referred to
as the "Borrowers" which expression shall unless repugnant to the context, include
my/our heirs, executors, administrators, assigns and legal representatives) an
enhancement by way of cash credit (hereinafter referred to as the 'said A/c). _
(hereinafter called the said limit' which expression shall include my/our entire liability
to the Bank) and secured against goods and merchandise hereinafter called 'the
security' pledged or to be pledged with the Bank in manner hereinafter provided, I/we
the borrowers, hereby agree jointly and severally as follows:

142
 Annexure-18

AGREEMENT OF HYPOTHECATION – FOR ENHANCED PORTION

(Opening para of PGB 148)

Punjab Gramin Bank (hereinafter called the Bank) having at the request of _____
hereinafter called the borrowers) enhanced or agreed to enhance the
existing cash credit limit from _ to ______ _ in the name of the borrowers to
be availed of at _ against the security by way of hypothecation of goods with the
Bank, the borrowers jointly and severally agree as under:

143
 Annexure-19

TRUST RECEIPT AGREEMENT

To be stamped as declaration of Trust
in accordance with Stamp Act in force
The Manager, in the State in which it is executed
Punjab Gramin Bank,
___________________

Dear Sir,

In consideration of your agreeing to deliver to us from time to time goods and/or

documents of title to goods pledged with the Bank and/or allowing us to hold, on
your account, the goods hypothecated with you as security for payment of moneys
advanced or to be advanced and any other banking facilities granted to be granted
and interest thereon, including renewals (if any), thereof from time to time with or
without modifications whether by enhancement or otherwise, we undertake and
agree jointly and severally as follows:

1. To receive and/or hold the said goods and/or documents and to clear,
receive, lend, store and hold the goods covered by such documents and any other
goods delivered by you to us as trust agents for the Bank and as such trust agents to
sell the goods(if so required by the Bank at such price or prices as the Bank may
approve) and upon sale and so long as any moneys remain due to the Bank or
we are liable to the Bank on any account or in any manner, to hold the sale
proceeds on trust for the Bank and immediately upon receipt thereof to pay the said
proceeds to the Bank without any deduction and at the same time advising the
bank of the account and the transaction in respect of which payments made and
the name of the purchaser/s to whom the said goods are sold; provided the Bank
shall always be entitled to demand and receive the sale proceeds of such goods or
any part thereof directly from the purchasers without reference to us.

2. To ensure and keep the goods insured at our cost for the full value against
such risks with such insurers as the Bank may require in the joint names of
ourselves and the Bank with the Bank clause and handover the relative policy or
policies to the Bank. Notwithstanding the insurance of the goods, we hold ourselves
liable for all losses and damage to the goods that may arise after date of the
receipt of the goods by us and whether or not the goods are in transit until the
sale proceeds are received by the Bank in repayment or adjustment of the amount
due on account of the said goods.

3. To sell the goods for cash only and not on credit without Bank's previous
consent in writing.

4. To keep each such transaction separate from any other showing the goods
and/or the proceeds in our books as belonging to the Bank.

5. Not to sell the goods or any part thereof if at any time the Bank before
actual sale is affected, instructs us not to do so.
144
6. Not to sell the goods after the expiry of the period if any fixed, for any
goods delivered and/or held on trust basis and handover the goods documents to
the Bank unless further time is extended by the Bank or its consent in writing is
obtained.

7. Not to further pledge, charge or hypothecate or grant lien or otherwise part

with possession of the goods or the documents or title to goods at any time
during the period the same are and remain with us on trust basis.

8. Full responsibility for the acts/omissions of our agents, if any, if the

goods/documents of title to goods are at any time, in any way, handled by our
agents, for any purpose including processing of goods as goods as if the said
acts/omissions were done by ourselves.

9. That the Bank and its officers, servants and agents shall be at liberty at all
time and any time without notice to us to inspect the said goods and take
possession of to demand delivery of the goods/documents pledged or hypothecated
(which we hereby undertake on demand to give) and to remove and sell the
same in such manner and upon such terms and conditions as the price and
otherwise as the Bank may in its absolute discretion thinks fit and to take
whatever steps the Bank may consider expedient for the protection, preservation of
its interest therein and to enforce and realise its security.

10. In the case of goods received by us for dispatch to outstations, we agree and
undertake as trust agents to hand over the railway receipts motor transport
receipts to you made out in the name of the Bank.

11. That the goods/documents handed over to us or held by us as trust agents or

the sale proceeds thereof shall be and continue as security with the Bank for the
payment of its dues or for any other moneys which may at any time hereafter
become due to the Bank from us whether alone or jointly with another, otherwise,
whether on current account or for money advanced to us or paid on our behalf in
any account whatsoever or in respect of bills, notes or drafts accepted, paid or
discounted on our behalf and for any other obligation or liability to the Bank and for
interest, commission or any other lawful charges or any other account whatsoever
of any manner, howsoever together with all costs, charges and expenses(the legal
costs being between attorney and client) paid, incurred or suffered by the Bank for
enforcement or for attempt to sell or enforce its security and for realisation of its dues.

Place
BORROWERS
Date _

145
 Annexure-20
LETTER BY BORROWER
(In case of advance against stocks lying in third party’s factory)

Station
Date _

M/s _

Dear Sirs,

This is to inform you that my/our stocks _ (Specify) weighing

are lying in the compound of your factory for
(specify process) purposes. The said stocks are pledged
by me/us with Punjab Gramin Bank _ Branch to secure
payment of amount due from me/us from time to time to the said Bank. You are
requested to note their pledge and confirm to the Bank that you will not dispose of
or in any way part with the stocks without written permission from the Bank. You
are further requested to allow a representative of the Bank to enter upon and remain
in the factory premises for the purpose of inspection and supervision of the
aforesaid stocks without reference to me/us and inform them that you agree to
abide by these instructions. These instructions shall also apply to all stocks of _
(specify nature) kept by me or on my/our behalf in your factory now or which may be
stored hereafter.

Yours faithfully,

(OWNER OF THE STOCKS)

1. The Manager,
Punjab Gramin Bank

2. M/s _ (Owner of the stocks)

Dear Sir(s),

I/We agree to abide by the above instructions.

Yours faithfully,

(FACTORY OWNER)

146
 Annexure-21

LETTER BY BORROWER
(In case of advance against excisable goods)

The Manager,
Punjab Gramin Bank,

Dear Sir,

With reference to our cash credit account with a limit of _

against the security of _________________________________________ (specify
excisable goods) with your office, we do hereby agree to pay the excise duty on the
pledged excisable goods as and when called upon by the bank to do so. We shall
fully co-operate in effecting sales of the excisable goods by the Bank and comply
with all formalities prescribed by the Excise Department and shall not in any way
obstruct or hinder the bank in selling the pledged goods or from removing them
from the mill premises. In case of default on our part in payment of the excise
duty, the bank shall be entitled to pay such amount and recover the same from us
with interest at the rate applicable to the loan.

We also agree to give an irrevocable power of attorney to the Bank authorising

them to get the goods released from the Excise Department by making and
signing all applications and complying with all their requirements on our behalf and
preparing gate passes, sign them on our behalf, get them counter-signed by the
excise authorities as and when necessary and remove the goods from the factory
premises.

Yours faithfully,

(SIGNATURE OF THE BORROWER)

147
 Annexure-23

INSURANCE CERTIFICATE

_________________WAREHOUSING CORPORATION

To
The Manager,
Punjab Gramin Bank,

Dear Sir,

REG: .

It is certified that the goods mentioned in the Warehouse Receipt No.

dated_______ issued in respect of * deposited by**_ _
on 20___ in our warehouse have been insured against_ upto
_20___for under policy No. _of the _
Insurance Company.

In the event of any claim arising under the above policy the claim if and when
admitted by the Insurance Company, will be paid to you or to the lawful holder of the
Warehouse Receipt after deducting our legitimate charges in respect thereof.

We also agree to pay the sales proceeds of the goods to you in case the same are
sold by us as a result of their deterioration or any other cause whatsoever.

Yours faithfully.

Date

* Insert name of commodity

** Insert name of depositor

148
 Annexure-24

INDEMNIFICATION CERTIFICATE

_________________WAREHOUSING CORPORATION
To
The Manager,
Punjab Gramin Bank,

Dear Sir,

With reference to the Warehouse Receipt No. dated

issued in respect of * deposited
by ** _____________, we hereby agree to compensate to the lawful holder of the
said Warehouse Receipt at the rate not exceeding the market rate of the goods at
the time of deposit for any loss or damage caused to them, during the period of
deposit, by fire and burglary.

We also agree to pay the sale proceeds of the goods to you in case the same are
sold by us as a result of their deterioration or any other cause whatsoever.

Yours faithfully,

(SIGNATURE OF THE BORROWER)

Date

* Insert name of commodity

** Insert name of depositor

149
 Annexure-24 B

APPLICATION FOR DEMAND LOAN

Dated:

To
The Branch Manager,
BO: _

Dear Sir,

Advance against Warehouse Receipt No. Dated .

Please take delivery of the above Warehouse receipt (Duly endorsed) and grant me
an advance of __ (Rupees ________________________ _) against the same.

2. I/We confirm that I/we am/are lawful holder(s) of the warehouse receipt.

3. I/We undertake to pay Warehouse charges as and when they are due.

4. I/We require the amount for my/our family expenses and shall repay with
interest within a period of months.

5. I/We hereby agree as a pre-condition of the loan/advance given to me/us by

the bank that in case I/we commit default in the repayment of loan/advances
or in the repayment of interest thereon or any of the agreed instalment of the
loan on due date/s, the bank and/or the Reserve Bank of India will have an
unqualified right to disclose or publish my/our name or the name of our
company/firm/unit and its directors/partners/proprietors as defaulter in such
manner and through such medium as the bank or Reserve Bank of India in
their absolute discretion may think fit.

Thanking you,

Yours faithfully,

(Signature of the Applicant)

150
 Annexure-25

AGREEMENT OF HYPOTHECATION OF BOOK DEBTS - FOR ENHANCED

PORTION
(Opening para of PGB 516)

In consideration of Punjab Gramin Bank, a body corporate constituted under

Regional Rural Bank Act 1976, and having its Head Office at Jalandhar Road,
Kapurthala, (hereinafter referred to as "the Bank") through its office at _
allowing _____________________________________________________________to
("hereinafter referred to as "the Borrower") an enhancement of banking facility by
way of cash credit or otherwise from _ against the
security of Book Debts to be secured in the manner hereinafter appearing, the
borrowers hereby agree with the Bank jointly and severally as follows:

151
 Annexure-26
SUPPLEMENTARY AGREEMENT
(For security of stocks, in addition to the security of book debts)

(* Describe This Supplementary Agreement is made at ____ this ____ day

name/parentage/ this day of ________ by _________
constitution/ ____________________________________________
address/ _______________________________________________
Registered office of
the borrowers) (hereinafter called "the borrowers" which term shall include its
successors and assigns) in favour of Punjab Gramin Bank, a
body corporate constituted under Regional Rural Bank Act, 1976
having its HO at Jalandhar Road, Kapurthala-144601 and
interalia a Branch Office at
(hereinafter called "the Bank" which expression shall include its
successors and assigns).

WHEREAS the borrowers have been availing cash credit (Book Debts) facility for a
limit of _____________ lakhs (Rupees _________________________________only)
from the bank.

WHEREAS the borrowers have executed cash credit hypothecation (Book Debts)
agreement/s dated _ (hereinafter referred to as "the said Agreement/s)".

WHEREAS the borrowers and Bank have agreed that the said cash credit facility has
to be further secured by hypothecation of stocks.

In consideration of the Bank advancing/continuing the above said cash credit

facility, the borrowers agree as under:

1. The borrowers hereby hypothecate with the bank present and future stocks of
raw materials, work in process, finished goods, consumable stores and spares (more
fully described in the schedule hereunder) hereinafter referred to as the
"hypothecated assets", which expression shall include all such assets and movable
property belonging to them which now or hereafter from time to time during the
continuance of this Agreement shall be brought in, stored or to be brought in or
about their premises or godown at any or any other godown or godowns or be
in course of transit from one godown to another or wherever else the same
may be, as security for payment of the balance due to the Bank by them any time or
ultimately found due on the closing of the said loan account/s relating to the said
cash credit facilities and for payment of all debts and liabilities mentioned in the
said agreement/s. The expression "balance due to the bank" shall be taken to
include the principal moneys due on the said loan account/s in respect of the said
cash credit facility from time to time and also all interest due thereon, additional
interest, interest tax at the rate as in force and the amount of all charges and
expenses which the bank may have paid or incurred in any way in connection with
the hypothecated assets or the sale or disposal thereof.

2. That all sales, realisations and insurance proceeds of the hypothecated

152
assets shall be held by the borrowers as the Bank's exclusive property for
appropriation to the said account. They shall not during the continuance of this
agreement create any mortgage, charge, lien or encumbrances affecting the
hypothecated assets or any part thereof nor do anything which would prejudice the
security nor shall they part with them, save by way of sale in the ordinary course of
their business. They shall not effect any sale after the Bank has prohibited them for
doing so.

3. The borrowers shall permit the Bank, its agents and servants from time to time
and at all times to enter into and upon any godowns or premises wherein the
hypothecated assets or any part thereof may for the time being be and to view,
inspect and value the same and make inventories or take possession thereof and
render to the Bank and its servants all facilities, as may be required for any of the
purposes aforesaid.

4. That the bank shall, from time to time, be at liberty to have any assets as
aforesaid, valued by an appraiser appointed by the bank and the fees and expenses
of such appraisement shall be paid by the borrowers.

5. The Borrowers shall punctually pay all rents, rates, taxes and other outgoing of
the premises wherein the hypothecated assets shall be and keep the same free
from distress.

6.a) That all the security as aforesaid wherever situated shall be insured by the
borrowers against such risks and in the manner required by the bank. All policies
and receipt for premia paid for such insurance shall be delivered to the office of
the bank. Should the borrowers fail on demand being made by the bank to insure
or to deliver the policies or receipts for premia, the Bank shall be at liberty, but not
bound, to effect such insurance as the Bank in its absolute and unfettered
discretion, thinks fit. Provided, however, that in the event of so insuring the
security, bank shall not be considered responsible or liable for the non-admission of
the claims of the bank or their non-payment wholly or partly by such insurance
company for the omission to insure or deficiency of insurance and the ultimate
liability of the borrowers to the bank shall continue notwithstanding such failure or
non-admission as aforesaid. All such expenses when incurred by the Bank shall
form part of the principal amount due and be debited to the borrower's account
and will carry interest at the rate applicable to the account. Further that all
sums received under any such insurance as aforesaid shall be received by the
bank and applied in or towards the liquidation of the balance due to the bank for
the time being and in the event of their being a surplus, the bank shall be
entitled to appropriate such surplus to any other dues from the borrowers either
singly or jointly with others. Provided that the Bank shall not incur any liability to
the borrower if it fails to lodge the claim under any policy with the company within
the time prescribed under such policy or for any reason whatsoever. Not shall the
Bank incur any liability to the borrowers for not bringing any suit for recovery of
Insurance moneys or allowing such suit to be barred by time.

b. It is also agreed that the Bank shall have the absolute right to adjust,
settle, compromise or refer to arbitration, without reference to or consent of the
borrowers, any dispute in connection with or arising under any policy of insurance.
153
7. The borrowers shall submit inventory to the Bank verified by them as
correct as required by the Bank. Should the inventories aforesaid contain any mis-
statement (for which the bank shall be sole judge) or there by any shortage of the
security, the borrowers shall render themselves liable to legal action and the Bank
shall be entitled to terminate cash credit facility and take possession of the security
and sell the same without any notice to the borrowers and realise its dues and
recover the balance of its claims from them.

8. That the borrowers hereby agree that margin as may be fixed by the Bank from
time to time shall always be maintained by the borrowers. In case of default by the
borrowers in this behalf, the entire amount in the account shall, on demand by the
Bank, become immediately payable by the borrowers.

9. That the borrowers hereby agree that in case their indebtedness to the Bank
under the said account exceeds the said limit, the borrowers shall be liable for the
excess amount and the security given shall be or continue to be liable for the excess
amount over and above the said limit in the same manner and to the same extent as
the borrowers' liabilities hereunder.

10. That the Bank and its officers and agents shall be entitled at any time as if they
were the absolute owners and without notice, at the borrower's risk and expenses
and if so required by the Bank or its officers or agents as attorney for and in the
name of the borrowers to enter and remain at any place where the hypothecated
assets shall be and to take possession of or recover and receive the same and/or
appoint any officer or officers of the Bank, as receiver or receivers of the
hypothecated assets and/or by public auction or private contract or otherwise
dispose off or deal with all or any part of the hypothecated assets and to enforce,
realise, settle, compromise and deal with any of the rights aforesaid without being
bound to exercise any of these powers or being liable for any loss in the exercise
thereof and without prejudice to the Bank's rights and remedies of suit against
the borrowers and to apply the net proceeds of such sales in or towards liquidation
of balance due to the bank and the borrowers hereby agree to as correct and fully
binding on them and pay any shortfall or deficiency.

11. That this instrument is to operate as security for the balance from time to time
due to the bank and also for the ultimate balance to become due on the said cash
credit facility.

12. The borrowers hereby declare that all the hypothecated assets are their
absolute property and that they have full powers of disposal over them and that such
assets are free from any prior charge or encumberance. That all the assets and
property to be hypothecated hereunder in future shall likewise be free and
unencumbered and that the borrowers have not done or knowingly suffered or been
party or privy to anything whereby they are in any way prevented from hypothecating
such existing or future assets in the manner aforesaid and that they will do and
execute at their cost all such acts, things, deed and documents for further and more
fully assuring and hypothecating and goods or any part thereof as shall be required
by the Bank and for giving better effect to these presents. The borrowers
authorise and irrevocably appoint the Bank and/or its officers as attorney and
154
attorneys for and in the name of the Borrowers to act on their behalf and to execute
any deed and do any act, assurance and things which the borrowers ought to
execute and do under these presents and generally to use the name of the
borrowers in the exercise of the powers hereby conferred.

13. That this agreement operating as a security for the said account and interest is
not to prejudice the rights or remedies of the Bank against the borrowers
irrespective and independent of this agreement in respect of any portion of the
ultimate balance of the said account or in respect of any other advances made or to
be made by the bank to the borrowers.

14. That this security shall not be prejudiced by any collateral or other security now
or hereafter held by the bank for any money hereby secured or by any release,
exchange or variation of such security and the Bank may give time for payment to or
make any other arrangements with any surety or consignatory without prejudice to
the borrowers' liability hereunder.

15. All other terms and conditions as contained in the said agreement/s apply in
respect of hypothecation hereby created and the same be binding and continues to
be in force.

SCHEDULE

Nature of goods and commodities Margin

Stocks

Various raw materials viz. manufacturing material, raw

materials including excisable raw materials, stocks in
process, semi finished goods, finished goods (including
bought out finished goods) viz.
_.

IN WITNESS WHEREOF the borrowers have signed these presents on the day,
month and year above mentioned.

BORROWERS
Witness:

1.

2.

155
 Annexure-27
SUPPLEMENTARY AGREEMENT
(For security of book debts, in addition to the security of stocks)
(* Describe This Supplementary Agreement is made at ____ this ____ day
name/parentage/ this day of ________ by _________
constitution/ ____________________________________________
address/ _______________________________________________
Registered office of
the borrowers) (hereinafter called "the borrowers" which term shall include its
successors and assigns) in favour of Punjab Gramin Bank, a
body corporate constituted under Regional Rural Bank Act, 1976
having its HO at Jalandhar Road, Kapurthala-144601 and
interalia a Branch Office at (hereinafter
called "the Bank" which expression shall include its successors
and assigns).
WHEREAS the borrowers have been availing cash credit (hypothecation of stocks)
facility for a limit of _lakhs (Rupees _____
only) from the bank.
WHEREAS the borrowers have executed cash credit hypothecation agreement/s
dated _(hereinafter referred to as "the agreement/s").
WHEREAS the borrowers, as aforesaid have already created hypothecation of
stocks to secure the said cash credit facility.
WHEREAS the borrowers and Bank have agreed that the said cash credit facility has
to be further secured by hypothecation of book debts.
In consideration of the Bank advancing/continuing the above said cash credit
facility, the borrowers agree as under:
1. The borrowers hereby hypothecate with the bank, the present and future book
debts, trust receipts, decrees, moneys, receivables, Government subsidies, claims,
bills, contracts, investments, etc., all of which are hereinafter referred to as "book
debts" which expression shall include all book debts belonging to them and which
now or hereinafter from time to time during the continuance of this Agreement may
belong to them, as security for payment of the balance due to the Bank by them
any time or ultimately found due on the closing of the said account relating to the
said credit facilities and for payment of all debts and liabilities as mentioned
in the said agreement/s. The expression "balance due to the bank" shall be taken to
include the principal moneys due on the said loan account in respect of the said
cash credit facilities from time to time and also of interest due thereon, interest tax at
the rate as in force and amount of all charges and expenses which the bank may
have paid or incurred in any way in connection with the hypothecated assets, of the
sale or disposal thereof.
* Applicable *2 a. Borrowers agree that no drawing power shall be allowed in case
in case drawing against book debts older than 90 days.
power is allowed
against book debts. b. Borrowers agree to keep and maintain such margin as the Bank

156
 may prescribe from time to time in respect of drawal against
book debts.

3. The borrowers declare that the book debts now hypothecated and that all future
debts which become hypothecated to the Bank under the Agreement and/or shall be
the absolute and unencumbered property of the borrowers with full power of
disposition and free from any prior charges or encumberances of any kind
whatsoever.
4. That a register of the book debts hypothecated by the borrowers to the Bank
under or by virtue of this Agreement shall be kept by the borrowers. The register
shall at all times be open to inspection by any officer or other person authorised by
the Bank and in which shall be entered full particulars of the said book debts
hypothecated to the Bank under or by virtue of this Agreement. The borrowers
further agree and undertake to furnish to the Bank monthly or as often as may be
required by the Bank, extracts from such registers and such statements and returns
of the said book debts as the Bank may require from time to time.
5. Notwithstanding that there may be any pending suit or other proceedings, the
borrowers undertake to give immediate notice to their debtors and third parties as and
when required by the bank and to transfer and deliver to the bank all relative
documents and papers and agree to accept the Banks' accounts of any sales and
realisations as sufficient proof of the correctness of the amounts realised and of the
charges and expenses in connection with such sale/s or realisation and to pay
any shortfall or deficiency.
6. The borrowers further agree to sign and execute all documents, to furnish all
information and do all acts and things necessary or expedient for the purpose of
enabling the banks to sell or dispose any of its rights under or by virtue of this
Agreement. The borrowers authorise the Bank and its officers, agents nominees or
other persons authorised by the Bank for and in the name/s of the borrowers to do
whatever the borrowers are under obligation to do hereunder in connection with
securities. Notwithstanding anything contained herein, it shall not be incumbent on
the bank to take any steps or institute any proceedings for the recovery of any of the
debts or outstanding or assets and the Bank shall not be responsible for any loss
arising out of or imputable to its neglect or omission or failure to take such steps or
institute any proceedings.
7. All other terms and conditions as contained in the said agreement/s apply in
respect of hypothecation hereby created and the same be binding and continues to
be in force.
IN WITNESS WHEREOF the borrowers have signed these presents on the day,
month and year above mentioned.

BORROWERS

Witness

1.

157
 2.
Annexure-28

APPLICATION FOR ISSUANCE OF LETTER OF UNDERTAKING

Date ___________
The Manager,
Punjab Gramin Bank,
BO ______________

Dear Sir,

Reg.: My/Our Contract with (name of Supplier)

For amount of

It is informed that we have imported _ _ (merchandise) raw

material/capital goods from the above party under Invoice No. _ dated _
for _ (Amount), Bill of Lading/Airway Bill
No. _ dated . The documents of the above
consignment have been received at yours and Branch Reference No. is __________.

That in respect of the payment due/to be due for the above import transaction, we
have arranged a Buyers’ Credit from ________________ (name of the Foreign
Bank/Institution) hereinafter referred to as ‘Overseas Lender’, for an amount of ______
and for a period of _, subject to furnishing of Letter of Undertaking from a bank
as per format enclosed, to pay, on our behalf, on due date the said amount in
USD/GBP/EURO plus interest and other charges.

Bank’s LOU will be an undertaking in favour of the Overseas Lender, on our

behalf and does not call for any other documents.

We confirm that we are eligible to raise Buyers’ Credit in terms of extant laws of
India including FEMA and RBI guidelines.

We, therefore, request you to issue a Letter of Undertaking in favour of _____________,

the ‘Overseas Lender’ (name of the Foreign Bank/Institution) to the extent of
for a period of _ from date hereof, to enable
us to avail Buyers’ Credit.

While doing so, you will be only acting as our agent and the loan arranged by
us will be routed through your bank/branch towards payment of import of
merchandise, for which we duly authorize your bank unconditionally.

On the due date, you are hereby authorized to make payment under the above Letter of
Undertaking and remit the funds to the ‘Overseas Lender’ without seeking any further
instructions from us. We agree to reimburse and indemnify the Bank for all amounts so
paid together with interest and other charges & costs. We further authorize you to
immediately recover the equivalent amount in Indian Currency -

158
a) by debiting my/our CA/CC Account No. _ with the total
amount payable in fulfillment of our obligation under Letter of Undertaking, in which
we will make available sufficient funds to enable you to make the payment to the
‘Lender’. Drawing Power (DP) for Cash Credit A/c should be reduced by the amount
of Guarantee.
Or

b) In consideration of the above, we hand over to you herewith my/our Call

/Fixed Deposit Receipt No./Confirmation of Deposit Receipt No. __________________
dated _ for ___ Issued in my/our _
_ favour duly discharged, being continuing security for issuing aforesaid Letter
of Undertaking till our obligation in respect of loan are fully paid and Letter of
Undertaking is fully discharged and you are authorized to appropriate the proceeds
of said Call /Fixed Deposit towards fulfilment of our obligation under the Letter of
Undertaking.

We also undertake to account for, in our books, this Buyer’s Credit availed as
our borrowing from Overseas Lender. Stock against this transaction will be
treated as unpaid for till the amount is repaid by us.

In case of my/our failure to pay/arrange the amount as aforesaid in respect of the

Letter of Undertaking we shall be liable to pay the said amount along with interest as
per guidelines of the Bank issued from time to time.

The said imported _ _ (merchandise) raw material/capital

goods shall remain hypothecated with the Bank. We agree to execute ‘Agreement of
Hypothecation’ of Goods and a ‘Counter Indemnity’ in favour of the Bank.

We agree to abide by the guidelines of the bank and Reserve Bank of India
issued from time to time in respect of the subject matter.

Yours faithfully,

_
(Name of Station) Signature of Authorized
Person
Full Name _
Address_

159
 Annexure-29

COUNTER INDEMNITY

THIS COUNTER INDEMNITY IS MADE_ _day of

between _(hereinafter called "the customer" which term shall mean and include,
unless repugnant to the context, him/them, his/their executors, successors and
assigns) of the first part and the PUNJAB GRAMIN BANK (hereinafter called "The
Bank" which term shall include its successors and assigns) of the second part.

WHEREAS, on the request of the customer, the Bank through its_____ branch
has agreed to issue a Letter of Undertaking to the extent of _____________
(_________________________ only) favoring ______________________________
for a period of as per the contract/arrangement entered into between the
customer and as per the Letter of Undertaking issued by the Bank , a copy of
which is annexed herewith as part of this agreement and has been signed by the
customer.

In consideration of the same and on the customer agreeing to pay commission,

interest and other charges, has agreed to execute this Counter Indemnity against any
payment made, claim, loss/liability to be incurred by the Bank in consequence of
giving the said Letter of Undertaking.

NOW in consideration of the above and the mutual promises and obligations, this
agreement witnesseth as follows:-

1. The customer hereby agrees that the Bank shall be and is entitled/authorised
to pay the amount demanded by the beneficiary of the Letter of Undertaking
furnished by the bank at the request of the customer, without reference to the
customer, immediately and unconditionally notwithstanding any intimation by the
customer to the Bank of any disputes about any default, breach or non-
performance of the contract, in whole or in part or any other differences,
whatsoever or any dispute or disputes raised by the customer in any suit or
proceeding pending before any court or arbitration or tribunal relating to the Letter
of Undertaking or contract, our liability being absolute and unequivocal. The said
payment of the Bank shall be binding in all respects on the customer as validly and
lawfully made on behalf of the customer. The customer agrees to reimburse and
indemnify the Bank for all the amounts so paid together with interest at the rate
of _____ and for costs and charges. The Bank shall be entitled to recover/realise
the same from the customer after demand in writing and enforce all or any of the
securities held by the Bank for the Letter of Undertaking furnished at the instance of
the customer.

2. That the customer also indemnifies the Bank against all costs, charges and
expenses with respect to any action, claim or proceedings, with reference to or in
connection with the said Letter of Undertaking which may be incurred by the
Bank as a result of non-fulfilment of obligations by the customer.

3. That to secure payment of the amount or any sum or sums due to the Bank
under this agreement of counter indemnity the customer has deposited cash
160
margin of and/or has already pledged and handed over as
security his Call/ Fixed Deposit Receipt No. _ dated
____________duly discharged. The customer authorises the Bank to adjust or
appropriate the amount of the cash margin/ Call/Fixed Deposit and interest towards
satisfaction of its dues or claim under this agreement at any time on or before
maturity of the said FDR. In case of renewal of FDR, the customer agrees that the
renewed FDR shall remain with the Bank as security with interest as aforesaid.

OR

Has already pledged as security his GP Notes No. _

dated_ duly endorsed in favour of the Bank and authorises the
Bank to satisfy its dues herein mentioned by sale of the said GP Notes
_.

OR

Hereby authorises the Bank to earmark as security the drawing power in his
CC/Overdraft account, to the extent of _ _ and to utilize and
appropriate the same for satisfaction of its dues herein mentioned.

4. The Bank is authorised and is entitled to appropriate, at its discretion, any

credit balance/deposit in the name of a customer without notice for and towards the
customer's liability. The bank may, at its discretion, debit the amount to Cash
Credit/Overdraft Account of the customer, if any, for realising the amount due.

5. That the customer has agreed to pay commission to the Bank at the rate of
_% in consideration of the Bank furnishing or agreeing to furnish Letter of
Undertaking to M/s____________________________. The amount of commission
shall be payable by the customer as follows:

_ _

_ _

In the event of default of payment, the Bank shall be entitled to realise the
amount of commission due to it from any of the securities of the customer herein
mentioned as dues recoverable by the Bank from the customer and also personally
from him/them/it.

6. The bank shall not be under the obligation to return any of the securities to
the customer unless liability under the Letter of Undertaking issued by the Bank has
been fully satisfied by the customer.

7. This counter guarantee will not be discharged due to the change in the
constitution of the Bank or the customer.

8. The above terms and conditions and the security furnished herein shall apply to
and secure the extensions/renewals/amendments, if any, of the Letter of Undertaking
made by the Bank from time to time at the request of the customer.
161
IN WITNESS whereof the parties hereto have set their hands in the presence of
witnesses.

WITNESS SIGNATURES OF CUSTOMER

1. Signatures:
Name:
Address: _
_
FOR PUNJAB GRAMIN BANK

2. Signatures:
Name:
Address: NAME: _
__ ___ ___ ___ ___ ___ ___ ___ ___ ___ ______ ___ ___ _____ ___ ___ ___ ___ ___ ___ ___ ___ ___
DESIGNATION: _

162
 Annexure-30

For Office Use only

Agreement of Hypothecation of Goods

THIS AGREEMENT is executed at …………………….. this …………………….. day
of ……………,………………. In favour of Punjab Gramin Bank, a body corporate
constituted under the Regional Rural Bank Act 1976, having its Head Office at
Jalandhar Road, Kapurthala-144601 and amongst others one of the branches at
_______ , (hereinafter referred to as the ‘Bank’ which expression shall
include its successors and assigns) by M/s. _ having
its Registered Office at _ _ (address) (hereinafter referred to as “the
Importer Customer” (which expression shall unless the context or subject
otherwise requires include its successor, administrator(s), assigns).

Whereas the said importer/ customer has procured material, inter alia, consisting
of______ _ from M/s _
(hereinafter referred to as the ‘Overseas Supplier’) and documents thereof have
been received as per detail given in the application for issuing Letter of
Undertaking.
Whereas for making the payment due / to be due under the said import, importer
customer has arranged a buyer’s credit from ,
(hereinafter referred to as the ‘Overseas Lender’) for an amount of
for a period of _(hereinafter referred to as
the Buyer’s Credit’) as per details given in application(s) for issuance of Letter of
Undertaking.
Whereas one of the condition of granting the buyer’s credit is that the importer
customer shall furnish a ‘Letter of Undertaking’ from a bank in favour of the
Overseas Lender unconditionally undertaking and agreeing to pay on demand an
amount of along with the applicable interest
@______% p.a (hereinafter referred to as the ‘buyer’s credit dues’) to the
Overseas Lender in respect of the said buyer’s credit.

WHEAREAS at the request of the Importer Customer, as contained in his application

dated ……………………… the bank has issued, agreed to issue a ‘Letter of
Undertaking’ (hereinafter referred to as the ‘LoU’) in favour of the overseas lender
thereby lender unconditionally undertaking and agreeing to pay on demand the
buyer’s credit dues to the overseas lender.

And whereas one of the condition of issuing the LoU is that the Importer Customer
will create security by way of Hypothecation charge in favour of the bank for the
liability of the bank under the LoU on the moveable assets of the importer including
material / goods imported / to be imported.

NOW IN CONSIDERATION of the Bank having issued / agreed to issue the

Letter of Undertaking in favour of the Importer Customer’s overseas lender to pay on
demand the buyer’s credit dues to the overseas lender, the Importer Customer
hereby agrees, undertakes and declares as under :-
163
1. The importer customer hereby hypothecate with the bank the goods described
in general terms in the schedule herewith including the material/goods imported/to be
imported as aforesaid (hereinafter referred to as 'the hypothecated goods' which
expression shall include all goods of any kind imported which now or hereafter from
time to time during the continuance of this agreement shall be brought in, stored,
or to be in or about his premises or godowns at_ or any other godown or
godowns or be in course of transit from one godown to another or wherever else
the same may be), as security for liability of the bank under the said Letter of
Undertaking paid by the Bank and the amount of all charges and expenses which
the Bank may have paid or incurred in any way in connection with the hypothecated
goods or the sale or disposal thereof.
2. That the importer/ customer shall not sell or dispose of in any manner the
hypothecated goods or any part thereof without the previous written consent of the
Bank except in the ordinary course of business. In such case the borrower shall pay
the value in advance of such goods in the said account or substitute the same by
other approved goods at least of equal value for the goods so sold or disposed off.
3. That all sales, realisation and insurance proceeds of the hypothecated
goods shall be held by the importer customer as the Bank's exclusive property
and shall be deposited in the bank in the account exclusively maintained for the
purpose. He shall not during the continuance of this agreement create any
mortgage, charge, lien or encumbrance affecting the hypothecated goods or any
part thereof nor do anything which would prejudice the security nor shall he part
with them. In case the hypothecated goods are sold / parted with / disposed of by
the Customer in the ordinary and usual course of its business he will replenish the
goods to that extent in terms of value or shall deposit an equivalent amount in the
bank.
4. That the importer customer shall permit the Bank, its agents and servants from
time to time and at all times to enter into and upon any godowns or premises
wherein the hypothecated goods or any part thereof may for the time being be and
to view, inspect and value the same and make inventories or take possession
thereof and render to the Bank and its servant all facilities, as may be required for
any of the purposes aforesaid.
5. That the Bank shall from time to time be at liberty to have any goods as
aforesaid valued by an appraiser appointed by the Bank and the fees and expenses
of such appraisement shall be paid by the importer customer.
6. The importer customer shall punctually pay rents, rates, taxes and other out-
going of the premises wherein the hypothecated goods shall be and keep the same
free from distress.
7. (a) That all the security as aforesaid wherever situated shall be insured by the
importer customer against fire risk and as and when required by the Bank against
war, riots and civil commotion risks and/or risk of any other description with some
insurance company approved by the bank to the full market value of such security in
each case irrespective of the balance due against the importer customer, and that the
said policies shall be taken out in the name of the bank or in the joint names of the
Bank and the importer customer with the bank Clause and that all policies and receipt
164
for premia paid on such insurances shall be delivered to the Bank. Should the
importer customer fail on demand being made by the Bank to insure or to deliver the
policies or receipts for premia as aforesaid, the bank shall be at liberty, but not
bound, to such insurance companies as the Bank in its absolute and unfettered
discretion, thinks fit and to an extent of the full market value of the security of
which the Bank shall be sole judge. Provided, however, that in the event of so
insuring the security, the Bank shall not be considered responsible or liable for the
non-admission of the claims of the Bank or their non-payment wholly or partly by such
insurance company for the omission to ensure or deficiency of insurance and the
ultimate liability of the importer customer to the Bank shall continue notwithstanding
such failure or non-admission as aforesaid. All such expenses when incurred by the
Bank shall form part of the principal amount due and be debited to the importer
customer' account and will carry interest at the rate applicable to the amount.
Further, that all sums received under any such insurance as aforesaid shall be
received by the Bank and applied in/towards the liquidation of the balance due-to the
Bank for the time being and in the event of there being a surplus, the Bank shall be
entitled to appropriate such surplus as provided in clause 17 of the agreement.
Provided that the Bank shall not incur any liability to the importer customer if it fails
to lodge any claim under any policy with the company within the time prescribed
under such policy or for any reason whatsoever. Nor shall the Bank incur any
liability to the importer customer for not bringing any suit for recovery of insurance
moneys or allowing such suit to be barred by time.

(b) It is further agreed and declared that in each of the following three cases
namely where –
I. A policy is taken by the importer customer in his/her/their own name and
assigned by him/her/them in favour of the Bank;
II. The policy is in the names of the importer customer and the Bank without
Bank Clause;
III. A policy is in the name of the importer customer and is in his/her/their
possession, the Bank shall, in addition to the remedies provided in the Bank's
favour in sub-clause (a) above, be entitled to realise the policy money from the
insurance company and the importer customer agree(s) that, if need be, the
bank in each of the above three cases shall be considered as his/her/their
irrevocable attorney and the importer customer shall not be entitled to realise
the policy money from the company him/her/themselves.
(c) It is also agreed that the Bank shall have the absolute right to adjust, settle,
compromise or refer to arbitration, without reference to or consent of the importer
customer, any dispute in connection with or arising under any policy of insurance
and any of the assured and such act of the Bank shall be valid and binding on the
importer customer, but shall not impair the right of the Bank to recover its dues from
the importer customer.
8. That the importer customer shall submit a monthly inventory of the goods to
the Bank duly verified as correct. Should the monthly inventories contain any mis-
statement (for which the Bank shall be the sole judge) or there be any shortage of
the security the importer customer shall render it liable to legal action and the Bank
shall be entitled to terminate this agreement and take possession of the security and
sell the same without any notice to the importer customer and realize its dues and
165
recover the balance of its claims from him/her/them.
9. In case the bank pays the buyer’s credit dues in terms of the Letter of
Guarantee, the amount so paid shall be immediately debited to the customer’s said
account maintained by him with the bank and the customer shall pay interest at
the rate % over/below prevailing _________rate (herein after referred to as ‘the
Reference Rate’) plus applicable interest tax (if any) per annum with _ rests.
Notwithstanding anything contained in the agreement the rate of interest payable
by the importer customer and the periodicity of rests shall be subject to
changes/variations made by the the bank / Reserve Bank of India from time to
time.

In the event of there not being any above said reference rate, the importer customer
agrees to pay the interest at the rate as prescribed by the Bank from time to time.
The importer customer agrees to pay and bear interest tax, if any, at the rate as in
force from time to time. The Bank shall have the discretion to decide the manner of
computing and charging of the same in the account.
Interest shall be calculated on the daily balance due to the Bank in the said
account and shall be charged in the account on the last working day of the _ so
long as the debt herein incurred is not paid by the importer customer in its
entirety and will form part of the principal and carry interest at the above mentioned
rate.
10. That the importer/ customer hereby agrees that his liability to the Bank shall
for the purpose of the agreement be joint and several and that the Bank shall
always have the right under this agreement to give indulgence or to grant time or
negotiate with any one of the importer customer without the liability of the other
importer /customer being affected thereby or without prejudice to the Bank's rights
and remedies against any one or all of the importer customer.
Further that the importer customer hereby agrees to hold himself liable as aforesaid
on all confirmation letters signed by any one of them. (Applicable in case of joint
importer customer, can be deleted if not applicable).

11. That the Bank and its officers and agents shall be entitled at any time as if
they were the absolute owners and without notice at the importer customer' risk and
expenses and if so required by the Bank or its officers or agents as attorney for
and in the name of the importer customer to enter and remain at any place
where the hypothecated goods shall be and to take possession of or recover and
receive the same and/or appoint any officer or officers of the Bank as receiver or
receivers of the hypothecated goods and/or by public auction or private contract or
otherwise dispose of or deal with all or any part of the hypothecated goods and
to enforce, realise, settle, compromise and deal with all or any loss in the aforesaid
without being bound to exercise any of these powers or being liable for any loss in
the exercise thereof and without prejudice to the Bank's rights and remedies of suit
against the importer customer and to apply the net proceeds of such sales in or
towards liquidation of the balance due to the Bank and the importer customer
hereby agree(s) to accept the Bank's account of sales and realisation therefor as
correct and fully binding on him/her/them and to pay any short-fall or deficiency
166
shown thereon.

12. That if the importer customer fails / neglects to repay on demand such
balance of principal and interest as may be then due to the Bank on the said
account or in the event of the importer customer becoming bankrupt or insolvent or
executing any deed or agreement of composition, inspectorship or go/ in
liquidation or if the importer customer commit(s) breach of any of the terms and
conditions of the agreement or in the opinion of the Bank there is danger of the
loss of the security by any reason whatsoever, it shall be lawful for the Bank
forthwith or at any time thereafter and without any notice to the importer customer
(without prejudice to the Bank's right of suit against the importer customer) either
by public auction or private contract absolutely to sell or otherwise dispose of all or
any of the security and to apply the net proceeds of such sale towards liquidation
of the balance due to the Bank on the said account as shown by the statement of
account prepared from the books of the Bank and signed by the Manager or other
duly authorised officer of the Bank, which the importer customer hereby agree(s) to
accept as sufficient proof of the correctness thereof without the production of any
book voucher or paper. The importer customer shall not be entitled to raise any
objection as to the regularity of the sale or as to the rate or the time at which the
hypothecated goods are sold as aforesaid or in respect of costs, charges and
expenses incurred in connection therewith.
13. That if the net sum realised by such sale be insufficient to cover the
balance due to the Bank, the Bank shall be at liberty to apply any other money or
moneys in the hands of the Bank standing to the credit or belonging to the
importer customer or any one or more of them in or towards payment of the
balance for the time being due to the Bank and in the event of there not being any
such money or moneys as aforesaid in the hands of the Bank or in the event of such
money or moneys being still insufficient for the discharge in full of such balance the
importer customer promise(s) and agree(s) forthwith on production to him/her/them of
an account prepared and signed as herein-before provided to any further balance
which may appear to be due by him/her/them thereon, and on his/her/their failure
to pay on demand such balance the Bank shall be entitled to recover it from the
person(s) and other properties of the importer customer. PROVIDED ALWAYS that
nothing herein contained shall be deemed to negate, qualify or otherwise
prejudicially affect the right of the Bank (which it is hereby expressly agreed, the
Bank shall have) to recover from the importer customer balance for the time being
remaining due from him/her/them upon the said account notwithstanding that all or
any of the said security may not have been realised or even proceeded against.
14. And it is hereby agreed that in the event of there being surplus available
after payment of all such principal, interest and all charges and expenses as
aforesaid it shall be lawful for Punjab Gramin Bank to apply the said surplus, in or
towards payment or liquidation of any other moneys due to the Bank from the
importer customer or any one or more of them whether singly or jointly with any
other person or persons, firms or company, in respect of loans secured or
unsecured, Discounted Bills, Letters of Credit, Guarantee Charges or of any other
demand, legal or equitable, which the Bank may have against the importer customer
or any one or more of them and whether the importer customer or any one or
more of them shall become or be adjudicated bankrupt or be in liquidation or
otherwise.
167
15. That it is agreed that any surplus of the net proceeds of any such sale
after payment of all principal and interest moneys due by the importer customer
or any one or more of them to the Bank for or in respect of the said account
otherwise relating thereto and all other moneys due from him/her/them to the Bank
in any other account whatever as aforesaid shall be payable to him/her/them by the
Bank.
16. That this instrument is to operate as security for the amount paid by the
bank.
17. That the importer customer hereby declares that all the hypothecated goods
are his absolute property and that he has full powers of disposal over them and
such goods are free from any prior charge or encumbrance. That all the goods and
property to be hypothecated hereunder in future shall likewise be free and
unencumbered and that the importer customer has/have not done or knowingly
suffered or been party or privy to anything whereby he/she/they is/are in any way
prevented from hypothecating such existing or future goods in the manner aforesaid
and that he/she/they will do and execute at his/her/their costs all such acts,
things, deeds and documents for further and more fully assuring and hypothecating
the goods or any part thereof as shall be required by the Bank and for giving better
effect to these presents. The importer customer authorise(s) and irrevocably appoint
the Bank and/or its officers as attorney and attorneys for and in the name of the
importer customer to act on his/her/their behalf and to execute any deed and do any
act, assurance and things which the importer customer ought to execute and do
under these presents and generally to use the name(s) of the importer customer in
the exercise of the powers hereby conferred.
18. That this agreement operating as a security for the said account and interest is
not to prejudice the rights or remedies of the Bank against the importer customer
irrespective and independent of this agreement in respect of any portion of the
ultimate balance of the said account or in respect of any other advance made by
the Bank to the importer customer or any of them.
19. That in case the importer customer shall be a firm or members of a firm, no
change whatsoever in the constitution of such firm during the continuance of this
agreement shall impair or discharge the liability of the importer customer or any one
or more of them hereunder, or in any way affect the right and remedies of the Bank
under this agreement. (delete if not applicable).

20. That the balance due to the Bank shall be payable by the importer customer at
Office of the Bank where the said account is maintained or at the Head Office of
the Bank at Kapurthala.
21. That incidental charges at the rate fixed by the Bank from time to time at its
discretion shall be debited to the said account for every half year or part thereof.
22. That this security shall not be prejudiced by any collateral or other security now
or hereafter held by the Bank for any money hereby secured or by any release,
exchange or variance of such security and the Bank may give time for payment to or
make any other arrangement with any surety or consignatory without prejudice to
the importer customer’ liability hereunder and all moneys received by the Bank from
the importer customer or any person liable to pay the same may be applied by the
168
Bank or any account to which the same may be applicable.
23. That the importer customer further agrees and hereby gives to the Bank
during the currency and for the payment of the said account, a general lien and right
to set off and combine accounts without notice and charge on all movable property of
every description coming into their possession on account of the importer customer
or any one of them or for the time being held by the said Bank on behalf of the
importer customer or any one of them whether singly or jointly with others in India
or elsewhere including, without prejudice to this generality, any moneys, bullion,
deposits, deposit receipts for moneys, promissory notes, bills of exchange, hundies,
stocks, goods, merchandise, bills of lading, Railway Receipt, Government Bills
with Inspection notes and other bills in course of collection, articles in the safe
custody and other documents of every description including hire purchase agreements
or contracts evidencing the title of the importer customer as lenders or members or
shareholders of any Corporation, Association Company or Syndicate in India or
elsewhere.
24. a) That the importer customer hereby agrees that in case he commits
default in the repayment of the amount or in the repayment of interest thereon the
Bank and/or the Reserve Bank of India will have an unqualified right to disclose or
publish the importer customer’ names or the name of the importer customer’
company/firm/unit and its directors/partners/ proprietors as defaulter(s) in such
manner and through such medium as the Bank or RBI in their absolute discretion may
think fit.

b) The importer customer understand that the Bank requires his consent for the
disclosure by the Bank of, information and data relating to him, of the credit facility
availed of/to be availed, by him, obligations assumed/to be assumed, by him, in
relation thereto and default, if any, committed by him, in discharge thereof.
c) Accordingly, the importer customer hereby agrees and gives consent for the
disclosure by the Bank of all or any such;
i) Information and data relating to the importer customer;
ii) The information or data relating to any credit facility availed of/to be
availed, by the importer customer, and
iii) Default, if any, committed by the importer customer, in discharge of the
importer customer such obligation, as the Bank may deem appropriate and
necessary, to disclose and furnish to Credit Information Bureau (India) Ltd.
and any other agency authorised in this behalf by RBI.
25. The importer customer declares that the information and data furnished by the
importer customer to the Bank are true and correct.
26. That the importer customer undertake that:
i) The Credit Information Bureau (India) Ltd. and any other agency so
authorised may use, process the said information and data disclosed by the
Bank in the manner as deemed fit by them; and
ii) The Credit Information Bureau (India) Ltd. and any other agency so
authorised may furnish for consideration, the processed information and data
169
 or products thereof prepared by them, to Banks/financial institutions and other
credit grantors or registered users, as may be specified by the Reserve Bank
in this behalf.
27. That the importer customer agree not to induct on the part of Importer
customer a person, who has been identified as willful defaulter as per definition
given as per RBI directions/guidelines or Bank’s guidelines as a Director on the
Board of the importer customer. If any Director who is willful defaulter as per
definition above referred, is on the Board of Importer customer, the importer
customer undertake to get him removed from the Board of the importer customer.
The importer customer agree to make necessary amendments in the Article of
Association of the importer customer to make the above requirements a ground for
removal of Director(s) and furnish a copy of Articles of Association as amended to the
Bank. (applicable in case of corporate importer customer)

28. That any demand hereunder may effectually be made by parole notice to the
importer customer by an officer of the Bank or any notice in writing under the
hands of any such officer either served personally on the importer customer or left at
or sent by post to him/her/them at his/her/their address registered with Bank. Notice
served on any one of the importer customer shall be deemed to have been served
on all of them.
In witness whereof the importer customer has hereunto set his hands this _____day of
the Year, two thousand .

Date
Place
Signatures_ _

Occupation

Address_

SCHEDULE OF HYPOTHECATED MATERIAL / GOODS

Nature of material/goods

Margin

170
 Annexure-31
AGREEMENT OF GUARANTEE

This Agreement of Guarantee (this Agreement) is made at (Place) on this_

day of '20____,
Between
Shri/Ms__________________________son/daughter/wife of Shri___________________
____________ R/o _____________________________________
M/s_______________________________________, a company within the meaning of
the Companies Act, 1956 having its Registered Office at
____________________________________ (through Shri/Ms.______________,
_______________________ (designation), as authorized vide its Board of Resolution
dated __________)
AND
Punjab Gramin Bank, a body corporate constituted under the Regional Rural Bank
Act 1976, having its Head Office at Jalandhar Road, Kapurthala and, inter alia, a
Branch Office at _____ (Hereinafter called the “Bank”, which term shall,
wherever the context so permits, mean and include its successors and assigns) of
the second Part.

WHEREAS

A. At the request of the Guarantor(s) the Bank has agreed to

allow/continue/enhance an accommodation by way of _____________ (the
Facilities”/”Limits”) to Shri/Ms/Messrs. (Hereinafter called
the “Borrower”) on the terms and conditions contained in the loaning and security
documents executed by the Borrower; and

B. The Guarantor(s) has/have agreed to guarantee due payment of the amount

which at any time may be due to the Bank in respect of the said Facilities / Limits
of ________________(Rupees _
______________)

NOW THIS AGREEMENT WITNESSETH AS UNDER:

1. That in consideration of the Bank allowing/continuing/ enhancing at the

request of the Guarantor(s) an accommodation by way of _____________________ of
Rs. __________________(the “Facilities”/”Limits”) to the Borrower at its Branch Office
at __________________________ on the terms and conditions contained in the
loaning and security documents executed by the borrower on ____________, the
Guarantor(s) hereby agree(s) with the bank as under:-

2. The Guarantor(s) hereby guarantee(s) jointly and severally to pay to the

Bank after demand in writing all principal, interest, cost, charges and expenses due
and which may at any time become due to the Bank from the Borrower in the
accounts opened in respect of the said Facilities/Limits (hereinafter called the
“said accounts”) down to the date of payment and also all losses or damages, costs,
charges and expenses and in the case of legal costs, as between attorney and client
occasioned to the Bank by reason of omission, failure or default temporary or
171
otherwise in such payment by the Borrower or by the Guarantor(s) or any of them
including costs (as aforesaid) of enforcement or attempted enforcement of payment
by suit or otherwise or by sale or realization or attempted realization or sale of any
security for the said indebtedness or otherwise howsoever or any costs (which
costs to be as aforesaid) charges or expenses which the Bank may incur by being
joined in any proceeding to which the Bank may be made or may make itself party
either with or without others in connection with any such securities or any
proceeds thereof.

3. The Guarantor(s) hereby declare(s) that this guarantee shall be a continuing

guarantee and remain operative in respect of each of the said Limits severally and
may be enforced as such in the discretion of the Bank, as if each of the Facilities /
Limits had been separately guaranteed by him/her/them. This guarantee shall not be
considered as cancelled or in any way affected by the fact that at any time or from
time to time any of the said accounts may show no liability against the Borrower or
may even show credit in his/her/their favour but shall continue and remain in
operation in respect of all subsequent transactions till the accounts are closed.

4. The Guarantor(s) hereby consent(s) to the Bank making any variance, without
reference or notice to him / her / them, that it may think fit in the terms of
contract, including any change in rate of interest charged to the accounts of the
Borrower. The Guarantor(s) further consent(s) to the Bank accepting additional
collateral security of any kind, determining, enlarging or varying any credit to the
Borrower or making any composition with him or promising to give him time or not
to sue him and the Bank parting with any security it may hold for the guaranteed
debt. The Guarantor(s) also agree(s) that he/she/they shall not be discharged from
his/her/their liability by the Bank releasing the Borrower or by any action or
omission of the Bank, the legal consequences of which may discharge the
Borrower or by any act of the Bank which would, but for this present provision,
be inconsistent with his/her/their rights as Guarantor(s) or by the Bank's omission
to do any act which, but for this present provision, the Bank's duty to the
Guarantor(s) would have required the Bank to do. Though as between the borrower
and the guarantor(s) he /she/they is/are guarantor(s) only, the guarantor(s)
agree(s) that as between the Bank and the Guarantor(s) he/she/they is/are
debtor(s) jointly with the borrower and accordingly he/she/they shall not as such be
entitled to claim the benefit of legal consequences of any variation in the terms of the
contract and to any of the rights conferred on a Guarantor by Sections 133, 134, 135,
139 and 141 of the Indian Contract Act. The Guarantor(s) further agree(s) that the
acceptance by the Bank of any irregular payments or any amount short of the
amount of agreed installment/s. whether made before or on due dates or
thereafter by the Borrower, shall not discharge the Guarantor(s) from his/her/their
liability and such acceptance will not amount to or create any new or fresh contract.
The Guarantor(s) further agree(s) that the Bank shall be under no obligation to
notify him/her/them, any default committed by the Borrower at any time or from
time to time.

5. The Guarantor(s) hereby consent(s) to the Bank renewing from time to time
the said Facilities / Limits of _ _ allowed to the Borrower,
obtaining fresh documents from him/her/them, closing the existing accounts, opening
new accounts, or transferring the same or part thereof to any branch of the Bank.
172
Notwithstanding this, the Guarantor(s) agree(s) and declare(s) that he/she/they shall
remain liable to the Bank for any indebtedness of the Borrower under the renewed
facilities / limits and the terms and conditions of this Agreement shall apply and
govern his/her/their liability under the renewed facilities / limits.

6. The Guarantor(s) further declare(s) that all dividends, compositions or

payment received by the Bank from the Guarantor(s) or any other persons liable to
him/her/them or his/her/ their representative shall be taken and applied as payment
in gross and the Guarantor(s) and his/her/their representatives shall have no right to
claim the benefit of any such dividends, compositions or payment until full amount of
all claims of the Bank against the Borrower and his/her/their representatives which
are covered by this guarantee shall have been paid.

7. No advance, overdraft or other credit facilities that the Bank may give to
the Borrower beyond the Limits mentioned in para No.1 above or obtaining of any
other guarantee or security from the Borrower shall determine, prejudice or lessen
the liability of the Guarantor(s) hereunder.

8. The Guarantor(s) further agree(s) that any accounts settled between the Bank
and the Borrower or the balance admitted or confirmed by him or his authorized
agents as due on the said accounts to the Bank will be conclusive and shall not be
disputed or questioned by the Guarantor(s).

9. The Guarantor(s) authorize(s) and appoint(s) each of the Borrower or any

person duly authorized by them as agent to confirm the balance due and
acknowledge liability on his/her/their behalf as guarantor(s) from time to time. The
Guarantor(s) further agree(s) that any acknowledgement of liability made by the
Borrower or any person duly authorized by him/her/them to operate the accounts
or any of the co-Guarantors as agent on behalf of the Guarantor(s) shall be binding
on him/her/them for giving fresh start of limitation and also for admission of liability
against him/her/them.

10. In case the Bank sells the hypothecated, pledged or mortgaged security/ies
held in the loan accounts, the Guarantor(s) agree(s) that the Bank may sell the said
securities without giving any notice of such sale to the Guarantor(s). The
Guarantor(s), agree(s) that he/she/they will not question the sale or the sale price in
any manner or on any ground whatsoever.

11. In case the amount guaranteed by the Guarantor(s) is paid by the

Borrower(s) to the Bank and the Bank in consequence discharges the Guarantor(s)
from all liabilities under this guarantee, but it is subsequently determined by a
Court of Law or otherwise that the said payment was a fraudulent preference and the
Bank is made to refund the said amount, the Guarantor(s)' liability to the Bank on the
basis of this guarantee shall revive to the same extent and in the same manner as
if such payment had never been made.

12. The Guarantor(s) also agree(s) that the Bank may enforce the guarantee
without enforcing, selling or realizing any of the securities kept under lien,
hypothecated, pledged or mortgaged with it, notwithstanding that any bills or other
instruments given by the Borrower in the said accounts may be in circulation for
173
collection and outstanding.

13. The guarantee hereby given shall not be determinable or taken as satisfied by
the Guarantor(s) except on the terms of his/her/their making full payment up to the
limit of his/her/their guarantee for any then outstanding liabilities or obligations on the
said account. The guarantee shall not be affected by his/her/their death or insanity
until the Bank shall have received formal authentic notice in writing thereof.

14. If the Guarantor(s) has/have or shall hereafter take any security from the
Borrower in respect of his/her/their liability under this guarantee, the Guarantor(s)
will not prove in the liquidation of the Borrower in respect thereof to the prejudice of
the Bank and such security shall stand as security and shall be forth with deposited
with the Bank.

15. So long as any money remains owing under this guarantee, the Bank shall
have lien on all moneys standing to the credit of the Guarantor(s) and on any
securities or goods in the hands of the Bank belonging to any of the
Guarantor(s) and the Bank shall be entitled to appropriate/set off/realize the same.

16. The absence or infirmity in the borrowing powers on the part of the Borrower or
any irregularity whatsoever in the exercise thereof shall not affect the liability of
the Guarantor(s) and any moneys advanced to the Borrower shall be deemed to be
due and owing notwithstanding such absence, infirmity or irregularity and this
guarantee shall not be affected by any change in the name or constitution of the
Borrower. It is further expressly agreed that this guarantee shall remain enforceable
against the Guarantor(s) irrespective of the fact whether the contract between the
Borrower and the Bank is enforceable at law or not. It is also expressly agreed that
in case the guarantee given by the Guarantor(s) cannot be enforced or becomes
unenforceable at law for any reason whatsoever, the guarantee given hereunder be
enforced as an indemnity against the Guarantor(s) and he/she/they agree(s) and
undertake(s) to indemnify and reimburse the Bank for any loss, damages, costs and
other charges which the Bank may have to recover and realize from the Borrower in
his/her/their loan accounts with it.

17. Any notice by the Bank in writing under this guarantee or a demand in writing
shall be deemed to have been duly given to the Guarantor(s) by sending the same
by post addressed to him/her/them at the address herein written and shall be
effectual notwithstanding any change of residence or death and notwithstanding
the notice thereof to the Bank and such demand shall be deemed to have been
received by the Guarantor(s) 24 hours after the posting thereof and shall be
sufficient to prove that the letter containing the demand was properly addressed and
posted.

18. The Guarantor(s) agree(s) that a copy of account of the Borrower contained in
the Bank books of accounts signed by the Manager for the time being of the office
at which such accounts shall be kept or any officer of the Bank shall be
conclusive evidence against him/her/them of the amount for the time being due to
the Bank from the Borrower in any account or other proceedings brought against
him/her them upon this guarantee.

174
19. The Guarantor(s) hereby agree(s) that in case of any default in the
repayment of the dues under the Facilities / Limits, including the interest,
installment, charges, etc., by the Borrower and / or any default committed by the
Guarantor(s) in discharging his/her/their obligations under this guarantee, the Bank
and/or Reserve Bank of India will have an unqualified right to disclose or publish the
Guarantor(s) names or the names of the Guarantor’s/Guarantors’ company/firm/unit
and its directors/partners/proprietors as defaulter in such manner and through such
medium as the Bank and/or Reserve Bank of India in their absolute discretion may
deem fit.

20. The guarantor(s) hereby further agree(s) that in case demand / claim is made
on him/her/them by the Bank for repayment of the dues under the Facilities/
Limits and the guarantor(s), despite having sufficient means, refuse(s)/neglect(s) in
discharging his/her/their obligation under this guarantee, he/she/they will be treated
as a wilful defaulter and Bank/RBI will have an unqualified right to declare the
name of such guarantor as wilful defaulter and to initiate further action as per
Bank/RBI guidelines or applicable law/statute, in respect of wilful defaulters.

21. The Guarantor(s) accept(s) and confirms(s) that the Bank requires consent of
the Guarantor(s) for disclosure of the information and data relating to the obligations
assumed and / or any default committed by the Guarantor(s) under this Guarantee.
Accordingly, the Guarantor(s) hereby give(s) consent for disclosure by the Bank of
all or any such:
Information and data relating to the Guarantor(s);
The information or data relating to the obligations of the Guarantor(s) under this
Guarantee; and
Default, if any, committed by the Guarantor(s) in discharge of such
obligations;
as the Bank may deem appropriate and necessary, to disclose and furnish to Credit
Information Bureau (India) Limited (“CIBIL”) and any other Credit Information
Company / person authorized in this behalf by Reserve Bank of India.
The Guarantor(s) declare(s) that the information and data furnished by the
Guarantor(s) to the Bank are true and correct.
The Guarantor(s) agree(s) that CIBIL and any other Credit Information
Company/person so authorized may use and process the said information and
data disclosed by the Bank in the manner as deemed fit by them; and furnish, for
consideration, the processed information and data or products thereof prepared by
them, to banks/financial institutions, etc. and other credit grantors or registered users,
as may be specified by Reserve Bank of India in this behalf.

22. The Guarantor(s) further agree(s) not to induct, on their part, a person, who
has been identified as Willful Defaulter by the Bank in terms of the
directions/guidelines issued by Reserve Bank of India or the guidelines framed by
the Bank, as director on the Board of the Directors of the Guarantor(s). If any
person, who is a Willful Defaulter, as hereby referred, is a director on the Board,
the Guarantor(s) undertake(s) to get him removed from the Board of the
Directors. The Guarantor(s) also agree(s) to make necessary amendments in the
Articles of Association of the Guarantor(s) to make the said requirement as a
ground for removal of such directors and furnish a copy of the Articles of
Association as amended to the Bank. (Applicable in case of corporate Guarantor/s)
175
In witness whereof the Guarantor(s) and the Bank have set their hands
hereunto at the place and on the date as first hereinabove mentioned.

GUARANTOR(S) FOR PUNJAB GRAMIN BANK

1. _
Name_
Name __
2. _ Designation _
Name_

Witnesses:
1.
Name_
Address_ _
2.
Name_
Address_ _

******************

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 ANNEXURE-32

Date:
M/s

Dear Sirs,
Reg: Appraisal of Project / Syndication of Debt Component in respect of the
Company’s Project.

We are pleased to inform that our Bank is agreeable to take up the assignment of
Syndication of Debt component on Best Effort basis / Underwriting basis / Financial
Appraisal on the basis of details provided by you on the Cost of Project, Means of
Finance, Debt Equity Ratio, Promoter Details, Security structure and such other
details.
The Rate of Interest, Upfront fee for the Loan, Fee for Syndication / Assignment
shall be as already discussed and will be confirmed on your giving us the mandate.
The schedule of payment for Project appraisal and Syndication fee shall be as
under:
- Upon taking up the assignment of Syndication : 10% of the fee.
- On Conveying our Bank’s share of Loan : 45% of the fee
- On Financial closure : 45% of the fee
In case of Technical study without syndication, 50% of the scheduled fee is
payable at the time of giving the mandate and the balance of 50% at the time of
handing over the Study.
This is an offer letter only and is not to be construed as sanction / commitment for
sanction of loan by the Bank and the final sanction will be subject to detailed due
diligence and proper appraisal of the loan proposal. The final terms and conditions
shall be conveyed after sanction of the Loan. The offer is valid upto .
(Maximum 3 months)
The scope of our services and other indicative terms and conditions for TEV
Study/Syndication is given in the Annexure – 32.1.
Please return the enclosed Acceptance letter (Annexure–32.2) in token of your
acceptance of the terms and conditions duly signed by the Authorized Official(s) of
the Company giving our Bank the required mandate along with the Cheque/Draft
for the initial amount as per the fee schedule.
Thanking you and assuring you of our best services at all times.

Yours faithfully,

For Punjab Gramin Bank

Encl.: As above
(Annexure: Terms & Conditions)
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 ANNEXURE-32.1

Terms & Conditions

Punjab Gramin Bank (“PGB”) having its Head Office at Jalandhar Road,
Kapurthala {hereinafter referred to as the “Mandated Sole Arranger (MSA)”/
“Mandated Lead Arranger (MLA)”}, envisages the following scope of services for
its role to act as Financial Advisor and Arranger as specified in the Letter of Offer
for (Name of Project) __________________ (hereafter referred to as the “Project”)
being set up by (Name of Company) having its Corporate office at
(Address) (hereinafter referred to as the “ Promoter / Sponsor /
Company”).
(To be suitably amended in case of joint syndication / underwriting)

The term Mandated Sole/Lead Arranger does not include any of its subsidiaries,
Associates or Affiliates.

The Joint Arrangers means Bank having its registered office is

and _ Bank having its registered office at
_ and does not include any of their respective Subsidiaries,
Associates or Affiliates.

1. Scope of the Services

(The Promoter/Sponsor/Company to confirm engaging the Sole Arranger/Joint

Arranger for Financial Appraisal & Loan Syndication Services for Rupee
Loans/Non Fund Based, Foreign Currency Loans/ECBs under the Scope of the
Services given hereinafter)

1.1 The broad outline of the Services, which would be executed in two stages
- Phase-I: Preparation of Information Memorandum; and Phase-II: Loan
Syndication - is as under -

A: Phase I: Preparation of Information Memorandum (IM)

This phase would include the following activities –

The Mandated Sole Arranger/Mandated Lead Arranger(s) will carry out Techno
Economic Viability (TEV) study and detailed appraisal of the Project and prepare the
Project Information Memorandum undertaking the following : –

a) Study of Project Agreements and other related documents / papers. Past

financials of the Promoter/Sponsor/Company and their associated and allied
concerns, provided / made available at the time of appraisal. (Indicative list of
papers required are given in the annexure.)
b) Commercial Analysis involving demand analysis, demand-supply gap studies,
industry outlook, comparison with other similar projects, etc.
c) Risk analysis involving identification of various risks associated with the
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 Project(s) and the proposed mitigations. Risk analysis will also be carried out
using the financial model.
d) Estimation of Cost of the Project and Means of Finance in consultation with
the Promoter / Sponsor.
e) Financial modeling to ascertain profitability and return on the Project. The
financial model will be developed for the Project with projected balance
sheets, income statements, sources and uses of funds, debt service schedules,
key ratios, etc.
f) Sensitivity Analysis with analysis of base case and increase/reduction in key
projections like cost of sales, revenue income and such other factors which
may affect the viability of the Project. The robustness of the project economics
will determine the level of Promoters’/Sponsors’ contribution and quantum of
loan and contractual provisions that will be acceptable to the lenders.
g) Preparation of Information Memorandum (IM): This would provide inputs for
finalization of Information Memorandum (IM), which would present the analysis
and recommendations on the economic and commercial viability aspects of the
Project.

1.2 In the course of preparation of the IM the MSA/MLA(s) may ask for any other
information required for appraisal and preparation of the IM which the
Promoter/Sponsor shall provide at the earliest.

1.3 The Sponsor/Promoter/Company shall be required to give their detailed

comments on the draft IM submitted by MSA/MLA(s) within _ _ _ _ _ (to be
discussed with the Company) working days of the date of its submission.
In the event of comments from the Promoter/Sponsor/Company on the draft IM not
reaching PGB within the given time, the draft IM shall be deemed as accepted
by the Promoter/Sponsor/Company and accordingly the final IM shall be submitted
to the Promoter/Sponsor/Company.

B: Phase II: Debt Syndication (Rupee Loans / Non Fund Based Facility / FCTL
/ECBs):

Based on the preliminary information submitted by the Promoter/Sponsor/

Company, the estimated Project cost of about Cr is proposed to be funded by a
Debt Equity ratio of_______, the Project Debt is estimated at about Rs __________Cr.

(In case of FCTL/ECB the amount will also be written in USD/Foreign Currency)

The Mandated Sole Arranger and/or the Mandated Lead Arrangers will carry out
Syndication of Rupee Loans / Non Fund Based Facility / FCTL / ECBs for the
Project and in particular will undertake the detailed scope of the Service as under
a. Preparation of Financing Plan
Based on the Project financials as determined in the course of financial modeling and
keeping in view the needs of Promoter/Sponsor and potential lenders, and the
year-wise cash flows available to the Promoter/Sponsor for senior debt servicing, an
appropriate senior debt repayment structure would be developed. Based on the
above and senior debt structure envisaged and possible market appetite, indicative
costs, tenor, etc and based on the Lead Arranger / Joint Arranger’s perception
179
of the capacity of the financial markets and security aspects, a Financing Plan would
be finalized, in consultation with the Sponsor/Promoter to fund the anticipated
requirements of the Project.

b. Preparation of detailed Term Sheets & Approach to Lenders

MSA/MLA will provide assistance in preparation of detailed indicative term sheets of

the financing tranches, including the borrower’s major representations and
warranties, main covenants etc. MSA/MLA will provide assistance in approaching the
potential lenders, initiating discussions, associating in joint presentations along with
the Sponsor/Promoter of the Project.

c. Loan Commitments from Lenders

MSA/MLA will provide assistance in negotiations with the lenders for the loan
commitments/ security requirements, in the due diligence/ appraisal exercise of the
lenders, in obtaining in-principle and later the firm commitments from the lenders
for financing the project.

d. Assistance in Documentation
After obtaining the necessary sanctions from Lenders, MSA/MLA will provide
assistance coordinating and arranging for meetings to declare Financial Closure and
for finalizing the terms of loan documentation on behalf of the Sponsors, leading
to execution of the Loan / Senior Debt Documents pertaining to the syndicated
Loan facility.

1.4 The duties and responsibilities of MSA/MLA or joint arrangers shall be

limited to those expressly spelt out above and for the avoidance of doubt shall
not include advice on tax, legal, accountancy, HR or on technical matters. The
MSA/MLA may, at their sole discretion, omit one or more of the above steps, if it is
not felt essential, to execute the assignment effectively.

1.5 : Execution of the Syndication/Underwriting assignment will be only on a

‘Best Effort’ basis and without any liability / undertaking / commitment on the part of
MSA/MLA or Punjab National Bank or any other company in the PGB Group and
would depend upon the strength of the Project structure, security package,
prevailing market conditions, etc. that may affect the mobilization of resources for the
Project.

2.1 Syndication/Underwriting Fee: The syndication/underwriting fee shall be on

the total amount of loan to be syndicated including PGB’s share.

2.2 : The above debt syndication fees payable to MSA/MLA & the Joint Arrangers
is exclusive of any processing fees/ upfront fees etc. payable to lenders which shall
be paid by the Company directly over and above the debt syndication fees at the
time of documentation.

2.3 Out-of-Pocket Expenses

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The Promoter/Sponsor/Company shall reimburse all out-of-pocket expenses of the
Sole/Lead Arranger & the Joint Arrangers as actually incurred, including, inter-
alia, legal expense, travel (both local and outstation), lodging, boarding, telephone,
facsimile and photocopying expenses, The claim submitted and duly certified by the
Sole/Lead Arranger & the Joint Arrangers will be conclusive for the purpose.
However, any foreign travel for the assignment shall be undertaken only after prior
approval from the Sponsor/Promoter. The Arrangers may request the
Sponsor/Promoter/Company to arrange for travel (both local and outstation), lodging
& boarding whenever required in the course of the assignment.

2.4 No Go Fee
If for any reason, the State Government / Government of India (“GoI”) or any
other government authority / department specifically prohibits the implementation of
the Project by the Promoter/Sponsor, the payments already made to the Sole/ Lead
Arranger and the Joint Arrangers above shall not be refundable and shall be
treated as no-go fee. The Promoter/Sponsor will, however, pay to the Sole/ Lead
Arranger and the Joint Arrangers all amounts of bills/ claims raised/ to be raised
subsequent to this event for the work already done by them.

2.5 Abandonment / Termination Fee

In the event the Project is abandoned by the Promoter/Sponsor or should the
Promoter/ Sponsor/Company chooses to terminate the Services of the Sole/Lead
Arranger and the Joint Arrangers on its own accord, as per clause _and / or
appoint another Advisor/Arranger for the Project, in addition to the fee paid and
bills raised that are unpaid and fees which has already fallen due but bills not raised
shall be payable immediately by the Promoter/Sponsor to the Sole/Lead Arranger
and the Joint Arrangers.

3.1 Appointment of Other Consultant(s)

For tax, legal and other specialized technical requirements the services of an
external tax/technical/legal consultant may be sought by the
Promoter/Sponsor/MSA/MLA. While the terms and conditions would be settled
directly between the Promoter/Sponsor and the external consultant for tax, legal and
technical services, The Sole/ Lead Arranger/Joint Arrangers will assist the
Promoter/Sponsor in outlining the scope of services for such tax/legal/technical
services and negotiating the terms and conditions. The expenses incurred for
such other consultancies shall be borne directly by the Promoter/Sponsor.

3.2 For the purpose of the scope of the Services detailed herein, PGB/ PGB and
are the sole and exclusive Arrangers for the Project for Debt Syndication unless
otherwise agreed to by them. (To be amended suitably in case of sole / joint
arrangers)

STANDARD TERMS & CONDITIONS

4.1 Payments:

181
4.2 The fee indicated herein is applicable only for the Services outlined in
Clause 1. In the event that the Lead Arranger and the Joint Arrangers are
required to assist in any other activity not specifically included in Clause 1, a
separate fee schedule will be stipulated. For the avoidance of any doubt, the fee as
mentioned is exclusive of any fee payable to any other specialist consultant
engaged by the Promoter/Sponsor during this assignment.

4.3 The fee paid to the Lead Arranger and the Joint Arrangers would be exclusive
of the fee to be paid to the domestic/ foreign merchant bankers for public issue,
underwriting fees, brokerage and other fee to foreign/ domestic lenders like front-end
fee, management fee, agency fees, commitment fees, out- of-pocket expenses, etc.,
if required to be paid.

4.4 In case the assignment requires offshore transactions (transactions outside

India), specialist advice on tax, legal, accountancy or technical matters, the Lead
Arranger and the Joint Arrangers may seek specialist help on such transactions,
with the consent of the Promoter/Sponsor, the cost of which will be borne by the
Promoter/Sponsor.

4.5 All fee paid to the Lead Arranger and the Joint Arrangers is non- refundable.

4.6 The bills/ claims for fee and out-of-pocket expenses shall be sent to the
designated official of the Promoter/Sponsor/Company as informed by the
Promoter/Sponsor and all payments shall be made within a period of 21 days of the
date of the bill/claim.

4.7 The Bills raised by the Lead Arranger and the Joint Arrangers, if not disputed
by the Promoter/Sponsor within 15 days of receipt of the Bill, shall be considered
as correct and shall be payable in full by the Promoter/Sponsor. The Lead Arranger
and the Joint arrangers, however, reserve the right to amend the Bill, suo-moto, in
case of discrepancies noticed.

4.8 All fees are exclusive of Service Tax which would be payable by the
Promoter/Sponsor. Further, all duties / taxes / levies (excluding those pertaining to
income tax) which may be stipulated / become applicable from time to time on the
services rendered by the Lead Arranger and the Joint Arrangers, during the course
of this assignment, shall be payable by the Sponsor/Promoter.

4.9 The Sponsor/Promoter should forward TDS certificates within a month of

deduction.

5. Confidentiality of the Information

The MLA and the Joint Arrangers shall not disclose, except as required by law,
order of the court or by any other statutory authority, or as required by the
proposed participating lenders during the course of syndication which is required for
the due diligence and detailed appraisal by the participating lenders to take
decision on the proposal, any confidential information relating to the
Promoter/Sponsor/Company or the proposed project which it receives during the
182
engagement. If, the Lead Arranger and the Joint Arrangers are required by law,
order of the court or by any statutory authority or the proposed participating
lenders to disclose information, the Promoter/Sponsor/Company authorizes the
Arrangers to disclose the information and to deliver the relevant documents to
them.

Further, The Sponsor/Promoter hereby permits MLA and the Joint Arrangers to
disclose brief particulars of the Assignment to the agencies/organizations of
national/international repute like PFI, Bloomberg, etc. for the purpose of league
tables, rankings etc.

6. Indemnity

6.1 The Sponsor/Promoter agrees with the Mandated Lead Arranger and the
Joint Arrangers (for itself and on trust for each of the Indemnified persons [as
defined below]) that the Promoter/Sponsor/Company shall indemnify and hold
harmless the Indemnified Persons from and against all claims, actions, proceedings,
demands, liabilities, losses, damages, costs and expenses (including without
limitation legal fees) arising out of or in connection with the Engagement or
otherwise by reason of any other matter or activities referred to or contemplated
under the mandate which any Indemnified Person may suffer or incur in any
jurisdiction and all costs and expenses (including without any limitation legal fees)
incurred by any Indemnified Person shall be reimbursed by the Sponsor/Promoter
promptly on demand, including those incurred in connection with the investigation of,
preparation for or defense of any pending or threatened litigation or claim within
the terms of this indemnity or any matter incidental thereto. Provided that the
Sponsor/Promoter shall not be responsible for any liabilities, losses, damages,
costs or expenses which are determined by final judgment of a Court of competent
jurisdiction to have resulted from willful default or gross negligence on the part of
the Indemnified Person; and sums already paid by the Sponsor/Promoter under
this Indemnity, but which fall within this proviso, shall be reimbursed in full and repaid
to the Sponsor/Promoter.

6.2 The Sponsor/Promoter agrees that none of the Indemnified Persons shall
have any liability whatsoever (whether in contract, tort or otherwise) to the
Sponsor/Promoters for or in connection with things done or omitted to be done
pursuant to the Engagement other than for losses, damages or liabilities incurred by
the Sponsor/Promoter which are found in a final judgment by a Court of
competent jurisdiction to have resulted from the willful default or gross negligence of
the Indemnified Persons provided always that the liability of the Lead Arranger and
the Joint Arrangers shall never exceed the amount of fees actually paid by the
Sponsor/Promoter to and received by the Lead Arranger and the Joint Arrangers

6.3 The foregoing indemnity shall be in addition to any rights that the Lead
Arranger and the Joint Arrangers or any other Indemnified Person may have at
common law or otherwise (including but not limited to, any right of contribution).

6.4 Without prejudice to any claim the Sponsor/Promoter may have against the
Lead Arranger and the Joint Arrangers, no proceedings may be taken against any
183
director, officer, employee or agent of the Lead Arranger and the Joint Arrangers.

6.5 The Sponsor/Promoter will notify the Lead Arranger and the Joint
Arrangers if the Sponsor/Promoter becomes aware of any claim that may give rise
to a liability under this indemnity.

6.6 Indemnified Person means the Mandated Sole/Lead Arranger and the Joint
Arrangers and all their directors, officers, employees and agents.

7. Miscellaneous

7.1 The Promoter/Sponsor/Company shall co-operate fully with the Mandated

Sole/Lead Arranger/Joint Arrangers and obtain and provide information and
assistance as shall be reasonably requested in order to enable the MSA/MLA and
the Joint Arrangers to fulfill the scope of work as outlined above. The
Sponsor/Promoter will keep the Lead Arranger and the Joint Arrangers fully informed
of all the material developments, strategies and discussions relevant to the
Assignment.

7.2 The Promoter/Sponsor/Company acknowledges and agrees that, in performing

the Services hereunder, the MSA/MLA and the Joint Arrangers will be using and
relying on publically available information and such other information as may be
supplied by the Sponsor/Promoter and its agents and representatives, and/or third
parties without holding any independent investigation or verification.

The Arranger(s) do not assume and shall have no responsibility for the accuracy or
completeness of any such information or the consequences thereof.

7.3 The MSA/MLA and the Joint Arrangers shall provide the Services to the
Sponsor/Promoter without any obligation and without any liability whatsoever on the
Lead Arranger and the Joint Arrangers and the Sponsor/Promoter may, at its
discretion accept, modify and / or reject such advice without assigning any reason
whatsoever.

7.4 The Sponsor/Promoter expressly acknowledges that all advices and

information (written and oral) given by the Arrangers to the Sponsor/Promoter or any
of its agents or representatives in respect of the Services hereunder is intended solely
for the benefit and use of the Sponsor/Promoter in connection with the
Assignment, and the Sponsor will not permit, and will cause its agents and
representatives not to permit, any such advice, information or lists to be
disclosed publicly or to be used for any other purpose, in each case without the
prior written consent of the Advisor and Lead Arranger .

7.5 This document contains a composite offer for the Services outlined in Clause
1 and any splitting of the mandate may entail a revision in the Project Advisory
and Syndication Fee.

7.6 The terms and conditions contained herein shall be governed by the Laws of
India.
184
8. Amendments
No amendments, modifications or supplement to this document shall be effective
except in writing, signed by the Lead Arranger and the Joint Arrangers and the
Promoter/Sponsor/Company.

9. Termination
Either the Promoter/Sponsor/Company or the MSA/MLA and the Joint Arrangers
may terminate the Letter of Offer by serving notice on the other. A notice of
termination may take effect immediately or on such later date as it may specify as the
date of termination. The parties shall be relieved from future performance of their
rights and obligations under this agreement, other than those rights or obligations,
which have accrued at the date of termination. The provisions of this Letter of Offer
relating to confidentiality obligations, indemnification, reimbursements to the Lead
Arranger and the Joint Arrangers for expenses incurred and payments of the fees in
the event of termination will survive any termination as set out in this section of the
Letter of Offer.

10. Dispute Resolution

10.1 In all cases of dispute or disagreement between the parties hereto as to any
matter arising out of or relating to engagement under this Letter of Offer and
provided no understanding between the parties can be reached for the
settlement of the difference, the matter shall be finally settled by arbitration as per the
provisions of the Indian Arbitration and Conciliation Act, 1996 or any modifications
or substitutions thereof.

10.2 Notwithstanding any pending reference to arbitration, the Lead Arranger and
the Joint Arrangers and Promoter/Sponsor/Company shall continue to perform their
respective obligations under this agreement and the parties shall not withhold, for
any reason whatsoever, including pendency of arbitration proceedings, payment of
any amount which has become due under this Letter of Offer.

For Punjab Gramin Bank

(AUTHORISED SIGNATORY)

185
 ANNEXURE-32.2
Format of Acceptance letter

On Company’s Letter Head duly signed by the Authorized signatory (ies)

Date:

Punjab Gramin Bank

BO:

Dear Sir

Reg: Assignment of Project appraisal/TEV Study/ Loan Syndication/Underwriting

With reference to your letter dated __ we convey our acceptance to the

offer on the terms and conditions contained therein and in the Annexure thereto and
hereby give our mandate authorizing Punjab Gramin Bank as the Sole/Lead arranger
and _Bank as the Joint arranger (to be amended suitably)
for syndicating Total/partially Loan requirement of Rs _Crore.

The fee structure as discussed and contained in your said letter is acceptable to us
and the fee shall be paid accordingly.

We confirm the fee payable for the Mandate as under:

(Details of fee and schedule of payment to be filled in)

Cheque /Draft for Rs _towards the initial payment is enclosed.

We also undertake to submit all the necessary documents, papers, clarifications and
data requested by the bank for Project appraisal / Syndication work.

Thanking you.

Yours faithfully

AUTHORISED SIGNATORY

186
 ANNEXURE-32.3

Confidentiality/Non Disclosure

Agreement to be executed by Punjab Gramin Bank

Date:

To,

Confidentiality Agreement

Re: ____ (Name of the project/proposal)

Dear Sir/Madam,

Punjab Gramin Bank has been invited for discussions with your Company, regarding
financing structures and alternatives pertaining to your project namely _____________
for development of _____________________ (brief detail of the project) at
___________ (address of the project) in India (the “Territory”). Our entering into
this Confidentiality Agreement does not constitute an engagement or mandate by you
in any form whatsoever to enter into an agreement with us with respect to the Project.

In the course of our discussions, we have been and/or will be provided information
concerning the Projects including a Project Briefing Memorandum/ Detailed Project
Report (DPR), as well as your overall strategic plans. In addition to such information,
the term "Information" as used herein shall include all information relating to the
Projects, including the fact that reflections are taking place concerning the financing
structures and alternatives for the Projects and all of the proposed terms, conditions
or other facts with respect to the Project or any possible financing or other transaction
related thereto and any analyses we perform in connection therewith, including the
status thereof.

As a condition to you providing us with access to the Information, we agree to

treat all Information sent by you or by any of your Affiliates, provided before and
after the date hereof, confidentially and not to disclose it to anyone, save to the
extent permitted below, and to ensure that all Information is protected with security
measures and a degree of care that would apply to our own confidential information.

We hereby agree that all provisions of this Confidentiality Agreement may be

enforced by _____________(Name of the Sponsor/Promoter/Company)

The term Information does not include (i) information which is already in our
possession or known by us before the date the information is disclosed to us by you
or any of your affiliates and advisers or is lawfully obtained by us after that date,
other than from a source which is connected with _ _(Name of
the Sponsor/Promoter/Company) or its group and which, in either case, as far as we

187
are aware is not subject to any obligations of confidentiality, or (ii) comes into the
public domain other than as a result of a disclosure by us or our employees, or (iii)
is disclosed to us by any third party who, as far as we are aware, is not acting in
breach of a confidentiality obligation.

We hereby agree that the Information will be used by us solely for the purpose of our
consideration and evaluation of the Projects, and should you so request in writing,
in assisting us in creating a proposal to work as finance provider to you (or one or
more project companies) for the financing and structuring of the Projects, and
thereafter, if so selected, in providing financing services to you, your partners
and/or your and their affiliates in connection with the Projects and that such
Information will be kept strictly confidential by us subject to the terms of this
Confidentiality Agreement.

We agree to establish and maintain effective security measures to safeguard all

Information from unauthorized access, use, reproduction or disclosure and use the
same degree of care we would use to protect our own confidential information.
We agree to keep a record of all Information received pursuant hereto and the
location thereof and to make such record available to you, upon your first demand.

Except as otherwise specifically provided for in this Confidentiality Agreement, we

shall not disclose any Information to anyone, except to our directors, employees
and affiliates (collectively our “Representatives”), potential lenders who evince
interest in taking part in the financing of the project, on a need to know basis
only. Prior to making any such disclosures to our Representatives and Third Party
Representative, we shall inform them in writing of the confidential nature and that
some or all of such Information may be price-sensitive information, except that
there shall be no such requirement to so inform if the recipient is subject to
professional obligations to maintain the confidentiality of the information or is
otherwise bound by requirements of confidentiality in relation to the Information.

In the event that we are requested pursuant to, or required by, applicable law,
court, regulation or by legal process (whether governmental or otherwise) or by any
request being made expressly on the grounds of public order or policy, to disclose
any Information or any other data concerning the Projects, your partners or your or
their affiliates, we may make such disclosure provided that, and to the extent
permitted by law, we will provide you with notice of such request or requirement, as is
reasonably practicable under the circumstances, in order to enable you to seek an
appropriate protective order or other remedy, to consult with us with respect to its
taking steps to resist or to narrow the scope of such request or legal process, or
to waive compliance, in whole or in part, with the terms of this Confidentiality
Agreement. In any event we will use our best efforts to ensure the Information and
other data that is so disclosed will be accorded confidential treatment.

We acknowledge that the Information is valuable and unique and that disclosure in
breach of this Confidentiality Agreement may result in irreparable damage to you.
Without prejudice to the rights and remedies otherwise available to you, you may be
entitled to injunctive relief in addition to and not in lieu of any appropriate relief in the
way of monetary damages if we or any of our Representatives breach or threaten to
breach any of the provisions of this Confidentiality Agreement. It is understood and
188
agreed that no failure or delay by you in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any
right, power or privilege hereunder.

All copies of the Information, in whatever form, will be returned to you promptly
upon your first written request, or destroyed (to the extent technically practicable), at
our option. For the avoidance of doubt, nothing in this paragraph shall prevent us
from retaining single copies of the Information where required to do so by legal or
regulatory requirements or any Information stored on computer back-up files.

We agree that the evaluations and disclosures contemplated herein, and any
discussions or communications between the parties relating thereto, shall not
restrict the right of _(Name of the Sponsor/Promoter/Company) to
take whatever future actions it unilaterally determines to be in its best interests. It is
agreed that all Information is provided on an “AS IS” basis.

We agree that the disclosure of Information does not grant any rights to intellectual
property, or any other right or license, directly or indirectly, under any patent,
trademark, copyright, or trade secret.

Neither _ _(Name of the Sponsor/Promoter/Company) nor

Punjab Gramin Bank shall be liable toward the other for special, indirect or
consequential damages arising out of the performance or non-performance or the
use of the Information under this Confidentiality Agreement.

The obligations contained in this Confidentiality Agreement shall remain binding

until the earlier of (i) the date falling one (1) year from the date of execution of this
Confidentiality Agreement and (ii) the date on which we become party to an
agreement with you or your partners in relation to the financing of the Project.

This Agreement shall be governed and construed in accordance with the laws of
India

Any dispute arising out of or in connection with this Agreement, including a dispute as
to the validity or existence of this Agreement shall be resolved as per the Arbitration
Laws in India.

No Party shall be required to give general discovery of documents, but may be required
only to produce specific, identified documents which are relevant to the dispute.

The arbitration shall take place in Kapurthala and shall be conducted in the English
language. The decision of the arbitrators shall be final and binding upon the Parties.

This Confidentiality Agreement contains the entire agreement between you and us
concerning the confidentiality of the Information and supersedes any prior undertaking
or agreement relating thereto. No modification of this Confidentiality Agreement or
waiver of the terms and conditions hereof shall be binding upon you or us, unless
approved in writing by you and us.

189
Yours Sincerely,

For and on behalf of

Punjab Gramin Bank

Signature:
Name:
Designation:

We hereby acknowledge acceptance of the terms of this agreement.

Signature/Name and Designation/Seal

(Name of the Sponsor/Promotor/Company)

AUTHORIZED SIGNATORY

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 CHAPTER 7
MORTGAGES - IMMOVABLE
PROPERTY

BOOK OF INSTRUCTIONS ON LOANS

191
1
 CHAPTER – 7

MORTGAGES – IMMOVABLE PROPERTY

__________________________________________________________

A mortgage is the transfer of an interest in specific immovable property for the

purpose of securing the payment of money advanced by way of loan, an existing or
future debt or performance of an engagement which may give rise to pecuniary
liability. The transferor is called a mortgagor and the transferee a mortgagee. The
principal money and the interest of which payment is secured are called the
mortgage money and the instrument (if any) by which the transfer is effected, is
called the Mortgage Deed.

Immovable property includes land, benefits that arise out of land and things attached
to the earth, like trees, buildings, fixed machinery etc. The machinery which is not
permanently attached to the earth and which can be shifted, is not considered
immovable property.

2. USUAL FORMS OF MORTGAGE

The following are various forms of Mortgages which are recognised by law:
i) Simple Mortgage.
ii) English Mortgage.
iii) Mortgage by conditional sale.
iv) Usufructuary Mortgage.
v) Mortgage by deposit of title deeds (Equitable Mortgage).
vi) Anomalous Mortgage.

Of these, the following types of Mortgages are generally taken by the Bank as
security:

a) ENGLISH MORTGAGE: Where the mortgagor binds himself to repay the

mortgage-money on a certain date and transfers the mortgaged property absolutely
to the mortgagee, but subject to a provision that he will re-transfer it to the mortgagor
upon payment of the mortgage- money as agreed, the transaction is called an English
Mortgage. Essential characteristics of such a mortgage are given as under:

i) Mortgagor binds himself to pay the mortgage-money on a certain date;

ii) Property mortgaged is transferred absolutely with a provision as at (iii);
iii) Upon repayment, the mortgagee shall re-convey the property;
iv) The mortgagee can file a suit for sale;
v) The mortgagee also has right for immediate possession;
vi) The debtor is personally liable for the debt;
vii) There is power of sale without intervention of court, if the parties are not
Hindus, Buddhists or Mohammedans irrespective of the place where the property is
situated;
viii) If the parties are Hindus, Buddhists or Mohammedans, power of sale without
intervention of court can be provided in the deed, if the property is situated at specified
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places mentioned at b(iv) below.

b) SIMPLE MORTGAGE: Where, without delivering possession of the

mortgaged property, the mortgagor binds himself personally to pay the mortgage-
money and agrees, expressly or impliedly, that in the event of his failing to pay
according to his contract, the mortgagee shall have a right to cause the mortgaged
property to be sold and the proceeds of sale to be applied, so far as may be
necessary, in payment of the mortgage money, the transaction is called a Simple
mortgage and the mortgagee is a simple mortgagee. Essential characteristics of such
a mortgage are given as under:

i) There is personal obligation/liability to pay;

ii) Possession is not given;
iii) There is a right to cause the property to be sold through court; and
iv) Power of sale without intervention of the court can be conferred if the property
is, on the date of the execution of the mortgage deed, situated at Kolkata, Chennai,
Mumbai, Ahmedabad, Delhi and at such other places specified by State
Governments.

c) MORTGAGE BY DEPOSIT OF TITLE DEEDS (EQUITABLE MORTGAGE)

Mortgage by deposit of title deeds is also known as Equitable Mortgage. The

mortgagor deposits the title deeds with the Mortgagee with the intention of giving the
mortgagee an interest in the property. Mortgage by deposit of title deeds is valid
only if made in the specific towns as notified by the Govt. This aspect is dealt in
details in a separate para subsequently.

According to Section 58 (f) of Transfer of Property Act, 1882 where a person

delivers to a creditor or his agent documents of title to immovable property, with the
intent to create a security thereon, the transaction is called a `mortgage by deposit
of title deeds'. However, the Act makes the provisions of this section applicable
only to Mumbai, Kolkata and Chennai and such other towns as may be specified
by the State Govts. by notification in the Official Gazette in this behalf. This
mortgage does not require registration.

3. A mortgage of specific immovable property can be taken either as a primary security

or as an additional/collateral security for Bank's advances as may be provided in
the sanction.

4. PRELIMINARY

4.1 Before the mortgage is taken, Managers shall examine the title deeds and
satisfy themselves with regard to the following:

a) The title deeds are prima facie in order and property is unencumbered.
b) Title Deeds offered should be original, genuine and not copies.
c) If the chain of deeds is incomplete, a certified copy of the missing documents
from the office of assurances should be supplied by the mortgagor with an
explanation for non-production of the original deeds.
d) If the title deed under/through, which the mortgagor claims/ derives, title is not
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original, mortgage shall not be accepted unless specific sanction/instructions from
Head Office are received except in the cases as mentioned in para 15.
e) A Sale certificate issued by a court or Revenue Authorities like Income Tax
is a valid document of title to the property and can be accepted for creation of
mortgage to secure an advance.

4.2 A full report on the title should be obtained from the Bank's approved
lawyer. Where non-encumbrance certificate from the Office of Assurances is not
produced, Bank's lawyer should make a search of records and ensure that property is
not already sold, no prior mortgage, charge or any other encumbrance on the
property exists. The result of this search should be incorporated in his report.
Enquiries must also be made regarding the persons occupying the property; and if
they are not the owners, the terms on which they have the possession be examined
to see whether property is marketable or not. A complete record must be kept of all
such reports and investigations.

5. CREATION OF EQUITABLE MORTGAGE

Equitable Mortgages may be created in the following manner:

a) BY DEPOSIT OF TITLE DEEDS ACCOMPANIED BY A REGISTERED

MEMORANDUM OF DEPOSIT

The form of memorandum should ordinarily be drawn up by the Bank's Advocate

to suit the circumstances of each case. For the guidance of the branches, a
specimen of the memorandum is available at Annexure I. The memorandum
should invariably state the maximum amount to be secured and that the mortgage
covers all present and future advances. It requires to be stamped under Article 6 of
Schedule 1 of the Indian Stamp Act, 1899 or the corresponding Article of the State
Stamp (Amendments) Act and must be registered under Indian Registration Act, 1908
but it must not for this reason, be confused with a registered mortgage.

Before accepting deposit of title-deeds accompanied by a registered memorandum of

deposit, it should be ensured that:

i) the relative title-deeds have been examined by the Bank's Advocate and
search has been made for encumbrances.

ii) the properties to be mortgaged have been examined and their value as per
the guidelines has been estimated. The title-deeds must be entered in the title-
deeds register, so that register may contain record of all title-deeds deposited with
the Bank by way of equitable mortgage.

b) BY SIMPLE DEPOSIT OF TITLE DEEDS WITH INTENTION TO

CREATE A SECURITY

When an equitable mortgage by simple deposit of title-deeds is accepted, under

noted procedure must be strictly followed:

i) The title-deeds having been examined by the Bank's Advocate and the search
194
having been made for the encumbrances, all persons interested in the property as
owners must attend to make the deposit in the presence of two employees of the
Bank.

ii) The terms on which the advance, to be secured by the deposit of title deeds,
has been made, including the maximum limit of the advances, must be recited to
the mortgagor(s) and his or their verbal acceptance obtained in the presence of the
witnesses.

iii) Particulars of the deposit must be recorded in the title-deed register (PGB 363)
and must be verified and signed therein by two Bank witnesses. The mortgagor(s)
must on no account sign the register.

iv) The entries in the title deed register must be made very carefully and in
chronological order. Proper maintenance of this register is necessary as the entries
therein afford admissible evidence of the transaction.

v) The entries in the title-deed register should ordinarily be as follows but may
have to be varied according to circumstances:

"Deposited by Shri the title-deeds

mentioned above. When making the deposit, Shri
stated that he did so with the intent to
create security by way of equitable mortgage in respect of land together with all
buildings, super-structure, plant and machinery constructed or to be constructed
or installed or to be installed, present and future, and/or the properties covered
thereby situated at _ _ in favour of the Bank to secure
repayment of advances made or to be made by the Bank to
_____________________by way of _________not exceeding _____________
and for all other indebtedness and liability whatsoever, besides interest, costs and
other charges."

This recital should be verified and signed in the register by two Bank employees
as witnesses. As already stated, the mortgagor must on no account sign the
register.

vi) Nothing in writing is to be taken from the mortgagor(s) at the time of the deposit
of title deeds for creation of mortgage. If a registered memorandum of deposit is
subsequently considered necessary, it should be drawn up by the Bank's penal
advocate after consideration of the attendant circumstances.

vii) In order to prove the intention with which documents of the title are deposited, a
memorandum in accordance with Form (Annexure II) should be taken for cases
where the borrower himself is the mortgagor. However, in cases where mortgage of
property is created by a person other than the borrower himself, memorandum in
accordance with Form (Annexure- IIA) should be taken. This form should bear a
date later than that on which the title deeds are actually deposited and should be
signed by all the owners of the property equitably mortgaged. If for any reason the
memorandum (Annexure II/IIA) is obtained on the same date, the date of deposit
stated in the memorandum shall also indicate the time of deposit. The date of
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deposit of title deed is treated as date of mortgage. Further, likewise the
memorandum shall indicate the time apart from the date. The memorandum shall be
executed subsequently. Time mentioned should be distinct. The Annexure II & IIA
constitute a request by the borrower to acknowledge receipt of the title deeds already
received by the Bank. This request should, therefore, be complied with by the
acknowledgement of the receipt of deeds on form (Annexure III where the borrower
is himself the mortgagor and Annexure IIIA where the mortgage is created by a
person other than the borrower) and stating in detail the properties covered by them
for the purpose of creating a charge. This acknowledgement should be sent to the
customer under registered post with acknowledgement due and the postal
acknowledgement should be duly scrutinised. Thereafter Form (Annexure II/IIA), a
copy of the Bank's reply (Annexure-III/IIIA) thereto and the postal acknowledgement
therefore, should be securely kept. The acknowledgement can also be obtained by
delivery in person.

viii) In case of mortgagor being a company, there must be a resolution authorising

the person who is going to make the deposit of the title- deeds, to make the necessary
declarations and to complete all other formalities. A copy of the resolution duly
certified should be obtained and kept on branch record. The copy of resolution of
the Board of Directors of the Company must be certified in the following manner:

"Certified that the above is a correct copy of the resolution passed on _ (date)
at a duly convened meeting of the Board of Directors of _______________________
Company____________________and the same is contained in the minutes book of
the company."

This should bear the signatures of the Chairman and Secretary of the Company. In
case a company has no Secretary, it should be signed by one more director.

6. PLACES WHERE EQUITABLE MORTGAGE CAN BE CREATED

6.1 Equitable mortgage can be created at towns notified by the State Govts. in the
Official Gazette.

In case the property to be mortgaged is situated at a place where equitable

mortgage is not permissible, the equitable mortgage can be created at any other
branch of the Bank in the towns as notified by the State Govts. from time to time.

In some cases like plots allotted by PUDA and Improvement Trust, permission for
mortgage is required from the concerned development authority before creation of
mortgage.

6.2 Equitable mortgage can be created at Cantonment Areas, wherever they have
been specifically mentioned as notified places.

However, where the notified area and the cantonment form two distinct
jurisdiction, enquiries may be made locally from the local counsel as to whether the
Cantonment area forms part of the notified place although not specifically indicated
in the notification.

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7. REGISTRATION

According to Section 59 of the Transfer of Property Act, 1882, where the principal
money secured is 100 or more, a mortgage, other than a mortgage by deposit of
title deeds, can be effected only by a registered instrument signed by the
mortgagor and attested by at least two witnesses. In case, the instrument is not duly
attested and registered, the mortgage will be void.

In terms of Section 23 of the Indian Registration Act, 1908, the document is to be

presented for registration at the offices of the Sub-Registrar of Assurances within 4
months from the date of its execution. Branch Managers are therefore, advised to get
the documents registered within the stipulated period.

8. STAMP DUTY

Of late, in some of the states, Stamp Duty Act in force has been amended so as to
levy stamp duty on the instrument relating to the creation of the mortgage by deposit
of title deed and for this purpose an entry in the title deed register or confirmation
given by the mortgagor is also deemed as agreement (instrument subject to stamp
duty). Hence, required stamp duty has to be paid. If adhesive stamps are
permissible to be affixed as per stamp rules and the stamps are available, entry in
the title deed register be stamped with adhesive stamps. If the above is not
considered feasible, the memorandum/entry be made on non- judicial stamp paper
and kept alongwith title deeds. Photocopy of the stamped entry be affixed in the
relevant page in the title deed register in chronological order.

9. It is to the Bank's advantage to obtain a registered mortgage, whenever possible.

The relative documents should be drafted by Bank's Advocate and mortgage be
executed duly attested by at least two witnesses and got registered. But, in view of
the heavy stamp duty required on registered mortgages, parties generally offer to
create equitable mortgage of their immovable properties.

When the interest of the mortgagor is limited, e.g., where the intending mortgagor is
himself a mortgagee, a registered instrument of sub-mortgage prepared under legal
advice can be taken.

10. POINTS/ISSUES REQUIRING ATTENTION WHILE MAKING

ADVANCES AGAINST MORTGAGE OF IMMOVABLE PROPERTY

The Branch Managers must carefully note the following points in case of advances
against mortgage of Immovable Property:

a) Borrower's title

i) The original title deed(s) should be obtained from the borrower. The chain of
documents (title deeds) must be complete. Branch Managers should ask for not only
the last sale deeds but also for the earlier ones. In every creation of mortgage, the
checklist as given in Annexure IV should be answered. The inspection of title
deeds and the verification of the borrower's title require thorough legal
knowledge. The title deeds should, therefore, be passed on to local counsel for his
197
inspection and opinion. A search will also have to be made in the office of the Sub-
Registrar of Assurances, etc. to verify that no prior charge existed on the property. In
order to entertain a proposal, the legal opinion should be positive about the
borrower's clear marketable/legal title to the property and that the property offered
is free from prior encumbrances. The Special Report and Counsel’s Certificate (as
per format given in Annexure V and Annexure VI) shall be accompanied by chain of
title and search report as to encumbrances.

Further, the guidelines with regard to verification of genuineness of the Title Deeds
and obtention of Search Report in respect of non-encumbrance of the property
as circulated vide Law Division Cir. No. 03/LAW/2013 dated 08.10.2013 shall
continue to be observed scrupulously to safeguard the interest of the bank.

Besides, while creating equitable mortgage, alongwith the documents of title and non-
encumbrance certificate, photograph of the property mortgaged (duly dated and
authenticated by the mortgagor) must also be delivered by the mortgagor. Further,
in case of piece of vacant land/agricultural land, if the photograph of the place will
facilitate identification (because of existence of adjoining buildings or other land
marks/boundaries), photograph may be deposited along with other documents.
Photograph of the property mortgaged should be preserved properly, preferably
laminated. Further, Search Report/Non-Encumbrance Certificate, should cover the
entire period from the last date of transfer and not merely 13 years.

It should be ensured that Search Report/Non-Encumbrance Certificate is furnished

by the advocate only after visiting and personally searching the records at the office of
Sub-Registrar of Assurances(as per format given in Annexure VI – A).

A format of the letter to be addressed to the Counsel to whom the matter is

referred for conducting the search and report about the property is given in
Annexure VII.

A Declaration as per Annexure VIII to be obtained from the owner of property, who
is proposing to create mortgage.

ii) Search of CERSAI Record

The Central Registry has been established vide Government of India

notification dated 31.03.2011, under the SARFAESI Act 2002. Consolidated
guidelines in this regard have been conveyed vide Credit Circular No. 36/13
dated 10.05.2011 and other circulars issued on the subject from time to time.

➢ Prior to considering EM of any IP as security, search be made in the data

base of CERSAI to ascertain whether IP is already mortgaged or not.
➢ Search results from Central Registry including “no asset matches the
search criteria” (NIL Report) be kept with the title deeds.
➢ Charges for the search payable to Central Registry be recovered by the
branches from borrowers.

b) Free-hold or Lease-hold

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It should be ascertained whether the property is free-hold or lease-hold. If lease-hold,
the original lease deed in favour of the borrower must be examined to ascertain
the unexpired period of lease and also to study the terms and conditions of the
lease to find out if there are any onerous conditions such as the necessity of taking
lessor's consent before mortgaging the property. Borrower should be asked to
surrender latest ground rent receipt to ensure that lease money/ground rent is not
in arrears and that the lease continues to subsist. In case of lease hold property of
State Industrial Development Corporation or any other such authority, permission to
mortgage should specify the name/place of activity of the borrower for which
mortgage is being created.

c) i) Municipal Tax Receipt

The receipt for payment of house-tax should be obtained in case building is situated
within the Municipal limits. Municipal taxes constitute preferential charge on property.

ii) Copies of revenue records

In case of agricultural land, the borrower should be asked to produce certified

true copies of the latest revenue records.

iii) Government dues

The borrower should be asked to produce latest receipts regarding the land
revenue or any other Government dues paid by him.

d) Valuation

Guidelines for valuation of property, as contained in Credit Circular 69/09 dated

19.10.2009 followed by other relevant circulars on the subject, be observed
meticulously in all borrowal accounts including housing loans. Some of guidelines on
valuation of the property are reiterated as under:

a) Criteria for valuation in fresh accounts.

i) In borrowal accounts where aggregate credit limits are 10 lakhs & above and
value of immovable property to be mortgaged/charged is 20 lakhs & above,
branches shall get valuation of such IP done from the valuer on the Bank’s
approved panel.

ii) However, where the value of IPs to be mortgaged/charged is 50 crore &

above, branches shall get valuation of such IPs done from minimum two
valuers on the Bank’s approved panel.

b) Criteria for valuation in existing accounts.

i) Wherever the Incumbent feels that realisable value of IPs is significantly lower
than the one on bank’s record in accounts with aggregate limits/ outstanding
of 10 lakhs & above but less than 1 crore value of immovable property
mortgaged/charged to the bank is 20 lakhs & above, he may get the property
199
 re-valued from the bank’s approved valuer provided the valuation is more than
one year old.

ii) As regards borrowal accounts having aggregate limit of 1 crore & above,
valuation of immovable properties charged/mortgaged to the Bank be got done
from approved valuer once in three years. However, valuation in such accounts
shall be got done from Bank’s approved valuer and fees payable to the valuer be
recovered from borrower.

iii) However, where the value of immovable property to be mortgaged/ charged is

50 crore & above, branches shall get valuation of such IPs done from
minimum two valuers on the Bank’s approved panel.

c) With a view to check incidence of increasing frauds in the title

deeds/discrepancy in the description, details of IP/visit to Sub-Registrar Office/ROC
apart from divergence observed in the valuation of the IPs at the time of sanction and
valuation at the time of considering the proposal for compromise/negotiated
settlement, the valuer while giving valuation report on the Bank’s prescribed format as
per Annexure IX, has to ensure completion of due diligence exercise and shall, inter-
alia, keep the following points in view :

- That he himself has visited the site and made necessary enquiries from some
local property dealers of the concerned locality which leads him to confirm that the
property in question belongs to the person offering the IP to the Bank for accepting as
security as on the date of valuation.

- That the IP in question bears the same description/details as mentioned in the

documents/title deeds which have been proposed to be valued.

- That the IP in question is not in an unauthorised colony/ under

encroachment.

- That the IP in question is self occupied or tenanted.

- That IP in question is not in dispute whatsoever.

- That the valuer shall indicate how the value has been arrived at duly
supported by necessary calculations and furnish market value as well as realisable
value. In case of difference in the market value and circle rate as applicable in that
area, the same should be supported by cogent reasons.

- In case of built up property, the construction is as per the plan approved by the
competent authority.

- That the IP in question whether notified for acquisition by Govt. or any

statutory body.

- Attach plans and elevations of all structure standing on the land and a layout
plan along with a photograph of the built up property.

200
d) However, the Incumbent In charge before accepting the IP being offered as
primary/ collateral if belongs to third party would also exercise due care with regard
to the consideration involved in the transaction so that the IP of the genuine third
party is only obtained thereby mitigating the chances of further complications at a
later stage. Besides, the guidelines with regard to verification of genuineness of the
title deeds and obtention of search report in respect of non-encumbrance of the
property as circulated vide Law Division; HO shall continue to be observed
scrupulously to safeguard the interest of the bank. Further, guidelines with regard to
search from ROC (Company), wherever necessary, shall be meticulously complied
with.

In all other cases including the above, valuation of property shall also be done by the
Branch Managers by adopting one or more of the following methods on the
prescribed format as per Annexure X.

i) Taking architect's or valuer's/engineer's certificate if the property consists of a

building. In case of machinery embedded to the earth, the services of special
surveyors may be requisitioned.

ii) Personally inspecting the property.

iii) Scrutinizing the valuation certificate issued by local authority for taxation
purposes.

iv) Making enquiries through brokers neighbours etc.

v) Net yield method (by way of rent).

The assessment of value of IP by the Incumbent Incharge is for the purpose of

due diligence and to countercheck the valuation given by the valuer and the
same should not be construed as a substitute to valuation by professional
valuer.

However, wherever the IP is not got valued by approved valuer the extant
system of valuation by Incumbent Incharge shall continue as hithertofore.

In those cases also where there is significant variation in the valuation reported by
borrower and the one assessed by the Incumbent, the property shall be got valued
from the valuer on the approved panel.

Further, in all cases if there is significant variation i.e. 25% & above in the realisable
value of the property reported by the valuer and the one assessed by the Branch
Managers, fresh valuation by another approved valuer of the Bank should be got
done after consultation with the concerned Regional Manager, which should be
treated as final. However, where variation is below 25% i.e. one reported by the
valuer and the other assessed by the Branch Managers, the lower of the two may be
reckoned as value of the property.

Subsequent valuation should be assigned to the empanelled valuer other than the
valuer who has conducted the previous valuation.
201
In order to avert instances of over valuation of immovable properties, Valuation
report should clearly indicate:

i. Date of purchase of immovable property,

ii. Purchase Price of immovable property,
iii. Distress Sale Value (Realisable Value) of immovable property and
iv. Guideline Value (value as per Circle Rates), if applicable, in the area where
immovable property is situated.

Further, in case the IPs are recently purchased then the purchase price as per sale
deed and not the market value shall be reckoned as value of the property. The
period for recent purchase be taken as 12 months from the date of sale deed;
however, if the guideline value has been revised after the date of sale deed and it
is higher than the purchase value then value of the property shall be reckoned in
terms of the guideline value even if the sale deed is recent i.e. not one year old.

e) Valuation of Plant & Machinery

i) In cases where new plant and machinery is to be financed, the cost price
indicated in the quotation/ supplier’s bill shall be reckoned as its value, which
should be verified by making enquiries through other vendors supplying such
machinery.

ii) In fresh borrowal accounts where credit facility is to be considered against the
principal/collateral security of existing plant & machinery to be charged to the
bank by way of hypothecation, mortgage, etc., valuation of such plant &
machinery be got done by branches from the valuer on the Bank’s approved
panel.

iii) However, where the value of Plant & Machinery to be charged is 50 crore &
above, branches shall get valuation of such P&M done from minimum two valuers
on the Bank’s approved panel.

iv) Valuation report should be submitted by valuers on the proforma available at

Annexure XI. While giving its report, the valuer has to indicate only the
realisable value of the plant & machinery.

f) Mortgage of Agricultural Properties for Facilities to be Granted for Non-

Agricultural Activities

As far as possible Agricultural properties should not be mortgaged for facilities to be

granted for Non-Agricultural Activities. However, in cases where facility is to be
granted for Non-Agricultural purposes against the mortgage of Agricultural
property, the advocate giving opinion on title shall state that mortgage of Agricultural
property is permissible for the purpose stated and shall give his advice as to the
legal position prevailing under local law.

g) MORTGAGE OF IMMOVABLE PROPERTY LOCATED IN CANTONMENT

AREAS
202
In respect of advance extended against EM of IPs located in Cantonment Areas,
where ownership of the land vests with the Cantonment Board, and it has the
‘Right of Requisition’ of the cantonment property. However, the Cantt. Board
executes grants or leases of the land in favour of the allottees. Therefore,
creation of valid mortgage is subject to the fulfillment of following conditions:

1. (a) It is to be ascertained that the person occupying the land has legal title to
occupy the same and;

(b) If it is there, then the super structure being owned by the individual
occupier can be mortgaged in favour of the Bank subject to obtaining permission
of the Cantonment Board.

2. Equitable Mortgage can be created at the Cantonment Area, if it is a notified

town, otherwise registered mortgage has to be got executed.

3. The value of the land may not be considered while arriving at the value of
property mortgaged, although the same may be got reflected while arriving at value of
the superstructure. Only the realizable value of property, as per guidelines of the
Bank, if sold as it is, may be taken for the purpose of financing.

4. The borrower has to deposit title deed of super structure alongwith Letter of
Authority / Lease from the Cantonment Board showing his right to occupy the same.
Permission of the Cantonment Board to mortgage with the Bank is also to be
furnished.

Mortgage of immovable property located in cantonment areas shall be considered

by Circle Heads and above within their vested loaning powers on selective basis.

h) Independent Surprise Verification

In respect of fresh cases involving mortgage of immovable properties as securities

including housing loan, Independent Surprise Verification should be got done by
branches with the owner of the property so as to ensure the intention of the owner to
create the mortgage.

i) Second/Subsequent Mortgage

A mortgagor, after creating a first mortgage, can thereafter create a second and even
subsequent mortgage on the same property. The mortgages, however, will rank in
priority according to the dates of their creation.

j) CREATION OF CHARGE ON ENTIRE BLOCK/FIXED ASSESTS OF THE

COMPANY:

(a) In those cases where the company deals exclusively with our bank and it is
stipulated in the terms of sanction that entire block assets of the company is to be
charged (1st/2nd/3rd charge by way of mortgage/ hypothecation), the company be
asked to furnish complete details of all the IPs owned by it with their value as per the
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audited balance sheet duly certified by its statutory auditor to ensure that all the
intended properties of the company are mortgaged to the Bank.

(b) Under Consortium Arrangement, the issue related to submission of complete

details of all IPs by the company may be decided in the consortium meeting of the
member banks on case to case basis.

(c) Under multiple banking arrangements, in case securities are charged to other
banks also, endeavours may be made in consultation with other financing banks to
have the complete details of all IPs of the company. However, in cases, where the
entire block/fixed assets of the company are required to be charged to our Bank,
procedure as mentioned at (a) above is to be followed in such cases.

11. GENERAL INSTRUCTIONS

11.1 All title-deeds held against advances must be kept in the strong room after being
recorded in the title-deed register. Other mortgage documents should be entered in
the balance confirmation and documents register (PGB 355). If a mortgagor
wishes to inspect his title-deeds he may be allowed to do so at the Bank in the
presence of the manager/officer but he must not on any account be permitted to take
them away from the Bank.

11.2 Particulars of mortgages (registered or equitable) created by limited liability

companies should be got registered with the Registrar of Companies within 30 days
from the date of creation of charge by e-filing. Likewise, in case of
enhancement/extension/variation the charge to the extent of
enhancement/extension/variation should be got registered within 30 days or within
the period as may be prescribed from time to time with the Registrar of
Companies.

11.3 If a mortgage or modification of charge which requires registration is not

registered, the same shall be void as against the liquidator and other creditors. The
security shall no longer be available to the Bank and the unsecured debt would
become immediately payable.

11.4 Security Bond

As regards creation of mortgage of property offered by the guarantors, at times,

guarantors in loan accounts having agricultural land and other ancestral properties
do not possess title deeds for offering them as collateral security by way of
equitable mortgage. In such cases, the guarantors are required to execute registered
mortgage deed for the property owned by them, in which case they have to pay Ad
Valorem Stamp duty varying from state to state.

In cases, where title deeds in respect of agricultural land and other ancestral
properties are not available with the guarantor, and ownership of the property in
favour of the guarantor is not in doubt, security bond may be accepted, wherever
possible as per Laws of the State. It is to be noted that security bonds can be
executed only by the guarantor and not by the borrower. In case of enhancement in
facility, sanctioned to a borrower, further security bond(s) have to be executed and
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got registered. The proforma of the security bond to be obtained is available at
Annexure XII.

11.5 All buildings and their fittings and fixtures mortgaged to the Bank should be
kept fully covered by insurance, the relative policies being made out in the joint
names of the Bank and the borrower with agreed Bank clause and retained on the
Bank's record. Also, Branch Managers should obtain a letter of authority as per
(Annexure XIII) accompanied by Form No.PGB-374 from the owners authorising the
Bank to effect insurance of the properties mortgaged in the event of their failure to do
so. It is to be noted that such a letter of authority should bear a date later than that
on which the relative title-deeds were deposited in order that the oral nature of the
original deposit may not be disturbed.

11.6 The managers should ensure that before a mortgage (registered or equitable)
is taken, the required permission, if any, from the authorities like Delhi Development
Authority is obtained and the original documents granting permission are kept on
branch record.

11.7 In case of leasehold land, the document conferring creation of leasehold

interest in the property should be studied to ascertain whether mortgage of the said
property is permissible. If necessary, permission from the appropriate authority
concerned should be obtained.

11.8 Limitation for enforcing mortgaged security in the case of advances against any
type of mortgage is 12 years from the date of advance or when the amount secured
falls due, as the case may be, and is 3 years for enforcing personal liability of the
mortgagor(s).

11.9 Until advances secured by registered or equitable mortgages are finally

adjusted, balance confirmation on Form No. PGB 139 (for copy of form, refer
chapter on Limitation) should be obtained from all the obligants at the close of each
half year.

11.10 In cases, where mortgages of immovable property are accepted by the

Bank as collateral security for advances principally secured by other securities, the
renewal of documents in respect of the principal security should not be obtained, the
Balance & Security Confirmation Letter be regularly taken according to procedure.
Accordingly, in such cases, the existing accounts should not be closed and
operations in respect of the renewed limits be allowed to continue in the existing
account/s.

11.11 In cases, where an equitable mortgage of Land & building is created, the
machinery attached to the earth will also pass on to the creditor and form a part of
the security. Further, movable parts of machinery though detachable, pass with the
land and fixed machinery. In such cases, following important instructions must be kept
in view:

i) In so far as medium term loans are concerned, obtaining of a regular

mortgage over the entire block of the concern including the machinery installed be
always insisted upon. Wherever circumstances warrant, it may also be necessary to
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take, in addition, a hypothecation of loose tools etc. and machinery not embedded to
the earth. This would apply mainly to large limited companies but may also be made
applicable to smaller companies, registered partnerships and even private
individuals owning factories to whom advances may be allowed against the primary
security of block and machinery.

ii) Where the security of block and machinery is taken as collateral or to

further strengthen an advance, e.g., where the primary security is not of highly
liquid nature or otherwise and it is considered necessary to strengthen our primary
security, we may accept equitable mortgage of property, which should include
machinery in a working factory when circumstances warrant. It may also be desirable
in such cases to take, in addition, a hypothecation charge over loose tools etc.,
and other machinery not embedded to the earth.

iii) In the case of highly respectable borrowers, advances may sometimes be

granted against the primary security of equitable mortgage over block including
machinery in a running factory, supported by a hypothecation over loose tools etc.
and machinery not embedded to the earth.

iv) There may be circumstances, though rarely, when certain borrowers of

undoubted financial standing and high moral integrity may be granted accommodation
against an equitable mortgage of block including machinery only and where it may
not be necessary to insist on obtaining additional hypothecation charge over loose
tools etc. and other machinery not embedded to the earth.

However, sanction terms be complied with and hypothecation agreement may be

obtained as per PGB 879 (first charge).

While handling proposals for advances against this type of security, Branch Heads
are advised to carefully assess the various factors involved to determine as to which
of the alternatives will be more suitable.

11.12 In places where Transfer of Property Act is in force, a mortgagee has power
to sell the mortgaged property or any part thereof in default of payment of the
mortgage money, without the intervention of the court, inter alia, in the following cases,
in terms of section 69 of the Act.

i) Where the mortgage is an English Mortgage, and neither the mortgagor nor
the mortgagee is a Hindu, Mohammedan or Buddhist or a member of any other race,
sect, tribe or class from time to time specified in this behalf by the State Govt. in the
Official Gazette.

ii) Where a power of sale without the intervention of court is expressly conferred
on the mortgagee by the mortgage deed and the mortgaged property or any part
thereof was on the date of execution of the mortgage deed, situated within the towns
of Kolkatta, Chennai, Mumbai, Ahmedabad, Delhi or in any other town or area which
the State Govt. may by notification in the official Gazette specify in this behalf.

No such power of sale without the intervention of the court shall be exercised unless
and until:
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"Notice in writing requiring payment of the principal money has been served on the
mortgagor or on one of several mortgagors and default has been made in payment of
the principal money or part thereof, for 3 months after such service"
OR
"Some interest under the mortgage amounting at least to 500/- is in arrears and
unpaid for 3 months after becoming due"

In the applicable cases, the following clause is suggested for inclusion

appropriately in the mortgage deed so as to enable the bank to exercise the power
of sale without the intervention of the court:

"It is hereby agreed and declared that in default of payment of the mortgage money,
the mortgagee shall, after notice in writing, be entitled to sell the mortgaged property
or any part thereof without the intervention of the court, either by public auction or
private contract at the risk and responsibility of the mortgagor for realisation of the
mortgage money."

In places where the aforesaid provisions of Transfer of Property Act, i.e. Section 69
is not in force, power of sale without the intervention of the court may be provided,
as per clause suggested above, in the mortgage deed.

11.13 Bank has prescribed form no. PGB-576 which is to be obtained when the
assets are to be hypothecated to the bank for securing the term loan. It is
clarified that the aforesaid Term Loan Agreement is a loan-cum-security document
which is suitable when the term loans are sanctioned against movable assets alone
and/or hypothecation of movable assets alongwith mortgage of immovable property.

In cases, where term loan(s) are sanctioned against mortgage of immovable

property alone, PGB-576 becomes unsuitable. In such cases a term loan agreement
on form PGB-973, which contains terms/ conditions of loan given against mortgage
of immovable property only, is to be obtained and mortgage be got created separately.

11.14 In cases where a minor has share in the property/ies proposed to be

mortgaged to the bank, then such property/ies should not be taken as Mortgage,
unless consented/permission of Court obtained and produced. Minor’s share, even
though excluded, will pose legal hurdles in the event of necessity for sale of such
property at a later date. In such cases only properties, which do not involve minor’s
interests, shall be taken as Equitable Mortgage.

11.15 Wherever EM/1st/2nd/pari-passu charge over IPs/Block Assets have been

stipulated as a condition in the Sanction, no credit facilities should be released by the
Branch Manager before creating valid EM/charge unless it is specifically permitted by
the sanctioning authority.

If for any reason, creation of EM/charge is likely to take some time, the reason
thereof may be placed before the sanctioning authority for obtaining specific approval
of a period by which charge may be created. Regional Managers will monitor such
cases specifically.

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11.16 In case of mortgage of immovable property relating to Co-operative
Society/Non-Trading Corpn., if these entities make available their record for the
search, bank’s approved advocate should be asked to verify their records and
submit a certificate in addition to the existing Search Report and Non-
Encumbrance Certificate.

11.17 Advocate furnishing the Search Report of the property, should invariably
submit the Search Fee Receipt issued by the Sub-Registrar’s Office, along with the
report.

11.18 In cases involving mortgage of IPs as securities, the security inspection

should be conducted by the branch official independently without the presence of
the borrower at Builders/Society’s office in respect of title of the borrower.

12. ENHANCEMENTS

12.1 All enhancements made in limits secured by mortgages of immovable property

must be preceded by preliminary enquiries prescribed in para 4 above. When such
enhancements are made, it will not be necessary to take fresh mortgage deeds for the
total amount of the limit after enhancement. Instead, the borrowers should be
required to execute mortgage deeds for the amount over and above the amount of
the limit before enhancement. In case of equitable mortgages, the branch managers
should make an entry in the title-deed register for the enhanced portion of the limit
only. The narration of the entry to be made in the title-deed register is given in the
Specimen A of Annexure XIV The party must not sign the title-deed register. A
"Letter of Continuity", as per Specimen B of Annexure XV signed by the party
whereby the party confirms the previous deposit of the title-deeds and agrees that
the title-deeds shall be held by the Bank as security for the enhanced limit should
be taken. Care may please be taken in dating these documents (Date of entry in
the title-deed register should be prior to the date of letter of continuity).

12.2 Where, in equitable mortgages, the deposit of title-deeds is accompanied by the

registered memo of deposit, a further simple mortgage or a supplementary registered
memo of deposit should be taken or executed, as decided by the authorities, by
the borrower for the amount over and above the amount of the limit before
enhancement.

In these cases also the existing account of the borrowers should not be closed but
the borrowers should be allowed to avail of the enhanced limit in their existing
accounts on the basis of the two or more sets of documents, one relating to the
previous limit and the other(s) to the enhanced portion(s) of the limit.

In case of several enhancements and consequent creation of further mortgages, the

fact of the same may be suitably added in the entry/letters of continuity.

13. PROVISIONS OF URBAN LAND (CEILING & REGULATION ACT, 1976)

The Act stands repealed in 1998 by Central Govt.

14. GUIDELINES FOR CREATION OF SECOND CHARGE/SUBSEQUENT CHARGE

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14.1 Banks have started accepting collateral security in the shape of 2nd charge or
3rd charge (also known as subsequent charge) on fixed assets, which include the
movable fixed assets and immovable fixed assets. In such cases the 1st or 2nd
charge (also called prior charge) as the case may be, is in favour of particular
institution(s) and the bank has to accept subsequent charge (2nd or 3rd) on the
fixed assets. Unless the 2nd or 3rd charge as the case may be, is created properly,
Bank will not be able to enforce the same. The following guidelines are given for
creation of 2nd/3rd (i.e. subsequent) charge.

14.2 Procedure for Creation of Subsequent Charge

i) For creation of the 2nd or 3rd charge as security, a `No Objection'

Certificate/consent letter for creation of 2nd/3rd charge in favour of Bank from all the
concerned institutions, who are having prior (1st or 2nd) charge over such assets, be
obtained before proposing such securities.

ii) Legal opinion as to title, including upto date non-encumbrance certificate

should be obtained and kept on record.

iii) Any permission/sanction/clearance certificate required from lessor or any

authority or any other law should be obtained & the original documents granting
permission are to be kept on bank's record.

iv) Generally, fixed assets with an industrial concern consist of movables (like
fixtures, furniture, non-embedded machinery etc.) and immovables (like land,
building, machinery embedded to ground). The nature/quantum of these assets may
differ from case to case. As per Transfer of Property Act and Registration Act, any
interest created/to be created in writing, in immovable property, of value of 100/- or
more, requires registration, save and except when equitable mortgage is created.

v) In respect of movable assets, as possession is with the party, hypothecation of

such movables is preferred.

14.3 Procedure For Creation Of Subsequent Charge

i) In the first instance as referred above a letter will have to be obtained from the
Institution holding prior charge (Ist or 2nd) to the effect that they have no objection
to the borrower’s creation of subsequent charge in bank’s favour. In other words the
institutions should cede/give consent for creating charge in bank's favour.

ii) Generally at the time of issuing no objection certificate or ceding subsequent

charge, these institutions stipulate acceptance of certain terms and conditions for
borrower's creating subsequent charge. Immediately after receipt of NOC or the
said letter, the bank has to convey acceptance of the terms and conditions and for
this, instructions issued by HO from time to time be referred to.

iii) As mentioned above, the block/fixed assets consist of immovable assets/property

and movable assets. Hence to complete creation of subsequent charge, the

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borrower will be required to create mortgage of immovable assets/property and
hypothecation of movable assets.

iv) The draft hypothecation deed as per form PGB - 878 (2nd Charge) should be
used for creation of hypothecation of movable assets.

v) For the creation of subsequent charge by way of mortgage, the matter has to be
sorted out with the financial institution, as to how the mortgage can be created.

a) If the Institution is having registered mortgage and they can part with the title
deeds to enable the borrower/mortgagor to create mortgage by deposit of title-deeds
with the bank, the equitable mortgage will be created as per the procedure already
explained above.

b) If the mortgage in favour of the institution is equitable mortgage or in case the

financial institution does not agree to part with the title deeds (in spite of its having
registered mortgage) then the institution can act as an agent of the bank and get the
mortgage created by way of 2nd charge (by delivery/constructive delivery) with it
acting as an agent of the bank and confirm the creation of the mortgage to the bank.

For this purpose, the bank is to issue a letter of authority to the financial institution
to the effect that they are authorised to act as agent of the bank for accepting the
mortgage by deposit of title deeds by actual delivery/constructive delivery to secure
the amount outstanding under the sanctioned limits besides interest cost and other
charges. For creation of the mortgage, the mortgagor should call on the Institution,
make a declaration, and deposit by delivery/constructive delivery the title deeds.
The Institution will make an entry in their title deed register or prepare a
memorandum and keep it on its records.

The draft of the letter of authority mentioned above addressed to the financial
institution to act as an agent of the bank is given in Annexure XVI.

The financial institution may also write to the bank stating its acceptance to act as
an agent of the bank. The draft of the said letter is given in Annexure XVII.

The above letters should be exchanged before creation of mortgage in favour of

the bank. Thereafter, the financial institution, after the borrower or his agent
depositing by delivery/constructive delivery and making a declaration of the intention
to create security, records the entry in the title deed register or prepare a
memorandum.

In case of companies, necessary resolutions have to be passed by the company

under Section 293 (i) (a) and Section 293 (i)(d) of Companies Act. Further, Board
should pass a resolution authorising a named Director to create mortgage on behalf of
the Company to secure the borrowings (to be detailed) and for this purpose make
necessary declarations/give oral consent and execute such undertakings, confirmatory
letter and other documents. Copy of the Resolutions should be obtained and kept on
record. An outline of the Board Resolution is given in Annexure XVIII and Annexure
XIX. An outline of the entry/memorandum is given in Annexure XX and Annexure
XXI.
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The Financial Institutions should confirm to the bank the creation of mortgage
supported by photocopy of the entry in the title deed register/memorandum.

c) The borrower after having created the mortgage, will write to the Institution
(under copy to the bank) that they deposited the title deeds on a particular day with
the intention to create mortgage in bank's favour. The specimen of such letters is
given in Annexure XXII and Annexure XXIII

vi) In order to define and determine the rights of the institutions or bank,
though inter-se agreement is not essential, yet in order to define and determine the
rights of the institutions or bank, if the financial institutions insist for execution of such
an agreement then an inter-se agreement can be entered between the financial
institutions & bank and the draft thereof may be obtained from the financial institution
concerned. It should be ensured that the borrower concerned should not be a
signatory to the agreement. The terms & conditions of this inter- se agreement
include the conditions prescribed in the letter ceding charge. It should be
examined and ensured that these conditions are acceptable to the bank. The inter-
se agreement is obtained on form PGB- 880.

In case of creation of 2nd charge in accounts, in which Ist charge is held by State
Financial Corporations (SFCs), some of the SFCs insist for tripartite agreement in
which the borrower/guarantor is also a party. In such cases, it should be checked
up whether the agreement contains a clause that the borrower/guarantor should
bear the stamp duty that may be payable in respect of the agreement. Further, care
has to be taken that necessary mortgage required for conferring 2nd charge in
favour of the bank is created with SFCs acting as agent of the bank besides
obtaining hypothecation agreement in respect of the movable fixed assets. It must
be understood that mere execution of tripartite agreement would not confer any
charge in favour of the Bank.

vii) After execution of hypothecation agreement and creation of mortgage and

execution of inter-se agreement the particulars of charge/ modification of charge
(in case of the Company), should be filed appropriately with the concerned
Registrar of Companies within the stipulated time.

It should be remembered that the documents as given in the Annexures should be

adopted/modified having regard to the facts of each case. Efforts be made to
complete all the formalities as early as possible by ensuring proper follow-up/co-
ordination with the Institutions and the borrower. In case any difficulty is
experienced in obtaining the approval of concerned institution to the inter-se
agreement and other documents and in case certain amendments/ modifications are
called for, the same may be got done after consultation with local legal counsel
and approval of Law Officer/Manager, (Law) at Regional Office.

15. EQUITABLE MORTGAGE (EM) BASED ON DEPOSIT OF CERTIFIED COPY OF

TITLE DEEDS AND RECEIPT (CHIRKUT) ISSUED BY THE OFFICE OF SUB-
REGISTRAR
"
Equitable mortgage (EM) of IP which is taken as Primary or Collateral Security can
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be created by way of deposit of original title deeds. In case where original title
deeds are not available, creation of EM, based on deposit of certified copy of title
deeds and receipt (chirkut) issued by Office of Sub-Registrar (where it takes long
time in getting the registered sale deed from the office of Sub-Registrar), is as under:

a) Housing loan to public/Where IP is taken as Primary or Collateral Security may

be considered by Regional Managers within their vested loaning powers.

b) The cases beyond the powers of aforesaid authorities be considered by GM

(HO) and above within their vested loaning powers.

c) In respect of housing loan to staff members, the authority competent to

sanction staff housing loan will be vested with powers to permit creation of equitable
mortgage based on deposit of certified copy of title deed and receipt (chirkut) issued
by Office of Sub-Registrar.

The following formalities are to be complied with while creating equitable mortgage
on the basis of certified copies of title deed and receipts (chirkut) issued by the
Office of Sub- Registrar in cases where it takes long time in getting the original
registered sale deed from the Office of

(a) Documents mentioned below are to be obtained:

(i) Certified copy of title/sale deeds and other link deeds, if any.

(ii) Certified abstract index registration number.

(iii) Original receipt of fee paid and duly discharged by the owner – mortgagor (by
making his/her signature on the backside of it).

Further, following documents be executed on date subsequent to the date of

deposit of title deeds:

(iv) Power of Attorney in favour of the bank to receive and take delivery of the
original title deed from the office of Sub-Registrar be obtained as per Annexure
XXIV.

(v) Deed of undertaking to deposit the original title deed, in case received by the
mortgagor and not to create any mortgage, alienate or transfer the property in
question in favour of any person without consent of bank in writing as per
Annexure XXV

(vi) Letter by the Borrower addressed to the Sub-registrar under intimation to bank
to send the original title deed directly to Bank after completion of the registration
formalities as per Annexure XXVI.

(b) A registered letter be sent by the concerned branch to the Sub-Registrar Office
requesting them to send the original title deeds directly to PGB or be delivered to
any person so authorised by the bank and possessing the original receipt (chirkut)
after the completion of the registration formalities as per Annexure XXVII. A copy of
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letter by the borrower addressed to the Sub-Registrar authorising them to send the
original title deeds directly to Bank be also enclosed.

(c ) A notice to the effect that the project “Financed by the Bank” be displayed on
the site of the property in question where the IP is accepted as a primary
security.

(d) Suitable third party guarantee be obtained till regular EM by deposit of

original title deeds is created.

Since the Sub-Registrar Office does not mark noting of Bank’s charge in their
record, the following system of monitoring of such accounts are to be undertaken so
that the original title deed may be obtained by the Bank immediately after the
required formalities at the office of Sub-Registrar are completed:

i. The concerned branch to follow up constantly with the Sub-Registrar Office for
getting the original title deed.

ii. In order to have systematic follow up with the Sub-Registrar office, Branch to
maintain a register mentioning therein the detail information in respect of such
accounts, in which EM of IPs based on certified copies of title deed/ original
receipts (chirkut) issued by Sub- Registrar office have been allowed. Various follow up
actions undertaken by the branch be incorporated in the said register. The register
may be made available for the internal inspectors/ senior authorities during their
visit to branch for verification and scrutiny.

iii. On the basis of the data maintained in the above mentioned register,
branches shall submit information as per Annexure XXVIII on quarterly basis to the
controlling office (CO) incorporating all the accounts in which EM of IPs based on
certified copies of title deed/receipts (chirkut) issued by Sub-Registrar office have
been allowed. Circle office shall monitor the accounts at their end and submit details
of cases falling under HO power to CAD for information and monitoring thereof.

iv. The internal inspectors to comment upon such cases to ensure that system as
given above is being followed besides ensuring that branch is also following up with
the concerned Sub-Registrar Office for obtention of original title deed.

Narrations in the Title Deed Register be also suitably modified as per Annexure
XXIX.

All the existing guidelines for creation of EM and the safeguards/measures for
preserving the original title deeds shall be followed mutatis-mutandis with regard to
the certified copies of title deeds and original receipt (chirkut) issued by the Sub-
Registrar office.

16. EQUITABLE OF MORTGAGE OF IP WITHOUT MAKING THE

OWNER AS BORROWER/GUARANTOR

It has been observed that in some branches IPs have been equitably mortgaged by
signing the letter of intent without making the owners of the property as
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guarantor/borrower and the audit objections are outstanding in audit reports of the
branches inspite of guidelines issued in this regard which are as under:

i) A person may become personally liable by becoming borrower or guarantor

and offer his property as security as mortgagor or he may be liable as mortgagor
and create security on his property only.

ii) So to say it is legally possible that one may offer his property as security
without being liable personally. As the Bank gives loan on third party deposits,
likewise, Bank may give loans against third party security in the form of mortgage of
immovable property of the third party.

iii) Even for the Loans otherwise secured, further security in the form of mortgage of
property of third party may be taken. Such mortgages are valid and enforceable.

iv) When third party gives security, it is appropriate that this fact figures in the
proposal supported by an Offer Letter from third party stating that he is willing to
give his property (to be specified) as the security to secure the loan availed/to be
availed by the borrower (to be specified.

In view of the aforesaid, it is legally possible for third party to offer his property as
security without being liable personally. As such, it is evident that legally it is not
necessary for the third party who is offering his IPs as collateral security to offer his
personal guarantee as well to become personally liable. It is only the terms of sanction
which determine whether personal guarantee of the person offering his security as
collateral is to be obtained or not.

17. PRECAUTIONS/SAFEGUARD TO BE OBSERVED IN CREATION OF

MORTGAGE OF IMMOVABLE PROPERTY

RBI, based on the orders of Hon’ble Delhi High Court, has issued guidelines vide its
Circular No. DBOD.Dir.BC. No. 43 08.12.01/2006-07 dated 17.11.2006 to check
financing against unauthorised construction, misuse of properties and encroachment
on public land for compliance. Retail Banking Division, vide circular no. 40 dated
12.09.2008, has reiterated necessary guidelines in this regard for taking appropriate
measures for financing under Housing Loan Scheme for Public.

Besides housing loan, Bank extends various credit facilities by taking the Immovable
Properties (IPs) of the borrower/guarantor as primary as well as collateral security.

Keeping in view the spirit of Hon’ble High Court Orders and sealing drive by
Municipal Corporation in various cities including Delhi, it has been decided that
while taking the IPs as Primary/collateral security, the following guidelines need to be
meticulously followed with immediate effect:

A. In cases where the credit facilities are sanctioned for construction purposes
including hotels, hospitals, educational institutions, factories, etc. it is to be ensured
that the existing guidelines with regard to real estate are mutatis mutandis made
applicable to all credit facilities involving construction activities as under:

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“That the borrowers have to obtain prior permission from government/local
government/other statutory authorities for the project including approval of the plan,
wherever required.

In order not to hamper the loan approval process on account of this, the
proposals could be processed for sanction in normal course, the disbursement may
however be linked to securing necessary approval/clearances and be permitted only
after requisite clearance/approval from the Govt. authorities have been received.”

B. An affidavit-cum-undertaking may be obtained from the proposed borrower

applying for such credit facility that he shall not violate the sanctioned plan, and/or
building bye laws and wherever applicable borrower shall also submit a completion
certificate.

C. An architect appointed by the Bank shall give a certificate at various stages of

construction that the construction is strictly as per the sanctioned plan.

D. In cases where built up IPs are proposed to be accepted as primary/collateral

security including mortgage loan/loan against tangible security/lease rentals, etc., the
following guidelines are required to be observed:

a) The sanctioning authority shall ensure that no loan is considered against those
properties which fall in the category of unauthorised colonies unless and until they
have been regularised and development and other charges paid. However, on review,
it has been decided as under:

i) Renewal/review in existing cases may be permitted by the competent authority

on merits of the case, however borrower should be persuaded for substitution of the
security.

ii) In case additional/enhancement of limit is required, the sanctioning authority

may consider such deserving cases on merits and should persuade the borrower to
offer any other additional security acceptable to the Bank covering at least the
enhanced/additional facility simultaneously ensuring that Bank’s exposure against the
IP situated in unauthorised colonies is not increased.

b) An architect/valuer appointed by the bank shall also certify while giving

valuation of proposed IP that the built up property is strictly as per sanctioned plan
and/or building bye-laws.

In case deviations are reported in the construction, by an architect/valuer appointed

by the bank and/or noticed by incumbent incharge/dealing official, in light of
provisions of the building laws of a particular area/State and if the violation is
compoundable, then payment of compounding fees be ensured before sanctioning
the advance after taking into account the amount of compounding, merits in the
case and value of the account on case to case basis.

However, in case of deviation which is not compoundable, then the concerned

architect and the sanctioning authority has to examine each case as there may be
215
demolition to the extent of extra construction, thus such cases should be avoided
for bank finance unless there are compelling merits in the account. Value of IP
financed in such cases should at least be 250% of the loan amount.

E. No loan shall be given in respect of properties meant for residential use but
the applicant intends to use the same for commercial purposes and declares so while
applying for loan.

F. Cost of Affidavit, certificates etc should be borne by the borrower(s).

G. An affidavit-cum-undertaking be obtained from the proposed borrower applying for

such credit facility that the built up property has been constructed as per sanctioned
plan, and/or building bye-laws.

H. A clause be put in sanction letters that any third party liability coming on the
Bank due to wrong information/ declaration given by borrower, will be his/her
responsibility.

I. All other guidelines with regard to mortgage of IP as issued from to time by

Law Divisions have to be complied with.

18. LOSS OF TITLE DEEDS IN THE BANK CUSTODY - PRECAUTIONS

Following system is to be observed for check-up of title deeds, its custody and in the
event of loss of title deed when the same is in bank’s custody

i) Duty of the Bank

When a title deed is deposited for mortgage with the bank, it is Bank’s duty to
safeguard/protect the title deed. It is also the obligation of the Bank to return the
title deeds, as is where is, to the mortgagor, on redemption/payment of the amount
due. If the title deed is lost, bank is liable for deficiency in service.

ii) Custody

a) Title deeds are kept separately in the fire-proof cabinet. All the title deeds
deposited be entered in the title deed register (PNB-363) and once the account is
adjusted, while handing over the title deed, receipt be obtained and the return be
recorded in the said register.

b) Movement of title deeds, if to be taken out for any purpose, be accounted

for/recorded in a separate prescribed register as per Annexure XXX.

c) Every year, stock taking of title deeds be also done by branch official on
rotation basis and certificate to this effect should be given by the checking official,
which should be recorded in the register mentioned above for movement of title
deeds.

d) When title deeds are taken for creation of mortgage by deposit of title deeds, its
216
physical status be assessed, if it is torn or fragile, its status report be made and got
signed by the party. If the document requires lamination to be done, it should be got
done by the party.

iii) Measures to be taken in the event of a loss of title deeds deposited for
creating mortgage

a) If inspite of all precautions, title deed is lost due to the reasons whether beyond
bank’s control or not, the concerned branch will give a certificate that title deed has
been lost from bank’s possession. In appropriate matters (like when terrorists have
taken away the title deeds) an FIR be also lodged. If bank’s officials have lost the
title deed, in transit when taking the same out for any purpose, a report from the
official be taken. Paper publication be also given.

b) Certified copy of title deeds be obtained from Sub-Registrar of Assurances at

Bank’s cost. With letter of regret, certificate referred to above as also certified
copies of title deeds be delivered to the mortgagor against receipt.

c) If mortgagor is still not satisfied and takes the matter to Court/Consumer

Forum/Banking Ombudsman, Bank has to go by their orders.

Bank’s Concurrent Auditors and Inspectors, while auditing the branches, should
verify compliance of above guidelines.

19. COMMON IRREGULARITIES NOTICED IN RESPECT OF CREATION OF

MORTGAGE

It has been observed that some of the branches do not carry out the procedural
instructions in a proper manner which gives rise to various avoidable irregularities.
Common irregularities observed are listed below:

i) Memo of deposit of title deeds on form no. PGB-422 bears the same date as
the one on which the Title Deeds are deposited instead of a date subsequent to
the date of actual deposit of the Title Deeds.

ii) Acknowledgement of the receipt of Title Deeds on form No. PGB 422(A) is either
not sent or is sent by ordinary mail by the Branches, instead of under registered
post with acknowledgement due as required.

iii) Postal acknowledgement receipt is not kept alongwith the relative loan
documents

iv) Date appearing on the `Letter of Continuity' is not subsequent to the date of
making the entry for the enhanced portion of the limit in the Title Deeds Register.

v) Narration of the entry for the enhanced portion of the limit is not made in
chronological order in the Title Deeds Register.

vi) Ledger folio is recorded in column `6' of the Title Deeds Register, even where
advance has been made subsequent to the date of deposit of the Title Deeds.
217
vii) Occupation and full address of the party is not recorded in the Title Deeds
Register.

viii) Authority giving orders for the release of Title Deeds is generally not kept on
record.

ix) Where deposit of Title Deeds is witnessed by the members of staff, names and
designations of the witnessing officials are not given under their signatures.

x) Non-obtention of charge ceding letter from the financial institution in respect of

the creation of 2nd Charge.

xi) Only tripartite agreement is executed, without any creation of mortgage

and/or hypothecation as required for conferring 2nd charge in favour of the bank.

Since some of the above shown irregularities are quite serious and are likely to
create legal complications, Branch Managers are advised to ensure that these
irregularities are not allowed to occur and the dealing officials should keep themselves
fully acquainted with the procedural instructions contained in the Book of Instructions
as supplemented by Loans and Advances circulars issued from time to time.

******************

218
 ANNEXURE I

PUNJAB GRAMIN BANK

MEMORANDUM OF THE DEPOSIT OF TITLE DEEDS

(To be registered)

Memorandum that on day of 20 ,*

hereinafter called the MORTGAGOR(S) has/have deposited with PUNJAB

GRAMIN BANK, a body corporate constituted under the Regional Rural Bank Act
1976 with its Head Office at Jalandhar Road, Kapurthala, at its **
security by way of equitable mortgage in respect of land/property, more fully described
in Schedule (B) together with all buildings, super structure, plant & machinery
constructed or to be constructed, installed or to be installed, present and future and all
accretions thereto in favour of the Bank for the repayment severally of advances of
already made or which may be hereafter made by the Bank to @ under/in
respect of any of the @@ ________________ ____________ but not
exceeding #Rs. __________________ with interest, costs and other charges and also for
all other indebtedness and liability inclusive of interest whatsoever.

The mortgagor(s) further declare(s) that the documents deposited with the Bank are the
only documents that are in his/their possession and custody.

SCHEDULE A (List of documents of title)

SCHEDULE B (Description of Land/Property)

In witness whereof I/we have set my/our hands to this deed at

on

MORTGAGOR(S)

* full description of mortgagors @ full description of borrowers

** Branch @@ Cash Credit, Overdraft etc. # Total of all limits

219
 ANNEXURE II

Place:

Date:

The Manager
Punjab Gramin Bank

Dear Sir,

Please acknowledge receipt of the undernoted title deeds deposited by me/us with you
on / by way of equitable mortgage to secure the
undernoted limit/s sanctioned and the moneys advanced or to be advanced as per loan
documents executed on /agreed to be executed in
respect of the following:

1. for

2. for

As already agreed, I/we undertake to insure the mortgaged property for its full market
value and keep the same insured till the adjustment of the account.

I/we also agree to execute in your favour Equitable Mortgage at my/our cost as decided
by you, whenever called upon to do so.

List of title deeds

Yours faithfully,

Address

220
 ANNEXURE II A

Place:

Date:

The Manager
Punjab Gramin Bank

Dear Sir,

Please acknowledge receipt of the undernoted title deeds deposited by me/us with you
on / by way of equitable mortgage to secure the
undernoted limit/s sanctioned and the moneys advanced or to be advanced to_____
(name of the borrower) as per loaning documents executed
on /agreed to be executed in respect of the following:

1. for

2. for

As already agreed, I/we undertake to insure the mortgaged property for its full market
value and keep the same insured till the adjustment of the account.

I/we also agree to execute in your favour Equitable Mortgage at my/our cost as decided
by you, whenever called upon to do so.

List of title deeds

Yours faithfully,

Address

221
 ANNEXURE III

PUNJAB GRAMIN BANK

Dated

Shri

Dear Sir,

With reference to your letter dated we hereby acknowledge receipt of

the undernoted title deeds deposited by you with the Bank on
with intent to create security by way of equitable
mortgage for the moneys advanced or to be advanced as per loan documents
executed by you on in respect of the following:

1. for

2. for

List of title deeds

Yours faithfully,

MANAGER

222
 ANNEXURE III A

PUNJAB GRAMIN BANK

Dated

Shri

Dear Sir,

With reference to your letter dated we hereby acknowledge receipt of

the undernoted title deeds deposited by you with the Bank on
with intent to create security by way of equitable
mortgage for the moneys advanced or to be advanced to
(name of the borrower) as per loan documents
executed by (Name of the borrower) on
in respect of the following:

1. for

2. for

List of title deeds

Yours faithfully,

MANAGER

223
 ANNEXURE IV
In re----------------------------------------------
CHECK LIST
QUESSIONNAIRE COMMENTS OF INCUMBENT
INCHARGE / CREDIT INCHARGE
1. OWNERSHIP OF PROPERTY
(a)
(i) Whether intending Yes/No
mortgagor/s is/are the
owner/s of the property and
competent to mortgage?
(ii) Whether identity of the Yes/No
owner is established?
(iii) Whether the said owner is Yes/No
liable in the A/c as borrower
or guarantor?
(iv) Whether the owner is only Yes/No
providing security without
incurring personal liability?
(v) Whether proper link is Yes/No
established as to how this
person wants to give
mortgage e.g. borrower’s
proposal, letter from the
person making an offer to
create security alone.

(b) Is the owner’s title valid, absolute, Yes/No

clear and marketable one?
(c) Whether the property has been Yes/No
Mutated in the names of the person
offering mortgage in the
Municipal/Local/Revenue
Authorities Records (in Case of
Agricultural Land)?
(d) If the property does not stand or the
(Give proper reply)
title deed relating to the property is
not in the name of the person
offering the mortgage, how does
the person offering the mortgage
derive title?
(e) Is the chain of the title to the Yes/No
property complete and in proper
sequence?

(f) If the person offering the mortgage (Give proper reply)

is not the owner of full share in the
property, the details of the share to
which the person offering the

224
 mortgage is entitled. If such
share/interest of the party is
mortgaged, what are the prospects
of salability of such share to be
mortgaged and whether the
property is freely accessible.
Whether share has been partitioned
by metes and bounds? Whether
share is Identifiable or Demarcated
at the spot?

(g) Whether the property is ancestral/ Yes/No

or under joint ownership or the
minor is having interest in the
property?

(h) Whether the property to be Yes/No

mortgaged has been or proposed to
be acquired under Land Acquisition
Act, 1894?

(i) Whether Urban Land Ceiling Act is Yes/No

applicable in the State where the
property is located?

(j) Whether property is freehold or Yes/No

leasehold? In case of leasehold
property, whether permission/ NOC
from the lessor is required for
creation of mortgage?

(k) Whether permission/NOC of the Yes/No

lessor is obtained? (If yes, copy of permission/ NOC be
kept on Bank’s record)

(l) What is the rate of sharing of (Give proper reply)

unearned income with lessor, in the
event of sale of the property?

(m) Whether copy of title deed Yes/No

favouring lessor (other than Govt.)
is made available to examine the
validity of the lease?

(n) Whether terms & conditions given (Give proper reply)

in the lease deed have been
complied with? If any condition is
violated, effect thereof.

(o) In respect of agriculture land, Yes/No

whether land is declared surplus or
under consolidation of holdings?

(p) Whether certified copies of Revenue Yes/No

225
 Records has been obtained and (If above answer is ‘No’ give proper
examined to confirm that no dues are reply to the query)
outstanding towards the mortgagor?
(Copies of revenue record be kept on
Bank’s record.)

2. PROPERTY

(a) Whether full (present) description of Yes/No

the property is given?

If this description varies with the (If above answer is ‘No’ give proper
description as given in the title reply to the query)
deed, whether proper explanation is
available?

(b) Whether the property to be Yes/No.

mortgaged is inspected by Bank Name of the official is……………
officials?

(c) Whether a certificate of the officials Yes/No

about the inspection done is held
on record?

(d) Whether the property is vacant plot Vacant plot / built up

or built up?

(e) Whether photograph of the property Yes/No

to be mortgaged is taken duly
authenticated by the person offering
the mortgage?

(f) Whether the person offering Yes/No

mortgage is in possession of the
property?

If any person other than the person (If above answer is ‘No’ give proper
offering the mortgage is in reply to the query)
possession of the property, result of
enquiries made as to the nature
and extent of their interest.

(g) Whether the property built up is as Yes/No

per plan duly sanctioned by
competent authority?

3. ENCUMBRANCES

(a) Has declaration relating to property Yes/No

been obtained from the person
offering the mortgage?

(b) Does the property suffer from any Yes/No

lien/attachment from any court or
any other authority, subject matter

226
 of dispute or litigation?

(c) Is the property free from Yes/No

encumbrances?

(d) Whether up-to-date outgoing in

respect of the property namely Yes/No
house tax, property tax, lease rent
and ground rent have been paid
and receipts are held?

(e) Whether any permission of Income Yes/No

Tax Authorities/ Assessing Officer
is required under the provisions of
Income Tax Act for creation of
mortgage or any certificate is to be
submitted to the Bank to show that
no dues are outstanding to the
Income Tax Department?

4. IMPERSONATION BY
MORTGAGOR
i) Owner/s of property who offer/s the Yes/No
same as collateral security has
bank account (with photograph)
and proper introduction.

ii) Confirmation of address through Yes/No

registered letter, etc.) has been
done?

5. LEGAL OPINION
In particular, it shall be checked up
whether the legal opinion takes
care of the following:
(a) The search report and legal title Yes.( receipts be held on bank’s record)
investigation from the registration
records is continuous from the date
of the last transfer that has taken
place and not merely 13 years.
(b) Do the title deeds produced raise Yes/No
any doubt about its genuineness?
(c) Do the registration particulars- Yes/No
number, date and page particulars
etc.,as shown in the original title (If answer is ‘No’, give proper
deed and contents thereof tally with explanation)
the information as stated in the
records of registration office as well
as with certified copy of the title

227
 deed?
(d) Does the photograph of previous Yes/No
owner and of intending mortgagor
as affixed /seen, if any, in the title
deed tally with records of
registration office as well as with
certified copy of the title deed?
(e) If any permission/sanction of Yes/No
lessor/court/other authority is
required in order to enable creation
of the mortgage by the person
offering the mortgage. If so,
whether the same have been
obtained?
(f) Whether any other permission from Yes/No
any other authority/income tax
authority or any other authority
under any law, Rules or
Regulations is required. If so,
whether the same has been
obtained?

(g) If there are impediments in creation Yes/No (If yes give measures
of mortgage, what are the legal taken)
measures for overcoming the
impediments?
(h) If the property relates to any
flat/apartment in a Co-operative Yes/No
Housing Society, whether the
formalities to be fulfilled having
regard to the byelaws, rules and
regulations of the Society are spelt
out and complied with.
(i) Whether balance sheets (in case of
company) and other relevant Yes/No
documents which may disclose
encumbrances were examined?
(j) Whether any other procedure, like
declaration to be made in respect of Yes/No
agricultural property has to be
complied with. If so, whether the
details are narrated?

(k) Whether the advocate’s report and

certificate are complete and Yes/No
satisfactory. (If answer is ‘No’, give proper
explanation)
6. GENERAL
(a) Whether the original title deeds are
available? Yes/No

228
 (b) Whether Valuation Report from
approved valuer has been Yes/No
obtained?
(c) Does the legal opinion regarding
title show any shortcomings? Yes/No

(d) Whether, for the purpose of

creation of the mortgage by deposit Yes/No
of title deeds, the branch where the
mortgage is to be created is a place
notified for the purpose under
Section 58 (f) of Transfer of
Property Act.

(e) Whether any stamp duty is payable

at the time of creation of the Yes/No
mortgage by deposit of title deeds?

7. RESULT OF CHECKING

(a) The verification as above done does not disclose any defect in title.

(b) The verification as above does disclose the following defects in title: (GIVE
DETAILS)

8. FOLLOW UP ACTION

(a) Party is advised to take following steps to overcome the

impediments:

i)

ii)

(b) Party is advised to offer another property for creation of mortgage.

Manager/Branch Head

BO

*************

229
 ANNEXURE V
SPECIAL REPORT ON TITLE

Reg: Property situated at

Belonging to

ASPECTS TO BE CONSIDERED COUNSEL’S

STATEMENT
A. PARTICULARS

1. Name of the Borrower with

address:

2. Name of the person offering

Mortgage with
parentage/constitution and
address :

3. Details of the property to be

mortgaged :
As per title deed ---
As per present Position ---

B. INVESTIGATIONS

1. Details of the title deeds/documents

(including Link Deeds/Parent
deeds) to be deposited for creation
of the mortgage (with full particulars
regarding nature of document, date
of execution and details of
registration)

2. Whether certified copies have been

obtained from the registrar’s office.

3. Whether documents in hand are

compared with certified copies and
whether the documents given raise
any doubt or suspicion?

4. Whether the registration particulars

number & date and page particulars
as given in the title deed shown to
the counsel tally with the particulars
as stated in the records of the
registrar’s office?

5. Whether the registration particulars

number & date and page particulars
as given in the title deed tally with
the particulars as stated in the
certified copy as obtained from the
registrar’s office?

230
6. Whether the photographs of parties
as affixed in conveyance deed/ title
deed tally with the photograph seen
in the certified copy as obtained
from the registrar’s office?

7. Whether contents of the as given in

the title deed tally verbatim with the
contents as stated in the certified
copy obtained from the registrar’s
office? If not, variations be
specified. What is its effect?

8. Whether the property has been

mutated in the name of the person
offering the mortgage?

9. Whether equitable mortgage can be

created at the place where the
branch disbursing the loan is
situated?

10. Whether there is any bar under any

local law for creation of the
mortgage of the property to be
mortgaged? (In some States, there
are legal restrictions on creation of
the mortgage of agricultural property
for non-agricultural purposes).

11. Whether there are any restrictions

regarding sale of the property to be
mortgaged? (In some States, there
are restrictions for sale of property
to residents outside the State).

12. Whether all the approvals,

clearance/sanctions required for
creation of the mortgage have been
obtained? If not obtained, what are
such sanctions, approvals and
clearances yet to be obtained?

13. Whether the property is ancestral/

or under joint ownership or the
minor is having interest in the
property? If so, its effect thereof.

14. Whether the property to be

mortgaged has been acquired under
Land Acquisition Act, 1894?

15. Whether Urban Land Ceiling Act is

applicable in the State where the

231
 property is located?

16. In case of leasehold property,

whether permission/ NOC from the
lessor is required for creation of
mortgage? whether permission of
the lessor/NOC is obtained?

17. What is the rate of sharing of

unearned income with lessor, in the
event of sale of the property?

18. Whether copy of title deed

favouring lessor (other than Govt.)
is made available to examine the
validity of the lease?

19. Whether terms & conditions given

in the lease deed have been
complied with? If any condition is
violated, effect thereof.

20. Whether any permission of Income

Tax Authorities/Assessing Officer is
required under the provisions of
Income Tax Act for creation of
mortgage or any certificate is to be
submitted to the Bank to show that
no dues are outstanding to the
Income Tax Department?

21. In respect of agriculture land,

whether land is declared surplus or
under consolidation of holdings?

22. Whether certified copies of

Revenue Records has been
obtained and examined to confirm
that no dues are outstanding
toward the mortgagor?
(Copies of revenue record be
submitted to the Bank while
submitting the Certificate of Title
Investigation.)

DATE:
PLACE:

(NAME OF THE COUNSEL)

*************

232
 ANNEXURE VI

CERTIFICATE

REFERENCE NO…. COUNSEL’S NAME & ADDRESS

ENTRY SERIAL NO. …… /REGISTER NO……..OF YEAR

( Counsel to give serial no. to the certificate as entered in register of searches
maintained by him)
DATE :

The Manager
BO :

Opinion on investigation of title and obtaining of search report in respect of

property belonging to

As requested, I have conducted the legal investigation of the title and made a search of
records in the registration office and other offices as required in the matter.

I have answered all the queries in the Special Report which is enclosed.

I hereby certify that the registration particulars- number, date and page particulars
etc., as shown in the original title deed and contents thereof tally with the information as
stated in the records of office of Sub-Registrar/Registrar of assurances as well as with
certified copy of the title deed, which was obtained by me is enclosed with this certificate.

I further certify that the photograph of previous owner and of intending mortgagor
affixed /seen in the title deed tally with records of registration office as well as
certified copy of the title deed.

Chain of title relating to the property is complete as given in the Annexure hereto.

I have verified, tallied and compared these documents from the record of the office of
Sub-Registrar/Registrar of assurances and also from the records of other appropriate
authorities.

1.
2.
3.

The search report of which is annexed hereto, conducted by me, for the period from -
---- to --------does not disclose any encumbrances/disclose encumbrances as stated
therein.

I have not given /have given opinion earlier on investigation of title relating to the
same property as detailed hereunder:

(a) Name of lender-

(b) Date of opinion & reference no.(if any)
(c) Remarks -

233
I find following defects/no defects in the title of the person offering mortgage:-

I hereby certify that Shri has a clear, valid and marketable title
over the above said property and he/she is competent to create the mortgage.

The valid mortgage can be created by deposit of the following original title deed
The said title deeds are Original and genuine and are not duplicate or fake as
observed by me—

(Give hereunder details of title deeds which are required to be deposited to create
equitable mortgage)
1.
2.
3.

I have returned the original title deeds and other documents shown to me to the
Branch official Shri against receipt.

…………………
ADVOCATE
Encl : 1. Special Report
2. Chain of Title
3. Certified Copy of Title Deed
4. Search Report

**********

234
 Annexure VI A

SEARCH REPORT

Account: _______________
BO:___________________

Search report relates to searches made in:

a) Sub Registrar Office.

b) Registrar of Companies.
c) Courts.
d) Other offices :

a) Office of the Co-operative Society.

b) Development
Authority. (DDA/HUDA/and the like)
e) Any other documents

i) Receipt for payment of Municipal Taxes etc.

1. Sub Registrar /Registrar of Assurance Office

The encumbrance certificate was obtained from the Sub Registrar,____ for the
period from___ to ______and the same disclosed following encumbrances
(Certificate enclosed):

a)
b)
c)

(If there is no system of issue of encumbrance certificate in the office of Sub

registrar, it be stated accordingly)

2. Besides obtaining encumbrance certificate from the Sub Registrar, personal

search was carried out by me for the purpose. Inspection was made on
_______ for the period from _______to __at the following sub
registrar / offices:-

a)
b)
c)

The search report disclosed the followings encumbrances:-

3. The Ownership of the property being of a company, search was conducted in the
following offices of the registrar of companies: -

235
The search made out in the office of Registrar of Companies disclosed:-

ROC INFORMATION

4. Inspection of Court records disclosed :-

(This may detail Suit pending, Decrees, Attachment before Judgment Injunction,
Appointment of Receiver, Appointment of Liquidator)

Name of Court Date of Order Nature of Order

5. Searches made / Inspections carried out in the following offices

disclosed :

Office Date of search / Inspection Information

6. A study of the following documents disclosed:

Details of documents perused Information

Defects noticed are indicated in the Certificate given by me.

(ADVOCATE )

236
 ANNEXURE VII

LETTER TO THE COUNSEL

To

Shri

Sir,

Reg: Search Report in respect of property offered as

security by creating mortgage on the property

M/s / Shri/Ms. , has offered the captioned property as

security by creation of mortgage, to secure the loan facility given/to be given to
him/them.

The documents submitted by M/s / Shri/Ms. are enclosed

herewith. You are requested to conduct the necessary search in respect of the
property and give your certificate in respect of the encumbrances as per the format
(enclosed).

Thanking you,

Yours faithfully,

MANAGER
BO :
Encl: 1.Documents
a)
b)
c)
d)

2. Format of Certificate

237
 ANNEXURE VIII

PROPERTY DECLARATION FORM

PLACE:
The Manager
Punjab Gramin Bank
BO: ………………….

Dear Sir,

Ref: My/Our/or ____________________’s application dated __________ for credit

facility (ies) from your Bank

Reg: My/Our property proposed to be mortgaged to your Bank

The details of my/our aforesaid property are as under:-

1. Location & Address:

_________________________________

2. Nature of Property: __________ (Shop,

Residential House, Office, Factory Premises, Open land etc.)

3. Nature of tenure, i.e. free hold or lease hold. If lease hold,

Land Area Dimensions Yearly Lease Date of Name and

Ground Tenure Commencement Address of
Rent of Lease Lessor

4. If free hold

Land Area Dimensions Date of Purchase Purchase Price

(Rs.)

5. Year of construction of the existing structure:

Commencement Completion Cost of Purchase price if built-

(Date) (Date) construction (Rs.) up premises purchased
(Rs.)

6 Floor-wise details of Covered Area:

Basement Ground 1st Floor 2nd Floor (Sq. 3rd Floor (Sq. Total
(Sq. Ft.) Floor (Sq. (Sq. Ft.) Ft.) Ft.) (Sq. Ft.)
Ft.)

238
7 Present Use (Whether self-occupied or vacant or leased etc.):

8 Occupancy details of the property:

a) Area in my/our occupation (In case of Self-occupied portion)

b) In case the property is tenanted, the tenancy statement Is as under:

Name of Area/Floor Monthly Rent Since when Tenancy end on

Tenant tenanted

9 Present Annual Market Rental Value: Rs.

10 Municipal Valuation for Property Tax purposes: Rs.

11 Full Names and addresses of the owners of the property alongwith the shares of
each.

In this context, I/We enclose the following documents in original:

a) Title deeds of the property establishing complete chain of the title

i)
ii)
iii)

b) Property Tax Receipts, Ground Rent Receipts for the last three years

I/We further declare and certify as under:

1. That the property is not subject to or affected by any trust, suit, court
order, mortgage, charge lien, attachment or any other encumbrance and is not
under any dispute/litigation etc. whatsoever.

2. That the property is not affected by:

a) Any Scheme of acquisition;

b) Any Scheme of amalgamation of the Company/Corporation or any other
Scheme under any other Act;
c) Any notice under the Land Acquisition Act or any other Act etc.
3. That no agreement of sale of any part or whole of the property has been
entered with any person whatsoever and no earnest money has been received.

4. That the property has never been vested in any official trustee, official
assignee or official receiver.

5. That no proceedings under the provisions of income tax are pending against
me.

6. That I/We shall pay all the property taxes and ground rent etc. to the
competent authorities regularly in future also and deposit the relative receipts with the
Bank.
239
7. That I/We shall pay to you immediately on demand all costs which you may
incur in taking legal opinion about the title of the property, searching records of sub-
registrar etc., of obtaining valuation report on the property from an approved
valuer of the Bank whether the proposal for advance ultimately matures or not.
I/We shall also bear all the out of pocket expenses (including charges for preparation
of deeds, advocate’s fees, secretarial charges, charges of execution, cost of
inspection, stamping and registration of documents etc.) which the Bank may
incur in this connection and all the decisions of the Bank in this connection shall be
fully binding on me/us.

Signature of Signatures of
The Applicant the owners

Name and Address Name and addresses

Of the Applicant of the owners

240
 ANNEXURE IX

PROFORMA FOR VALUATION REPORT IN RESPECT OF IMMOVABLE PROPERTY

Name of Registered Valuer: Registration No.:

(With State Commissioner of Income Tax)

1. Date of visit of the site :

2. Date of making valuation :

3. Name of the owner(s) of the property :

4. Whether necessary enquiries have been made from :

the concerned locality with regard to the
ownership of the property.

5. If the property is under joint ownership/

co-ownership, share of each such :
owner. Are the shares undivided?

6. Brief description of the property

- Location, street, ward No.

:
- Flat/Plot No.

- Is the IP bears the same description/details :

as mentioned in the documents/title deeds

- Is the property situated in residential/ :

commercial/mixed area/Industrial area

- Is the property situated in an unauthorised/

: authorised colony.

- Classification of locality – high class/

middle class/poor class :

- Is the IP in question is under encroachment :

7. Proximity to civic amenities like schools,

hospitals, offices, markets, cinema halls,
etc.

8. a) Area supported by documentary proof,

shape, dimensions and physical features :

b) Attach a dimensional site plan & elevations :

of all structure standing on the land along with
photograph of the built up property.

241
 c) Furnish details of the building on a
separate sheet giving number of floors, :
plinth area floor-wise, Year & type of
construction, finishing (floor-wise).

d) Is the construction/built up property is as :

as per the plan approved by the competent authority.

9. Is it freehold or leasehold land? :

10. If leasehold, the name of Lesser/Lessee,

nature of lease, dates of commencement
and termination of lease :

11. Is there any restrictive covenant in

regard to use of land? If so, details be given :

12. Does the land fall in an area included in any

Town planning scheme or any development :
plan of Govt. or any statutory body? If so,
give particulars.

13. Is the property notified for acquisition by Govt.? :

or any statutory body.

14. a) Is the building owner – occupied/tenanted/

both? :

b) If partly owner-occupied, specify portion and extent of

area under owner – occupation :

15. a) Names of tenants/lessees/licensees, etc. :

b) Portions in their occupations :
c) Monthly or annual rent/compensation/
license fee, etc. paid by each. :

16. Is any dispute between landlord and tenant?

regarding rent pending in a court of law :

17. The valuer should give in detail his

approach to valuation of the property and :
indicate how the value has been arrived at,
supported by necessary calculations.

Market Value of the property :

Realisable Value of the property :

NOTE: If the space provided is not sufficient, details may be attached on a

separate sheet.

242
DECLARATION:

I, hereby, declare that:

a) The information furnished above is true and correct to the best of my

knowledge and belief;
b) I have no direct or indirect interest in the property being valued;
c) I have personally inspected the property on
d) My registration with State Chief Commissioner of Income Tax is valid as on
date.

Date

Place Signature and seal of Registered Valuer

On the Bank’s Panel
FULL ADDRESS:

243
 ANNEXURE X

PROFORMA FOR RECORDING THE VALUE OF PROPERTY ASSESSED BY

INCUMBENT INCHARGE

1. Date of making valuation :

2. Name of the owner(s) of the property :

3. If the property is under joint ownership/

co-ownership, share of each such :
owner. Are the shares undivided?

4. Brief description of the property i.e. location, street,

ward No., Flat/Plot No., dimensions :

- Is the property situated in residential/

commercial/mixed area/Industrial area :
- Whether the construction plan is approved
by Municipal Authority/Corporation, etc. :

5. Is it freehold or leasehold land? :

6. a) Is the building owner – occupied/tenanted/ both? :

b) If partly owner-occupied, specify portion and

extent of area under owner – occupation :

c) Rental value of the property :

7. Is any dispute of landlord with tenant and/or

any statutory body in regard to property? :

8. Specify the method(s) adopted for assessing :

the value of the property (i.e. personally
inspecting the property, scrutinising the valuation
certificate issued by local authority for taxation
purposes, making enquiries
through brokers, neighbours, net yield method, etc.) Value
of Land (Area x Rate) + Construction Cost

Realisable Value of the property :

9. Realisable value of the property as

per valuation report of the approved valuer :

DATE: SIGNATURE & NAME OF

PLACE: THE INCUMBENT INCHARGE

244
 ANNEXURE XI

PROFORMA FOR VALUATION REPORT IN RESPECT OF PLANT & MACHINERY

Name of Registered Valuer: Registration No.:

(With State Commissioner of Income Tax)

1. Date of making valuation :

2. Purpose for which valuation is made :

3. a) Name of the owner(s) of the plant & machinery :

b) If the asset is under joint ownership/co- :

ownership, share of each owner.

4. Description of the plant & machinery

(Separate for each major P&M)

- Name of the manufacturing company :

- Year of making/fabrication :
- Model no.
- Date of purchase :
- Name of the Vendor/Supplier :
- Original price :
- Country of origin
- Import duties at the time of purchase :
- Import duties on the date of valuation :
- Exchange rate at the time of purchase :
- Exchange rate as on the date of valuation :
- Price to the owner where he is not the first :
owner.
- Cost of similar new plant & machinery :
- Detailed list of machinery specifying major :
sections, their components and makes etc.
- Rated capacity/speed of machinery by the
original manufacturer.
- What generation of technology is involved :
in the machinery inspected?
- Whether inspection carried out to see the :
machinery in operation?
- Whether dry run of the machinery or any :
other tests were carried out to ascertain
its condition?
- Date since when the machinery is not in :
operation/steps taken to keep the machinery
in good condition (to protect it from corrosion)
- General condition of the machinery. :
- Details of refurbishing/reconditioning :
245
 required to be carried out to make the
machinery operational.
- Estimated cost of refurbishing/reconditioning :
- Estimated residual life of the refurbishing :
- Estimated life of new machinery :
- Book value of the machinery :
- Depreciation rate

5. Value of the machinery :

The valuer should give in detail his approach to

valuation of the plant & machinery and indicate how
the value has been arrived at such as historical cost
basis valuation method, market price of similar new
machinery or any other method applied (with full
details of methodology employed). Valuation should
be supported by necessary calculations including
giving effect to technological attrition.

Realisable Value at distress sale of the plant:

& machinery

NOTE: All questions to be answered by the Registered Valuer, if any, particular

question does not apply to the property under valuation. He may indicate so. If the
space provided is not sufficient, details may be attached on a separate sheet.

DECLARATION:

I, hereby, declare that:

a) The information furnished above is true and correct to the best of my

knowledge and belief;
b) As on date I am approved valuer in the panel of the bank;
c) I have no direct or indirect interest in the plant & machinery being valued;
d) I have personally inspected the plant & machinery on ;
e) My registration with State Chief Commissioner of Income Tax is valid as on
date;
f) I have not been convicted of any offence and sentences to a term of
imprisonment;
g) I have not been guilty of misconduct in any professional capacity;
h) The particulars are based on information supplied by owner(s)/ market
survey;
i) I declare that I have valued the right plant & machinery;
j) I have not been debarred by any banking / financial institution.

Date

Place Signature and seal of Registered Valuer

(On the Bank’s Panel)

FULL ADDRESS:
246
 ANNEXURE XII

TO BE ATTESTED BY TWO
WITNESSES AND REGISTERED

TO BE OBTAINED SEPARATELY
IN RESPECT OF EACH PROPERTY

TO BE STAMPED AS SECURITY BOND

SECURITY BOND

This Security Bond is executed by

Shri s/o r/o
and Shri s/o
r/o (hereinafter
called surety/sureties' which term shall include the legal representatives, executors,
successors and assigns) in favour of Punjab Gramin Bank, a body corporate
constituted under Regional Rural Bank Act 1976 having its HO at Jalandhar Road,
Kapurthala - 144006 and interalia a BO at _________
(hereinafter referred to as `Bank' which term shall include its successors and
assigns).

WHEREAS the above bounded surety/sureties has/have executed agreement of

guarantee dated guaranteeing the repayment of the principal, interest
and other charges due under various limits aggregating to Rs. under the
facilities (detailed herein) availed/to be availed by
(hereinafter referred as `the borrower') from the Bank.

*(Give Facility* Limit*

details
of various
facilities
and limits)

WHEREAS to secure the liability and performance of the contract executed between
the Bank and the borrower as evidenced by the various loan agreements
dated executed by the borrower and also the above said agreement
of guarantee dated executed by the surety/sureties, the surety/sureties have offered
to create mortgage of their property situated at (more fully described in the Schedule
hereunder)

* Whereas in order to create mortgage the surety/sureties

has/have deposited on with the Bank sale deed
* Delete dated along with other relative documents.
if not
applicable * Whereas in order to further assure the Bank it is agreed between
the surety/sureties and the Bank that the surety bond, herein is
executed by surety/sureties.

NOW THIS DEED WITNESSES:

247
1. The surety/sureties hereby bind/s himself/themselves jointly and severally for
the payment to the Bank the sum of Rs. being the
aggregate of the above said facilities, besides interest, other costs and other
charges.

2. The surety/sureties covenant/s and under- take/s to repay the amount

outstanding under the various facilities as above said availed/to be availed by
the borrower, in case of default on the part of the borrower immediately after
demand received from the Bank in writing.

3. In consideration of the loan facilities granted/to be granted from time to time by

the Bank to the borrower as above said for an aggregate limit upto Rs
the surety/sureties hereby transfer/s to the Bank all
his/their interest in the property described in the schedule hereto with the
intent that the same shall remain and be charged by way of mortgage to
secure the amount outstanding at any time together with interest, charges
and expenses due thereunder in respect of the various loan facilities/limits
aggregating to Rs. availed/to be availed by the borrower from the Bank.

4A. The surety/sureties declare/s that:

a) The surety/sureties is/are the absolute owner/s of the property/

properties which are free from encumbrances of any kind.

b) The surety/sureties is/are entitled to sell, transfer or alienate the said

property/properties.

*To be dele- *c) The surety/sureties do/does not have in their

ted if not possession the title deed/s of property/properties. **
applicable

** Where the title deeds are not in their possession, state the reason/cause.

d) The surety/sureties has/have not deposited/delivered the title deeds of the

property with any one else and have not created any charge by way of
mortgage or any other encumbrance on the property/properties.

B. The surety/sureties undertake/s not to create charge or mortgage or transfer or

part with possession of the said property without the consent of Bank in
writing.

C. The surety/sureties hereby authorise/s and appoint/s the Borrower as agent to

acknowledge on behalf of surety/sureties the liability and security hereby
undertaken/created.

5. Surety/sureties declare/s that this security bond is in addition to and

supplementary to the agreement of guarantee dated and
security bond/s dated executed by the surety/sureties.

6. Surety/sureties covenant/s that in case of default on the part of the borrower to

repay the amount outstanding at any time, the Bank shall be within its rights
to cause the property/s hereby mortgaged to be sold for realisation of the
amount due from the surety/sureties.

248
 7. Now the condition of the above written bond is such that if the borrower duly
performs and fulfills the obligations and clears all the liabilities under the
above said loan facilities or if the said surety/sureties pay/s of all and every
dues under the above said facilities to the Bank, the above written bond or
obligations shall be void and of no effect, otherwise the same shall be and
remain in full force.

SCHEDULE OF PROPERTY

In witness whereof the above written bond, surety/sureties has/have signed these
presents at on day of month of year 20 .

SURETY/SURETIES CUM
MORTGAGOR/MORTGAGORS

WITNESSES:

1.

2.

249
 ANNEXURE XIII

LETTER OF AUTHORITY

Place:

Date:

The Manager
Punjab Gramin Bank
.

Dear Sir,

In connection with the Loan/Cash Credit/Overdraft limit of Rs. (Rupees

)
allowed to me/us on
for which I/We have on deposited with you
the title deeds described in my/our letter dated . I/We undertake to
keep the property mortgaged with the Bank insured for its full market value against
loss or damage caused by Fire, Riot and Civil Commotion risks or any other risk as
may be required by the Bank and keep the same insured till the adjustment of the
account.

I/We further agree that insurance would be effected with the company/companies
approved by the Bank and I/We shall take out the policy/policies in the joint names of
the Bank and myself/ourselves with agreed Bank clause, and handover the aforesaid
policy/policies to you. In case of my/our failure to so insure, the Bank shall be entitled
and is hereby authorised to effect necessary insurance and debit the expenses
incurred in connection therewith to my/our Loan/Cash Credit/Overdraft account and
also agree that the Bank shall be entitled to recover from me/us the expenses so
debited on account of insurance after demand made in writing. I/We agree that this
authority shall be irrevocable.

Yours faithfully,

MORTGAGOR/S

250
 ANNEXURE XIV

SPECIMEN `A'

Place:

Date:

Shri called on us and declared and confirmed that

the bank will keep, hold and continue to keep and hold the Title Deeds (as listed in
the schedule given below) already deposited with the Bank on as
security for Rs. ,* as further security for Rs.
interest and other charges by way of equitable mortgage in respect of land together
with all buildings, super-structures, plant and machinery, constructed or to be
constructed, installed or to be installed, present and future and/or the properties
covered thereby situated at
.

SCHEDULE OF THE TITLE DEEDS

Witness:

(To be signed by two

employees of the Bank)

N.B.: This should not at all be signed by the party. Date of entry in the title
deed register should be prior to the date of "letter of continuity".

*NOTE: To record the earlier mortgages, add and further deposited by

constructive delivery on and as security for
Rs. and Rs. respectively.

251
 ANNEXURE XV

SPECIMEN B

DRAFT LETTER OF CONTINUITY

Place:

Date:

The Manager
Punjab Gramin Bank
.

Dear Sir,
Reg: Limits _________________________ against security of _________________
sanctioned to M/s ____________________________________________________

I/We have already on deposited with you in your Office the original
title deeds of my/our property situated at
with intent to create equitable mortgage
of the same as security for the total amount of Rs. Under the
diverse heads such as cash credit and other limits sanctioned to me/us.

* The Bank has at my/our request sanctioned the following limits:

1. Cash Credit Rs. by enhancement from

Rs. .
2.
3.

I/We confirm having already agreed with you on that the title deeds
of the immovable property already deposited with you on shall continue
to be held with you as additional security for the further liability of
M/s due from time to
time in respect of the aforesaid enhanced limits besides interest and other charges.

DETAILS OF THE TITLE DEEDS DEPOSITED AND

OF THE PROPERTY COVERED THEREBY

Yours faithfully,

*NOTE: To record earlier mortgages, add:

I/we have created further mortgage by deposit of said title deeds by constructive
delivery on and as security for Rs.
and Rs. respectively.

252
 ANNEXURE XVI

LETTER APPOINTING THE FINANCIAL INSTITUTION AS

AGENT OF THE BANK TO ACCEPT DEPOSIT OF
TITLE DEEDS AS SECURITY ON BEHALF OF THE BANK

The Manager,

The Managing Director/Chairman

Dear Sir,

REG: M/S
LOAN FACILITIES SANCTIONED BY PUNJAB
GRAMIN BANK, BO :
CREATION OF 2ND CHARGE ON BLOCK/FIXED ASSETS

Punjab Gramin Bank has sanctioned following loan facilities to

M/s .

i)
ii)

M/s has agreed to

create 2nd charge i.e. charge subject to prior charges in your favour by way of
mortgage on its immovable property/fixed assets situated at
in favour of Punjab Gramin
Bank (here in after called the bank) by deposit of title Deeds and also by
execution of hypothecation agreement in respect of movable assets forming
part of fixed assets. You have also consented for creation of 2nd charge in
favour of the bank vide letter dated .

We, Punjab Gramin Bank hereby appoint you (name of

the institution), acting through any of your officers, as agents, to accept deposit
of title deeds by delivery or constructive delivery from or on behalf
of M/s to create mortgage by deposit of title
deeds in order to secure the above referred loan facilities and moneys advanced
or to be advanced by the bank besides interest and other charges due thereon.
You are also authorised to further make entry in respect of the above deposit
in your records. Please confirm the creation of mortgage.

Thanking you,
Yours faithfully,
FOR PUNJAB GRAMIN BANK

MANAGER

253
 ANNEXURE XVII

LETTER OF FINANCIAL INSTITUTION ACCEPTING

THE AGENCY OF THE BANK

The Manager,
Punjab Gramin Bank,
BO:

Dear Sir,

REG: APPOINTMENT OF OUR CORPORATION AS AGENT FOR

ACCEPTANCE OF TITLE DEEDS AS SECURITY FROM
M/S

Please refer to your letter dated we,

accept and
agree to act as agent of PNB for acceptance on behalf of bank, of title deeds by
delivery/constructive delivery from M/s for
creation of mortgage to secure loan facilities mentioned in your above referred letter
and money advanced or to be advanced to
M/s ________________________________________________ by the bank.

We, hereby confirm that we shall also duly enter the deposit of title deeds in our
records. We further undertake that on adjustment of our loans, the title deeds shall
not be handed over to the mortgagors M/s
but shall be retained by the corporation on
behalf of your bank till further instructions from you.

Thanking you,

Yours faithfully,

FOR

254
 ANNEXURE XVIII

RESOLUTION TO BE PASSED BY THE CO. IN CASE OF THE CREATION OF

THE MORTGAGE BY DEPOSIT OF TITLE DEEDS WITH F.I., WHO HAS IN ITS
FAVOUR A REGISTERED MORTGAGE

The Chairman informed that the company has created mortgage,

by execution of registered mortgage deed, in favour of
(hereinafter called `F.I.') in
respect of company's immovable properties situated
at
for securing the
due repayment, discharge and redemption by the company to
the
F.I. for its *
* detail the
Loan availed
from F.I. together with interest, compound interest, additional interest,
further interest, liquidated damages, commitment charges, costs,
charges, expenses and other monies payable under the loan
agreement/s.
# delete # Chairman further informed the Board that the co. has in its custody
whatever the original title deeds, evidences, deeds and writings relating to
the not said immovable properties/F.I. is having the custody of the original
applicable title deeds, documents of title, evidences, deeds and writings relating
to the said immovable properties and F.I. has agreed to release the
title deeds to enable the company to create mortgage in favour
of Punjab National Bank in respect of loan facilities availed from
Punjab National Bank and F.I. has agreed to act as agent of
PNB for accepting mortgage by deposit of title deeds. Chairman
further informed the Board that the company has been sanctioned
the following financial assistance by Punjab National Bank.

$ detail the $ (1) (2) (3)

loan limits
availed
from Bank

The aforesaid financial assistance will be secured inter-alia by

mortgage by deposit of title deeds in respect of company's
immovable properties situated at

and as such it will be necessary for the

company to deliver the title deeds to the F.I., F.I. acting as an
agent of PGB and make necessary declaration so as to create the
mortgage by deposit of title deeds in favour of Punjab Gramin
Bank.

Chairman accordingly requested the Board to pass the following

Resolutions which after some discussions were passed.

RESOLVED THAT

1. The company do request F.I. to release the title deeds, in view of the fact
255
 that the F.I. has a registered mortgage in its favour and to enable the
company to create mortgage by deposit of title deeds in favour of PGB
to secure the Financial assistance availed/to be availed from PGB.

2. The company do create mortgage with F.I., F.I. acting as agent of

Punjab Gramin Bank by deposit and delivery of title deeds in respect of
the immovable properties of the companies situated at

together with all buildings,

structures thereto and all plant and machinery attached to the earth or
permanently fastened to anything attached to the earth (hereinafter
collectively referred to as `the said immovable property') as security for
the due repayment/discharge and redemption by the company to Punjab
National Bank for the following facilities:

a.

b.

c.

(the said Punjab Gramin Bank is hereinafter referred to as `the lender')

together with interest, additional interest, further interest, interest tax,
liquidated damages, compound interest, commitment charges, costs,
charges, expenses and other monies payable under the loan
agreement/s and other documents as amended from time to time.

3. The following directors, namely, Shri and Shri

be and are hereby authorised
severally to receive the title deeds from F.I. and to deposit and deliver the
title deeds to F.I., F.I. acting as agent of PGB and create mortgage in
favour of PGB and make necessary declaration in connection therewith.

4. The following directors, namely, Shri and Shri

be and are authorised severally to
state on behalf of the company to the lender that the title deed so
deposited by the company were the only documents of title relating to
the said immovable properties and that the company has a clear and
marketable title to the said immovable properties and that the security in
favour of the lender shall ensure in respect of the company's immovable
properties, both present and future and also to give a declaration to the
satisfaction of the lender.

5. The company do file the requisite particulars of charge/modification of

charge in connection with the said mortgage by deposit of title deeds in
favour of the lender with the Registrar of Companies within the time
prescribed by the law thereof.

Copies of the foregoing resolutions to be true copies by the Chairman/

Managing Director, Secretary of the Company be furnished to the lender
and they be requested to act thereon.

AUTHORISED SIGNATORY

256
 ANNEXURE XIX
RESOLUTION TO BE PASSED BY CO. IN CASE OF CREATION OF THE MORTGAGE
BY DEPOSIT OF TITLE DEEDS BY CONSTRUCTIVE DELIVERY

The Chairman informed that the documents of title, evidences, deeds and
writings (hereinafter referred to as `the said title deeds') in respect of the
company's immovable properties at
had been deposited by
the company with (hereinafter called the `F.I.')
in order to create a security on the company's immovable properties
* detail the in respect of its properties at *
loan availed by way of
mortgage by
from F.I. the deposit of title deeds for securing the due repayment, discharge and
redemption by the company to F.I. for its

together with interest, compound interest, additional interest, further

interest, liquidated damages, commitment charges, cost, charges,
expenses and other monies payable under the loan agreement/s.

Chairman further informed the Board that the company has been
sanctioned the following financial assistance by PGB
Detail a.
the loan
& limits b.
availed
from PNB c.

The aforesaid financial assistance will be secured, inter alia, by mortgage

by deposit of title deeds in respect of company's immovable properties,
situated at

and as such it will be necessary for the company to give an oral

consent to F.I., F.I. acting as agent of PNB to continue to hold and retain
the said title deeds by way of constructive delivery also as security for the
said financial assistance availed/to be availed from Punjab Gramin Bank.

Chairman, accordingly, requested the Board to pass the following

Resolutions which, after some discussions, were passed.

RESOLVED THAT

1. The company do give an oral consent to F.I. acting as agent of Punjab Gramin
Bank to continue to hold and retain the said title deeds as and by way of
mortgage by deposit of title deeds by constructive delivery, as security on the
company's all immovable properties situated at

together with all buildings and structures thereon and all machinery
attached to the earth or permanently fastened to anything attached to the earth
(hereinafter collectively referred to as `the said immovable properties') as security

257
 also for the due repayment, discharge and redemption by the company to Punjab
Gramin Bank (hereinafter referred to as lender) for the following facilities:

a.

b.

c.

together with interest, additional interest, further interest, interest tax, liquidated
damages, compound interest, commitment charges, cost, charges, expenses
and other monies payable under the loan agreement/s and other documents as
amended from time to time.

2. Following directors, namely, Shri and Shri

be and are hereby authorised severally to give such
consent as aforesaid on behalf of the company.
3. The following directors namely Shri and Shri
do and are hereby authorised severally to state, on
behalf of the company, to the lender that the said title deeds so deposited on
by the company with F.I. were the only documents of title relating to
the said immovable properties situated at
and that the
company has a clear and marketable title to the said immovable properties and
that the security in favour of the lender shall ensure in respect of the company's
immovable properties at both present and future and
also give a Declaration on Oath to the satisfaction of the lender.

4. The following directors namely Shri and Shri

be and are hereby authorised severally to approve
Let and finalise such other deeds and documents as may be required by the
this lender in connection with the financial assistance and that the common
be seal of the company be affixed thereto in the presence of
done of the company to sign the same in token
as per thereof and in the event of the affixation of the common seal not being articles
required. The same be executed severally by the Directors afore-mentioned.

5. The company to file the requisite particulars of charge/modification of charge in

connection with the said mortgage by deposit of title deeds in favour of the lender
with the Registrar of Companies within the time prescribed by the law thereof.

Copies of the foregoing resolutions to be true copies by the Chairman/ Managing

Director, Secretary of the company be furnished to the lender and they be
requested to act thereupon.

AUTHORISED SIGNATORY

258
 ANNEXURE XX

IN THE TITLE DEED REGISTER/

RECORDS OF FINANCIAL INSTITUTION

MEMORANDUM OF ENTRY IN CASE OF MORTGAGE

BY DEPOSIT OF TITLE DEEDS WITH F.I. WHO
HAS IN ITS FAVOUR A REGD. MORTGAGE

1. Date of creation of the mortgage

2. Name of the mortgagor

3. Nature and amount of facilities secured

4. List of documents of title, evidences, deeds & writings

5. Description & location of the mortgaged property

MEMORANDUM

give name, On the day of Sh.

representative
capacity e.g.
Director, Constitu-
tion, address/ (hereinafter referred to as `the mortgagor) attended the registered office
branch/regional office of
* give name *(hereinafter referred
& address to F.I.) and saw Shri
of F.I. of F.I.

The said Shri deposited

and delivered the documents of title, evidences, deeds and writings (more
fully described in the column No. 4 above), hereinafter called the `the said
title deeds' in respect of the mortgagors immovable properties situated at
(more fully described in column 5
above) with Shri acting for F.I. & F.I. acting as agent
of Punjab National Bank.

While making the deposit of the said title deeds,

Shri stated that he was making the
* delete if deposits of the said title deeds *on behalf of the mortgagors with intent
not appli- to create the security by way of mortgage by deposit of title deeds of
cable the mortgagor's immovable property (more particularly described in
column 5 above) together with all buildings, structures thereon and all
plant and machinery attached to the earth or permanently fastened to
anything attached to the earth (hereinafter collectively referred to as `the
said immovable property') to secure due repayment, discharge and

259
 redemption, by the mortgagor to Punjab National Bank of the
outstandings under the following facilities:

Give a.
details of
the b.
facilities
and limits c.

together with interest, additional interest, further interest, interest tax,

liquidated damages, compound interest, commitment charges, cost,
charges, expenses and other monies payable under the loan agreement/s
as amended from time to time.

Applicable Shri stated that he was authorised

only in case to create mortgage by deposit of title deeds as aforesaid pursuant the
mortga- to the resolutions passed by the Board of Directors of the
gagor is a mortgagor at their meeting held on and he furnished
company a certified copy of the said Resolution to Shri
and further stated that the said Resolution was in full force and
effect.

Shri stated that the said title deeds

so deposited were the only documents of title relating to the said
immovable properties in the possession of and control of the mortgagor
and the mortgagor has a clear and marketable title to the said immovable
property.

The aforesaid deposit of title deeds was made by Shri **

Delete if **on behalf of the mortgagor in the
not applic- presence of Shri of Punjab National Bank.
able

Signature of the person

accepting the title deeds

Witness:

1.

2.

260
 ANNEXURE XXI

IN THE TITLE DEED REGISTER/RECORDS OF FINANCIAL INSTITUTION

MEMORANDUM OF ENTRY IN CASE OF MORTGAGE BY DEPOSIT OF TITLE

DEEDS BY CONSTRUCTIVE DELIVERY

1. Date of creation of the mortgage

2. Name of the mortgagor

3. Nature and amount of facilities secured

4. List of documents of title, evidences, deeds & writings

5. Description & location of the mortgaged property

MEMORANDUM

give name, On the day of Sh.

representative
capacity e.g.
Director,Constitu-
tion, address/ (hereinafter referred to as `the mortgagor) attended the
registered office branch/circle office of
* give name * (hereinafter referred
& address to F.I.) and saw Shri of F.I.

The said Shri stated that

the documents of title, evidence, deeds and writings more particularly
described in column 4 above (hereinafter called `the said title deeds') in
respect of the mortgagor's immovable properties situated at

(more fully described in column 5 above) were deposited on

with F.I. in order to create security by way of mortgage by
deposit of title deeds on the mortgagor's immovable properties together
with the buildings and other structures, fixed plant and machineries,
fixtures and fittings, constructed, erected or installed thereon or to be
constructed, erected or installed thereon for securing the due repayment,
discharge and redemption by the mortgagor to F.I. for its*
* give the
detail of the together with interest, additional interest, further interest, interest tax,
loan, limits liquidated damages, compound interest, commitment charges, cost,
availed charges, expenses from F.I. and other monies payable under the
respective loan agreement/s.

Shri on the same day accorded and

Delete the gave oral consent on behalf of the mortgagor to give Shri
words ‘on acting for F.I. and F.I. acting as agent of

261
behalf’ of Punjab National Bank to hold and retain the said title deeds as the
mortga- and by way of mortgage by deposit of title deeds by constructive delivery
gor in case of the mortgagor's immovable properties (more fully described in column
mortgagor 5 above) together with all buildings and structures thereon and all
is other plant and machinery attached to the earth or permanently fastened to
than co. anything attached to the earth.
(hereinafter collectively referred to as `the said immovable properties') as
security also for the due repayment, discharge and redemption by the
company to Punjab National Bank of the outstandings under the following
facilities:

Give a.
details of
the b.
facilities &
the limits c.

together with interest, additional interest, further interest, interest tax,

liquidated damages, compound interest, commitment charges, cost,
charges, expenses and other monies payable under the loan agreement/s
as amended from time to time.

Delete the While giving such oral consent on behalf of the mortgagor Shri
words ‘on stated that he did so * in his capacity as a
behalf’ of director of the mortgagor with intent to create security on the said the
mortga- immovable properties as aforesaid.
gor in case
mortgagor ( * delete if not applicable)
is other
than co.
Shri also stated that he
was authorised to give such oral consent pursuant to the resolution
passed by the Board of Directors of the mortgagor at the meeting held
on and he furnished a certified copy of the said resolution to
Shri and further stated that the resolutions
were in full force and effect.

applicable The aforesaid oral consent was given by Shri

only in ** on behalf of the mortgagor in the presence of
case the Shri of F. I. and Shri
mortgagor of Punjab Gramin Bank.
is a co. (** Delete if not applicable)

Signature of the person

accepting the title deeds
Witness:
1.
2.

To be used when registered mortgage is created in favour of the institution but the title
deeds are lying with the Institution.

262
 ANNEXURE XXII

LETTER BY THE BORROWER CONFIRMING DEPOSIT OF TITLE DEEDS WITH THE

FINANCIAL INSTITUTIONS ON BEHALF OF THE BANK TO SECURE LOANS
ADVANCED BY THE BANK
Dated

(to be dated subsequent to date of entry of

mortgage favouring Punjab Gramin Bank)
FROM:

M/s

TO:
The Chairman/Managing Director,

Dear Sir,

REG: LIMITS SANCTIONED

TO M/S

Punjab Gramin Bank has at my/our request sanctioned/ advanced the following
limits:

1.

2.

Your corporation was authorised by the bank to accept title deeds of my/our
properties (mentioned herein) situated at for creation
of equitable mortgage by me/us, and I/we confirm having delivered to you and
deposited the title deeds of the properties on with intention to secure the repayment
of the loan facilities and moneys advanced or to be advanced as aforesaid by
Punjab Gramin Bank, BO: to us and interest, interest tax, costs and
charges due thereon.

LIST OF TITLE DEEDS

1)

2)

3)

PROPERTY COVERED

1)
2)
3)
263
Together with all buildings and other structures fixed plants and machineries, fixtures and
fittings constructed, erected or embedded thereon or to be constructed erected or embedded
thereon.

Thanking You,

Yours faithfully,

CC: Punjab Gramin Bank Branch Office .

264
 ANNEXURE XXIII

LETTER BY THE BORROWER CONFIRMING DEPOSIT OF TITLE DEEDS WITH THE

FINANCIAL INSTITUTIONS ON BEHALF OF THE BANK TO SECURE LOANS ADVANCED
BY THE BANK.

Dated

(to be dated subsequent to date

of entry of mortgage in favour
of Punjab Gramin Bank)
FROM:

M/s

TO:
The Chairman/Managing Director,

Dear Sir,

REG: LIMITS SANCTIONED TO M/S _________

I/we have already on (date of deposit) deposited with you in

your office the undernoted original title deeds of my/our property situated at
with intent to create mortgage by deposit of title deeds of the same as
security for the following loan facilities:

i)

ii)

(loan facilities of financial institutions)

Punjab Gramin Bank has at my/our request sanctioned the following limits:-

i)

ii)

(loan facilities of PGB)

Your corporation was authorised by the bank to accept title deeds (mentioned herein) by
constructive delivery for creation of equitable mortgage by me/us and I/we confirm having
agreed with you on that the title deeds of immovable property already
deposited with you on (same date) shall continue to be held with you as
security for the repayment of the loan facilities and moneys advanced/or to be advanced as
aforesaid by the bank to us and interest, costs and charges due thereon.

265
LIST OF TITLE DEEDS

1)

2)

PROPERTY COVERED

1)

2)

Together with all buildings and other structures, fixed plants and machineries, fixtures
and fittings, constructed, erected or embedded thereon or to be constructed, erected or
embedded thereon.

Thanking you,

Yours faithfully,

C.C : Punjab Gramin Bank, Branch Office

266
 ANNEXURE XXIV

POWER OF ATTORNEY

A POWER OF ATTORNEY given at___________________ on the _________day of by

Shri__________________________S/o Shri _____________________________________
R/o_________________________________ ______________________________________.
(hereinafter called the APPOINTER, which term shall unless repugnant to the context
hereof, includes his heirs, successors, administrators and assigns) :

WHEREAS
1) The Appointer is the Borrower of Punjab National Bank (hereinafter called “the
Bank”) and has entered into an agreement dated
(hereinafter referred to as the said AGREEMENT) with the Bank for a loan of Rs.
sanctioned in favour of the Appointer, by the Bank and the
Appointer has created on mortgage by deposit of title deeds by delivery of discharged
receipt issued by Sub-Registrar Office, certified copy of title deeds (to be delivered by
Sub-Registrar Office) and other documents as security, in respect of
property situated at .
2) Vide the aforesaid Agreement, the Appointer has agreed inter alia to deliver to and
deposit with the Bank each and every of the document of title relating to the said
property as and when it comes into his possession with intent to create a security
thereon for the repayment of the loan, interest and other charges and for the due
fulfilment of his other obligations under the said Agreement.
3) The original deed of above property is yet to be
delivered by Sub-Registrar of Assurances before whom the ___________ deed
was registered on Book no. Vol. No.
Sr. No. .
4) Therefore, the Appointer has inter-alia delivered duly discharged receipt issued by
Sub registrar of Assurances, , for taking the above
said deed directly from above said Sub-Registrar Office.
NOW THIS DEED WITNESSES THAT the Appointer hereby appoints the PNB to act
through any of its officers (hereinafter severally called the attorneys) to be his true and
lawful attorneys in his name and on his behalf to do and, execute all or any of the
following instruments, acts, deeds, and things;
a) To receive and take delivery of the above said deed__________dated
deeds of the said premises from the Office of Sub-
Registrar of Assurances .
b) To deliver to and deposit with the Bank the aforesaid registered documents of title
relating to the said property, by way of further assurance, of the mortgage already
created on .
And the Appointer hereby agrees to ratify and confirm whatsoever the said attorney shall
lawfully do or cause to be done by virtue of this Power of Attorney and hereby declare that
the same shall be irrevocable till all the repayments under the said Agreement have been
made by the Appointer.
IN WITNESS WHEREOF the within named Appointer ____________________ has executed
this Power of Attorney on the day and the year first above written.

Witnesses APPOINTER

1.
2.
267
 ANNEXURE XXV

TO BE STAMPED AS
AN AGREEMENT

The Manager,
Punjab Gramin Bank
Branch Office

REG.: UNDERTAKING

I son of Shri___________________________________resident
of do hereby
declare and undertake as under:

1. That the loan of Rs. have been sanctioned in my favour by

Punjab Gramin Bank, Branch Office and against, which I have
offered the mortgage of Property situated at .

2. That the original______________________deed of above property is yet to be delivered by

Sub Registrar of Assurances___________________________after registration, before whom the
_______________________deed was registered on_________________________being Book No.
______________Vol. No. Page No._____________________ Sr. No.
__________________. The duly discharged receipt issued by Sub Registrar of Assurances
as above said has been deposted alongwith certified copy of title deeds (to be delivered by
Sub-Registrar Office) and other documents as security for due repayment and redemption
of the outstanding under the facilities sanctioned to me.

3. That I undertake that I will, by way of further assurance, forthwith deposit the original
Title Deeds as abovesaid with Punjab National Bank, Branch Office________ in case
the same is received by me from abovesaid Sub Registrar or Assurances.

4. That I further undertake not to create any mortgage alienate or transfer of the abovesaid
property in favour of any person, without consent of the Bank in writing.

Yours faithfully,
Place:

Date:

OWNER
MORTGAGOR

268
 ANNEXURE XXVI

LETTER TO BE TAKEN FROM THE BORROWER

(Name and address of mortgagor)

Date
Sub Registrar of Assurances

REG.: Delivery of Deed to Punjab Gramin Bank, Branch Office

duly registered with your office on_____as Book No.
Vol. No. Page No. Serial No. .

I have taken a loan from Punjab Gramin Bank Branch Office___________of Rs.__________
and as security, I have created mortgage in respect of property situated at
the Deed above referred in respect of this property
is yet to be delivered by your office after registration.

It is requested that the above said Deed be directly delivered/given to

Punjab Gramin Bank Branch Office on the basis of this letter. I have also
handed over the duly discharged receipt issued by your office in favour of Punjab Gramin
Bank, Branch Office .

OWNER
MORTGAGOR

CC to Punjab Gramin Bank, Branch Office for information.

OWNER
MORTGAGOR

269
 ANNEXURE XXVII

REGISTERED LETTER TO BE ISSUED TO SUB- REGISTRAR OFFICE

PUNJAB GRAMIN BANK

BO:
ADDRESS:

Date

Sub Registrar of Assurances

REG.: Delivery of Deed to Punjab Gramin Bank, Branch Office

duly registered with your office on as Book No.
Vol. No. Page No. Serial No. .

Further to the letter dt. of Sh/ Smt. _____S/O / D/O / W/O

Sh. , the mortgagor, this is to inform that we are holding the original
receipt (chirkut) duly discharged by the mortgagor in our favour with us.

It is requested that after the completion of the registration formalities the original title
deed be either delivered/ given directly to Punjab Gramin Bank, BO or to
any other person so authorised by the bank in this regard and possessing the original
receipt (chirkut) issued by your office.

Branch Manager
BO:

270
 ANNEXURE XXVIII

DETAILS OF ACCOUNTS WHERE EM IS CREATED BASED ON CERTIFIED COPY OF TITLE DEED AND RECEIPTS
(CHIRKUT) ISSUED BY OFFICE OF SUB-REGISTRAR FOR THE QUARTER ENDED
BO/ RO:
(Rs. In lakhs)
Sl. Name of the Sanctioning Nature Limit Balance Whether Date of Date by Remarks
No. borrower authority of sanctioned outstanding primary/ creation which the (Details
facility collateral of EM original of follow
title is up with
expected Sub-
to be Registrar
received Office)
1 2 3 4 5 6 7 8 9 10

Branch Manager/Regional Manager

271
 ANNEXURE XXIX

NARRATIONS IN THE TITLE DEED REGISTER

i) “Deposited by Shri _________________ the receipt issued by Registrar of

Assurances in connection with the registration of ____________ deed dated
________________ alongwith the certified copy of the said deed and other title deeds
mentioned above. When making the deposit, Shri __________________stated that he
did so with the intent to create security by way of equitable mortgage in respect of land
together with all buildings, super-structure, plant and machinery constructed or to be
constructed or installed or to be installed, present and future, and/or the properties
covered thereby situated at in favour of the Bank to secure
repayment of advances made or to be made by the Bank to by way of ____________
______________________________not exceeding Rs. __________________ and for all
other indebtedness and liability whatsoever, besides interest, costs and other charges”.

ii) In the column relating to description of title deeds in the title deed register, the receipt
given by the Registrar of Assurances and the certified copy of the deed in
connection with which the above receipt is given, be detailed besides giving the details
of the other title deeds deposited.

iii) After receipt of the registered documents from the Registrar office the fact of receipt
and details of title deed be narrated in the remarks column as under:-

"Received on from *Registrar office, /Mortgagor, the

deed executed on favouring ,
bearing Registration No.________________.

*Delete what is inapplicable

MANAGER"

272
 ANNEXURE XXX

TITLE DEED MOVEMENT REGISTER

Name of the Party Nature of Details of Purpose for Name & signatures Date on Manager’s Remarks
with Full Address Account, A/C Title Deed which Title Deed of the Official to which Signature
No. & Limit taken out is to be Taken whom Title Deed is Title with Date
with Date & Out handed over Deed has
Authority been
received
back
1. 2. 3. 4. 5. 6. 7. 8.

273
CHAPTER 8
PROJECT APPRAISAL

BOOK OF INSTRUCTIONS ON LOANS

274
1
 CHAPTER – 8

PROJECT APPRAISAL

Effectiveness of Credit Management in the bank is highlighted by the quality of

its loan portfolio. Every Bank is striving hard to ensure that its credit portfolio is
healthy and that Non Performing Assets are kept at lowest possible level, as both of
these factors have direct impact on its profitability. In the present scenario efficient
project appraisal has assumed a great importance as it can check and prevent
induction of weak accounts to our loan portfolio. All possible steps need to be taken
to strengthen pre sanction appraisal as always “Prevention is Better than Cure”.
With the opening up of the economy rapid changes are taking place in the
technology and financial sector exposing banks to greater risks, which can be broadly
classified as under:

- Industry Risks: Government regulations and policies, availability of

infrastructure facilities, Industry Rating, Industry Scenario & Outlook,
Technology Upgradation, availability of inputs, product obsolescence, etc.

- Business Risks: Operating efficiency, competition faced from the units

engaged in similar products, demand and supply position, cost of labour, cost
of raw material and other inputs like water and electricity, pricing of product,
surplus available, marketing, etc.

- Management Risks: background, integrity and market standing/ reputation of

promoters, organisational set up and management hierarchy,
expertise/competence of persons holding key position in the organisation,
delegation and decentralisation of authority, achievement of targets, track record
in execution of projects, track record in debt repayment, track record in industrial
relations, etc.

- Financial Risks: Financial strength/standing of the promoters, reliability and

reasonableness of projections, past financial performance, reliability of
operational data and financial ratios, adequacy of provisioning for bad debts,
qualifying remarks of auditors/inspectors etc.

1.2 In light of the foregoing risks, the banks appraisal methodology should keep
pace with ever changing economic environment. The appraisal system aims to
determine the credit needs/requirements of the borrower taking into account the
financial resources of the client. The end objective of the appraisal system is to
ensure that there is no under - financing or over - financing.

2. Following are the aspects, which need to be scrutinised and analysed while
appraising:

275
A MARKET (DEMAND & POTENTIAL)

The market demand and potential is to be examined for each product item and
its variants/substitutes by taking into account the selling price of the products to be
marketed vis-a-vis prices of the competing products/substitutes, discount structure,
arrangement made for after sale service, competitors' status and their level of
operation with regard to production and products and distribution channels being
used etc. Critical analysis is required regarding size of the market for the product(s)
both local and export, based on the present and expected future demand in
relation to supply position of similar products and availability of the other substitutes
as also consumer preferences, practices, attitudes, requirements etc. Further, the buy-
back arrangements under the foreign collaboration, if any, and influence of Government
policies also needs to be considered for projecting the demand. Competition from
imported goods, Government Import Policy and Import duty structure also need to be
evaluated.

B TECHNICAL ASPECTS

In a dynamic market, the product, its variants and the product-mix proposed
to be manufactured in terms of its quality, quantity, value, application and current
taste/trend requires thorough investigation.

i) Location and Site

Based on the assessment of factors of production, markets, Govt. policies and

other factors, Location (which means the broad area) and Site (which signifies specific
plot of land) selected for the Unit with its advantages and disadvantages, if any,
should be such that overall cost is minimised. It is to be seen that site selected
has adequate availability of infrastructure facilities viz. Power, Water, Transport,
Communication, state of information technology etc. and is in agreement with the
Govt. policies. The adequacy of size of land and building for carrying out its
present/proposed activity with enough scope for accommodating future expansion
needs to be judged.

ii) Raw Material

The cost of essential/major raw materials and consumables required their past
and future price trends, quality/properties, their availability on a regular basis,
transportation charges, Govt. policies regarding regulation of supplies and prices
require to be examined in detail. Further, cost of indigenous and imported raw
material, firm arrangements for procurement of the same etc. need to be
assessed.

iii) Plant & Machinery, Plant Capacity and Manufacturing Process

The selection of Plant and Machinery proposed to be acquired whether

indigenous or imported has to be in agreement with required plant capacity,
principal inputs, investment outlay and production cost as also with the machinery
and equipment already installed in an existing unit, while for the new unit it is to be
276
examined whether these are of proven technology as to its performance. The
technology used should be latest and cost effective enabling the unit to compete in
the market. Purchase of reconditioned/old machinery is to be dealt in terms of laid
down guidelines. Compatibility of plant and machinery, particularly, in respect of
imported technology with quality of raw material is to be kept in view. Also plant and
machinery and other equipments needed for various utility services, their supply
position, specification, price and performance as also suppliers' credentials, and in
case of collaboration, collaborators' present and future support requires critical
analysis. Plant capacity and the concept of economic size has a major bearing on the
present and future plans of the entrepreneur(s) and should be related to the
availability of raw material, product demand, product price and technology.

The selected process of manufacturing indicating the adequacy, availability

and suitability of technology to be used alongwith plant capacity, manufacturing
process needs to studied in detail with capacities at various stages of production
being such that it facilitates optimum utilisation and ensures future expansion/
debottlenecking, as and when required. It is also to be ensured that arrangements are
made for inspection at intermediate/final stages of production for ensuring quality of
goods on successful commencement of production and completion, wherever
required.

Many times TEV studies carried out for Project Lending by nationalized
banks, appraising institutions, consultancy organizations and other institutions are
received by the Bank. For vetting of projects appraised by such institutions,
guidelines as advised vide L&A Circular No. 76 dated 30.06.2014 & subsequent
circulars in this regard should be referred to ensure uniform approach.

C) FINANCIAL ASPECTS

The aspects which need to be analysed under this head should include cost
of project, means of financing, cost of production, break-even analysis, financial
statements as also profitability/funds flow projections, financial ratios, sensitivity
analysis which are discussed as under:

I) Cost of Project & Means of Financing

i) The major cost components of any project are land and building including
transfer, registration and development charges as also plant and machinery,
equipment for auxiliary services, including transportation, insurance, duty, clearing,
loading and unloading charges etc. It also involves consultancy and know-how
expenses which are payable to foreign collaborators or consultants who are imparting
the technical know-how. Recurring annual royalty payment is not reflected under this
head but is accounted for under the profitability statements. Further, preliminary
expenses, such as, cost of incorporation of the Company, its registration, preparation
of feasibility report, market surveys, pre-operative expenses like salary, travelling,
startup expenses, mortgage expenses incurred before commencement of commercial
production also form part of cost of project. Also included in it are capital issue
expenses which can be in the form of brokerage, commission, advertisement,
printing, stationery etc. Finally, provisions for contingencies to meet any unforeseen

277
expenses, such as, price escalation or any other expense which have been
inadvertently omitted like margin for working capital requirements required to
complete the production cycle, interest during construction period, etc. are also
part of capital cost of project. It is to be ensured while appraising the project that
cost and various estimates given are realistic and there is no under/over
estimation. Further, these cost components should be supported by proper
quotations, specifications and justifications of land, machinery and know-how
expenses etc.

ii) Besides Bank’s loan, the project cost is normally financed by bringing capital
by the promoters and shareholders in the form of equity, debentures, unsecured long
term loans and deposits raised from friends and relatives which are not repayable
till repayment of Bank's loan. Resources are raised for financing project by raising
term loans from Institutions/Banks which are repayable over a period of time,
deferred term credits secured from suppliers of machinery which are repayable in
instalments over a period of time. The above is an illustrative list, as the promoters
have now started raising funds through Euro-issues, Foreign Currency loans,
premium on capital issues, etc. which are sometimes comparatively cheap means of
finance. Subsidies and development loans provided by the Central/State Government
in notified backward districts to attract entrepreneurs are also means of financing a
project. It is to be ascertained that requirement of finance has been properly tied-up
for unhindered implementation of a project. The financing structure accepted must
be in consonance with generally accepted levels alongwith adequate Promoters'
stake. The resourcefulness, willingness and capacity of promoter to contribute the
same has also to be investigated.

iii) In case of project finance, the promoter/borrower may bring in upfront his
contribution (other than funds to be provided through internal generation) and the
branches should commence its disbursement after the stipulated funds are brought
in by the promoter/borrower. A condition to this effect should be stipulated by the
sanctioning authority in case of project finance, on case to case basis depending
upon the resourcefulness and capacity of the promoter to contribute the same. It
should be ensured that at any point of time, the promoter’s contribution should not
be less than the proportionate share.

II) Profitability Statement

The profitability statement which is also known as `Income and Expenditure

Statement' is prepared after considering the net sales figure and details of direct
costs/expenses relating to raw material, wages, power, fuel, consumable stores/spares
and other manufacturing expenses to arrive at a figure of gross profit. Thereafter, all
other expenses like salaries, office expenses, packing, selling/distribution, interest,
depreciation and any other overhead expenses and taxes are taken into account
to arrive at the figure of net profit. The projections of profit/loss are prepared for a
period covering the repayment of term loans. The economic appraisal includes
scrutinizing all the items of cost, and examining the assumptions, if any, to ensure
that these are realistic and achievable. There should not be any optimism or
pessimism in working out profitability projections since even a little change in the
product-mix from non- remunerative to remunerative or vice-versa can distort the
picture. While preparing profitability projections, the past trends of performance in
278
an industry and other environmental factors influencing the cost and revenue items
should also be considered objectively.

Generally speaking, a unit may be considered as financially viable,

progressive and efficient if it is able to earn enough profits not only to service its
debts timely but also for future development/growth.

III) Break-Even Analysis

Analysis of break-even point of a business enterprise would help in knowing

the level of output and sales at which the business enterprise just breaks even i.e.
there is neither profit nor loss. A business earns profit if it operates at a level
higher than the break-even level or break-even point. If, on the other hand,
production is below this level, the business would incur loss. The break-even point in
an algebraic equation can be put as under:

Break-even point = Total Fixed Cost

(Volume or Units) (Sales price _ (Variable Cost
per unit) per unit)

Break-even point = Total Fixed Cost x Sales .

(Sales in rupees) (Sales) - (Variable Costs)

The fixed costs include all those costs which tend to remain the same upto a
certain level of production while variable costs are those costs which tend to
change in proportion with the volume of production. As regards unit sales price, it is
generally the same for all levels of output.

The break-even analysis can help in making vital decisions relating to

fixation of selling price, make or buy decision, maximising production of the item
giving higher contribution etc. Further, the break-even analysis can help in
understanding the impact of important cost factors, such as, power, raw material,
labour, etc. and optimising product-mix to improve project profitability.

IV) Fund-Flow Statement

A fund-flow statement is often described as a ‘Statement of Movement of

Funds’ or ‘where got: where gone statement’. It is derived by comparing the
successive balance sheets on two specified dates and finding out the net changes in
the various items appearing in the balance sheets.

A critical analysis of the statement shows the various changes in sources and
applications (uses) of funds to ultimately give the position of net funds available with
the business for repayment of the loans. A projected Fund Flow Statement helps in
answering the under mentioned points.

- How much funds will be generated by internal operations/external sources?

- How the funds during the period are proposed to be deployed?

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- Is the business likely to face liquidity problems?
V) Balance Sheet Projections

The financial appraisal also includes study of projected balance sheet which
gives the position of assets and liabilities of a unit at a particular future date. In
other words, the statement helps to analyse as to what an enterprise owns and
what it owes at a particular point of time.

An appraisal of the projected balance sheet data of the unit would be

concerned with whether the projections are realistic looking to various aspects
relating to the same industry.

VI) Financial Ratios

While analysing the financial aspects of project, it would be advisable to

analyse the important financial ratios over a period of time as it may tell us a lot
about a unit's liquidity position, managements' stake in the business, capacity to
service the debts etc. The financial ratios which are considered important are
discussed as under:

i) Debt-Equity Ratio = Debt (long Term Liabilities)

Equity (Share capital, free reserves,
Premium on shares, development rebate
reserves, etc. after adjusting loss balance)

RBI has advised that banks in their own interest should have a clear policy duly
approved by Board regarding Debt Equity Ratio (DER) and the infusion of
equity/funds by promoters should be such that the stipulated level of DER is
maintained at all times. Further, a funding sequence may be adopted so that the
possibility of equity funding by the banks is obviated.

The level of DER varies from case to case depending upon the nature of
project, promoters’ strength, availability of collateral securities etc. apart from the type
of industry. In capital intensive industries involving large capital investment, DER is
normally higher as compared to the other industries.

Keeping in view the spirit of RBI guidelines, Board has approved the desired
level of DER for project financing under different industries and powers vested with
various authorities to relax the same as under:

Level of Competent Authority to relax DER

DER**

*Large Projects - HOCAC I may relax upto 3.00:1

Power - independent power 2.33:1 - HOCAC II/ HOCAC III may relax
producing plants (Thermal, upto 4.00:1
Hydro, Gas based) - MC to have full powers

Iron & Steel 2.25:1 - HOCAC I may relax upto 2.75:1

- HOCAC II/ HOCAC III may relax
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 upto 3.50:1
- MC to have full powers

Infrastructure (excl. power) - HOCAC I may relax upto 2.50:1

and capital intensive projects 2.00:1 - HOCAC II/ HOCAC III may relax
not specified otherwise upto 3.50:1
- MC to have full powers

Real Estate - HOCAC I may relax upto 2.50:1

- HOCAC II/ HOCAC III may relax
1.75:1 upto 3.50:1
- MC to have full powers
Mid/small projects - COCAC may relax upto 2.50:1
No distinction for various - HOCAC I may relax upto 3.00:1
industries/ segments for this 2:1 - HOCAC II/ HOCAC III may relax
category as projects financing upto 4.00:1
normally falls under the Large - MC to have full powers
Projects category

* Projects with capital cost of 100 crore & above

** Relaxation in desired level of DER upto 0.50 may be permitted in cases
involving latest technology
Net Profit (After Taxes) + Annual
interest on long term debt +
ii) Debt-Service Coverage = Depreciation .
Ratio Annual interest on long term debt +
Amount of instalments of principal
payable during the year.

The ratio of 1.5 to 2 is considered reasonable. A very high ratio may

indicate the need for lower moratorium period/repayment of loan in a shorter
schedule.

This ratio provides a measure of the ability of an enterprise to service its

debts i.e. `interest' and `principal repayment' besides indicating the margin of
safety. The ratio may vary from industry to industry but has to be viewed with
circumspection when it is less than 1.5.

Tangible Net Worth (Paid up

Capital + Reserves and
iii) Tangible Net Worth = Surplus - Intangible Assets) .
Outside Liabilities Ratio Total Outside Liabilities
(Total Liability-Net Worth)

This ratio gives a view of borrower's capital structure. If the ratio shows a rising
trend, it indicates that the borrower is relying more on his own funds and less on
outside funds and vice versa.
Operating Profit *
iv) Profit-Sales Ratio = Sales

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* (Before Taxes and excluding Income from other Sources)

This ratio gives the margin available after meeting cost of manufacturing. It
provides a yardstick to measure the efficiency of production and margin on sales
price i.e. the pricing structure.

v) Debt to Fixed Asset = Long Term Debt .

Ratio Fixed Assets

This ratio should be less than one in most industries because a portion of fixed
assets must be financed with equity. A ratio of less than one offers greater cushion for
the bank. A complement to Debt to Fixed Asset Ratio is to compare equity to fixed
assets.

vi) Current Ratio = Current Assets

Current Liabilities

Higher the ratio greater the short term liquidity. This ratio is indicative of short
term financial position of a business enterprise. It provides margin as well as it is
measure of the business enterprise to pay-off the current liabilities as they mature and
its capacity to withstand sudden reverses by the strength of its liquid position. Ratio
analysis gives indications; their interpretation, however, has to be made with reference
to overall tendencies and parameters in relation to the project.

viii) Internal Rate of Return (IRR)

IRR is that rate of discount which makes the discounted value of the net cash
flow from a project just equal to the amount which has to be invested to obtain that
net cash flow. In other words, IRR is that rate of discount which gives the project an
NPV equal to zero and cost benefit ratio equal to one.

ix) Special Purpose Vehicle (SPV)

SPV is an entity formed for a single, well defined and narrow purpose.
Technically SPV is a company and has to follow rules of the formation of company as
laid down in the Companies Act. It is an artificial person and has all the attributes of
a legal person. Unlike Companies, the scope of operation in SPV is limited and
focused. The memorandum of association in case of SPV is quite narrow and is
primarily to provide comfort to the lenders who are concerned about their investment.
SPV must have promoters or sponsors and is normally subject to the fewer risks
than the parent company or the sponsors. The SPV also allows securitization of
assets without disturbing the managerial relationship. Under the arrangement, any
predictable income stream generated by secure assets can be securitized.

VII) Induction of promoters’ contribution

In order to mitigate the equity funding risk, a need is felt to prescribe

guidelines with regard to the timing of induction of promoters’ contribution as
under:

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i) Officials upto scale-III level may consider sanction of TL/Project loan within their
vested powers with the pre-condition that at least 40% promoters’ contribution should
be brought upfront and balance to be brought pro-rata with the disbursement of the
term loan.

ii) Officials in the grade of CM and AGM may however, consider sanction of
TL/Project Loan falling within their vested powers with stipulation that minimum
30% promoters' contribution to be brought upfront and balance to be brought pro-
rata with the disbursement of the term loan.

iii) DGMs LCB, COCAC & HOCAC I may consider sanction of TL/Project Loan
with minimum 25% promoters’ contribution to be brought upfront and balance to be
brought pro-rata with the disbursement of the term loan.

iv) However, HOCAC II & above will have full powers to give relaxation in this
regard on merits.

v) While allowing the funding sequences by the promoters as mentioned at Sl. No

(i) to (iv) above, the sanctioning authority must fully satisfy itself about the following
to contain the possibility of equity funding risk :

 The borrower has the capacity to raise fresh capital either introducing its own
fund or through any other permissible mode of raising capital such as issuing IPO as
equity.

 There is enough cushion between the paid-up capital and authorised capital of
the company, permitting raising of required funds.

 Wherever the internal generation of funds is indicated as source of promoter’s

contribution, the required surplus funds are actually available from internal
generation after all the existing repayment obligations are met.

A condition to the aforesaid effect be stipulated in the terms of sanction by the

sanctioning authority. Further, before actually disbursing the loan, the Branch Head
must ensure that the borrowing concern has contributed upfront their margin as per
the terms of sanction and at each stage of disbursement, the promoters must
bring their contribution pro-rata to ensure that the upfront contribution brought in
terms of sanction is always available over and above the pro-rata contribution.

It may be mentioned that the aforesaid stipulation regarding minimum DER and
upfront promoters’ contribution will not be applicable in case of accounts restructured
under bank’s policy for restructuring, CDR, DRM for SMEs and project financing to
micro and small enterprises.

VIII) Sensitivity Analysis

The sensitivity analysis is carried out by the bank in order to evaluate

capacity of the project to absorb shocks due to adverse movement in prices/
some other adverse developments and sustain financial viability. The analysis is

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carried out to capture the decline in revenue of the project assuming adverse
change in values of various parameters/ factors. While preparing and appraising
projects certain assumptions are made in respect of certain critical/sensitive variables
like selling price/cost price per unit of production, product-mix, plant capacity
utilisation, sales etc. which are assigned a `VALUE' after estimating the range of
variation of such variables. The `VALUE' so assumed and taken into consideration
for arriving at the profitability projections is the `MOST LIKELY VALUE'. Sensitivity
Analysis is a systematic approach to reduce the uncertainties caused by such
assumptions made.

The Sensitivity Analysis helps in arriving at profitability of the project wherein

critical or sensitive elements are identified which are assigned different values and
the values assigned are both optimistic and pessimistic such as increasing or reducing
the sale price/sale volume, increasing or reducing the cost of inputs etc. and then the
project viability is ascertained. The critical variables can then be thoroughly
examined by generally selecting the pessimistic options so as to make possible
improvements in the project and make it operational on viable lines even in the
adverse circumstances.

The viability of a project is dependent on various factors which include

selling price, cost of raw materials, cost of finance, availability of critical inputs and
dependence on market like buyer/seller market, other key technical parameters
etc. While preparing the projected statements, the values of these parameters are
arrived at on the basis of certain reasonable assumptions. While analyzing the
projects, the values of the key parameters and the underlying assumptions are
critically examined for financial viability of the project and are also, subjected to
sensitivity analysis which captures the effect of change in values of key parameters
on the profitability of the project.

In the absence of any defined factors and its values for carrying out the
sensitivity analysis, it has been decided that a common 5% sensitivity factor on sale
price/cost price of major raw materials should be applied in appraisals of all the
projects irrespective of the industry. However, 10% sensitivity factor may be applied
in highly volatile industries by assessing the expected volatility in sale price/ cost
price of major raw materials on case to case basis.

IX) Escrow/Trust & Retention arrangement

The cash flows of the SPV are captured by way of TRA arrangement.
Such an arrangement provides for appropriation of all cash flows of the company by
the independent agent (acting on behalf of security trustee). This is then allocated
in a pre-determined manner to various requirements including debt servicing and it
is only after all requirements are met that the residual cash flow is available to the
project company. Thus, the lender would have the security of cash flows in addition
to the assets of the company.

X) Debt Service Reserve Account (DSRA)

In order to ensure regular payment of interest plus instalment, DSRA equivalent

to the instalment plus interest of some specified period is maintained as a cushion.
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The funds in DSRA are normally created out of the cash flow surplus left after the
servicing of debt and operation & maintenance expenses. The sanctioning authority
should stipulate a condition to the effect that the surplus funds will not be released
to the borrower till the minimum prescribed balance is maintained in the DSRA
account.

The amount in the DSRA would be utilized only in case of shortfall in the cash
flows for meeting debt service requirement from time to time. No payments of
dividend to equity shareholders, interest or repayment to shareholders, if any, is to be
made untill the required appropriation/replenishment are made to DSRA to the
satisfaction of the lenders. In other words withdrawal may be permitted only with
the prior permission of the lenders.

D) MANAGEMENT AND ORGANISATION

Appraisal of project would not be complete till it throws enough light on the
person(s) behind the project i.e. management and organisation of the unit. It is seen
that some projects may fail not because these are not viable but because of the
ineffectiveness of the management and the organisation in controlling various
functions like production, marketing, finance, personnel, etc. The appraisal report
should highlight the strengths and weaknesses of the management by
commenting on the background, qualifications, experience, capability of the
promoter(s), key management personnel, effectiveness of the internal control systems,
relation with labour, working conditions, wage structure, and the other assigned
essential functions. In case the promoter(s) have interest, in other concerns as
Proprietor or Partner or Director, the appraisal report should also comment on their
performance in such concerns.

A business is more vulnerable if decision making in all the functional areas rests
with a particular person, in other words, `one man show'. Further, the
management and the organisation should be conducive to the size and type of
business. In case it is not so, it should be ensured that professional managers are
inducted to strengthen the organisation.
3. Guidelines for Financing of Infrastructure Projects

 Definition

As per RBI notification, a credit facility extended by lenders (i.e. banks and
select All India Financial Institutions) to a borrower for exposure in the following
infrastructure sub-sectors will qualify as ‘infrastructure lending’:

S. Category Infrastructure sub-sectors

No.

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1. Transport i. Roads and bridges
ii. Ports1
iii. Inland Waterways
iv. Airport
v. Railway Track, tunnels, viaducts, bridges2
vi. Urban Public Transport (except rolling stock in case
of urban road transport)
2. Energy i. Electricity Generation
ii. Electricity Transmission
iii. Electricity Distribution
iv. Oil pipelines
v. Oil/Gas/Liquefied Natural Gas (LNG) storage
facility3
vi. Gas pipelines4
3. Water & Sanitation i. Solid Waste Management
ii. Water supply pipelines
iii. Water treatment plants
iv. Sewage collection, treatment and disposal
system
v. Irrigation (dams, channels, embankments etc)
vi. Storm Water Drainage System
vii. Slurry Pipelines
4. Communication i. Telecommunication (Fixed network)5
ii. Telecommunication towers
iii. Telecommunication & Telecom Services
5. Social and i. Education Institutions (capital stock)
Commercial ii. Hospitals (capital stock)6
Infrastructure iii. Three-star or higher category classified hotels
located outside cities with population of more than 1
million
iv. Common infrastructure for industrial parks, SEZ,
tourism facilities and agriculture markets
v. Fertilizer (Capital investment)
vi. Post harvest storage infrastructure for
agriculture and horticultural produce including cold
storage
vii. Terminal markets
viii. Soil-testing laboratories
ix. Cold Chain7
x. Hotels with project cost8 of more than 200
Crores each in any place in India and of any star
rating
xi. Convention Centres with project cost8 of more
than 300 Crores
1. Includes Capital Dredging
2. Includes supporting terminal infrastructure such as loading/unloading terminals, stations
and buildings
3. Includes strategic storage of crude oil
4. Includes city gas distribution network
5. Includes optic fibre/cable networks which provide broadband / internet
6. Includes Medical Colleges, Para Medical Training Institutes and Diagnostics Centres
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 7. Includes cold room facility for farm level pre-cooling, for preservation or storage of
agriculture and allied produce, marine products and meat.
8. Applicable with effect from 25.11.2013 and available for eligible projects for a period
of three years; eligible costs exclude cost of land and lease charges but include
interest during construction.

 Criteria for Financing

Banks/FIs are free to finance technically feasible, financially viable and bankable
projects undertaken by both public sector and private sector undertakings subject to
the following conditions:

(i) The amount sanctioned should be within the overall ceiling of the prudential
exposure norms prescribed by RBI for infrastructure financing.

(ii) Banks/FIs should have the requisite expertise for appraising technical feasibility,
financial viability and bankability of projects, with particular reference to the risk
analysis and sensitivity analysis.

(iii) In respect of projects undertaken by public sector units, term loans may be
sanctioned only for corporate entities (i.e. public sector undertakings registered
under Companies Act or a Corporation established under the relevant statute).
Further, such term loans 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. While such
public sector units may include Special Purpose Vehicles (SPVs) registered under
the Companies Act set up for financing infrastructure projects, it should be ensured
by banks and financial institutions that these loans/investments are not used for
financing the budget of the State Governments. Whether such financing is done by
way of extending loans or investing in bonds, banks and financial institutions
should undertake due diligence on the viability and bankability of such projects to
ensure that revenue stream from the project is sufficient to take care of the debt
servicing obligations and that the repayment/servicing of debt is not out of budgetary
resources. Further, in the case of financing SPVs, banks and financial institutions
should ensure that the funding proposals are for specific monitorable projects. It
has been observed that some banks have extended financial assistance to State
PSUs which is not in accordance with the above norms. Banks/FIs are, therefore,
advised to follow the above instructions scrupulously, even while making
investment in bonds of sick State PSUs as part of the rehabilitation effort.

(iv) Banks may also lend to SPVs in the private sector, registered under the
Companies Act for directly undertaking infrastructure projects which are financially
viable and not for acting as mere financial intermediaries. Banks may ensure that the
bankruptcy or financial difficulties of the parent/ sponsor should not affect the
financial health of the SPV.

 Types of Financing by Banks

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(i) In order to meet financial requirements of infrastructure projects, banks may
extend credit facility by way of working capital finance, term loan, project loan,
subscription to bonds and debentures/ preference shares/ equity shares acquired
as a part of the project finance package which is treated as "deemed advance” and
any other form of funded or non-funded facility.

(ii) Take-out Financing

Takeout finance is the product emerging in the context of the funding of long-
term infrastructure projects. Under this arrangement, the institution/the bank financing
infrastructure projects will have an arrangement with any financial institution for
transferring to the latter the outstanding in respect of such financing in their books on
a predetermined basis. In view of the time-lag involved in taking-over, the
possibility of a default in the meantime cannot be ruled out. The norms of asset
classification will have to be followed by the concerned bank/financial institution in
whose books the account stands as balance sheet item as on the relevant date. If
the lending institution observes that the asset has turned NPA on the basis of the
record of recovery, it should be classified accordingly. The lending institution should
not recognise income on accrual basis and account for the same only when it is
paid by the borrower/ taking over institution (if the arrangement so provides). The
lending institution should also make provisions against any asset turning into NPA
pending its take over by taking over institution. As and when the asset is taken
over by the taking over institution, the corresponding provisions could be reversed.
However, the taking over institution, on taking over such assets, should make
provisions treating the account as NPA from the actual date of it becoming NPA even
though the account was not in its books as on that date.

(iii) Flexible Structuring of Long Term Project Loans to Infrastructure and

Core Industries

Normally, Banks have been restricting their finance for Infrastructure and core
industries projects having longer gestation periods up to a maximum period of 12-
15 years owing to asset-liability mismatch issues. After factoring in the initial
construction period and repayment moratorium, the repayment of the bank loan is
compressed to a shorter period of 10-12 years (with resultant higher loan
instalments), which not only strains the viability of the project, but also constrains the
ability of promoters to generate fresh equity out of internal generation for further
investments.

In order to ensure stress free repayment of such long gestation loans by allowing
longer repayment tenor, RBI has come out with guidelines on Flexible Structuring of
Long Term Project Loans to Infrastructure and Core Industries.

The objective of the scheme is to ensure stress free repayment of such long
gestation loans, by linking their repayment tenor to the period when cash flows are
generated by the asset.

Only term loans to infrastructure projects as defined under the Hormonised Master
288
List of Infrastructure of RBI issued from time to time and projects in core industries
sector, included in the Index of Eight Core Industries (base: 2004-05) published by
the Ministry of Commerce and Industry, Government of India, (viz., coal, crude oil,
natural gas, petroleum refinery products, fertilisers, steel (Alloy + Non Alloy), cement
and electricity - some of these sectors such as fertilisers, electricity generation,
distribution and transmission, etc. are also included in the Master List of
Infrastructure sub-sectors) shall be eligible under the scheme.

The long term project loans should be allowed to the projects having longer
gestation period.

(The existing guidelines on ‘take-out finance’ and ‘takeover of borrowal accounts’ will
cease to be applicable on any loan to infrastructure and core industries projects
sanctioned under this scheme.)

(iv) VIABILITY GAP FUNDING (VGF)

Infrastructure is an input to a wide range of industries and as such, an important

driver of long-term growth. However, due to long gestation periods and the inability
to increase user charges to commercial levels, these projects usually fall short of
financial viability.

Government of India, as such has notified a scheme for Viability Gap Funding
(VGF) to infrastructure projects, under which grant support one-time or deferred is
made available for certain PPP Projects by Govt. of India, with the objective of making
the project commercially viable.

It has advised that the banks should attach utmost importance to adhering to the
necessary conditions laid down by the Government for drawal of VGF.

(v) Inter-institutional Guarantees

Banks are permitted to issue guarantees favouring other lending institutions in
respect of infrastructure projects, provided the bank issuing the guarantee takes a
funded share in the project at least to the extent of 5 per cent of the project cost and
undertakes normal credit appraisal, monitoring and follow-up of the project.

 Appraisal

(i) In respect of financing of infrastructure projects undertaken by Government

owned entities, banks/Financial Institutions should undertake due diligence on the
viability of the projects. Banks should ensure that the individual components of
financing and returns on the project are well defined and assessed. State
Government guarantees may not be taken as a substitute for satisfactory credit
appraisal and such appraisal requirements should not be diluted on the basis of any
reported arrangement with the Reserve Bank of India or any bank for regular
standing instructions/periodic payment instructions for servicing the loans/bonds.
(ii) Infrastructure projects are often financed through Special Purpose Vehicles.
Financing of these projects would, therefore, call for special appraisal skills on the
part of lending agencies. Identification of various project risks, evaluation of risk
289
mitigation through appraisal of project contracts and evaluation of creditworthiness of
the contracting entities and their abilities to fulfill contractual obligations will be an
integral part of the appraisal exercise. In this connection, banks/FIs may consider
constituting appropriate screening committees/special cells for appraisal of credit
proposals and monitoring the progress/performance of the projects. Often, the size of
the funding requirement would necessitate joint financing by banks/FIs or financing
by more than one bank under consortium or syndication arrangements. In such
cases, participating banks/ FIs may, for the purpose of their own assessment, refer
to the appraisal report prepared by the lead bank/FI or have the project appraised
jointly.

E) GENERAL GUIDELINES

Appraisal report should critically analyse and comment on various important

functional areas like technical, marketing, economic, financial, management etc. and
comment on their strengths and weaknesses, if any. The report should answer
objectively various questions which may arise in the mind like what, why, where,
when, how and who relating to all the above functional areas and should be
conclusive as far as possible and the assumptions should be realistic. The report
should reflect the three cardinal rules in its contents:
A.B.C. which stand for Accuracy, Brevity and Clarity, so that it proves useful and
helpful in taking decision as to whether project is technically feasible and
economically viable and in case it is viable what is the amount of loan required from
the bank/ financial institution for its implementation. The guidelines are indicative
and not exhaustive. Care should be exercised to cover and examine all critical
aspects, which may affect the project in short/long term perspective.

To judge whether the project is viable, i.e. it can generate adequate surplus for
servicing its debts within a reasonable period of time and still left with some funds for
future development. This involves taking an over-all view to analyse the strengths and
weaknesses of the project. It should also be analysed to see whether the
management and organisation can prove effective for successful implementation of
the project.

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 APPRAISAL OF PROJECT - A CHECK LIST

An indicative list of issues which need to be looked into while appraising a project is
given below:

MARKETING

1) Reasonable demand projections keeping in view the size of the market,

consumption level, supply position, export potential, import substitute, etc.

2) Competitors' status and their level of operation with regard to production and
sales.

3) Technology advancement/Foreign Collaborator's Status/Buy-back arrangements

etc.

4) Marketing policies in practice, for promotion of product(s) and distribution

channels being used. Expenses on marketing are done so as to popularize the
product.

5) Local/foreign consumer preferences, practices adopted, attitudes, requirements

etc.

6) Influence of Govt. policies, imports and exports in terms of quantity and value.

7) Marketing professionals employed, their competence, knowledge and experience.

TECHNICAL

1) Product and its life cycle, product-mix and their application.

2) Location, its advantages/disadvantages, availability of infrastructural

facilities, Govt. concessions, if any, available there.

3) Plant and machinery with suppliers' credentials and capacity attainable under
normal working condition.

4) Process of manufacturing indicating the choice of technology, position with

regard to its commercialisation and availability.

5) Plant and machinery - its availability, specification, price, performance.

6) Govt. clearance/licence, if any, required e.g. pollution control certificate,

changes in regulatory policies of local/State/Central Govt. etc. activity is prohibitive
or not, location of unit in restrictive area (i.e. near to Residential, Historic
Monuments etc).

7) Labour/Manpower, type of skills required and its availability position in the area.
FINANCIAL

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1) Total project cost and how it is being funded/financed.

2) Contingencies and inflation, duly factored in project cost.

3) Profitability projections based on realistic capacity utilisation and sales forecast

with proper justification. Unrealistic/ambitious sales projections without reference to
past performance and justification to be avoided.

4) Break-even analysis, fund flow and cash flow projections.

5) Balance sheet projections should be realistic and based on latest available data.
The components of financial ratios should be subjected to close scrutiny.

6) Aspect of support of parent company, wherever applicable, may be taken into

account.

MANAGERIAL

1) Financial standing and resourcefulness of the management.

2) Qualifications and experience of the promoters and key management personnel.

3) Understanding of the project in all of its aspects - financing pattern,

technical knowledge and marketing programme etc.

4) Internal control systems, delegation of adequate powers and entrusting

responsibility at various levels.

5) Other enterprises, if any, wherein the promoters have the interest and how these
are functioning.

ECONOMIC

1) Impact on increase in level of savings and income distribution in society and

standard of living.
2) Project contribution towards creation and rate of increase of employment
opportunity, achieving self sufficiency etc.

3) Project contribution to the development of the region, its impact on

environment and pollution control.

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 CHAPTEr13
CHAPTER 9
POST SANCTION
SUPERVISION & FOLLOW UP
OF LOANS

BOOK OF INSTRUCTIONS ON LOANS

293
1
 CHAPTER – 9

POST SANCTION SUPERVISION & FOLLOW UP LOANS

1.1 System of supervision and follow up can be defined as the systematic evaluation
of the performance of a borrowal account to ensure that it operates at viable level
and, if problems arise, to suggest practical solutions. It helps in keeping a watch on the
conduct and operational/financial performance of the borrowal accounts. Further, it also
helps in detecting signals/symptoms of sickness and deteriorations, if any, taking place
in the conduct of the account for initiating timely corrective actions to check slippage of
accounts to NPA category.

1.2 The goals and objectives of monitoring may be classified into fundamental and
supplementary goals. Fundamental goals help a bank to ensure safety of funds lent
to an enterprise while, supplementary goals are directed towards keeping abreast of
problems arising out of changes in both the internal and the external environment for
initiating timely corrective actions. Some of the important goals of monitoring are listed
as under:

i) To keep a watch on the project during implementation stage so that time & cost
overruns do not occur.

ii) To ensure that the funds released are utilised for the purpose for which these
have been provided and there is no diversion of such funds.

iii) To evaluate operational and financial results, such as production, sales,

profit/loss, flow of funds, etc. and comparing these with the projections/estimates given
by the borrower at the time of sanction of credit facilities.

iv) To ensure that the terms and conditions as stipulated in the sanction have been
complied with.

v) To monitor operations in the account particularly cash credit facilities which

indicate health of the account.

vi) To obtain market report on the borrower, to gather information like

reputation/financial standing etc.

vii) To detect signals and symptoms of sickness or deterioration taking place in

conduct/performance of the account.

viii) To ensure that the unit's management and organisational set-up is effective.

ix) To keep a check on aspects like accumulation of statutory liabilities, creditors,

debtors, raw-material, stocks-in-process, finished goods, etc.
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x) To ensure charging of applicable rate of interest/penal interest/ commitment
charges as per bank's guidelines.

xi) To keep all the securities mortgaged or hypothecated to the Bank fully insured
against fire and other risks which may be considered necessary. The insurance
policies should be in the joint names of the borrower and the Bank with the agreed Bank
clause and remain in the custody of the Bank

2. System of supervision & monitoring of credit as laid down by the Bank needs to
be meticulously followed by the branches/controlling offices which, inter alia, covers
the following:

2.1 CONVEYING OF SANCTION

After the loan is sanctioned, Branch should communicate the terms and
conditions of sanction to the borrower in a letter as per draft available at Annexure I,
containing therein the details of the facilities sanctioned and respective terms and
conditions. The borrower/s will convey his/their acceptance of the terms and conditions
as per draft letter available at Annexure II. In case of a Company, necessary
resolution authorising the signing official(s) to give such a letter, besides execution of
documents be obtained and kept on record.

2.2 PROFILE OF BORROWERS

Branch should maintain profile of each borrower separately specifically

mentioning complete name, contact address, telephone No., activity of borrowers,
assets of borrowers, guarantors and other obligants, details of primary and collateral
securities. The profile should be updated on quarterly intervals, on an ongoing basis
and preferably be placed as the first page in the file of the borrower. The
controlling authorities and other inspecting officials during their visit to branches should
ensure that profile on borrowers is maintained and updated regularly.

2.3 MAINTENANCE OF LOAN DOCUMENT FILE

In order to maintain safety of loan documents, the branch should ensure

proper paging of all loan documents. The page No. should be legibly written on
upper right side of each paper/document and the files should be kept in orderly
manner. The document files should be kept in fire proof safe and under proper
custody of the Loans Incharge/Incumbent Incharge.

2.4 SYSTEM OF LEGAL COMPLIANCE CERTIFICATE

The branch is required to submit Legal Compliance Certificate to respective

controlling office, on the prescribed format of the Bank for credit limit of 10 lacs &
above (fund based & non fund based) in respect of fresh sanction/ enhancement to
respective controlling offices within 7 days from the end of the month in which the
facilities are disbursed. The certificate is also required to be submitted in case of
renewal of credit limits of 10 lacs & above provided there are changes in the terms
and conditions of the existing sanction. The pending formalities, if any, reported in the
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prescribed format are required to be submitted in subsequent months till all the
formalities are completed. After completing all the formalities, a final ‘NIL’ certificate in
Schedule II of Annexure IV is to be submitted.

2.5 PREVENTIVE MONITORING SYSTEM (PMS)

PMS is a credit monitoring tool which covers a number of signals/ indicators, that
are material for evaluating the conduct or health of a borrowal account and seeks to
measure the performance of the account on the said signals on a continuous basis. Its
focus is on prevention of loan loss by focusing on borrowal accounts showing ‘early
warning’ signs of deterioration.

a) Objectives of PMS

The objective of PMS is to track & evaluate the health of borrowal accounts on a
continuous basis and detect:

➢ Unsatisfactory/adverse signals/indicators at an early stage in a comprehensive

manner.

➢ Thorough probe into reasons behind observed signals and analysis thereof.

➢ Speedy corrective/remedial actions/steps to prevent the account from becoming

NPA as well as to minimize the loan losses.

b) Applicability & Periodicity of PMS

A new score based PMS model based on Behavioral scoring has been
developed, which facilitates in credit management or portfolio processing systems and
is linked to transaction system of the bank. The new automated version of PMS has
been implemented across all the branches, w.e.f 31st March 2014, for all the
borrowal accounts with exposure more than 1 crore.

PMS Report under the new system shall be generated by the branches on monthly
basis. PMS data will be available in the system within 3 days of next month.
Accordingly, the Branches are advised to submit online PMS report, duly accepted by
the Incumbent In-charge in the system within 15 days from the close of the month.

PMS (Old version) which is applicable in case of overseas branches for all borrowers
accounts availing aggregate limit of above 1 crore. PMS should be prepared as on
last date of calendar quarter and submitted by the branches to the controlling offices. [in
the same way as QRS, as indicated below].

c) Composition of PMS (OLD Version) (Applicable in case of

overseas branches only)

Preventive Monitoring System consists of two parts:

i) PMS Index and Rank

PMS Index is a numerical index consisting of various indicators/parameters
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grouped into different sections. Penalty rates (weights) in the form of numerical
values have been assigned to each indicator (parameter) depending upon their
degree of impact on health of an account. The score assigned to any parameter is
stored for last one year at any point of time, which is known as Cumulative score. The
section-wise maximum of cumulative scores is to be summed up to arrive at PMS
Index Score. Incumbents must ensure that scores to all the applicable parameters to an
account are assigned correctly.

Based on PMS Index Scores a scale of 1 to 10 has been devised, which is known as
PMS Ranking Scale. The PMS Rank indicates the state of health of an account. The
lower the PMS Rank, better the health of account and vice-versa.

ii) PMS Report

PMS Report, which has eight parts, describes brief profile of the borrower,
position of accounts, details of signals contributing to PMS Index Score, reasons
behind adverse signals and proposes corrective/ remedial steps with time frame.

d) Composition of NEW PMS

The new PMS system comprises of 3 modules sub divided into 50 parameters.
Each parameter is assigned a specific score and weight for computation of the final
score of the borrower. Based on the parameters, benchmarks and weights, the system
will work out score, cumulative scores, which shall be translated into one of the 5 PMS
Ranks of the borrower. The rank shall be indicative of the status of the borrower as
detailed in the table below:

PMS SCORE PMS RANK PMS INDICATOR

0-25% 1 HEALTHY
>25%-50% 2 SATISFACTORY
>50%-65% 3 EARLY WARNING
>65%-80% 4 WARNING
>80% 5 LIKELY NPA

Once PMS rank is available for three months, PMS rank for each month shall be
based on average score for last three months or current month score, whichever is
higher.

The new PMS report is sub divided into 6 parts, describes Brief Profile of Borrower, Limit
details, PMS Scores, Conduct of account, Compliance of Terms & Conditions, Status of
Project under implementation and Movement of PMS score.

The guidelines issued by HO from time to time on PMS should be meticulously

followed.

2.6 QUARTERLY REVIEW SHEET

Review Sheet is a Quarterly Statement prepared by the branch and submitted

to the sanctioning authority. Primary responsibility for scrutiny/processing of Quarterly

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Review Sheets (QRS) rests with the Sanctioning Authority. It enables the sanctioning
authority to form an opinion about conduct/ position of the account and
operational/financial performance of the Unit. The QRS for the borrowers enjoying
credit limits of 20 lacs & above is to be prepared on the prescribed format PGB-664.
Incumbents must take personal care to ensure that QRS/PMS are properly compiled
and no material information is left out and timely remedial steps are taken, wherever
necessary. Branches should submit the QRS, complete in all respects within 15 days
from the close of quarter, to the sanctioning authority as per procedure explained
below:

a) Review Sheet for Loan Accounts Sanctioned by COCAC & Above

Incumbents shall submit review sheet on the prescribed format for each
borrowal account sanctioned by COCAC & above, as on last day of each quarter. No
Review Sheet is however, to be submitted in respect of the following:

o Advances to the members of staff in respect of housing loan, conveyance loan,

consumer loan and festival loan, etc.
o Non performing advances/sick/rehabilitated accounts. (In such cases, instructions
issued by SAMD, HO should be followed.)
o Advances against insurance policies.

b) Review Sheet for Loan Accounts Sanctioned by Incumbent Incharge

Incumbent Incharge shall prepare review sheet on the prescribed format for
borrowal accounts sanctioned by branch within their own vested powers as on last day
of each quarter. Review Sheet are not required to be prepared under following
circumstances:

- Advances to small borrower(s) upto 25000/-.

- Advances against life policies, Govt. securities & units of UTI.
- Advances against shares, deposits, bullion and jewellery.
- Advances to members of staff
- Non performing advances/sick/rehabilitated accounts. (In such cases, instructions
issued by SAMD, HO should be followed.)

Task at the Regional Office/HO for analysis of QRS/PMS

On receipt/submission of QRS/PMS at the Regional Offices and Head office

these should be properly analysed and early warning signals, if any, be picked up so
that timely action can be taken to maintain proper health of the concerned account.
On receipt/submission of QRS/PMS under Head Office sanction, the same should
be scrutinised on similar lines and any useful information deemed necessary in
addition to what the Branch Manager has stated should be reported to the Credit
Division, Head Office.

After scrutiny of QRS/PMS for a particular quarter/month, the Regional

Manager/Incumbents of Scale-IV should furnish a certificate within two months of close
of the quarter as per Annexure III to Credit Division, HO that QRS/PMS in respect of
all the accounts falling within R O/HO powers have been scrutinised and all the
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accounts are running regular, except those reported in Statement of SMA accounts.
Similar certificates should also be furnished by Incumbents of ELBs/VLBs/MCBs to the
concerned Regional Offices in respect of sanctions within their powers.

At HO, the task relating to scrutiny of QRS/PMS is handled at Credit Division as

per the guidelines issued from time to time.

In case of tea industry, Cash Flow Statement showing month-wise actuals vis-
à-vis projections and stock statements on monthly basis is to be submitted. To
safeguard bank’s interest, physical inspection of stock should be conducted by the
officer/agricultural officer and stocks are to be verified with excise register.

The primary responsibility to ensure regular and prompt submission of the

complete information on the prescribed formats and making meaningful analysis
thereof is of the Incumbent Incharge, while the Circle/Head Office will also be
responsible for overseeing compliance by branches in case of their own sanctions.
Bank's internal inspectors/auditors shall also look into the compliance with this
discipline and give appropriate comments in their reports.

3. FOR SUGAR & TEA INDUSTRY

All working capital facilities are to be reviewed/renewed at least once in a year

or as per terms of sanction. Timely review and renewal of sanctions helps in knowing
about borrowers' performance and his financial position. In this context, the important
guidelines are reiterated for prompt compliance:

a) All working capital loan proposals to be reviewed/renewed at least once in a year.

b) All renewal cases should be diarised at least 4 months in advance and

followed up by Branch/Circle Offices, as the case may be, so that all the sanctions
are renewed in time.

c) Where, for certain exceptional circumstances, a sanction cannot be renewed, a

review note in respect of H.O. sanctions must be submitted before the expiry date of
the sanction. Similarly, in case of other sanctions if renewal is not possible in time, a
review note must be submitted to the sanctioning authority.

d) Risk Rating of the account be got done as per the periodicity mentioned in
Chapter on Risk Management.

4. ÌNSPECTION AND PHYSICAL VERIFICATION OF STOCKS

i) Stocks charged to the Bank by way of pledge/hypothecation in various loan

accounts are required to be inspected and physically checked/verified by the
Incumbents Incharge once in a month or more often, if so required in a particular case
as per terms of sanction of the account.

ii) Monthly inspection/checking may be carried out alternatively by the Branch

Manager and the other Officers. Whereas checking may be entrusted to the other
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Officer as permitted under the instructions, it shall continue to be the personal
responsibility of the Incumbent Incharge to ensure that the checking has been done
in all cases every month or as per stipulations made in the letter of sanction.

iii) During these periodical inspections, the Incumbents Incharge should satisfy
themselves that the security is intact both qualitatively and quantitatively, readily
marketable and has not become old or obsolete or deteriorated in any way. If not,
the facts should be brought to the notice of the higher authorities and instructions
asked for.

Effective steps should be promptly taken for early delivery of the old/obsolete stocks
against due payment or through replacement by adequate fresh stocks.

iv) Stock inspection reports must not be signed as a matter of routine or as mere
formality, but these should be based on inspections actually carried out.

v) Branches should maintain a proper record of periodical inspections in Stock

Inspection Register (PGB 443), indicating whether or not the inspections are being
conducted according to prescribed time schedules.

vi) In order to have a proper control over Bank's advances against hypothecated
securities and uniformity in the procedure, the Incumbents Incharge are advised to
give the following certificate in the relative Hypothecation Statement after conducting
inspection of securities hypothecated to the Bank by a particular unit.

"Securities checked and found in order".

_
(Signature of Checking Officer) (Date)______________________

vii) The Incumbents Incharge will incorporate the following certificate in the "Manager's
Monthly Certificate" being submitted to the Regional Offices:

"Certified that all stocks pledged/hypothecated have been inspected. The

stocks have been correctly valued, fully insured (where necessary) in good
condition and easily saleable. No old stocks are held" (Exceptions are detailed in
the chart attached).

viii) In order to make the inspections more effective and meaningful; the Incumbents
Incharge should keep the following guidelines in view while conducting inspection of
stocks:

a) Inventory of stocks submitted by the borrowers should be thoroughly scrutinised &

checked alongwith the books of the borrowers to ensure that the stocks
hypothecated to the Bank are in accordance with the inventory statement
submitted by the borrower.
b) Unpaid stocks are not to be included in the stock statement except where
netting of sundry creditors has been permitted.
c) The inventories should be submitted by the borrowers at fixed intervals
according to the terms of the sanction i.e. weekly, fortnightly and monthly.
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d) The bales, boxes and bags should be properly stacked in the godowns to ensure
ready verification of quantity of stocks.
e) The value of the stocks should be verified from the invoices and it should be
ensured that the same are properly valued.
f) The parties should exclusively deal with our Bank, wherever stipulated, in terms of
the sanction to guard against availing of double finance.
g) The stocks pledged/hypothecated to the Bank should be got fully insured with
`Bank Clause' and policies held on the records of the Bank. Description of the
goods pledged/ hypothecated and their place of storage should be correctly
mentioned in the policies to avoid any difficulty in the event of making claim from
the insurances company.
h) Drawing Power (DP) should not be allowed on goods received under L/C, unless
such stocks are paid for.
i) No DP should be allowed against goods received for processing from other parties.

5. An Inspection Report of physical inspection/verification of stocks is to be

submitted in the proforma as per PGB-941, in case of all Cash Credit (Hypothecation)
and Packing Credit accounts with limit of 5 lac and above. For accounts below 5 lac,
there is no need to submit this report and the necessary information about inspection
be recorded in the Stock Statement (PGB-938) itself.

6. STOCK AUDIT OF LARGE BORROWAL ACCOUNTS

6.1 Stock Audit includes physical verification of stocks, stores & spares and
correctness of their valuation, evaluating the sundry debtors and creditors, policies of
the borrowers in respect of procurement of raw materials and valuation of inventories,
commenting on registration of charge and insurance of stocks or any other aspect
relating to stock which has bearing on Bank finance. Stock Audit is to be got conducted
annually from an approved firm of Chartered Accountants/Cost Accountants.

6.2 APPLICABILITY

(i) Annual Stock Audit should be got compulsorily done in respect of all borrowals
accounts enjoying Fund Based & Non Fund Based (NFB) working capital limits of
5 crores and above from our Bank. All NFB limits, which are being used for Working
Capital Funding like LC, BG for purchase of goods for sale and BGs for mobilization
Advances are to be included within threshold limit of 5 crore for stock credit, but
Capex LCs, Bid Bond Guarantees etc. need not be included in NFB limits for the
purpose of conducting stock audit.

(ii) In case of borrowers enjoying fund based working capital limits less than 5 Crore,
Stock Audit may also be got done in the following emergent cases and/or where
bank’s interests demand. However, for modalities of stock audit prior concurrence of
Circle head be obtained.

a) Where there are overdues in term loans or other accounts.

b) Where there is evidence of pressure on the borrower from the creditors.

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c) Where the stocks are stagnating.

d) Wherever party is not submitting periodic stock statements regularly.

e) Where there are grounds to suspect that the position of chargeable current
assets indicated may not be correct.

f) Where there are too many qualifying remarks about stocks and receivables in the
Auditors Report on the Balance Sheet of a borrower.

(iii) In cases of Consortium/Multiple Financing, where the borrower is enjoying

working capital fund based limits of less than 5 crore from our Bank and 20 crore
and above in aggregate from the banking system, the matter should be taken up
with lead bank/major share-holder banks in multiple banking arrangement for getting
the stock audit conducted.

(iv) Annual Stock Audit to be compulsorily conducted in all ‘B2’ to ‘C3’ rated
accounts and NPA accounts enjoying fund based and non- fund based working capital
limits of 3 crore and above.

6.3 APPLICABILITY IN CASE OF CONSORTIUM ACCOUNTS

In respect of consortium advances, where we are the leader, the stock audit may
be got conducted with the consent of the member banks and in cases where we are
not the leader, we may take up the matter with the Lead Bank for getting the stock
audit of the borrowal account. The final decision regarding getting the stock audit of
the borrowal account under consortium advances should, however, be based on
consensus.

6.4 EXEMPTION FROM ANNUAL STOCK AUDIT

There may be certain prestigious accounts which may fall under the category
“B1 to A1” under the risk rating module signifying lower risk and where conducting
stock audit by an outside agency may hurt the sentiments of borrowers, such accounts
may be referred by Regions, as a very special case to Head Office, recommending
exemption from the Stock Audit with proper justification

6.5 SUBMISSION OF STOCK AUDIT REPORT AND CERTIFICATE

The firm commissioned to conduct stock audit must submit the stock audit
report as also a certificate regarding adequacy, condition of storage, marketability,
age, insurance and creation of charge in respect of stocks, stores & spares charged,
as per requirement of the bank.

6.6 MISCELLANEOUS

a) Stock audit shall not be a substitute for regular stock inspection. However, in
respect of accounts where stock audit is got done, the periodicity of stock inspection by
the Incumbents may be made on quarterly basis as in some large borrowal accounts
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monthly verification of stocks is not possible.

b) Stock audit should preferably be got done by the end of the calendar year so as
to make the report available in the succeeding months of February/March, which helps
the Bank to take an appropriate view while finalising the accounts. The
observations/deficiencies pointed out by the Stock Auditors should be
removed/rectified within 90 days and position of stock audit in all eligible cases be
submitted to Credit Division, HO on quarterly basis.

c) The panel consisting of reputed firms of Chartered Accountants/ individual CAs

having atleast 5 years standing is to be approved by General Manager for stock audit.
The panel may be reviewed once in 2 years by the General Manager and the
performance should be reviewed on ongoing basis.

d) Branches should take up with the borrowing company to provide all clarification
to stock audit firms during the course of stock audit itself to reckon such
clarifications/explanations while finalizing the report.

e) During the course of stock audit, auditors while checking evaluation of debtors
(receivables) may seek confirmation, if felt necessary, from the borrower’s debtors with
the consent of the borrowers.

7. FREAMEWORK FOR REVITALISING DISTRESSED ASSETS AND

CLASSIFICATION, REPORTING & MONITORING OF SPECIAL MENTION
ACCOUNTS (SMA)

Before any loan account turns in to NPA, bank is required to identify incipient
stress in the account and take corrective measures to prevent the slippage. Bank has
in place guidelines for reporting and monitoring of irregular/weak accounts to prevent
the slippages and take corrective actions in the accounts. In order to have uniformity
and for early recognition of incipient stress, all irregular/weak accounts shall
henceforth be classified as Special Mention Accounts (SMA) with sub- categories
as SMA-0, SMA-1 & SMA-2 as under:

SMA Basis for classification

Sub - Categories
SMA - 0 Principal or interest payment not overdue for more than 30
days but account showing signs of incipient stress as per
given below.
SMA - 1 Principal or interest payment overdue between 31 to 60
days
SMA - 2 Principal or interest payment overdue between 61 to 90
days

7.1.1 ILLUSTRATIVE LIST OF SIGN OF SHOWING SIGNS OF INCIPIENT STRESS

FOR CATEGORIZING THE ACCOUNTS AS SMA 0:

1. Delay of 90 days or more in (a) submission of stock statement / other stipulated

operating control statements or (b) credit monitoring or financial statements or
(c) non-renewal of facilities based on audited financials.
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2. Actual sales / operating profits falling short of projections accepted for loan
sanction by 40% or more; or a single event of non-cooperation / prevention
from conduct of stock audits by banks; or reduction of Drawing Power (DP) by
20% or more after a stock audit; or evidence of diversion of funds for
unapproved purpose; or drop in internal risk rating by 2 or more notches in a
single review.
3. Return of 3 or more cheques (or electronic debit instructions) issued by
borrowers in 30 days on grounds of non-availability of balance/DP in the account
or return of 3 or more bills / cheques discounted or sent under collection by the
borrower.
4. Devolvement of Deferred Payment Guarantee (DPG) instalments or Letters of
Credit (LCs) or invocation of Bank Guarantees (BGs) and its non-payment within 30
days.
5. Third request for extension of time either for creation or perfection of securities as
against time specified in original sanction terms or for compliance with any other
terms and conditions of sanction.
6. Increase in frequency of overdrafts in current accounts.
7. The borrower reporting stress in the business and financials.
8. Promoter(s) pledging/selling their shares in the borrower company due to financial
stress.
9. If PMS rank is 3 & above (in cases where preventive monitoring system is
applicable).
10. Units incurring operating/cash losses.
11. Any other major adverse feature/development/weakness in the account.

7.2 Monitoring of all accounts classified as SMA:

7.2.1 Monitoring of accounts under SMA shall be done on daily basis by pulling the
data from CBS system and immediate steps shall be initiated for regularization of such
accounts, as under:
➢ Branches shall generate the statement of all SMA for monitoring at their end.
➢ Circle Offices shall generate statement of all SMA having Aggregate
Exposure (AE) of 5 lacs and above for monitoring at their end.
➢ Zonal Offices shall generate statement of all SMA having AE of 1 Crore and
above for monitoring at their end.
➢ Credit Monitoring Division, HO shall generate statement of all SMA having AE of
5 Crore and above for monitoring at their end.

i) Branches/offices shall generate the sector-wise statement (Agriculture, SME,

Retail Schemes & Others) as on the last day of the month.

ii) Circle Offices shall report the steps initiated for regularization of all SMA
having AE of 5 lacs and above to the respective ZOs.

iii) ZOs shall report the steps initiated for regularization of all SMA having AE of 1
crore and above to the Credit Monitoring Division, HO.

iv) Credit Monitoring Division, HO shall:

➢ Monitor the accounts under SMA of 5 crore and above on daily basis and
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suggest corrective steps to ZOs/COs/BOs.
➢ Place the status report in respect of all SMA with aggregate exposure of
5 crore and above to MD & CEO and status of steps initiated by ZMs in SMA having
aggregate exposure of 1 Cr and above but below 5 crore to ED on monthly basis.
➢ Send a copy of the statement to GM (Credit) for effective follow up in respect of
SMA pertaining to the relative segment.
➢ Place the position of SMA of 5 crore and above before Management Committee
on quarterly basis.

v) Consolidated position of accounts classified as SMA, both sector wise and

amount wise shall be generated at RO/HO level from ‘Irregular Accounts’ available in
CBS portal and put up to respective authorities.

vi) Incumbent Incharge shall give personal attention to regularize the accounts
irrespective of the cut off level.

vii) The Concurrent Auditors working in the branch and regular Inspectors should
also comment in his report whether branch is generating the statement of SMA
both sector wise and amount wise below the cut off limit and necessary measures are
being initiated for regularization.

viii) All the accounts under SMA be closely monitored at various levels who shall also
ensure compliance of the observations and directions by the controlling offices in these
accounts.

7.2.2 Monitoring of accounts under SMA 2:

Monitoring of all SMA falling under this segment is critical, as the same may slip to NPA
in the next 30 days and especially in view of RBI guidelines, which prescribe that CAP
is to be initiated in a time bound manner in accounts having AE of 5 crore and
above. As such, to monitor all such accounts specific guidelines are prescribed as
under:

(i) Identification shall be done on daily basis.

(ii) For all accounts having AE of 5 lacs and above but below 5 Crore, shall be
submitted to the respective controlling offices by the reporting branches/offices
within 7 days of the close of the month. During subsequent months the Review
Reports is to be submitted only in respect of new additions to the ‘SMA2’.

(iii) Credit Monitoring Division, HO shall generate the list of all accounts under SMA
2 having aggregate exposure of 5 crore and above as on last day of every month
& fresh additions on daily basis and forward the same for taking Corrective
Action Plan (CAP) to the respective sanctioning authorities in case of sanctions up
to RO level and to the Credit Division, HO in case of sanctions at HO. All the
sanctioning authorities up to ZO level shall inform the proposed CAP within the
next 7 days i.e. up to 10th day of the month on the review reports. In case of
HO sanction, Credit Division, HO shall inform the same to the Credit Monitoring
Division, HO.

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(iv) Credit Monitoring Division, HO also shall put up a separate note on monthly basis
to the GM for CAP initiated in the accounts under SMA 2 having AE of 5 crore and
above for sanctions falling up to RO powers and to the MD & CEO for sanctions
falling under HO powers.

(v) Nodal Officers at Controlling Offices/ELBs/VLBs:

For monitoring/liaison in respect of SMA2 at controlling offices/ ELBs/ VLBs following

officers shall be designated as Nodal Officers:
At Head Office Level: GM (Credit Division)
At RO Level: Functional Manager/Sr. Manager (Credit)

7.2.3 Monitoring of Overdue Renewal/Review of Working Capital Limits

Statement of overdue renewal/review of working capital limits shall be generated on
the last day of each quarter on the prescribed format within 7 days of the close of the
quarter and monitored at various levels as under:

➢ Branches shall generate it for all overdue accounts for monitoring at their end.
➢ Regional Offices shall generate it for all overdue accounts having AE of 5 lacs
and above and put up the same to the Regional Manager, which shall be
monitored at RO level.
➢ ROs shall generate it for all overdue accounts having AE of 1 crore and
above to put up the same to the R M, which shall be monitored at RO level.
➢ Credit Division, HO shall generate it for all overdue accounts having AE of 5
crore and put up the position on quarterly basis to MC for the overdue renewal
proposals sanctioned by Board/MC and consolidated position to Chairman.

7.3 SETTING UP OF TASK FORCE

The Task Force is set up with the constitution/ scope/functions as under:

Level Constitution Scope

HO GM (Credit Monitoring Division), All SMA under standard category
DGM/AGM/Chief (Credit with AE of 5 crores and above.
Monitoring Division), GM/DGM &
AGM/Chief (RD), GM/DGM (Credit
Division)

ZO ZM, 2nd Man of ZO (AGM/DGM), All SMA under standard category

AGM/CM (credit/Recovery), Desk with AE of 1 Crore and above.
Officer (Credit/ Recovery)

CO Circle Head, AGM/CM and/or FM All SMA under standard category

(Credit), Desk Officer (Credit), FM with AE of 5.00 lac and above.
(RD).

The Task Force at Circle Office level will hold Branch-wise meetings and Task
Force at ZO level will hold circle wise (including LCBs) meetings and will monitor the

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progress/follow up of decisions taken at the meeting with the aim to get the accounts
regularised as well as to check their slippage to NPA category. The minutes of Task
Force Meetings at CO level will be sent to ZO and at ZO to Credit Monitoring Division,
HO for monitoring the progress.

Minutes of Circle wise Task Force meetings held at Head Office will be placed to MD
& CEO through ED. The Task Force Committee at HO/ZO/CO level shall meet on
monthly basis and suggest corrective action plan for each of the accounts.
7.4 For effective implementation of the monitoring system, branches and
administrative offices should ensure that all the monitoring reports/ statements,
complete in all respects are submitted to the sanctioning authority in time and
these are properly scrutinised/analysed to detect the weaknesses/deteriorations
taking place in the conduct of the account so that corrective actions are initiated
without any delay.

7.5 It should also be ensured that the quarterly financial results of all listed
companies financed by the Bank must be obtained and kept on record. A copy of the
same should be sent to Circle/Head Office, depending upon the level of sanctioning
authority.

The guidelines issued by HO from time to time on FRAMEWORK FOR

REVITALISING DISTRESSED ASSETS AND CLASSIFICATION, REPORTING &
MONITORING OF SPECIAL MENTION ACCOUNTS (SMA) should be
meticulously followed.

8. FON-SITE REVIEW/AUDIT OF ACCOUNTS BY CREDIT AUDIT & REVIEW

DIVISION (CARD), HO

CARD, HO conducts on-site review/audit of borrowal accounts in all standard

risk rated accounts except (a) Retail Banking segments (i) Rule Based Lending
(housing, vehicles & personal loan) (ii) Advances against consumer durables, (b)
Advances against Bank Deposits, LIC policies, Govt. securities, Gold/silver jewellery &
ornaments, advance against shares, debentures & Mutual Fund) will be covered under
credit audit.

Eligibility of accounts for credit audit:

The cut off limit for the purpose of credit audit of risk rated standard accounts shall be
as under:
 All rated standard accounts with exposure of 10 cr. & above. In case of accounts
with combined group exposure of 10 cr. and above all the accounts irrespective of
individual limits shall be subjected to credit audit.
 5% of rated standard accounts selected on random basis with exposure between
5 cr. and 10 cr. and outstanding balance of 5 cr. & above (in circles where
auditable accounts are less than 10 in a Financial Year).

Credit audit of taken over accounts:

In case of taken over borrowal accounts, credit audit is also to be conducted for
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accounts with exposure of 1 crore and above. The first such audit is to be done
within three months of the takeover and the next audit is to be carried out within
three months after completion of one year of first credit audit. On takeover of such
accounts the branches are to inform CARD, HO through respective Circle Office for
ensuring first credit audit within three months of takeover.

Frequency of Credit Audit:

 All eligible Accounts shall be subjected to credit audit annually.

 However in following cases half yearly audit may be conducted in respect of
accounts with exposure of 5 crores and above:
➢ where there is decline in Credit Risk Rating by two notches, and/or
➢ decline in PMS by 2 notches for 2 quarters continuously and /or
➢ Account is persistently in SMA-II category for 2 quarters continuously.

Credit Audit Exercise:

Credit audit for eligible accounts will be conducted as under:

‘All eligible rated standard accounts with exposure of 5 cr. Or 10 cr. & above,
as the case may be.
By Concurrent Auditor By CARD/ Outsourced Auditor
Upto 20 Cr. Above 20 cr.

9. IRREGULARITIES/DEFICIENCIES OBSERVED IN THE AREA OF POST

SANCTION FOLLOW UP

Common type of irregularities/deficiencies observed in post sanction monitoring

and follow up of loan accounts by various Inspecting Officials, including RBI officials are
listed below:

a) Compliance with regard to certain important terms & conditions of sanction is not
ensured.

b) Proper meaningful analysis of Quarterly Review Sheet (QRS) and Quarterly

Monitoring System (QMS) is not done in some cases.

c) Regular inspection of stocks lying at depots/country godowns of the companies

located at different places is not conducted.

d) In some big borrowal accounts, the stock audit is not conducted in terms of
bank's own guidelines.
e) Execution of joint documentation in case of consortium accounts delayed in many
cases.

f) Position of creditors and age of debtors is not reflected in the Book Debts.

g) Certain instances of diversion of funds from the Cash Credit accounts of

borrowers to associate concerns/NBFCs have been observed.

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h) Documents in some cases are not properly executed and in addition, wherever
charges need to be filed with the Registrar of Companies, the same are either
not filed or filed with delay.

i) Insurance of securities hypothecated/pledged/charged to the bank was not

obtained.
j) Laxity in follow up of suit filed and decreed accounts have been observed.

k) Monitoring of borrowing company’s financial standing specially with reference to

the financial indicators is not carried out effectively.

l) Undue reliance on the certificates given by Chartered Accountants/Valuers

without co-relating them with other relevant procedures is also noticed.

m) Periodical reviews of accounts are not undertaken after the funds are lent by the
bank.

n) Proper assessment of the financial standing of the projects is not carried out by the
bank at the time of takeover of account from the other banks/FIs.

o) Limits Sanctioned are allowed to be interchanged indiscriminately by the

branch officials without proper authority.

10. The Incumbents should note that for various aspects covered in this
chapter, Bank issues detailed instructions through various independent circulars. The
instructions given in such circulars should be complied with meticulously by the
concerned functionaries.

******************

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 ANNEXURE - I

B.O.________________________

DATE: _____________

(Name & Address of the Borrower) Dear Sir/s,

REG: SANCTION OF CREDIT FACILITIES

Pursuant to your application dt. _ the Bank is pleased to sanction

the facilities on terms and conditions as detailed in Annexure enclosed.

Please send your acceptance of the terms & conditions of the sanction on the
enclosed letter.

Yours faithfully,

for Punjab Gramin Bank

MANAGER

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 ANNEXURE - II

The Manager

BO_ _

Dear Sir,

REG: CREDIT FACILITY SANCTIONED IN OUR FAVOUR

I/we accept the terms and conditions as prescribed in the sanction of credit
facilities as communicated vide your letter dated and Annexure thereto.

I also authorise the Bank to get the required documents drafted and/or to get
the documents scrutinised/vetted by Bank's solicitors/advocates at my cost. I/we
authorise the Bank to produce the required details and other documents as are
needed by the solicitors/advocates for such drafting/ scrutiny/vetting. I/we will also
produce the required details/documents which are in my/our possession or make
available the required details/documents as may be required by the
solicitor/advocate.

We also submit herewith a copy of the resolution of the Company in terms of

which we have been authorised to confirm the acceptance of the terms and
conditions of the sanction, besides execution of the loaning and security
documents.

Yours faithfully,

BORROWER/S

PLACE:

DATE:

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 ANNEXURE III

FORMAT OF CERTIFICATE TO BE SUBMITTED BY

Regional Manager/INCUMBENTS OF Scale - IV TO CREDIT DIVISION, HO*

(To be submitted within two months from the close of the quarter)

Date: _

The General Manager,

Credit Division,
Head Office.

Re.: Scrutiny of Review Sheets for quarter ended _ _

It is confirmed that Review Sheets in respect of all the accounts within the powers of
Regional Manager/Chief Manager and those falling under HO powers, for the above
quarter, have been received/ scrutinised at ours. All the accounts are running regular
and do not show any symptoms of weakness, except those cases reported in the
Quarterly Statement of Weak Accounts and Monthly Statement of Irregular Accounts,
submitted to your office.

Regional Manager/Chief Manager

* Similar Certificate to be submitted by Incumbents of ELBs/VLBs/MCBs to Regional

Manager.

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CHAPTER 10
CREDIT RISK MANAGEMENT

BOOK OF INSTRUCTIONS ON LOANS

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1
 CHAPTER – 10

CREDIT RISK MANAGEMENT

1. “Credit Risk”

“Credit risk,” means the possibility of loss associated with diminution in the credit
quality of borrowers or counter parties. These counter parties may include an
individual, corporate, bank, financial institution or a sovereign. In a bank’s portfolio,
losses stem from outright default due to inability or unwillingness of a customer or
counter party to meet commitments in relation to lending, trading, settlement and
other financial transactions.

2. Credit Risk Management System in the Bank

A comprehensive credit risk management system, which is in place in the bank,

encompasses the following processes:

 Identification of Credit Risk

 Measurement of Credit Risk
 Grading of Credit Risk
 Reporting and analysis of rating related data
 Control of Credit Risk

2.1 Credit Risk Identification

In order to take informed credit decisions, it is necessary to identify the areas of

credit risk in each borrower as well as each industry. Integrated Risk Management
Division HO, in coordination with other HO divisions involved in disbursal of credit
and also the risk management departments of various circle offices, identifies these
risks areas and develops necessary tools and processes to measure and monitor the
risk.

2.2 Credit Risk Measurement

2.2.1 In order to measure the credit risk in banks’ portfolio, credit scoring
models are being used. Credit scoring model is a simple tool to predict the
probability that a loan applicant or existing borrower will default or become delinquent.
The scoring models supplement credit appraisal and result in increase in consistency
of lending decisions. The outcome is based on personal characteristics and past
behavior.

Such credit scoring models for all the KCC and retail lending schemes have been
developed based on scientific application. The models for exempted schemes have
not been developed as the security charged is the main mitigant and personal
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characteristics do not play any significant role. All the K C C a n d retail loans except
the exempted categories will now be sanctioned based on the scores obtained by
individual borrower and all retail loan applications coming for sanction are
necessarily to be scored and rejection would be based on the score obtained. The
cut off score for sanction will be based on performance of the models, market
conditions and corporate policies. The applicants getting lower scores than the cut
off score and where the sanctioning authority is confident about the fairness of the
proposal, the proposal will be considered by an authority as prescribed for
sanction, who shall also record the reasons at the time of sanction of such
applications. Experiences gained through the scoring models are used to validate the
models to refine the same.

At present following models are under use:

1. Conveyance Loan
2. Housing Loan
3. Education Loan
4. Personal Loan(Pensioner)
5. Personal Loan (Others)

The above scoring models have been implemented at the field level.

2.2.2 The credit risk rating models have been developed with a view to provide a
standard system for assigning a credit risk rating to all the borrowers on the basis
of the overall credit risk involved in them. Inputs to the models are the financial,
management, business and conduct of account, industry information. The evaluation
of a borrower is done by assessment on various objective/subjective parameters.

The credit risk-rating models incorporate therein all possible risk factors, which are
important for determining the credit quality/ rating of a borrower. These risks could
be:

 Internal and specific to the company,

 Associated with the industry in which the company is operating or
 Associated with the entire economy and can influence the repayment capacity
and/ or willingness of the company.

Outcome of the score models:

 The credit scoring models incorporate the risk factors based on past
experience, which are important for determining the performance of loan. The cut-off
level for scoring models under various retail lending and SME schemes is the
score for sanction/rejection/under consideration by the next higher authority of the
loan accounts by the sanctioning authority. The cut off score for sanction will be fixed
by Credit Section, Head Office from time to time based on performance of the
models, market conditions and corporate policies. The applicants getting lower
scores than the cut off score and the where the sanctioning authority is confident
about the fairness of the proposal, the same will be considered by one level higher
authority for sanction, who shall also record the reasons at the time of sanction of

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such applications and will ensure to get it recorded in PGB SCORE in the system.
Experiences gained through the scoring models are used to validate the models.

2.2.4 Evaluation methodology under rating models

 The scores are assigned to each of the parameters on a scale of 0 to 4 with 0

being very poor and 4 being excellent. The scoring of some of these parameters is
subjective while for some others it is done on the basis of pre-defined objective
criteria.
 The scores given to the individual parameters multiplied by allocated weights
are then aggregated and a composite score for the company is arrived at, in
percentage terms. Higher the score obtained by a company, the better is its credit
rating. Weights have been assigned to different parameters based on their
importance. Weights assigned to different parameters have been loaded in the
software. After allocating/evaluating scores to all the parameters, the aggregate
score is calculated and displayed by the software.
 The overall percentage score obtained is then translated into a rating on a
scale from PNB-A1 to PNB-C3 according to a pre-defined range of scores.
 Wherever a particular parameter is not applicable, no score should be given
and the parameter should be made ‘Not Applicable’. For multi-divisional companies,
which are involved in more than one industrial activity, evaluation should be done
separately for each business. However, the management evaluation, conduct of
account and financial evaluation will be done on a common basis. In such cases,
for the business evaluation, each business should be evaluated and scored
separately, taking into account the different industrial activity involved.
 The models provide for down gradation of the rating of a borrower by one
notch on the basis of any crucial factor coming to the notice after the date of audited
balance sheet (on which rating is done) and which may affect the operating
efficiency/viability of the unit substantially such as:

i) Poorer performance during current year as compared to Balance Sheet

figures.
ii) Absence of willingness/capability of the promoters to repay the debt as per
agreed terms and conditions.
iii) Substantial impairment in the value of assets (including block assets/loans and
advances/investments, inventory/debtors)
iv) Obsolescence of the product or any major change in Govt. policies having
substantial impact on the performance of the company.
v) Effects of any major developments, which are not yet cleared, major damage to
plants/stocks, court judgment on environmental threats, involvement of
promoters/company in excise/FEMA/tax-evasion, recovery suit/winding-up petition
filed by Creditors/FIs/Banks, any civil/criminal proceedings against the
promoters/company, change of management etc.

 The credit risk rating of all borrowers should be done immediately after receipt of
audited financial results of the company and should not be linked to the regular
renewal/ review exercise.
 For the purpose of assigning score under “conduct of account” in respect of
borrowers, which have not been dealing with PNB earlier, the PMS score will not be
available and as such be made “NA”.
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 The Integrated Risk Management Division (IRMD), Head Office circulates the
industry ratings to be used for all major industries, on a quarterly basis.

Based on the circular, industry ratings are updated in the software at IRMD HO.
The industry, for which the IRMD HO has not provided score, shall be assigned
‘Neutral’ industry rating.

2.2.5 Evaluation Methodology of Scoring Models

Scores are assigned to each of the attributes of the different parameters based on
the risk perception. The score being assigned to most of the parameter is based
on objective criteria. The scores of the applicable /selected attributes of the
parameters are aggregated in a certain fashion depending on the scheme to arrive at
the final score.

The scoring shall be carried out on receipt of application of the borrower and after
verifying all the information submitted by the prospective borrower as well as other
information collected at the time of first sanction or at the time of renewal or
enhancement. As the score are objective, it must be ensured that selection of
most applicable attribute of a parameter/entry of information in the models is based
on physically verifiable documentation.

2.2.6 Other important guidelines related to Risk Rating process:

2.2.6.1 Categories of “Advances” exempted from Credit Risk Rating – PNB Trac

Out of the total Credit portfolio of the bank covered under the purview of different
rating models, the following categories of advances are exempted for rating purposes:

i. All accounts with sanctioned limits of 2 lakh and below.

ii. All loans against shares and debentures, units of mutual funds, life insurance
policies.
iii. Advances to Central/State Govt. Departments. Undertaking/ Establishments,
which are not running on commercial basis (e.g. Industrial/Agricultural/Rural
Development Boards of various State Govts.). An organization may be treated as
not running on commercial basis if the borrower is not required to draw Profit & Loss
A/c (including income & expenditure) and Balance sheet (statement of affairs) under
the law.
iv. Loans to individuals, against mortgage of IPs where market value of IP is at
least 150% of the loan amount, who are not engaged in any activity for which annual
accounts are required to be prepared.
v. Advances to individuals under Agriculture (Direct), Agriculture (Indirect), Other
Priority Sectors including Transporters, Artisan and Handicrafts.
vi. Loans under LUCC and advances against warehouse receipts of CWC.
vii. Borrowers who are availing only those loans/limits where full powers have
been granted as per loaning power chart e.g. purchase of cheque drawn by Central
& State Govts and drafts of public sector banks, ILCs/FLCs where full cover is held by
way of deposits till maturity, etc. # (Please refer note below)
viii. Advances against clearing instruments/ bills/ clean overdrafts permitted within
the vested loaning powers at various levels where the client is not availing any
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other loan/limit for which risk rating is applicable as per guidelines.# (Please refer
note below)
ix. Borrowers setting up new business where requirement of credit facilities is up to
20 lakh.

(# The exemption from credit risk rating under (vii) and (viii) shall be subject to the
condition that the loan/limit allowed is for a short period and is for a specific
transaction. The exemption from rating should be exercised only in exceptional
circumstances and wherever possible, credit risk rating in appropriate rating model be
conducted. In case the borrower is availing any other limit, risk rating as per
guidelines shall be applicable.)

x. Further in addition to above Exempted categories of Credit, exemption can be

sought in respect of following.

Further in addition to above Exempted categories of Credit, exemption can be

sought in respect of following.

The overseas branches handling proposals having following characteristics:

1. The borrower company, normally incorporated outside India, is wholly owned

subsidiary (WOS) of major Indian Corporate,
2. These subsidiaries work as an investment arm of the Indian Corporate and do
not have their own operations or revenue flows,
3. Their balance sheets mostly reflect funds raised towards margin requirement
(from parent company; by way of debentures / unsecured loan/ investment etc) and
debt raised from international banks.
4. These funds are in turn invested in acquiring companies, capital expenditure
and other projects; through their WOS / group companies; by way of onward lending.
5. The loan is backed by the guarantee of parent company.

Exemption may be granted on case to case basis by GM (IBD) from internal

credit risk rating subject to following conditions:

i. The borrower entity is an overseas investment arm of major Indian Corporate

/ holding company, not having its own operations,
ii. repayment of loan is proposed from the sources of holding company,
iii. the loan is backed by the guarantee of holding company having adequate
Tangible Net worth, and
iv. Internal credit risk rating of the Indian corporate / holding company is not
below investment grade.

2.2.6.2 Categories of advances exempted for Credit Scoring for Retail

Lending Schemes

a. Advances under Retail Banking Schemes, where scoring models are not
available (Loan against ‘Gold & Jewellery’ and PNB Baghban).
b. Housing loans sanctioned under Indira Awaas Yojana (IAY).

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2.2.6.3 Categories of advances exempted for Credit Scoring for SME Sector

a. All accounts with sanctioned limits of 2 lakh and below.

b. Advances to Transporters (including loan for taxi, station wagons etc.).
c. Advances for documentary films (on themes like family planning, social
forestry, energy conservation and commercial advertising).

2.2.6.4 Following Advances are exempt from the purview of both Credit
Risk rating and scoring models:

a. All advances against security of Bank’s own deposits.

b. All advances against Government securities including NSCs/KVPs/IVPs etc.
c. All staff Loans

2.2.6.5 Application of Hurdle Points in Credit Risk Rating process

Certain hurdle points (minimum acceptable benchmark rate for a specified

parameter) have also been incorporated in credit risk rating models to take care of
cases not meeting minimum prescribed benchmark rate under certain crucial
parameters, which critically affect the rating of a borrower. Rating in such cases is
downgraded by the software as per the guidelines issued.
2.2.6.6 Assessment of Subjective Parameters in the credit rating models

Branches are to ensure that score under subjective parameters are assigned on the
scale of 0 to 4. However, in cases where there are reasons to assign scores in
decimals, the same should be assigned in multiples of 0.5 but only with proper
justification. In objective parameters, the score is assigned up to two decimal
points.

2.2.6.7 Validity period of Borrower Ratings

Due: Rating shall become due for updation after the expiry of 12 months from the
month of confirmation of rating or 18 months from the date of balance sheet on the
basis of which credit risk rating was assigned, whichever is earlier.

Overdue: Rating shall be treated as overdue after the expiry of 15 months from the
month of confirmation of rating or 21 months from the date of balance sheet on the
basis of which credit risk rating was assigned, whichever is earlier.

The credit risk rating exercise should be done immediately on receipt of audited
Balance sheet of the company and should not be linked to regular renewal exercise.
Each eligible borrower (standard category) irrespective of the nature of facilities must
be rated afresh at least on an annual basis and reviewed at least at half yearly
intervals.

All internal credit risk ratings must be renewed in time without any reference to the
renewal proposal. Credit Risk Rating system allows three months period of
turnaround time for renewal of a rating after it becomes due for rating. In no case any
internal credit risk rating be allowed to remain overdue for renewal. Allowing interest
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rate charged in the account based on rating even after the rating has become
overdue for rating is not in line with the policy prescription and it must be ensured that
the pricing in a borrower account must be charged as per valid internal rating.”

Moreover, guidelines issued by IRMD from time to time inter alia, provides that “In
case pricing is being allowed on the basis of overdue rating due to non
submission of financial data by the borrower, the penal interest shall be charged over
and above the applicable interest rate for the default period.”

2.2.7 Operating Guidelines for rating under different models

Though the model specific detailed guidelines are enumerated in specific manuals,
the general guidelines applicable to all the existing models are appended:

1. The credit risk rating models contain several qualitative parameters that are to be
evaluated subjectively. It is, therefore, necessary to be adequately familiar with the
company and the industry. Regular visits to the company and interaction with
company’s management generally helps the rater in understanding the underlying
activity and provides valuable insight beyond the financial data of the company
being analyzed; the business prospect of the company and its management.

2. The branch/controlling office must have an effective system to obtain and

update relevant information on the borrower’s financial condition, and factors
affecting business prospects.

3. While assigning the credit risk rating to the borrower, the rater must take all
relevant information into account. Information should be collected from all possible
sources to conduct rating exercise completely, accurately, and in an authenticated
manner. Information used in rating process must be current and ensure use of
latest information pertaining to the borrower for evaluating credit risk rating.

4. Sufficient human judgment and assessment is necessary to ensure that all

relevant information, including those outside the scope of the model, is also taken
into consideration, and that the model is used appropriately.

5. The data used to assign rating should be annualized and comparable.

Similarly, the financials of the company should be made comparable with peers in
case of change in accounting policies, merger, de-merger, acquisition, sell-off etc.

6. For multi-divisional companies, which are involved in more than one

activity/product/industry, business parameters should be evaluated separately for each
activity/industry, (upto 3 major activities) whereas financial, management, conduct of
account evaluation should be done for company as a whole.

7. Given the difficulties in forecasting future events and the influence they will
have on a particular borrower’s financial condition, a conservative view of
projected information should be taken.

8. The complete rating sheet, justification, financial ratios (if computed manually)
and all relevant information must be sent to vetting authority for each rating. While
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doing the ratings, it should be ensured that the latest version of software for credit risk
rating models is only used.

9. The record of rating exercise and history of ratings should be kept on record for
further references, uses, and audit etc.

10. The final/approved rating should be informed to the office wherefrom the rating
originated by the vetting authority immediately after its approval by the competent
authority.

11. Secrecy of the rating mechanism has to be maintained and it should be

ensured that the exercise on the rating of the borrower i.e. format/rate assigned to
various parameters and the notes on justification for assigning the rate etc. should
not be provided to the borrower/consortium/other bank under any circumstances.
However, the final rating may be informed to the borrower/consortium members etc.

12. The most important characteristics of a good rating system is that it should be
robust and the rating of a borrower should not be substantially affected by the
subjective assessment of officers conducting the rating. In order to bring uniformity and
standardization in credit risk ratings, across the bank, the broad guidelines for
awarding the scores are given in the respective Rating Manual and subsequent
circulars issued from time to time. Besides, with a view to familiarise the concerned
officers on the credit risk rating models and awarding the scores, workshops are
also conducted at the Regional Staff Colleges/Zonal Training Centres.

13. From the credit risk rating reports received from Zonal office for
vetting/confirmation of the ratings in respect of the accounts under H.O. powers, it is
observed that the scores accorded by the rating authority under some of the
parameters of Management, Business, Financial evaluation etc, are very optimistic.
These are neither in line with the guidelines given in the respective manual nor in
line with the standing of the Company vis-à-vis its peers in the industry. The various
anomalies in awarding the score are detailed in the risk rating reports put up by the
Division in the account and a copy of risk rating report is forwarded to the
concerned Zone after confirmation/vetting of the rating. In some accounts, these
anomalies result in substantial difference in the Rating awarded by the rating
authority and rating confirmed by the confirmation authority, most of which are due to
non- observance of guidelines issued from time to time on the subject by HO.

14. There may always be a difference of opinion in awarding the score under
some of the parameters, evaluation of subjective parameters in particular but the
impact of opinion should not have a significant difference in the rating awarded to
a borrower when broad guidelines have been given for awarding the scores. A
reasonable level of judgment is required to ensure that all material information
having a bearing on risk profile of the borrower is taken into account and that the
model is used appropriately. The major difference in the credit risk rating awarded
to a borrower by the rating authority and Rating confirmed by the vetting authority
or slippage of subsequent rating more than one notch is commented upon by the
Credit Audit and Review Division, H.O. in their report on the account and also
attracts adverse comments by RBI officials in their Annual Financial Inspection report.
Further this attracts avoidable correspondence with the Zone/Circles / branches and
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results in undue delay in finalizing the rating.

15. The risk rating is an important tool facilitating the credit decision process. A
borrower’s rating must represent his ability and willingness to contractually perform
despite adverse economic conditions or the occurrence of unexpected events. By
not assigning an appropriate rating to a borrower we may miss the opportunity to
invest in good accounts or may end up in having invested in high risk accounts. As
such, a casual approach in using the tool may not only defeat the purpose of the
exercise but also have serious consequences. The analysis of credit portfolio based
on such Risk Rating may not give a true picture and our default rates
corresponding to different risk category shall be higher than the international
experience, jeopardizing our efforts to effectively manage our balance sheet risk.

16. A system should be evolved to collect and store data on borrowers to provide
effective support to credit risk-rating process. All relevant available information should
be taken into account in assigning rating to the borrowers and information must be
up-to-date. Estimates must be supported by historical experience and empirical
evidence and not based purely on subjective or judgmental consideration. Given the
uncertainties in forecasting future events, a margin of conservatism that is related to
the likely range of errors should be factored into its estimates. There should be
an effective system to obtain and update relevant information on the borrower’s
financial condition.

17. The risk rating is an important tool facilitating the credit decision process. A
borrower’s rating must represent his ability and willingness to contractually perform
despite adverse economic conditions or the occurrence of unexpected events. By
not assigning an appropriate rating to a borrower we may miss the opportunity to
invest in good accounts or may end up in having invested in high risk accounts. As
such, a casual approach in using the tool may not only defeat the purpose of the
exercise but also have serious consequences. The analysis of credit portfolio based
on such Risk Rating may not give a true picture and our default rates
corresponding to different risk category shall be higher than the international
experience, jeopardizing our efforts to effectively manage our balance sheet risk.

18. It is therefore necessary to maintain proper records based on which risk rating
has been carried out, both at the office responsible for conduct of the risk rating
and the office responsible for vetting/confirmation of such risk rating.

19. As stated in Para 17 above, a borrower rating must represent the borrower’s
ability and willingness to contractually perform despite adverse economic position or
the concurrence of unexpected events. If the subsequent rating of any borrower slips
more than one notch when compared to the previous rating, the vetting authority
should make a detailed evaluation of all such previous ratings to know if there had
been a negligence /casual approach in assigning previous rating to a borrower. If
warranted, staff side should be initiated against the erring officers. Similar exercise is
required when a better rated account turns NPA.

20. New/multiple Borrower ids for a borrower are created whenever a new rating is
carried out without caring to find out if borrower id already exists in the system.
This renders the task of tracking movement of ratings for a single borrower and
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other analysis on the basis of borrower ids impossible. For one borrower, only one
borrower id should be created and when a new rating is to be conducted, the same
borrower id must be used. If there is any amendment in borrower’s name or
constitution, users should edit the same in the existing borrower id instead of creating
a borrower id afresh. Using an existing borrower id automatically propagates the
financial data of a borrower in a new rating id wherever available in the previous
rating of the borrower, which saves efforts to feed financial data afresh.

21. The credit ratings approved by the vetting authorities are not submitted into
the system promptly. Approved ratings, unless submitted into the system, do not
form part of the database and therefore, not available for analysis.

22. It has also been observed that at close intervals, several ratings of the same
borrowers have been submitted as approved ratings into the system. Only the final
ratings as approved by the Vetter should be submitted into the system and other
draft/trial ratings, if any, should be deleted.

23. PAN and CBS Ids are not properly filled up or are left blank. In the fields
meant for CBS Id generally CBS account id is filled or some incomplete or
meaningless numbers/alphabets are filled up. If these ids are filled up properly, the
data of PNB Trac can be used for generating portfolio report of rated accounts in
unison with CBS/LADDER data and similarly many MIS reports can be generated
from EDW and using the existing centralized server based applications eliminating the
need of calling for reports from the field.

24. Incomplete names or abbreviations of names of borrowers are fed at the time of
borrower creation. To cite some example, the name of “AB Cotton Mills Ltd.” Is fed
as “ABCL”, “Nova Creations” is fed as “N Creation” and likewise. Complete name of
a borrower as mentioned in the CBS system should be fed in PNB Trac in case of
existing borrowers. Whenever a new borrower is created for new
proposals/borrowers not banking with us complete name of the borrower as
appearing in the loan proposal/audited balance sheet should be fed and efforts may
be made to maintain parity with CBS system after borrower opens account with our
bank.

25. All concerned staff members are advised to go through the guidelines given in
the respective manuals and operating instructions before undertaking risk rating
exercise and should adhere to definitions/explanations given in the manual to achieve
consistency in the rating process.

26. It is to be ensured that all eligible borrowers are rated only using the on-line
models in PNBTrac. Any Credit Risk Rating carried out on excel based model (except
in case of Future Lease Rental Model) is not valid and cannot be relied upon for
any credit decision.

27. Secrecy of the Model: In order to maintain the secrecy of the rating
mechanism and prevent its misuse, it is advised that all the offices will maintain the
secrecy of the rating mechanism and shall not hand over any exercise on the
rating i.e. format/rate assigned to various parameters and the notes on justification
for assigning the rate, etc. to the borrower/ any other bank and to be marked and
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kept confidential.

2.2.8 Operating Guidelines for scoring under scoring models

The general guidelines applicable to all the existing scoring models are as given
below:

1. It should be ensured before scoring that the name of the borrower/co-

borrower/ guarantor should not appear in CIBIL/ Highmark/ Experian/Equifax/
ECGC/RBI/Other Bank’s/Financial Companies defaulter’s list. It should also be
ensured that the borrower has no outstanding statutory dues like income tax, sales
tax, wealth tax, service tax, PF, ESI etc.

2. Drawing Credit Information Reports (CIRs) on the Borrowers from Database of

Credit Information Companies (CICs) as per the instructions issued from time to
time which will also contain CIBIL/Highmark/Experian/Equifax Score, which is also
one of the inputs in all the Scoring Models.

3. It should be ensured that the applicant fulfils all the eligible criteria prescribed in
the Circulars/ Book of instructions and amendments made therein from time to
time, before applying the process of scoring.

4. Before initiating the score sheet, the information provided by the borrower/co-
borrower/guarantor in the application form should be verified with the original
documents, spot verification, personal visits, and market reports by the concerned
officer.

5. All the eligible accounts up to 50 lacs under retail lending schemes, SME
schemes under Farm Sector except exempted schemes are covered under credit
scoring model. The hard copy of the score sheet should be kept with the
documents for audit purpose.

6. Each attribute is to be selected after careful evaluation/analysis/ calculation on

the basis of the guidelines given in the manual and provided in the software so that
the score should truly reflect the credit risk attached to the borrower.

7. Wherever any calculation is required under risk parameters of the scoring

models (e.g., ratio of net monthly income to EMI, ratio of net worth to loan amount
etc.), this has to be calculated manually (wherever it is not automatically
calculated in the system) by the appraising officer and a copy of such calculation
sheet should be kept attached with the score sheet.

In order to maintain the secrecy of the scoring models and prevent its misuse, it is
advised not to hand over any exercise under scoring model to the borrower or any
other banks and it should be marked and kept as confidential document.

2.3 Grading of Borrowers under the Rating system

2.3.1 In order to provide a standard definition and benchmarks under the credit risk

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rating system, following matrix has been adopted in all the risk rating models.

S. Score New rating Risk Risk Description Risk

N. band Grades Significanc Profile
e
1 Above 80 PNB-A1 Minimum Excellent business credit, superior Low Risk
Risk asset quality and excellent track
record of debt repayment capacity
and coverage.
2 Above 70 PNB-A2 Marginal Very good business credit, asset
up to 80 Risk quality and liquidity, debt repayment
capacity and coverage.
3 Above 64 PNB-A3 Modest Good business credit, asset quality,
up to 70 Risk debt paying capacity and coverage.

4 Above 58 PNB-A4 Lower Satisfactory business credit, asset

up to 64 Risk quality, liquidity, good debt
repayment capacity and coverage.
5 Above 52 PNB-B1 Average Acceptable business credit with Average
up to 58 Risk average risk, acceptable asset Risk
quality, modest debt capacity.
However, adverse economic
conditions or changing circumstances
are more likely to lead to a weakened
capacity of the obligor to meet its
financial commitments.
6 Above 46 PNB-B2 Marginally An obligor is less vulnerable in the
up to 52 Acceptabe near term. However, it faces major
Risk ongoing uncertainties and exposure
to adverse business, financial, or
economic conditions which could
lead to the obligor's inadequate
capacity to meet its financial
7 Above 40 PNB-B3 Cautiously commitments.
An obligor is more vulnerable than
up to 46 Acceptable the obligors rated 'B2', and currently
Risk the obligor has the capacity to meet
its financial commitments. Adverse
business, financial, or economic
conditions will likely impair the
obligor's capacity or willingness to
meet its financial commitments.
8 Above PNB-C1 High Risk Not creditworthy, generally High Risk
35 up to acceptable on case to case basis,
40 Currently vulnerable and dependent
on favorable business, financial and
economic conditions to meet
financial commitments.

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 9 Above PNB-C2 Very high Risk Not creditworthy. An obligor has
25 up to minimal margin of principal and
35 interest payment protections,
currently highly vulnerable, and is
totally dependent upon favorable
business, financial and economic
conditions to meet its financial
10 25 and PNB-C3 Exception commitments.
Unacceptable business credit,
below ally high Currently highly vulnerable
Risk obligations, normal repayment in
jeopardy, inadequate projected net
worth and paying capacity. Default
of some kind appears imminent

2.3.2 Grading of Borrowers under Scoring Models

The cut-off level for scoring models under various retail schemes, SME schemes
& Farm Sector is the score for sanction/rejection/under consideration by the next
higher authority of the loan accounts by the sanctioning authority.

2.3.2.1 Coloring system of Scoring Models:

The scores generated by the models indicate the sanction & rejection of the loan
applications. The colouring/scoring schemes for the score models are as per
guidelines issued by the respective division from time to time which are to be
followed.

2.4 System for assignment & appraisal of rating

The process of rating and vetting is as under:

Sanctioning Credit Risk Rating Authority Vetting/Confirming

Authority Authority
HO ZMRMD at ZO in consultation with CGM / Chief Risk Officer
Branches / VLBs / ELBs / Large (IRMD), HO
Corporate Branches in respect of
proposals falling under HO powers (Credit
Risk Ratings will be routed by Branches
/VLBs / ELBs / LCBs through ZO to HO)

ZO i) Branches / VLBs / ELBs to route Credit DGM / AGM / CM

Risk Ratings through Circle Offices (ZMRMD) at ZO

ii) LCBs in respect of proposals falling

under ZO powers to submit Credit Risk
Ratings directly to ZO
CO Branches / VLBs / ELBs DGM / AGM / CM
(CRMD), CO

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 Branch Any Officer designated by the incumbent An official
designated by the
Incumbent not
connected with
processing/
recommending of the
concerned loan
proposal.

The authority responsible for confirming of rating must ensure that all eligible
standard accounts of his office have been rated and approved on the basis of
latest audited results.

2.4.1. Rating/vetting at BOs in accounts with limits of 50 lacs and below:

Normally loans accounts up to 50 lakh are required to be rated under PNB Score
models, but in cases where score models are not available, in such cases of
accounts having aggregate sanctioned limits of 50 lacs and below in branches
where there is no second officer available, the rating and vetting can be done by the
same authority. However in such cases in order to ensure the quality of Credit risk
rating, the same has to be submitted by the BO to the higher authority along with
the limit-sanctioned statements regularly.

In order to adopt internal rating based approaches (IRB) for credit risk, Basel II has
placed certain minimum requirements which inter-alia require, validation of rating
system, process and estimation of all relevant risk components. Banks must
regularly compare realized default rates with estimated probability of default (PD) of
each grade and able to demonstrate to its supervisor (RBI), that the internal
validation process enable it to assess the performance of internal rating and risk
estimation system consistently and meaningfully. In view of above fact, not only rating
but consistent practices in evaluation of credit risk rating as well as evolving and
updating robust data on various risk components is must for adopting IRB
approaches.

Though the bank already has in place a clearly laid down reporting system for the
credit disbursement and monitoring but keeping in view that the area of credit risk
management has evolved recently, MIS related to this area is in the process of
evolving in the bank.

The MIS in respect of all risk rated accounts under all the models (based on the
amount of the limits) is to be made available to the Risk Management Division HO.
The rating data is used for the purpose of maintaining the rated portfolio of the circle
on periodical basis. The exercises such as portfolio analysis and migration analysis
are to be undertaken on regular basis.

2.4.2 System of Maker and checker concept in score models:

The maker/checker concept for credit scoring models will be as under:

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➢ The appraising officer (maker) in the branch/RAPC will do the initial work of
verifying the information provided by the loan applicant and select the relevant
attributes under each risk parameter or enter the required information in the respective
scoring model and generate the score sheet.

➢ The score sheet so prepared by the maker (appraising officer) will be checked
and finalized by the sanctioning authority (checker) in the branch or RAPC
depending upon the place of sanction. In case the loan falls beyond the sanctioning
power of the incumbent in-charge of the Branch or RAPC, the score after
finalization will be sent to next higher sanctioning authority along with the proposal.
2.5 Controls

The Credit Risk Management process in the bank encompasses the following
management Control techniques which help in mitigating the adverse impacts of
credit risk in its credit portfolio.

1. Credit Approving Authority

2. Prudential Exposure limits
3. Risk Based Pricing
4. Portfolio Management
5. Loan Review Mechanism
6. Legal documentation
7. Preventive Monitoring System
8. Others

2.5.1 Credit Approving Authority

2.5.1.1 Linkage of loaning powers with risk rating categories

The present system for use of loaning powers provides for allowing of various
relaxations/putting restrictions on different credit exposures based on their specific
rating category. To be specific, higher loaning powers have been delegated to the
sanctioning officials in the rank of CMs/AGMs/DGMs/Circle Heads/ZMs/GMs (HO) for
A1 A2 A3 & A4 rated accounts whereas restriction on exercising loaning powers of
the field functionaries have been placed on sanctioning loans to B2, B3, C1,C2 & C3
rated borrowers.

The restriction and relaxation prescribed in loaning powers are subject to bank’s
experience in the rating system. However authorities while exercising the loaning
power shall ensure compliance of extant guidelines.

2.5.2 Prudential Exposure Limits

In order to restrict the magnitude of credit risk in overall portfolio of the bank
certain prudential limits have been laid down prescribing maximum exposure
ceilings both borrower-wise and industry wise. The bank has also prescribed
substantial exposure ceilings in respect of the exposure to companies in public /
private sector.

328
2.5.3 Risk based Pricing

Risk-based pricing is a fundamental tenet of risk management. Accordingly, applicable

interest rate has been linked with the risk rating categories of different accounts, in
most of the cases. The bank shall fully integrate pricing with rating in due course of
time.

2.5.4 Portfolio Management

Bank monitors its entire portfolio periodically on an ongoing basis so as to maintain

the portfolio quality. Detailed data on rated credit portfolio is compiled for enabling
the bank to take policy decisions viz, fixing exposure limits, pricing, etc. Now since
all the rating models and score card models are available in central server based
environment, various reports of the portfolio movement can be extracted at corporate
level.

In order to ensure immaculate data quality, it is essential that users feed requisite
data accurately. Only one borrower ID must be created for one borrower and all
subsequent ratings must be carried in the same borrower ID in PNB TRAC avoiding
duplication. CBS Customer ID must also be feed while carrying credit risk ratings
PNB TRAC. In case of PNB Score, Score ID must be fed in CBS system, while
opening account. In CBS proper SRM and limit nod maintenance must be ensured.

2.5.5 Loan Review Mechanism (LRM)

LRM is considered an effective tool for constantly evaluating the quality of loan book
of the bank and to bring about qualitative improvements in credit administration.
With this aim the bank has already created “Credit Audit & Review Division”. The
Credit Audit and Review system covers borrowal accounts and weak accounts beyond
certain threshold limits. Under the system an independent team of experts examines
the credit processes and deficiencies in the systems of the bank.

2.5.6 Legal Documentation

Strict compliance of bank’s laid down procedure for documentation, detailed at

appropriate place in this book, is necessary in letter and spirit so as to mitigate the
adverse impact of credit risk in our loan portfolio.

2.5.7 Preventive Monitoring System

Bank has introduced Preventive monitoring system for borrowal accounts above
1 crore (including both fund based and non-fund based). This system is a dynamic
system, which aims at tracking the health and conduct of borrowal accounts by
capturing the signals of early warning. This tool shall help in taking timely decisions
on the future course of action in the borrowal accounts.

2.5.8 Other Control Measures

2.5.8.1 Use of Credit Information Companies (CICs) and defaulters list

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With the aim of taking informed credit decisions, the branches are required to
extract Credit Information Reports (CIRs) on their borrowers before taking any
credit decision. The system shall help in better/ timely credit decisions thereby
resulting into lower NPAs.

2.5.8.2 Diversification of Risk

Despite the fact that there is no stipulation by RBI in respect of formation of

consortium in accounts availing large limits from the banking system, in order to
restrict our risk in accounts having FB limits of 50 Crores and above, the bank goes
in for consortium arrangements with other banks. However, As per Ministry of Finance
instructions, all lending arrangements, involving more than one public sector bank,
with a single borrower with aggregate credit limits (both fund based and non fund
based) of 150 crore and above and all non-investment grade borrowers (External
Commercial Rating below BBB or equivalent), enjoying credit limits from more than
one public sector bank, irrespective of the amount of exposure, shall be under Joint
Lending Arrangement (JLA).

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CHAPTER 11
LIMITATION

BOOK OF INSTRUCTIONS ON LOANS

331
1
 CHAPTER – 11

LIMITATION
__________________
1. The law of Limitation, as it stands today, is founded on public policy. Section
3(1) of the Limitation Act, 1963 provides that every suit, appeal or application, filed
after prescribed period of limitation, is to be dismissed even though limitation is not
set up as a defence.

1.1 As such every suit/application before DRT, appeal and application should be
filed, preferred and made within the period of limitation, as prescribed under the
Limitation Act, 1963 and other relevant statutes

1.2 Care and caution must be exercised to ensure that the recovery of debts due
to the Bank and the enforceability of the related securities do not go time- barred.
Else, the Bank will be left without any remedy

1.3 When filing of suits/applications before DRT/ Court or other recovery

proceedings is necessitated, proposals should be moved, well in advance, to get
sanction from the appropriate authority. As soon as sanction is received, further
action must be taken without any loss of time to ensure filing of suit/ proceedings in
time. Suits/proceedings should be properly pursued and followed up diligently.

1.4 In case any of the defendants or respondents dies during the pendency of the
case in court, his legal representatives have to be brought on record within the
prescribed period, otherwise the case shall abate against them.

2. GENERAL PRINCIPLES OF LAW OF LIMITATION

a) As per the provisions of Limitation Act, 1963 in case of transaction involving

lending of money, the period of limitation will start running from the date, the money
becomes due and payable. In respect of other transactions involving General
Contract, period of limitation will start from the date the cause of action arises. For
each type of above transaction, there is a need to examine when the amount has
become due or when the cause of action has arisen, as the case may be, so that
limitation period as available is counted from that date.

b) Limitation Act, 1963 comprises of 32 Sections and 137 Articles. Each article
deals with a particular situation and prescribes period of limitation for taking legal
action in a Court of Law for that situation. For example, Articles 19 provides that in
case of money payable for money lent, the period of limitation is 3 years when the
loan is made. Similarly Article 62 deals with matters relating to enforcement of
payment of money secured by mortgage i.e. 12 years when the money sued for
becomes due.

332
c) Besides Limitation Act, other Statutes also deal with limitation aspect for filing
application and appeal etc. in matters specifically covered by those statutes

2.1 The general principles/position in case of banking transactions for realization

of loans and securities on the subject are outlined for information & guidance:

a) For determining limitation in any case, the terms and conditions of the
loaning documents and the mortgage deed, if any, should be studied so as to
ascertain the starting date of limitation.

b) In case of the advances (i) on the basis of agreement or loans secured

against pledge/hypothecation, or (ii) by way of cash credit/overdraft secured against
pledge/hypothecation, limitation for filing a civil suit/DRT Application against the
borrower for personal decree and also for sale of securities is 3 years from the date
of execution of documents, even if the stipulation of demand is there in the agreement,
provided loan is not payable in instalments.

c) In the case of loans where repayment has been agreed to on instalment basis,
the period of limitation will start from the date of respective default/s in payment of
each instalment in terms of the stipulations made in this behalf in the relative loan
documents/ mortgage deed. If there is a moratorium period after which the
repayment is to start, the period of moratorium will be excluded and thereafter on
default limitation will start as explained above.

d) In case of Term Loan, if there is a default clause making the entire outstanding
amount payable, it should be ascertained from the documents held if it is obligatory or
only optional for the bank to file suit for the entire amount. If it is obligatory, the entire
amount will have to be sued for. If it is optional, Bank may file suit either for the entire
amount or for the amount of instalment/s defaulted. If it is decided to sue for entire
amount, necessary recall has to be made to make the entire amount due. Limitation
will start from the date of recall and the period of limitation is 3 years.

e) In the case of advances allowed against equitable/registered mortgage of

immovable property, the limitation period for personal decree against a borrower is
3 years. For the sale of mortgaged property, the limitation period is 12 years. In
either case, the limitation will start from the date the mortgage money becomes due
and payable in terms of loan document/ mortgage deed.

f) In the case of advances secured against pledge or hypothecation and

additionally/ collaterally secured by mortgage (equitable or registered), the period of
limitation is 3 years for personal decree against the borrower and 12 years for
enforcement of mortgaged security respectively, from the date the mortgage money
becomes due in terms of loan document/ mortgage deed.

g) In the case of guaranteed loans, limitation period against the guarantor for
enforcing his personal liability is 3 years from the date the guaranteed amount
become due. The guaranteed amount usually will become due when there is a
default on the part of principal debtor and a demand is made on the guarantor by
invoking the guarantee. If a demand in writing is required to be made in terms of the
guarantee deed, the amount will fall due on the date of first notice of demand. Bank’s
333
standard guarantee deed provides for a demand.

h) If the loan is granted just against a demand promissory note as a primary

security, limitation of 3 years will start from the date of the promissory note. If the
demand promissory note is simultaneously accompanied by other loaning
documents providing for a different repayment programme, the loaning documents
should be studied so as to ascertain as to when the amount falls due for payment.
The period of limitation in the latter case will start from the date the amount falls
due in terms of the accompanying documents.

2.2 In above cases, unless the Bank enforces its claims/rights by

taking/filing/making action or suit or demand, as the case may be, within the
stipulated period, the Bank loses its rights. If the stipulated period is allowed to
expire without taking any action, the Bank will be left without any remedy.

2.3 Where there is a condition of making a demand, sufficient proof should be held
in respect of having made the demand (say acknowledgement of receipt of letter of
demand, reply to notice of demand, etc.).

3. Effect of Acknowledgement and Part Payment of Debt on Limitation

3.1 Under Section 18 of the Limitation Act, 1963, a duly stamped acknowledgement
(balance confirmation) of liability signed by the borrower or by an agent duly
authorized in this behalf will give fresh start of limitation against the borrower from the
date of such acknowledgment.

3.2 As per Section 19 of the Limitation Act, 1963 part payment made by the
borrower under his signature or by an agent duly authorized in this behalf will also
like-wise give fresh start of limitation from the date of such each part payment.

3.3 Similarly, an acknowledgement/part-payment by the hands of the guarantor will

extend limitation against the guarantor. The acknowledgement/part-payment should,
however, always be taken/made before the expiry of the prescribed period of
limitation' otherwise, it will not serve the purpose of extension of limitation. If the debt
gets time-barred, the proper course would be to take an agreement/ promise to pay the
said debt.

3.4 In respect of companies, Balance Sheet will also serve as acknowledgements as

it includes under liabilities side, the loans availed from Banks. In respect of
secured loans, it will also include a Schedule. Companies should be asked to state
specifically the amount due to the Bank. Balance Sheet which depicts the dues be
perused and be kept for use in case of need.

3.5 The aforesaid acknowledgement/part-payment will extend limitation in respect of

debt alone. To avail of the benefit of extension by way of fresh start of limitation for
enforcement of securities, proper acknowledgement from the borrower in regard to
the securities, created in favour of the Bank should be taken. A proforma of
`Balance and Security Confirmation Letter' which provides for acknowledgement of
debt as well as security is given in Annexure I (PGB – 139). All concerned are
advised to obtain the aforesaid `Balance and Security Confirmation Letter' from the
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borrower(s) and/or guarantor(s), as the case may be, at the close of each half year
or at such regular intervals as may be prescribed by the bank. However in case of
NPA Account/Protested Advances Accounts where no interest is to be debited,
Balance and Security Confirmation Letter as per Annexure II (PGB – 225) showing
the figures as per Memoranda Register of Protested/NPA Advances should be
obtained at the end of each half- year from the borrower(s)/guarantor(s).

3.6 Similarly Balance Confirmation Letter as per Annexure III may be obtained
from the guarantor(s) half-yearly for the outstanding liabilities under Deferred
Payment Guarantee issued by the branches.

3.7 Agreement of Gaurantee may authorise the Borrower/Co-Guarantor to

acknowledge the debt on behalf of the guarantor(s). If so, and if such
Borrower/Co-Guarantor is ready to acknowledge the debt, then he shall sign the
`Balance & Security Confirmation Letter' as:

"For Self and as attorney of Shri (GUARANTOR)

_________________"

3.8 In case of a time barred debt instead of obtaining the usual balance and
security confirmation letter, an acknowledgement with promise to pay should be
obtained. This would revive the claim for the principal amount to become enforceable.
To claim interest also, it is necessary to advance, say a token sum of Rs.100, to
provide consideration. Thus, for the revival of the claim for the principal amount as
well as interest of a time barred debt, an agreement on the prescribed proforma (as
per Annexure 3 of Chapter on Documentation) should be obtained.

4. Provisions in Different Statutes Regarding Limitation

(a) SARFAESI Act 2002 - In case action is taken under SARFAESI Act, Section
36 of the Act states that no secured creditor shall be entitled to take all or any of the
measures under sub-section (4) of section 13, unless claim in respect of the
financial asset is made within the period of limitation prescribed under the Limitation
Act, 1963. Hence action under SARFAESI Act be taken within limitation period.
Further, as per Section 13(10) or 13(11), it may be necessary to file suit/DRT
Application simultaneously so that suitable relief/ decree can be obtained against
liable parties and/or other assets. In such matters, notice under Securitisation Act be
also issued within period of limitation and suit/DRT Application be also filed within
the period of limitation. The action taken under SARFAESI Act does not extend
limitation as such where limitation is expiring suit/ DRT application be filed
simultaneously with action under SARFEASI Act. For detailed instructions, the
Manual on Enforcement of Security interest be also referred to.

(b) Recovery Of Debt Due To Bank and Financial Institutions Act, 1993 - As
per Section 24 of the Act, the provisions of Limitation Act, 1963 shall, as far as
may be, apply to an application made to the Tribunal. Further, as per Section 20
of the Act, the appeal against order of Presiding Officer can be filed within 45 days
from the date on which a copy of the order made, or deemed to have been made by
the Tribunal, is received. The appeal against the order of Recovery Officer can be
335
filed before the Presiding Officer within 30 days from the date on which a copy of
order is issued to him. Appeal against the order of Registrar DRT for not registering
the Original Application can be filed before PO in his chamber within 15 days from the
date of the order.

(c) Arbitration and Conciliation Act, 1996 - For filing Application for setting aside
arbitral award passed by arbitrator under Arbitration and Conciliation Act, 1996 the
period of limitation is three months from the date on which the party making the
application had received the arbitral award.

(d) The Criminal Procedure Code, 1973 - The Code prescribes period of limitation
for taking cognizance of offences as follows:

Nature of Offence Period of Commencement of the period of

Limitation
If offence is punishable
with fine only
OR
If offence is punishable
with imprisonment for a
term not exceeding 1
year
OR
If offence is punishable
with imprisonment for a
term exceeding 1 year
but not exceeding 3 years
limitation
6 months On the date of offence.
1 year Where commission of an offence was
not known to the person aggrieved by
the offence, the first day on which such
offence comes to the knowledge of
such person.
3 years Where it is not known by whom the
offence was committed, the first day
on which the identity of the offender is
known to the person aggrieved by the
offence or the Police Officer making
investigations into the offence,
whichever is earlier.

(e) Negotiable Instruments Act 1881 - In case borrower, guarantor or any other
liable party makes payment by cheque which gets dishonored by non-payment, such
dishonor due to `insufficiency of funds' or `exceeding the arrangement’ constitutes an
offence and attracts punishment under Sec.138 of Negotiable Instrument Act 1881.

To avail the above provision, it is necessary that:

i) Cheque should have been presented within 3 months from the date of cheque or
within the validity period, whichever is earlier.

ii) Within 30 days of receipt of information regarding the return of cheque, Bank
should give notice of demand to the Drawer of the cheque for payment of the
amount.

iii) If the drawer of such cheques fails to make payment to the Bank within 15
days of the receipt of notice, then the Bank shall make complaint within one
month from expiry of 15 days' period as above said, before Metropolitan
Magistrate or Judicial Magistrate of the First Class.

336
(f) Consumer Protection Act 1996 - The Act provides limitation for filing complaint,
appeal, revision, review against order of different forums.

(g) Ombudsman Scheme 2006 As per the scheme, aggrieved by an Award bank
can file appeal within 30 days of the date of receipt of letter of acceptance of Award
from complainant with the previous sanction of the Chairman.

5. Where the prescribed period for filing any application/proceedings, civil or

criminal, expires on a day when the court is closed, the same can be filed on the first
day when the court re-opens.

6. For determining or computing limitation in regard to appeals, applications and

other proceedings, or wherever the limitation position is not clear, matter may be
referred to the Law Division at Head Office.

7. On obtaining BC letter, date will be filled in “Debt Acknowledgement Date” field

in Scheme details in CBS.

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337
 CHAPTER 12
MANAGEMENT OF
NON-PERFORMING ASSETS

BOOK OF INSTRUCTIONS ON LOANS

338
1
 CHAPTER – 12

MANAGEMENT OF NON-PERFORMING ASSETS

_________________

1. Non Performing Assets (NPA) act as drag on bank's profitability and need
urgent attention at all levels. The action points and strategies for reducing NPAs has
to be two pronged (i) recovery/ reduction in existing NPA accounts and (ii) checking
slippage of accounts from Performing (Standard) to NPA category. The action points
may vary depending upon the internal and external factors including nature of activity
and intention of borrowers etc. Important guidelines on the subject and basic
strategies/action points for reduction of NPAs are given as under:

Since the guidelines on classification and other operative aspects of NPAs are
rapidly evolving, the field staff is advised to refer to latest Recovery Division
HO Circulars on Income recognition, Asset Classification, Provisioning,
Restructuring of advances and related aspects (IRAC Norms) and other areas
before taking a final view on the matter. In the following only general
guidelines relevant to field staff has been incorporated. These are
complementary to AND NOT SUBSTITUTE the extant guidelines on the subject
in the latest Recovery Division Circulars.

For NPA guidelines relating to Purchase and sale of NPAs and detailed
operating instructions & Accounting please refer to latest Recovery Division
Circular mentioned above.

2. INCOME RECOGNITION

Income recognition is based on the record of recovery. Branches should not charge
and take interest on non performing assets (NPAs) to income account, till it is
actually realized. An asset will become non performing when it ceases to generate
income for the bank. In other words, income thereon should not be recognised on
accrual basis but is booked as income only when recovery is actually received in the
account.

3. IDENTIFICATION OF NPAs

The basis for treating a credit facility as NPA is given below:

3.1 Term Loan

Term loan account will be treated as NPA if interest and/or installment of principal
remain overdue for a period of more than 90 days.

Overdue: Amount due to the bank under any credit facility is overdue, if it is not paid
on the due date fixed by the Bank.

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3.2. Cash Credits and Overdrafts

3.2.1 A cash credit or overdraft account will be treated as NPA if the account
remains out of order for a period of more than 90 days. An account is treated as
“out of order” if any of the following conditions is satisfied:

a. The outstanding balance remains continuously in excess of the sanctioned

limit/drawing power.
b. Though the outstanding balance is less than the sanctioned limit/drawing power
but there are no credits continuously for 90 days as on the date of balance
sheet or credits are not enough to cover the interest debited during the same
period

3.2.2 Branches should ensure that drawings in the working capital accounts are
covered by the adequacy of current assets, since current assets are first
appropriated in times of distress. Considering the practical difficulties of large
borrowers, stock statements relied upon by the banks for determining drawing power
should not be older than three months. The outstanding in the account based on
drawing power calculated from stock statements older than three months, would be
deemed as irregular. A working capital borrowal account will become NPA if such
irregular drawings are permitted in the account for a continuous period of 90 days
even though the unit may be working or the borrower’s financial position is satisfactory.

3.2.3 Regular and adhoc credit limits need to be reviewed / regularised not later than
three months from the due date/date of adhoc sanction. In case of constraints such
as non availability of financial statements and other data from the borrowers, the
branch should furnish evidence to show that renewal/ review of credit limits is
already on and would be completed soon. In any case, delay beyond six months is
not considered desirable as a general discipline. Hence, an account where the
regular/ adhoc credit limits have not been reviewed/renewed within 180 days from the
due date/date of adhoc sanction will be treated as NPA.

3.3 Bills Purchased and Discounted

The bills purchased/discounted account should be treated as NPA if the bill remains
overdue for a period of more than 90 days.

Note: In case of default in payment of interest only, Branches should classify an

account as NPA only if the interest charged during any quarter is not serviced fully
within 90 days from the end of the quarter.

4. General Guidelines

4.1 Reversal of Interest

a. When a credit facility is classified NPA the entire interest charged & credited to
the income account in the past periods, should be reversed by debiting Profit and
Loss Account and crediting to respective accounts, if the same is not realized. Such
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interest be recorded in the Memoranda Account. Necessary accounting entries be
passed at the close of the Quarter at the branch level in all the newly identified NPA
accounts.

b. Fees and commission earned by Bank as a result of renegotiations or re-

scheduling of outstanding debts should be recognised on accrual basis over the
period of time covered by the re-negotiated or rescheduling extensions of credit.

4.2 Determination of NPAs: Borrower wise, not Facility wise

All the facilities granted to a borrower will have to be treated as NPA and not a
particular facility or part thereof which has become NPA. If the amount in default of any
borrower is outstanding in default account i.e. LC- default account/ LG-default account
/ DPG default account/ Co-accepted bills default account, the balance outstanding in
that account also should be treated as a part of the borrower’s principal operating
account for the purpose of application of prudential norms on income recognition,
asset classification and provisioning.

4.3 Advances against FDR/NSCs/KVP/IVP/LIP

Advances against Term Deposits, NSCs eligible for surrender, Indira Vikas Patras,
Kisan Vikas Patras and Life Insurance Policies, need not be treated as NPAs
although interest thereon has not been paid for 90 days provided adequate margin is
available in the accounts.

4.4 Advances guaranteed by Central Government & State Government

4.4.1 Advances guaranteed by Central Government

The credit facility backed by the Central Government Guarantee though overdue
may be treated as NPA only when the Government repudiates its guarantee
when invoked. This exemption from classification of Government guaranteed
advances as NPA is not for the purpose of recognition of income.

4.4.2 Advances guaranteed by State Government

A state Government guaranteed advance, where interest and/or installment of

principal/or any other amount due to the bank remains overdue for a period more than
90 days shall become a non performing advance.

4.5 Regularisation of account

4.5.1 If the accounts of the borrowers have been regularised before the balance sheet
date by repayment of overdue amounts through genuine sources (and not by
sanction of additional facilities or transfer of funds between accounts) the accounts
need not be treated as NPA.

4.5.2 It should be ensured that such accounts remain in order subsequently and a
solitary credit entry made in the account on or before the balance sheet date which
341
extinguishes the overdue amount of interest or instalment of principal is not
reckoned as the sole criterion for treating the account as standard asset. Where the
account indicates inherent weakness on the basis of the data available, the account
should be deemed as a NPA.

4.6 Agriculture Advances

A loan granted for short duration crops will be treated as NPA, if the instalment
of principal or interest thereon remains overdue for two crop seasons. A loan
granted for long duration crops will be treated as NPA, if the instalment of principal
or interest thereon remains overdue for one crop season. For the purpose of
these guidelines, “long duration” crops would be crops with crop season longer than
one year and crops, which are not “long duration” crops, would be treated as “short
duration” crops. The crop season for each crop, which means the period up to
harvesting of the crops raised, would be as determined by the State Level Bankers’
Committee in each State. Depending upon the duration of crops raised by an
agriculturist, the above NPA norms would also be made applicable to agricultural
term loans availed of by him. The above norms should be made applicable to all
direct agricultural advances as listed in Recovery Division, HO Circular on Income
Recognition Asset Classification & Provisioning norms.

4.7 Net Worth Of Borrower /Guarantor or Availability of Security

Availability of security or net worth of borrower/guarantor should not be taken into

account for the purpose of treating an advance as NPA or Standard as asset
classification and income recognition is based on record of recovery and
compliance of other non-financial indicators.

4.8 Project Finance –Moratorium for interest payment

In case of bank finance given for industrial projects or for agricultural plantations, etc.
where moratorium is available for payment of interest, payment of interest becomes
`due' only after moratorium or gestation period is over. Therefore, such amounts of
interest do not become `overdue' and hence NPA with reference to the date of debit
of interest. They become overdue if it is not paid on due date for payment of interest.

Similarly in case of housing loans or similar advances granted to staff

members where interest is payable after recovery of principal, interest need
not be considered as overdue. Such loans/ advances should be classified as
NPA only when there is default in payment of interest (90 days’ overdue from due
date of payment.).

4.9 Consortium Advances

In respect of consortium advances, each bank may classify the borrowal accounts
according to its own record of recovery and other aspects having a bearing on the
recoverability of the advances, as in the case of multiple banking arrangements.
Where the remittances by the borrower under consortium lending arrangements are
pooled with one bank and /or where the bank receiving remittances is not parting with
342
the share of other member banks, the account will be treated as not serviced in the
books of the other member banks and therefore, be treated as NPA. The banks
participating in the consortium should, therefore, arrange to get their share of recovery
transferred from the lead bank or get an express consent from the bank for the
transfer of their share of recovery, to ensure proper asset classification in their
respective books.

4.10 Classification of NPA straightaway as a doubtful in case of serious credit

impairment

The extant instructions provides that a NPA need not go through the various stages of
classification in case of serious credit impairment and such assets should be
straightaway classified as a doubtful/loss as appropriate.

4.10.1 Erosion in the value of security can be reckoned as significant when the
realizable value of the security is less than 50 per cent of the value assessed by the
bank or accepted by RBI at the time of last inspection, as the case may be. Such
NPAs may be straightaway classified under doubtful category and provisioning should
be made as applicable to doubtful assets.

4.10.2 If the realizable value of the security, as assessed by the Bank/ approved
valuers/RBI is less than 10% of the outstanding in the borrowal accounts, the
existence of security should be ignored and the asset should be straightway classified
as loss asset.

4.11 Treatment of accounts under Take-out Finance arrangement

Take out finance is the product emerging in the context of the funding of long-term
infrastructure projects. Under this arrangement, the institution/ the bank financing
infrastructure projects will have an arrangement with any financial institution for
transferring to the latter the outstanding in respect of such financing in their books on a
pre-determined basis. In view of the time-lag involved in taking-over, the possibility
of a default in the meantime cannot be ruled out. The norms of asset classification
will have to be followed by the concerned bank/ financial institution in whose books
the account stands as balance sheet item as on the relevant date. If the lending
institution observes that the asset has turned NPA on the basis of the record of
recovery, it should be classified accordingly. The lending institution should not
recognize income on accrual basis and account for the same only when it is paid by
the borrower/ taking over institution (if the arrangement so provides). However, the
taking over institution, on taking over such assets, should make provisions treating
the account as NPA from the actual date of it becoming NPA even though the
account was not in its books as on that date.

4.12 Export Project Finance

In respect of export project finance, there could be instances where the actual
importer has paid the dues to the bank abroad but the bank in turn is unable to remit
the amount due to political developments such as, war, strife, UN embargo, etc.

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In such cases, where the lending bank is able to establish through documentary
evidence that the importer has cleared the dues in full by depositing the amount in
the bank abroad before it turned into NPA in the books of the bank, but the
importer’s country is not allowing the funds to be remitted due to political or other
reasons, the asset classification may be made after a period of one year from the
date the amount was deposited by the importer in the bank abroad.

4.13 LEASED ASSETS

In respect of leased assets the "Guidance Note on Accounting for Leases" issued by
the Institute of Chartered Accountants of India (ICAI) should be followed. Instructions
regarding Income Recognition Asset Classification & Provisioning on Leased assets
issued by Recovery Division, HO in their latest IRAC Master Circular are to be
followed.

4.14 Advances granted under rehabilitation packages

Banks are not permitted to upgrade the classification of any advance in respect of
which the terms have been renegotiated unless the package of renegotiated terms
has worked satisfactorily for a period of one year. While the existing credit facilities
sanctioned to a unit under rehabilitation packages approved by BIFR/Term Lending
Institutions will continue to be classified as Sub standard or doubtful as the case
may be, in respect of additional facilities sanctioned under the rehabilitation
packages, the Income Recognition, Asset Classification norms will become
applicable after a period of one year from the date of disbursement. So
provision on additional facilities sanctioned need not be made for a period of
one year from date of disbursement.

4.15 Advances guaranteed by DICGC/ECGC/CGTSI

In case of advances guaranteed by DICGC/ECGC/CGTSI, provision should be

made only for the balance in excess of the amount guaranteed by them. While
arriving at the provision required to be made, the realisable value of the securities
should be deducted from the outstanding balance in respect of advances guaranteed
by DICGC/ECGC/CGTSI as explained in extant Recovery Division, HO circular.

5. ASSETS CLASSIFICATION

Advances are classified under two broad categories:

(i) Performing (Standard) and
(ii) Non Performing (Sub-standard, Doubtful and Loss).

The criteria for classification takes into account the degree of well defined credit
weaknesses (please refer to para 4.10 above also), period for which the asset has
remained non performing, realisability of the dues and extent of dependence on
collateral security for realisation of the dues.

5.1 Standard Asset (PERFORMING)

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Standard Asset is one which does not disclose any problem and does not carry more
than normal risk attached to the business. These are performing assets.

5.2 NON PERFORMING (Sub-standard, Doubtful & Loss)

5.2.1 Sub-Standard

A sub-standard asset is one, which has remained NPA for a period less than
or equal to 12 months.

In such cases, the assets have well defined credit weakness that jeopardize
liquidation of the debt and are characterized by the distinct possibility that the
bank will sustain some loss, if deficiencies are not corrected.

5.2.2 Doubtful

An asset is classified as doubtful if it has remained in the sub- standard

category for 12 months.

Doubtful assets are further subdivided into three categories:

Category Particulars
DB-I Where an account has remained in Doubtful category up to
1 year
DB-II Where an account has remained in Doubtful category from
1 to 3 years
DB-III Where an account has remained in Doubtful category for
more than 3 years

A loan classified as doubtful has all the weaknesses inherent in that classified as sub-
standard with the added characteristic that the weaknesses make collection or
liquidation in full, on the basis of currently known facts, conditions and values, highly
questionable and improbable.

5.2.3 Loss Assets

A loss asset is one where loss has been identified by the bank or internal or
external auditors or the RBI Inspectors but the amount has not been written off,
wholly. In other words, such an asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted although there may
be some salvage or recovery value.

6. Treatment of Restructured Accounts

The guidelines issued by the Reserve Bank of India on restructuring of advances

are divided into the following four categories:

(i) Guidelines on restructuring of advances extended to industrial units.

(ii) Guidelines on restructuring of advances extended to industrial units under the
345
 Corporate Debt Restructuring (CDR) Mechanism
(iii) Guidelines on restructuring of advances extended to Small and Medium
Enterprises (SME)
(iv) Guidelines on restructuring of all other advances.

In these four sets of guidelines on restructuring of advances, the differentiations

were broadly made based on whether a borrower is engaged in an industrial activity
or a non-industrial activity. In addition, an elaborate institutional mechanism was laid
down for accounts restructured under CDR Mechanism. The major difference in the
prudential regulations was in the stipulation that subject to certain conditions, the
accounts of borrowers engaged in industrial activities (under CDR Mechanism,
SME Debt Restructuring Mechanism and outside these mechanisms) continued to be
classified in the existing asset classification category upon restructuring. However
w.e.f. 01.04.2015, the asset classification benefit is not available and after restructuring
accounts have to be classified as NPA immediately after restructuring except specified
cases of extension of Date of Commencement of Commercial Operation (DCCO).
This benefit of retention of asset classification on restructuring was not made available
to the accounts of borrowers engaged in non-industrial activities except to SME
borrowers. Another difference was that the prudential regulations covering the CDR
Mechanism and restructuring of advances extended to SMEs were more detailed and
comprehensive than that covering the restructuring of the rest of the advances
including the advances extended to the industrial units, outside CDR Mechanism.
Further, the CDR Mechanism was made available only to the borrowers engaged
in industrial activities. The CDR Mechanism will also be available to the corporates
engaged in non-industrial activities, if they are otherwise eligible for restructuring as
per the criteria laid down for this purpose.

6.1 Guidelines for restructuring of advances

Banks may restructure the accounts classified under 'standard', 'sub - standard' and
'doubtful' categories.

6.1.1 Banks cannot reschedule/restructure/renegotiate borrowal accounts with

retrospective effect. While a restructuring proposal is under consideration, the usual
asset classification norms would continue to apply. The process of re - classification of
an asset should not stop merely because restructuring proposal is under
consideration. The asset classification status as on the date of approval of the
restructured package by the competent authority would be relevant to decide the
asset classification status of the account after restructuring/rescheduling/
renegotiation.

6.1.2 Normally, restructuring cannot take place unless alteration / changes in the
original loan agreement are made with the formal consent / application of the debtor.
However, the process of restructuring can be initiated by the bank in deserving cases
subject to customer agreeing to the terms and conditions.

6.1.3 No account will be taken up for restructuring by the banks unless the
financial viability is established and there is a reasonable certainty of repayment from
the borrower, as per the terms of restructuring package. Any restructuring done
346
without looking into cash flows of the borrower and assessing the viability of the
projects / activity financed by banks would be treated as an attempt at ever greening
a weak credit facility and would invite supervisory action by RBI. Banks should
accelerate the recovery measures in respect of such accounts. The viability should
be determined by the banks based on the acceptable viability benchmarks determined
by them, which may be applied on a case-by-case basis, depending on merits of each
case.

6.1.4 While the borrowers indulging in frauds and malfeasance will continue to
remain ineligible for restructuring, banks may review the reasons for classification of
the borrowers as wilful defaulters, and satisfy itself that the borrower is in a position
to rectify the wilful default. The restructuring of such cases may be done with
Board's approval, while for such accounts the restructuring under the CDR
Mechanism may be carried out with the approval of the Core Group only.

6.1.5 BIFR cases are not eligible for restructuring without their express approval.
CDR Core Group in the case of advances restructured under CDR Mechanism,
the lead bank in the case of SME Debt Restructuring Mechanism and the
individual banks in other cases, may consider the proposals for restructuring in
such cases, after ensuring that all the formalities in seeking the approval from BIFR
are completed before implementing the package.

6.2 Asset classification norms for Restructured Advances

Restructuring of advances could take place in the following stages:

(a) before commencement of commercial production / operation;

(b) after commencement of commercial production / operation but before the asset
has been classified as 'sub-standard';
(c) after commencement of commercial production / operation and the asset has
been classified as 'sub-standard' or 'doubtful'.

6.2.1 The accounts classified as 'standard assets' should be immediately re-

classified as 'sub-standard assets' upon restructuring.

6.2.2 The non-performing assets, upon restructuring, would continue to have the same
asset classification as prior to restructuring and slip into further lower asset
classification categories as per extant asset classification norms with reference to the
pre-restructuring repayment schedule.

6.2.3 Standard accounts classified as NPA and NPA accounts retained in the same
category on restructuring by the bank should be upgraded only when all the
outstanding loan/facilities in the account perform satisfactorily
i.e. principal and interest on all facilities in the account are serviced as per terms of
payment during the ‘specified period’. Specified Period means a period of one year
from the commencement of the first payment of interest or principal, whichever is
later, on the credit facility with longest period of moratorium under the terms of
restructuring package.

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6.2.4 In case, however, satisfactory performance after the specified period is not
evidenced, the asset classification of the restructured account would be governed
as per the applicable prudential norms with reference to the pre- restructuring payment
schedule.

6.3 Any additional finance may be treated as 'standard asset' during the specified
period under the approved restructuring package. However, in the case of accounts
where the pre-restructuring facilities were classified as 'sub-standard' and 'doubtful',
interest income on the additional finance should be recognised only on cash basis.
If the restructured asset does not qualify for upgradation at the end of the above
specified period, the additional finance shall be placed in the same asset classification
category as the restructured debt.

6.4 If a restructured asset, which is a standard asset on restructuring is subjected to

restructuring on a subsequent occasion, it should be classified as substandard. If
the restructured asset is a sub-standard or a doubtful asset and is subjected to
restructuring, on a subsequent occasion, its asset classification will be reckoned
from the date when it became NPA on the first occasion. However, such advances
restructured on second or more occasion may be allowed to be upgraded to
standard category after the specified period in terms of the current restructuring
package, subject to satisfactory performance.

6.5 Income in respect of restructured accounts classified as 'standard assets' will

be recognized on accrual basis and that in respect of the accounts classified as
'non-performing assets' will be recognized on cash basis

6.6 Provision on restructured advances

Banks will hold provision against the restructured advances as per the extant
provisioning norms applicable to Restructured advances in latest IRAC circular
issued by Recovery Division, HO.

6.6.1 Provision for diminution in the fair value of restructured advances

(i) Reduction in the rate of interest and / or reschedulement of the repayment

of principal amount, as part of the restructuring, will result in diminution in the fair value
of the advance. Such diminution in value is an economic loss for the bank and will
have impact on the bank's market value of equity. It is, therefore, necessary for
banks to measure such diminution in the fair value of the advance and make
provisions for it by debit to Profit & Loss Account. Such provision should be held in
addition to the provisions as per existing provisioning norms, and in an account
distinct from that for normal provisions.

(ii) The diminution in the fair value may be re-computed on each balance sheet
date till satisfactory completion of all repayment obligations and full repayment of the
outstanding in the account, so as to capture the changes in the fair value on account
of changes in BPLR or base rate (whichever is applicable to the borrower), term
premium and the credit category of the borrower. Consequently, banks may
provide for the shortfall in provision or reverse the amount of excess provision held in
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the distinct account.

(iii) The total provisions required against an account (normal provisions plus
provisions in lieu of diminution in the fair value of the advance) are capped at 100% of
the outstanding debt amount.

7. Prudential Norms for Conversion of Principal into Debt / Equity

7.1 Asset classification norms

A part of the outstanding principal amount can be converted into debt or equity
instruments as part of restructuring. The debt / equity instruments so created will be
classified in the same asset classification category in which the restructured
advance has been classified. Further movement in the asset classification of these
instruments would also be determined based on the subsequent asset classification
of the restructured advance.

8. Prudential Norms for Conversion of Unpaid Interest into 'Funded Interest

Term Loan' (FITL), Debt or Equity Instruments

8.8.1 Asset classification norms

The FITL / debt or equity instrument created by conversion of unpaid interest will
be classified in the same asset classification category in which the restructured
advance has been classified. Further movement in the asset classification of FITL
/ debt or equity instruments would also be determined based on the subsequent
asset classification of the restructured advance.

8.8.2 Income recognition norms

i. The income, if any, generated by these instruments may be recognised on

accrual basis, if these instruments are classified as 'standard', and on cash basis
in the cases where these have been classified as a non- performing asset.
ii. The unrealized income represented by FITL / Debt or equity instrument
should have a corresponding credit in an account styled as "Sundry Liabilities Account
(Interest Capitalization)".
iii. In the case of conversion of unrealised interest income into equity, which is
quoted, interest income can be recognized after the account is upgraded to
standard category at market value of equity, on the date of such upgradation, not
exceeding the amount of interest converted into equity.
iv. Only on repayment in case of FITL or sale / redemption proceeds of the debt /
equity instruments, the amount received will be recognized in the P&L Account,
while simultaneously reducing the balance in the "Sundry Liabilities Account
(Interest Capitalisation)".

8.8.3 Valuation & Provisioning norms

Please refer to extant IRAC Circular. However, the depreciation, if any, on valuation
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may be charged to the Sundry Liabilities (Interest Capitalisation) Account.

9 Wilful Defaulters and Non-Cooperative Borrowers

Instructions regarding treatment of Wilful Defaulters are contained in Latest Recovery

Division Circular on the subject. In addition to these instructions and with a view to
ensuring better corporate governance structure in companies and ensuring
accountability of independent/professional directors, promoters, auditors, etc.
henceforth, the following prudential measures will be applicable:

(a) The provisioning in respect of existing loans/exposures of banks to

companies having director/s (other than nominee directors of government/financial
institutions brought on board at the time of distress), whose name/s appear more than
once in the list of wilful defaulters, will be 5% in cases of standard accounts; if such
account is classified as NPA, it will attract accelerated provisioning as under. This is a
prudential measure since the expected losses on exposures to such borrowers are
likely to be higher. It is reiterated that no additional facilities should be granted by any
bank/FI to the listed wilful defaulters.

Asset Period as NPA Current Revised accelerated

Classification provisioning(%) provisioning (%)

Sub- standard Up to 6 months 15 No change

(secured) 6 months to 1 15 25
year
Sub-standard Up to 6 months 25 (other than
(unsecured ab- initio) infrastructure loans)
25
20
(infrastructure loans)
6 months to 1 25 (other than
year infrastructure loans)
40
20
(infrastructure loans)
25 (secured portion) 40 (secured portion)
Doubtful I 2nd year 100 100 (unsecured
(unsecured portion) portion)
40 (secured portion) 100 for both secured
Doubtful II 3rd & 4th year 100 and unsecured
(unsecured portions
Doubtful III 5th year onwards 100 100

10. Provisions in respect of all cases of Fraud

a. The entire amount due to the bank (irrespective of the quantum of security held
against such assets), or for which the bank is liable (including in case of deposit
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accounts), is to be provided for over a period not exceeding four quarters
commencing with the quarter in which the fraud has been detected;

b. However, where there has been delay, beyond the prescribed period, in
reporting the fraud to the Reserve Bank, the entire provisioning is required to be
made at once. In addition, Reserve Bank of India may also initiate appropriate
supervisory action where there has been a delay by the bank in reporting a fraud, or
provisioning there against.

11. Provisioning norms for Sale of Financial Assets to Securitisation Company

& Reconstruction Company

Guidelines issued in this regard by RBI from time to time shall be followed. The RBI’s
extant guidelines provide as under:

11.1 When the bank sells its financial assets to Securitization Company/
Reconstruction Company, on transfer the same will be removed from its books.

11.2 If the sale to SCs/RCs is at a price below the Net Book Value (NBV) (i.e Book
Value less provisions held), the shortfall should be debited to the Profit &
Loss account of that year. Bank can also use countercyclical / floating
provisions for meeting the shortfall on sale of NPAs i.e when the sale is at a
price below the NBV.

In terms of RBI Circular no. DBR.No.BP.BC.94/21.04.048/ 2014-15 dated

21.05.2015 for assets sold on or after 26.02.2014 and upto 31.03.2016, as incentive
for early sale of NPAs, banks can spread over any shortfall, if the sale value is
lower than the NBV, over a period of two years. This facility of spreading over
the shortfall will be subject to necessary disclosures in the Notes to Account in the
Annual financial Statements of the Bank.

11.3 For assets sold after 26.02.14 and before 26.02.14 also, if the sale is for a
value higher than the NBV, Bank can reverse the excess provision on sale of
NPAs to its profit and loss account in the year, the amounts are received.
However, Bank can reverse excess provision arising out of sale of NPAs, only
when the cash received (by way of initial consideration and/or redemption of
SRs/PTCs) is higher than the NBV of the asset. Further, reversal of excess
provision will be limited to the extent to which cash received exceeds the NBV
of the asset.

11.4 When the bank invests in the SRs/PTCs issued by SCs/RCs in respect of the
financial assets sold by it to the SC/RC, the sale shall be recognized in books of the
bank at the lower of:

(a) the redemption value of the security receipts/ pass-through certificates,

&
(b) the NBV of the financial asset.

The above investment will be carried in the books of the bank at the price as
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determined above until its sale or realization, and on such sale or realization, the
loss or gain must be dealt with in the same manner as at
11.2 and 11.3 (above).

11.5 The provisions of above mentioned paras shall be given effect to, by the
Finance Division after taking approval from the competent authority (ED/MD),
Head Office after receipt of sanction of a sale proposal by the Competent
Authority, by passing the necessary vouchers in their books of accounts.

12. Prudential norms for the sale transactions to Other Banks/FIs/NBFCs (other
than SCs/RCs) etc.-Provisioning norms

(a) When the bank sells its NPAs to other Banks/FIs/NBFCs etc., the same will be
removed from the books on receipt of full payment/transfer.

(b) If sale is at a price below the Net Book Value (NBV) i.e. Book Value less
provision held, the shortfall shall be debited to the Profit & Loss A/c of that
year.

(c) If sale is for a value higher than the Net Book Value (NBV) i.e. Book Value
less provision held, the excess provision shall not be reversed but will be utilized
to meet the shortfall/loss on account of sale of other NPAs.

(d) In case there is overall surplus over and above the excess provision in
any of the sale transaction that surplus amount will be taken in the profit &
loss a/c.

12.1 The provisions of above mentioned paras shall be given effect to, by the
Finance Division after taking approval from the competent authority (ED/MD),
Head Office after receipt of sanction of a sale proposal by the Competent
Authority, by passing the necessary vouchers in their books of accounts.

+++++

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 CHAPTER 13
NPA MANAGEMENT THROUGH
ONE TIME SETTLEMENT (OTS)

BOOK OF INSTRUCTIONS ON LOANS

353
1
 CHAPTER – 13

NPA MANAGEMENT THROUGH ONE TIME SETTLEMENT

(OTS)

Resolution of Non Performing Assets through one-time settlement (OTS) has been
recognized as an effective non-legal remedy by the Bank due to twin advantages of
faster recovery of dues and income generation by recycling of funds otherwise
likely to be blocked for a long time. One time settlement of dues refers to a
negotiated settlement under which the bank endeavours to recover maximum
amount within least possible time, with least possible expenses.

As per RBI guidelines, approach for considering waiver/ sacrifice/ loss on OTS can
be in the following order based on merits and attendant circumstance of each
individual case:

a. Waiver of penal interest only.

b. Waiver of the effect of compounding the interest if it facilitates recovery of dues

fully by application of interest in the account at documented rate on simple basis
from a determined date, say filing of suit; transfer of dues to the Protested Advances/
NPA category; the Unit being affected by some natural calamity and/or other
external factor(s) beyond control or closure of the Unit etc.

c. Waiver of a part or whole of simple interest can also be considered.

d. In exceptional cases, waiver of part of principal dues outstanding in the

Bank's books can also be considered wherever it is so justified.

Negotiation process shall not hover around book outstanding. Dues as per
memoranda account shall be advised to the obligants and negotiation will start
from such total/gross dues owed by the borrower. Efforts should be made to
recover the maximum amount and to minimize the sacrifice. However, sacrifice
in OTS Proposal shall be calculated taking the Recoverable Dues.

2. Definition of Net Present Value of OTS amount and Net Present Realisable
Value of Securities:

Reserve Bank of India vide its communication

No.DBOD.No.BP.BC.34/21.04.048/2007-08 dated 4.10.2007 has advised as under:

“As the payment of the compromise amount may be in instalments, the net
present value of the settlement amount should be calculated and this amount
should generally not be less than the net present realisable value of
securities.”

354
In view of the above definition of Net Present Value of the OTS amount and Net
Present realisable value of securities is as under:

2.1 Net Present Value of the OTS amount

Where OTS amount is to be paid alongwith interest @ Base Rate from the date of
conveying OTS, net present value of the total amount recovered (OTS amount +
Interest) from the obligants would be OTS amount itself. If OTS amount is to be
recovered without interest or at a rate lower than Base Rate, net present value shall
be calculated by adjusting difference in Base Rate and proposed rate of interest in
the OTS sanction. Payment within 3 months without interest is considered immediate
payment and as such would not require calculation of net present value of OTS
amount.

2.2 Net Present Realizable Value of Securities

Present Market Value of the charged securities net of cost of realisation discounted
appropriately for the attendant factors (refer Recovery Division’s OTS Policy
Circular issued from time to time) affecting its realisability shall be called Net
Present Realisable Value of Securities. It may kindly be noted that Realizable
Value and/or Distress Value as calculated by the Valuers in their Reports is
not to considered for arriving at Net Present Realizable Value of the securities.

3. Recoverable dues

Recoverable Dues shall be calculated w.e.f. the date of NPA on the Book outstanding
as existing on the date of NPA (inclusive of SI/DI reversed subsequently) duly
adjusted for recoveries/further debits in the account, ignoring the interest, if any
credited/debited in the account after the date of NPA, on simple basis on daily
reducing balance @ Base Rate or Contractual Rate of interest, whichever is lower
as prevailing on the date of consideration of OTS proposal. This will be done in all
cases irrespective of the fact whether recovery was appropriated towards income or
reduction in outstanding. The SI/DI earlier charged in the account and reversed
consequent upon the classification of account as NPA shall be added to the
recoverable interest. The interest/charges, if any debited to the account after
classification of account as NPA be netted off from the recoverable interest to give
effect to the correct calculation of simple interest.

4. Minimum Indicative OTS Amount

Indicative OTS Amount is the amount which serves as a yardstick to accept the OTS
offer by the Bank in the negotiation process. However, it is never intended to be a
substitute of a realistic OTS amount and the OTS amount may be higher or lower of
the Indicative OTS Amount depending upon the strengths and weaknesses of the
respective NPA. Indicative OTS amount shall be calculated as per the OTS policy in
vogue.

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5. Valuation of Securities

5.1 Report of approved valuers

Proper distinction has to be made between market value and realisable value of
the securities while considering/ recommending OTS proposals. Valuation report
must clearly indicate the ‘Realisable Value’ in addition to the ‘Market Value’. Wide
variation in value of property (ies) at the time of considering the OTS/ Write off
compared to its valuation at the time of original/ last sanction or at the time of
making provisions should be critically examined.

In the valuation reports submitted by the approved valuers and verified by the bank’s
official(s), the realisable value should take into consideration various aspects,
affecting its realisability/ realisable value. To quote a few:

➢ whether the property i.e land and building, is self occupied or tenant occupied. If
tenant occupied, since how many years the same is occupied by the present
tenant;
➢ whether land, is on lease from the Government, its agencies/ authorities, since
such leased property carry clause of sharing unearned increase/ profit resulting
in diminutive realisable value of property;
➢ whether the property is commercial or residential;
➢ whether dispute about validity and enforceability of the IPs/Block Assets
charged/available in the account surfaced at any stage of the negotiation/legal
proceedings;
➢ Demand for the underlying security in the event of its sale/ disposal and
availability of ready buyers;
➢ Statutory encumbrances like Property Tax, lease rent, development charges etc.
➢ Actual value to be received under circumstances of forced/ distress sale.
➢ Attachment of IP by Sale Tax/ Income Tax/ other revenue authorities.
➢ Other Statutory/ related liabilities on the IP.
➢ Undivided share in property, particularly agricultural land.
➢ Assets having no independent access
➢ Large or Big units/estates
➢ Assets created for special purpose

The valuation report should clearly specify the reasons and discounting factor on
market value taken into consideration for each reason to arrive at the realisable
value.

6. Vetting of valuation by Bank officials

The valuation assessed by the approved valuer shall be verified and vetted by the
Bank officials after due cognizance of the above guidelines as under:-

356
 Accounts with  Valuation to be verified/vetted by 2 officials of the
outstanding balance of Bank independently, one of the officials must
more than Rs. 5.00 not be below the rank of Chief Manager.
crore  Further additional vetting shall be done by
two Circle Office officials independently, one
of whom should not be less than the rank of
Chief Manager.
Accounts with Valuation to be verified/vetted by 2 officials of
outstanding balance of the Bank independently, one of the officials must
above Rs.50 lac and not be below the rank of Chief Manager.
up to Rs. 5.00 Crore
Accounts with Valuation to be verified/vetted by an official of
outstanding balance the bank independently not below the rank of
up to Rs.50 lac Scale II.

Officials verifying/vetting the valuation given by the Board approved valuers only
shall submit their report on the proforma (as per annexure) as stipulated by Integrated
Risk Management Division from time to time.

*********

357
 Annexure I

PROFORMA FOR COUNTER CHECKING THE VALUE OF PROPERTY ASSESSED

BY APPROVED VALUER

1. Date of counter checking the valuation :

2. Name of the owner(s) of the property :
3. If the property is under joint ownership/
Co-ownership, share of each such : Owner. Are the shares
undivided?
4. Brief description of the property i.e. location, street, ward No., Flat/Plot No.,
dimensions :
- Is the property situated in residential/ commercial/mixed area/Industrial area :
- Whether the construction plan is approved
by Municipal Authority/Corporation, etc. :

5. Is it freehold or leasehold land? :

6. a)Is the building owner – occupied/tenanted/both:
b) If partly owner-occupied, specify portion and extent of area under owner –
occupation :
c) Rental value of the property :

7. Is any dispute of landlord with tenant and/or

any statutory body in regard to property? :
8. Specify the method(s) adopted by the valuer for : assessing the value of the
property (i.e. personally inspecting the property, scrutinising the
valuation certificate issued by local authority for taxation purposes, making enquiries
through brokers, neighbours, net yield method, Circle Rate method, assessing value
through internet, comparison with the valuation available with the Bank at the
same/nearby centres etc.)
Value of Land (Area x Rate) + Construction Cost
9. Realisable value of the property as
per valuation report of the approved valuer :

10. Whether the value as assessed by the approved : Yes/No

Valuer is reasonable & acceptable

11. 1f not, the Realisable value as Assessed by the : Incumbent Incharge

DATE: SIGNATURE & NAME OF

PLACE: THE BRANCH HEAD

358
 ANNEXURE II
SUPPLEMENTARY AGREEMENT

This Supplementary Agreement is executed at on this _______day of

between M/s_________________________________________________________________
(hereinafter referred to as “the Borrower” which term shall include its successors and
assigns) and PUNJAB GRAMIN BANK, a body corporate constituted under Regional Rural
Bank Act, 1976 having its Head Office at Jalandhar Road, Kapurthala 144601 and, inter alia,
a Branch Office at (hereinafter referred to as “the Bank” which
term shall include its successors and assigns).

WHEREAS the Borrower has availed, inter alia, the following facility/ies from the Bank:

_________________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

WHEREAS the above said facility/ies has/have been secured by the following securities:

_________________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

WHEREAS the Bank, in terms of the provisions of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ACT), has
issued 60 days notice and also have taken further steps, Namely _______________________
in exercise of the powers given under the Act, in respect of following
securities:

_________________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
(hereinafter referred to as ‘the said security’)

WHEREAS the borrower has shown his/her inability to pay the total outstanding amount
under the said credit facilities immediately.

WHEREAS the borrower proposed to enter into a OTS /one time settlement in the
account.

WHEREAS the Borrower has requested the Bank to hold on the enforcement of security
interest in respect of the said security.

WHEREAS the Bank has agreed to the proposal of the borrower for OTS on the following terms
and conditions and also to hold on the enforcement of security interest.

NOW, THIS AGREEMENT WITNESSETH:

The Borrower agrees and acknowledges that the amount outstanding in respect of the
abovesaid facility/ies as on the date is Rs. _________________ (Rupees ________________
_______________________________________is as under:

359
2. The bank and the Borrower have agreed that if and only if the borrower pays without
default Rs. ________________ (Rupees _______________________________________)
along with interest @ _________ from time to time as per the following time schedule, Bank will
hold on the enforcement of security interest.

3. Further if and only if the Borrower pays the amount without default as above said, all the
amount due to the bank, as stated in clause 1 above will stand discharged.

4. The Bank and the Borrower agree that possession notice earlier issued by the Bank
be treated as not having acted upon. The Borrower confirms that the possession of the
secured asset taken by the Bank, has been restored back to him / them in good condition
as was taken by the Bank.

OR

The Bank agrees that the security is taken possession of by the Bank as per procedure as
prescribed under the Security Interest (Enforcement) Rules, 2002 and the Bank will not
proceed further for sale, to facilitate the fulfillment of OTS terms by the Borrower.

5. The Borrower confirms the continuance of the said security and other securities as before.

6. In the event of any default in payment of the OTS amount by the borrower:

a) All concessions granted as above, shall lapse and the Bank shall be entitled to recover
entire amount with further interest and costs as stated in the clause 1 above.

b) Bank will be entitled to resume process of taking possession / sale of the security from
the point where it was ‘held on’. The borrower agrees that in that eventuality, no fresh notice
of possession will be issued by the Bank.

7. The Borrower agrees that all other terms and conditions as contained in the loan and
security documents continue to be in force and be binding, save and except those modified
as above.

8. This Supplementary Agreement is in addition to the loan and security documents

executed by the Borrower.

IN WITNESS WHEREOF, the parties hereto have signed these presents on the day, month
and year above mentioned.

For …………………

(BORROWER)

For PUNJAB GRAMIN BANK

(AUTHORISED SIGNATORY)
360
 ANNEXURE III

LETTER OF CONSENT FROM GUARANTOR

PLACE:
DATE:
The Branch Manager
Punjab Gramin Bank
BO:

Dear Sir,

Reg: M/s ………………………………... (Borrower), Facility…………………Account

No…………..

The Borrower has been availing the credit facility/ies as above said. The above credit
facility/ies, inter alia, has/have been guaranteed by me/us vide guarantee deed / letter of
guarantee dated .

The Bank has issued demand notice and also has taken further steps namely __________
, in terms of the
provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI ACT)

The Borrower has entered into a OTS / one time settlement with the Bank. In terms of the
OTS the Bank and the borrower has agreed that if and only if the borrower pays without
default a sum of Rs. (Rupees only) along with
interest @ % PA from time to time as per the time schedule agreed
upon between the bank and the borrower, bank will hold on the enforcement of the
security interest, as stated in supplementary agreement dated .

I/We give consent to the arrangement as above said as per the Supplementary Agreement/s
dated .

I/We agree that the Guarantee/s dated already executed by me/us

will continue to be in force and binding on us.

I/We confirm and acknowledge that the mortgage/hypothecation security, as created/executed

by me/us continues to be in force and secures the above facility/ies availed/being availed
by the Borrower.

Thanking you,
Yours faithfully,

[GUARANTOR (S)]

361
 CHAPTER 14
SARFAESI ACT

BOOK OF INSTRUCTIONS ON LOANS

362
1
 CHAPTER – 14

THE SECURITISATION & RECONSTRUCTION OF

FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST (SARFAESI) ACT, 2002

The Act came into force w.e.f. 21 June 2002. The constitutional validity of the Act
was upheld by Supreme Court in the case of Mardia Chemicals. For the sake of
brevity, important provisions of the Act are given below for ready reference.

1. In terms of Section 13(1), any security interest created in favour of any

secured creditor may be enforced by the secured creditor without intervention of
Court or Tribunal, in accordance with provisions of the Act.

(Explanation: Being a quasi-judicial proceedings, the Authorised Officer must

ensure that all actions taken by him are strictly as per the provisions of the Act and
the SARFAESI rules.)

2. Issuance of 60 days notice under Section13(2): Where any borrower, who is

under liability to a secured creditor under a security agreement, makes any default
in repayment of secured debt or any instalment thereof, and his account in respect
of such debt is classified by the secured creditor as non performing asset, then the
secured creditor may require the borrower by notice in writing to discharge in full his
liabilities to the secured creditor within sixty days from the date of notice failing
which the secured creditor shall be entitled to exercise all or any of the rights under
sub section 13(4).

(Explanation: 60 days notice can be issued only in NPA accounts. In terms of

section 13(3), notice to be issued u/s 13(2) must give the amount payable by the
borrower and the secured assets intended to be enforced by the secured creditor in
the event of non payment by the borrower. The details of all charged assets must
be carefully mentioned in the demand notice ensuring that the assets exempted u/s
31 are not included in such notice).

(Sixty days notice runs from the date of notice. Therefore, it must be ensured that
the notice is dispatched on the same date of preparation.

Where the notice is returned undelivered, it must be got published in two leading
news papers, one of which should be in vernacular language. The notice should
also be pasted on the conspicuous part of the house or building in which
borrower or his agents ordinarily resides or carries out business.)

3. Section 13(3A): In terms of section 13(3A), if, on receipt of the notice

under sub section (2), the borrower makes any representation or raises any
objection, the secured creditor shall consider such representation or objection and
if the secured creditor comes to the conclusion that such representation or
363
objection is not acceptable or tenable, he shall communicate within 15 days of receipt
of such representation or objection the reasons for non acceptance of the
representation or objection to the borrower.

(Explanation: It must be ensured that the representation is replied within 15 days of

receipt of objection or representation under the signature of the Authorised Officer).

4. Section 13(4): This section provides that in case the borrower fails to
discharge his liability in full within the period specified in sub-section (2), the
secured creditor may take recourse to, amongst others, take possession of secured
assets of the borrower including right to transfer by way of lease, assignment or sale
for realizing the secured asset.

(Explanation: According to the manual, a letter is required to be issued to the

borrower after expiry of 60 days notice for handing over possession of the secured
assets failing which the authorised officer shall take steps for taking over the
possession of the secured assets. However, there is no provision in the Act to
issue such a letter/notice. Therefore, the Authorised Officer may take possession of
the secured assets after expiry of 60 days notice period. If a letter has been issued
advising the borrower for handing over the possession, it should be for a very short
period, say one week, asking for delivery of possession. Further the possession
notice is required to be published in two leading newspapers – one of which should
be vernacular language, within 7 days from the date of taking possession.) The
possession notice is also to be fixed on the conspicuous part of the property and
delivered to the borrower.

5. Section 13(8): If the dues of the secured creditor together with all costs,
charges and expenses incurred by him are tendered to the secured creditor at any
time before the date fixed for sale or transfer, the secured asset shall not be sold or
transferred by the secured creditor and no further step shall be taken by him for
transfer or sale of that secured asset.

(Explanation: If the borrower pays the entire recoverable dues along-with the all
costs, charges and expenses before the date fixed for sale or transfer, the asset
shall not be sold).

6. Section 13(13): No borrower shall, after receipt of notice referred to in sub

section (2) transfer by way of sale, lease or otherwise (other than in the ordinary
course of his business) any of his secured assets referred to in the notice, without
prior written consent of the secured creditor. (Explanation: To guard against any
unauthorized removal or sale of the assets, simultaneously on issue of demand
notice u/s 13(2), if borrower cooperates, an inventory of all charged assets
should be made and independently witnessed. Otherwise also, the position of
inventory/secured assets be properly watched. Any contravention of this section,
shall be deemed as an offence u/s 29 and shall be punishable with imprisonment.
Where any contravention is noticed, a complaint must be lodged with the concerned
Court).

7. Section 14(1): In terms of this section, the secured creditor may make an
364
application to the Chief Metropolitan Magistrate or District Magistrate for taking
possession of the secured asset and the CMM/DM, on such an application shall
(a) take possession of such asset and documents relating thereto and (b) forward
such assets and documents to the secured creditor.

(Explanation: No proforma of this application has been prescribed under this

section. However, while making the application, it should be ensured that the
following documents are submitted –

i) Copy of demand notice.

ii) Proof of sending the notice including copy of paper cutting of returned notice.

iii) Copy of title deeds of mortgaged properties or documents supporting creation

of charge on such properties. In case of moveable assets, copy of hypothecation
deed be filed.

iv) Declaration that the asset sought to be enforced is not exempted u/s 31 of
the Act.

v) Declaration that the asset sought to be enforced is situated within the

jurisdiction of the concerned DM/CMM.).

8. Section 17(1)- Right to Appeal: Any person (including borrower) aggrieved

by any of the measures referred to in sub section (4) of section 13 taken by the
secured creditor or his authorized officer may make anapplication to the Debt
Recovery Tribunal within forty five days from the date on which such measures had
been taken.

(Explanation: This remedy is available only after an action is taken by the secured
creditor u/s 13(4). There are cases where the action is stayed by DRT even before
13(4) action is taken. Such an action must be vehemently opposed. Further the
limitation for filing appeal by aggrieved person u/s 17(1) is forty five days with the
prescribed court fee. The application/appeal filed by the borrower or third party
must be opposed and appeal be got dismissed. Further u/s 17(5), any
application made unde sub section (1) shall be dealt with by the DRT as
expeditiously as possible and disposed of within sixty days from the date of such
application. DRT may however, extend the said period for reasons to be recorded
in writing so that the total period of pendency of such application shall not exceed
four months from the date of making such application.

In terms of Section17(6), if the application is not disposed of by the DRT within the
period of fourth months as specified in sub section (5), any party to the application
may make an application, to the DRAT for expeditious disposal of the application.)

9. Section 18(1) - Appeal to the Appellate Tribunal: Any person aggrieved by any
order made by the DRT u/s 17, may prefer an appeal along with the prescribed fee
within 30 days from the date of receipt of the order of DRT. Such appeal shall not be
entertained unless the borrower has deposited with the Appellate tribunal fifty
365
percent of the amount of debt due from him. The Appellate tribunal may, for the
reasons to be recorded in writing, reduce the amount to not less than twenty five
percent of debt.

10. Section 31: The Indicative list of the cases where the provisions of the Act are
not applicable.

a) A lien on any goods, money or security given by or under the Indian Contract
Act or Sale of Goods Act.

b) A pledge of movable within the meaning of Section 172 of Indian Contract

Act.

c) Any conditional sale, hire purchase or lease or any other contract in which no
security interest has been created.

d) Any property not liable to attachment or sale under the first proviso to sub-
section (1) of Section 60 of the Code of Civil Procedure.

e) Any security interest for securing repayment of any financial assets not
exceeding one lakh rupees.

f) Any security interest created in Agricultural Land.

g) Any case in which amount due is less than twenty per cent of the principal
amount and interest thereon.

11. Section 36 – Limitation: The claim in respect of the financial asset has to be
made within the period of limitation prescribed under the Limitation Act 1963.

OTHER IMPORTANT POINTS TO BE NOTED

1. Authorised officer means an officer not less than Chief Manager. All
action under the Act shall be taken by the Chief Manager or above. Notices sent to
the borrowers shall indicate the name of the Authorised Officer and his designation.

2. Sale of immovable property: Before effecting sale, the Authorized Officer shall
obtain valuation of the property from an approved valuer and in consultation with
the secured creditor fix the reserve price.

(Explanation: Valuer for this purpose would mean a Valuer having registration u/s
34AB of the Wealth Tax Act, approved by the Board of Directors. Sale shall not
be effected below the reserve price).

3. Sale by inviting tender or holding public auction: If the sale is effected

through these modes, sale notice shall be issued in two leading newspapers one
in vernacular language having sufficient circulation in the locality. (Explanation: The
publication must be made in two leading newspapers having sufficient circulation.
In order that the sale attracts maximum attention of the prospective buyers at
366
large, the selection of newspaper must be made having regard to its circulation and
reach. Further to save costs, publication of sale notices of different properties can be
synchronized in such a way that publication is done in one lot.

4. In terms of rule 8(6) of SARFAESI, the authorized officer shall serve to the
borrower a notice of thirty days for sale of the immoveable secured assets.
(Explanation: This is a mandatory notice and no sale shall be effected before
expiry of 30 days notice).

5. In terms of rule 8 of SARFAESI, sale by any method other than public

auction or public tender shall be on such terms as may be settled between the parties
i.e. the bank and the buyer, in writing.

(Explanation: The parties for the purpose of this section would mean the secured
creditor and buyer).

6. In terms of rule 9(9) of SARFAESI, the authorized officer shall deliver the
property to the purchaser free from encumbrances known to the secured creditor.

(Explanation: In order to comply with this section, the authorized officer must
make every effort to see the encumbrances on the assets).

GENERAL

1. Proper pre-enforcement appraisal must be done as mentioned in the Bank’s

SARFAESI Manual.

2. Recall notice is not required to be issued prior to issue of demand notice u/s
13(2). The recall can be made in the notice u/s 13(2) itself.

3. All actions under SARFAESI Act should be properly diarized to avoid any
undue delay between two actions.

4. On repayment of entire dues of the Bank by the borrower, possession of

assets will be returned to borrower immediately, maximum within 10 days.

367
 CHAPTER 15
LEGAL ACTION

BOOK OF INSTRUCTIONS ON LOANS

368
1
 CHAPTER – 15

LEGAL ACTION
_____________________________

1. No legal proceedings be instituted without the prior permission of the competent

authority, except in an emergency where the Regional Manager must be
immediately apprised of the action taken. In any case a notice of demand either
in English or in Vernacular language should be sent by registered post with
acknowledgement due, to the borrower(s) as well as guarantor(s) before
initiating legal action. For the guidance of Branch Manager, a general form of
notice is given in the Annexure I & II. It may vary as per requirements of the
case.

The charged securities and other attachable assets of the borrower/ obligants
be verified and placed on record. While filing the suit, simultaneously prayer
be made for ‘Attachment Before Judgment’ and ‘declaration of assets on oath
by the obligants’ so that the available securities are not alienated. In case,
sufficient assets are not available for recovery and still filing of suit is
recommended/ sanctioned, full justifications for such a step must be recorded.
Waivement of legal action be got approved within limitation available if the
Branch Manager feels that no fruitful purpose shall be served by filing of a suit.

1.1 Before initiating legal action for recovery, efforts should be made to recover
dues through compromise/negotiated settlement where the party has genuine
difficulties or otherwise and is willing to liquidate the dues provided certain
reliefs are given to the party. Bank may consider compromise with the party
in terms of bank's compromise policy only on merits of each case.

2. CERTIFICATE PROCEEDINGS

States where Agricultural Credit Recovery Act/Public Moneys (Recovery of Dues)

Act/Public Debt Recovery Act are in force, the provisions of such Acts must be
invoked in consultation with higher authorities wherever the Branch Manager
considers it necessary and the proceedings should be followed up closely with
the concerned authorities. In case, dues are not recovered in full, through Recovery
Certificates under these Acts, if need be, and if permissible, further steps for
recovery of the balance amount should be taken well within limitation. It is not
compulsory to transfer the accounts to Protested Category before filing certificates
under these Acts.

3. LOK ADALATS

3.1 Based on Legal Services Authorities Act, various Legal Services Authorities
have been set up by different States to determine and facilitate compromise
and settlement between the parties under a simple procedure of an application
which may be filed by any of the parties in any case which is either
pending before the Court or the matter falls within the jurisdiction of the
369
 court. Branches can make references to the Lok Adalat involving suits claims
upto 20 lakh after seeking permission from the Regional Office/Head Office. As
such maximum benefit is to be derived from the legal, simple and
acceptable procedure under the Act.

3.2 On the same pattern, DRTs also organize Lok Adalats. However, such Lok
Adalats are not in terms of the Legal Services Authorities Act. These only
provide a platform to arrive at a settlement. If settlement is arrived at, it shall be
ensured that a memo of compromise be filed before DRT and consent
adjudication order be obtained.

4. CRIMINAL PROCEEDINGS

In certain cases, it may be necessary to file criminal proceedings against the

concerned parties after examining the facts and circumstances of the individual
account and obtaining necessary permission from the competent authority.

5. INSOLVENCY PROCEEDINGS

In cases, where though the borrowers may be having means to pay, they are not
paying the dues of the bank or the assets are in name of some of their relatives as
such filing of suit/ execution proceedings may not yield desired result / outcome for
reasons they are not holding any property in their name.

Initiation of insolvency proceedings against the liable persons may prove to be very
useful and it is felt that bank has seldom used this mode for effecting recovery.

In eligible accounts especially in the case of wilful defaulters, Bank can consider
filing of insolvency petitions.

6. PROCEEDINGS UNDER SECTION 138 OF NEGOTIABLE INSTRUMENT ACT

In case of dishonor of a cheque or Electronic Fund Transfer, for insufficiency of

fund, both CIVIL AND CRIMINAL ACTION can be initiated.

CIVIL ACTION

i. If the amount recoverable is less than 10 lac bank can file summary suit under
Order XXXVII of the Civil Procedure Code, 1908 for recovery of the amount
thereof.

ii. If the amount recoverable is 10 lac or above, recovery suit can be filed
before DRT having jurisdiction.

CRIMINAL ACTION under section 138 of the NI Act.

To proceed u/s 138 of the NI Act, the following aspects will have to be complied
with:

370
The offence under Section 138 of the Act can be said to be committed only on
the culmination of a number of acts and the below mentioned five aspects are sine
qua non for the commission of offence. (i) Drawing of the cheque; (ii) Presentation of
the cheque within the validity period (iii) Returning the cheque unpaid by the
drawee bank; (iv) Giving notice in writing to the drawer of the cheque demanding
payment of the cheque amount; (v) Failure of the drawer to make payment
within 15 days of receipt of notice.

JURISDICTION

i. The complaints regarding the dishonour of cheques/ETS be filed before the

court having territorial jurisdiction in the matter i.e. at the place where the
cheque is dishonoured by the bank on which it is drawn.

ii. In those cases where the complaint already has been returned by the Court,
complaints be filed/refiled before the court having territorial jurisdiction, i.e.
place where the cheque is dishonoured by the bank on which it is drawn, and
such refilling is to be done within thirty days of its return by the court where the
case is pending.

7. LITIGATION

7.1 In matter of litigation, compliance of legal provisions, exercise of vigilance in

obtaining interim reliefs, follow-up of the matter to avoid any default and prompt
action for expeditious results are of importance.

7.2 Apart from taking certificate proceedings under Agricultural Credit Recovery
Acts/Public Moneys (Recovery of dues) Act/Public Debt Recovery Act
prevalent/in force in the respective States in respect of agricultural loans or other
eligible loans, bank has to file suit in the court of competent jurisdiction or
application before Debt Recovery Tribunal of competent jurisdiction to recover
the dues to the bank from the borrowers and all other liable parties.

7.3 After coming into force of SARFAESI Act, 2002 action for enforcement of
Security Interest in eligible accounts as against secured assets be taken. The
Suit / Application for recovery in Civil Court/DRT can be simultaneously filed
or after enforcement of Security Interest can be filed for recovery of balance
amount within limitation. Detailed guidelines have been issued by bank through
Manual on Enforcement of Security Interest and various circulars.

7.4 At the time of filing suit/application all steps to safeguard the securities/assets
available with the defendants should be taken so that securities/assets are
not frittered away during the pendency of the suit. For this purpose interim
reliefs should be obtained from the court/DRT by way of injunction/restraint
order, attachment before judgment, appointment of Receiver etc.

8. ESTABLISHMENT OF DEBT RECOVERY TRIBUNAL (DRT)

8.1 The Recovery of Debts due to Banks and Financial Institutions Act, 1993

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 came into force w.e.f. 24.06.1993. In exercise of the powers given under the
Act, Central Govt. has established Debt Recovery Tribunals with jurisdiction
area-wise as per respective notifications.

8.2 The Tribunal exercises, on and from the date on which such tribunal is
established, the jurisdiction powers and authority to entertain and decide
applications from banks for recovery of debts (amounting to 10 lakh and
above) due to the bank.

8.3 Debt means any liability (inclusive of interest) which is claimed as due from
any person by a bank or a financial institution or by a consortium of banks or
financial institutions during the course of any business activity undertaken by
the bank or the financial institution or the consortium under any law for the time
being in force, in cash or otherwise, whether secured or unsecured, or
assigned, or whether payable under a decree or order of any Civil Court or any
arbitration award or otherwise or under a mortgage and subsisting on, and
legally recoverable on, the date of application.

8.4 The Bank may make application to the tribunal within the local limits of
whose jurisdiction:

a) the defendant, or each of the defendants where there are more than one, at
the time of making the application, actually and voluntarily resides, or carries
on business or personally works for gain; or

b) any of the defendants, where there are more than one, at the time of
making the application, actually and voluntarily resides or carries on business,
or personally works for gain; or

c) the cause of action, wholly or in part, arises.

In matters where tribunal has jurisdiction, no suit or certificate proceeding shall

be filed.

Every application shall be in the prescribed form (Annexure III) and be

accompanied by documents or other evidence and the fee prescribed.

8.5 The tribunal issues summons and after hearing of the parties, passes such
orders as it deems fit.

8.6 After adjudication of the matter, the presiding officer issues a certificate to the
recovery officer for recovery of the amount of the debt specified in the
certificate.

8.7 It is ordained under the Act that the application shall be dealt with by the
tribunal as expeditiously as possible and endeavour shall be made to dispose of
application finally within 6 months from the date of the receipt of the
application.

8.8 The Debt Recovery Tribunal (procedure) Rules, 1993 prescribes amount of
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 fee as follows:

Amount of Debt Due Amount of Fee Payable

10 Lakhs Rs. 12,000/-
Above 10 Lakhs Rs. 12,000/- + 1,000/- for every 1 lakh of debt
due or part thereof in excess of 10 lakhs,
subject to a maximum of 1,50,000/-

The fee has to be remitted through a crossed bank demand draft or Indian Postal
Order payable at the station where tribunal is located.

8.9 As per rules, every application shall be accompanied by a paper book

containing:

i. Statement showing details of debt due and circumstances under which such a
debt has become due;

ii. All documents relied upon including those mentioned in the application;

iii. Index of documents.

Tribunals also require furnishing a list of securities. It should be ensured that the
list of securities is also provided while filing the application.

8.10 Debt Recovery Tribunals have been established for the purpose of recovery
of dues to banks and financial institutions. Hence, all the procedural
formalities required are to be complied with as required by the tribunals and as
prescribed under the Act and Rules in order to facilitate expeditious
adjudication and to take advantage of the remedy.

9. FILING OF SUIT

9.1 In respect of debts amounting to less than 10 lakhs or in places where Debt
Recovery Tribunals are not established/have no jurisdiction, to recover the
amount due, the bank has to necessarily file suit in the court of competent
jurisdiction.

9.2 In case of mortgage, suit should be a mortgage suit and accordingly provisions
contained in order XXXIV Civil Procedure Code (CPC) should be kept in view
and followed.

9.3 If there is mortgage security to be enforced, the suit shall be filed in the court
in whose jurisdiction the mortgaged property is situated.

9.4 In mortgage suits, if a preliminary decree is passed directing the defendants

to pay the decreetal amount within the time granted in preliminary decree
application for final decree should be moved immediately after expiry of the
period allowed.

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10. SUMMARY SUIT

10.1 The Civil Procedure Code also provides a procedure for summary suit.

10.2 The essence of summary suit is that the defendant is not, as in any ordinary
suit, entitled as of right to defend the suit. He must apply for leave to
defend within 10 days from the date of service of summons for judgment
upon him, and such leave will only be granted by the court if the Affidavit filed
by the defendant discloses such facts as the court may deem sufficient for
granting leave to the defendant to defend the suit. If no leave to defend is
granted, the plaintiff is entitled to a decree immediately.

10.3 The procedure applies to the following classes of suits, namely: (Order 37 Rule
1 Sub-Rule 2 CPC)

a) Suits upon bills of exchange, hundies and promissory notes;

b) Suits in which plaintiff seeks only to recover the debt or liquidated damages in
money payable by defendant, with or without interest, arising:

i) On a written contract or;

ii) On an enactment where the sum sought to be recovered is a fixed sum of
money or in the nature of a debt other than a penalty; or
iii) On a guarantee, where the claim against the principal is in respect of a debt or
liquidated damages only.

10.4 While presenting the plaint for suit under summary procedure, the
plaintiff/Bank should ensure that the plaint contains:

a) A specific averment to the effect that the suit is filed under Order XXXVII of
Civil Procedure Code, 1908;

b) That no relief, which does not fall within the ambit of the above noted rule, has
been claimed in the plaint, and;

c) The following inscription, immediately below the title of the suit, namely;

"Under Order XXXVII of the Code of Civil Procedure, 1908."

10.5 Banks can avail of the provision of summary procedure only in the applicable
cases mentioned above. In case of secured advances i.e. the advances where
the bank has obtained security, summary procedure is not advisable as
security held by the Bank is not enforceable under Order 37 CPC. In such a
situation, only the normal procedure for money recovery suit, enforcing the
securities will be in the interest of the Bank. In cases, where no securities are
available to be enforced, summary procedure can be availed of.

11. SANCTION FOR FILING LITIGATION, MARKING OF CASES TO COUNSELS,

BRIEFING TO THE COUNSELS AND APPROVAL OF PLAINT/APPLICATIONS

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11.1 Sanction for filing litigation

When filing of suits, applications or recovery proceedings is necessitated, proposals

should be moved, well in advance, to get the sanction from the appropriate authority
as per delegation of powers.

11.2 Marking of cases

11.2.1 After obtaining permission from Competent Authority to file suit/ Application,
advocate is to be engaged to conduct the suit on behalf of the Bank. For
sanction of engagement of counsels from approved panel on approved rates
to file a suit/application irrespective of the amount involved in the
suit/application, Regional Managers have been delegated full powers.

11.2.2 Guidelines for engaging the advocates and payment of fees be followed
meticulously as per instructions issued by Law Division.

11.2.3 It should be ensured that litigation work and the legal references are fairly
distributed among advocates on panel as far as practicable. Proforma for
approval of engagement of advocate is given at Annexure IV.

11.2.4 As soon as there are more than 50 cases with any advocate on the panel, the
marking of cases to such advocate be stopped until imbalance is eased.

11.3 Briefing to Counsels

Counsel to be engaged for conduct of the litigation has to be briefed on facts by

the Branch Manager/concerned official to enable him to prepare/draft the notice to be
issued to parties and also the plaint/application that is to be filed in court/tribunal.

11.4 Approval of plaints/applications

11.4.1 In all suits/application, draft plaints/applications should be got approved from

Law Division, HO. In any case it must be ensured that the limitation is not
allowed to expire. Draft plaint/application be sent to Law Division well in time
along with brief for filing suit/application as per proforma (Annexure V) with all
the enclosures called for therein.

11.4.2 Plaint/application sent for approval of Law Division shall be scrutinised in the
first instance at respective Regional Offices. If corrections/modifications as
suggested by Regional Office are several, the re-drafted plaint/application
shall be sent to Law Division preferably with a soft copy on email.

11.4.3 In respect of suits where follow up rests only with Regional Offices, the
Draft plaint/ Application be sent to Law Division well in time along with
brief for filing suit/application as per proforma (Annexure V) with all the
enclosures called for therein.

11.4.4 The Bank has delegated powers for Filing of Suits, to officers at various
levels. The same are advised by Head Office from time to time and should be
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 meticulously followed.

11.4.5 To facilitate scrutiny, draft plaint/applications in duplicate, should be sent

along with format of the brief for filing of suit/applications duly completed with
all enclosures. The amendments/modifications suggested by the Law
Officer/Law Division should be brought to the notice of the Counsel In
charge for finalising the plaint/applications.

11.5 Register of suits/applications and the Register of decrees

In respect of suits/applications filed and the decrees obtained to facilitate

proper follow up and monitoring of such matters, the Register of Suits
(PGB-421) and Register of Decrees (PGB- 422) be maintained properly.
The information recorded in these registers will help furnishing prompt
reports of developments and progress. These registers can be maintained at
Branch/Regional Office in electronic form on the computer with proper
backup.

11.6 Preliminary steps before filing suit/application (DRT)/ issuance of notice

11.6.1 Before filing a suit/application, matters concerning limitation, arbitration,

notice/statutory notice, clearance of Cabinet committee wherever required, and
leave of court should be carefully considered.

11.6.2 The limitation position in the account should be checked up before hand and
steps for filing of suit/application should be taken up well before availability of
limitation.

11.6.3 It should be seen whether it is necessary to refer the matter to Arbitration as

per the terms of the agreement. If so, steps should be taken to refer the
matter to Arbitration instead of filing suit/application.

11.6.4 Whenever the dispute is between the Bank and Government Deptt./ Public
Enterprise (State or Central), efforts have to be made to settle the dispute
through arbitration. For this purpose, an agreement to refer the dispute to
arbitration has to be entered into.

11.6.5 A notice of demand to the borrower and the guarantor/other liable parties be
issued. If statutory notice e.g. under Civil Procedure Code (S.80 CPC
prescribed notice to Government), Co-operative Societies Act or any other
local law, is required, the same should be served. Issue of notice/demand may
be essential to make the debt/liability due and payable and will have a
bearing on the commencement of limitation. Lack of notice will, at times, make
a suit premature and raise a question as to maintainability of litigation. Notice
before litigation will give an opportunity to the other party to remedy the
default.

11.6.6 Notice should be issued against all liable parties and shall state facts
correctly. Notice shall be checked up as to facts and figures by the Branch
Manager/ concerned officer, before issue. Notice shall be sent to correct
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 address/es.

11.6.7 In case of suit against a company, against which winding up order has
been passed or where provisional liquidator has been appointed, leave to sue
should be obtained well within time from the company court where winding
up proceedings are pending. However, for filling application before DRT
leave of the Company court is not required. If the matter is pending before
Recovery Officer DRT or Authorised Officer of the Bank under SARFAESI
Act wish to proceeds against the assets of the company in liquidation, the
steps being taken be informed the Company Court where proceedings are
pending through appropriate application in consultation with the counsel.

11.6.8 In the case of advance under consortium and also advances secured by
pari-passu/second charge, care be taken to look into the provision of
documents including inter-se agreement and the provisions regarding joint
action or action through lead bank, as far as possible, shall be given effect,
unless any decision is taken in consortium to the contrary. Likewise, the
permission/ approval of First Charge holder as required under the documents
before taking any legal action be also obtained.

12. STEPS FOR CONDUCT OF SUIT/APPLICATION

12.1 All the original loan documents, security documents, original book of account,
entries in the title deed register and all the correspondence should be shown
to the counsel and he be furnished with all the information he calls for, for
preparation of the notice/plaint/application and filing suit/application.

12.2 The Branch Manager should check up that the documents are in order and
are complete. Whenever original documents are filed in the Court/Tribunal, it
shall be ensured that the photocopies of the same be kept in the branch
record for reference.

12.3 It should also be ascertained whether any of the defendants is dead. If so, his
legal representatives, will have to be impleaded/ sued.

12.4 The plaint prepared by the counsel be checked up thoroughly as to the

correctness of facts and figures and in particular:

a) Whether all parties, borrowers and guarantors/other liable parties (if it is a firm,
the firm as well as the partners) are sued. All the parties concerned should be
sued, unless there are special reasons for not suing any of them. If one of the
defendants is a minor, he/she can be sued through his/her guardian.

b) Whether the names and addresses of defendants are given correctly and
described properly.

c) Whether securities are stated and described correctly. Where there are
securities, the same must be enforced.

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 d) Particulars regarding dates of execution of documents, balance confirmation
letters, rate of interest etc. should be correctly mentioned.

e) (a) The statement of accounts filed is to bear a certificate in the proper form
as required under Bankers' Books Evidence Act, 1891. The certificate is to
be written at the foot of the statement of account that it is a true copy of
the entry/ entries in the books of the Bank and was/were made in the usual
and ordinary course of business and that such book is still in the custody of
the Bank. The certificate be dated and subscribed by the Officer/Asstt.
Manager or Manager of the Bank with his name and official title.

A proforma of the aforesaid certificate is as follows:

CERTIFIED THAT THE ABOVE ACCOUNT IS A TRUE COPY OF ENTRIES IN

LEDGER WHICH IS ONE OF THE ORDINARY BOOKS OF THE BANK, THAT
SUCH ENTRIES ARE MADE IN THE USUAL AND ORDINARY COURSE OF
BUSINESS AND THAT SUCH BOOK IS STILL IN THE CUSTODY OF THE BANK.

Certified that the copy of the entries is obtained by a mechanical or other process
(the process can be named) which in itself ensures the accuracy.

Certified that the book from which copy of the entries are prepared has been
destroyed in the usual course of business after the date on which the copy has been
so prepared.

(The above further certificates have to be stated in the applicable matters)

OFFICER MANAGER

(e) (b) In case a printout of statement of Account or copy of such printout is filed
then such printout/ copy of printout shall be certified as under:

i. Certified that the above account is a printout / a copy of the printout of entries
of one of the ordinary books of the bank.

OFFICER MANAGER

ii. Certified that:

(Give details of safeguard/ or other particulars)

(a) Brief description of the Computer System

(b) Particulars of safeguards adopted to ensure that data as entered or any

other operation performed only by authorized person.

(c) Safeguard adopted to prevent and detect unauthorized change of data.

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(d) Safeguards available to retrieve data i.e. loss due to systematic failure or any
other reasons.

(e) The manner in which data is transferred from the system to removable media.

(f) The mode of verification in order to ensure that the data has been accurately
transferred to such removable media.
(g) The mode of identification of such data storage devices.
(h) Arrangements for storage and custody of such storage devices.

(i) Safeguards to prevent and detect any tempering with the system.

(j) Any other factor, which will vouch for the integrity and accuracy of the system.

PERSON INCHARGE OF THE COMPUTER SYSTEM

iii. Certified that to the best of my knowledge and belief, the Computer system
operated properly as on this date and I am provided with all the relevant data
and the printout/ copy of the printout represents correctly or is
appropriately derived from the relevant data.

PERSON INCHARGE OF THE COMPUTER SYSTEM

f) It should be seen that interest and other charges upto the date of filing of
the suit are included in the claim.

g) An averment shall be made in the body of the plaint/ application that the
transaction is a commercial transaction and the Bank (plaintiff) shall be
entitled to pendentalite and future interest at the contracted rate which is _%
p.a. as on the date of filing of the suit/application.

h) Prayer for decree/order for payment against all the defendants jointly and
severally be made.

- Prayer for sale of securities should be made;

- Interest pendentalite and further/future interest from the date of filing of suit /
application till realization of entire decreetal / RC amount at contractual rate be
claimed;

- Prayer for costs be made;

- Prayer for issue of certificate to Recovery Officer (in case of application

before DRT) be made.

- Prayer for any other relief.

i) The plaint/application shall be signed by the official who is duly authorised

under Bank's Power of attorney to sign, verify pleadings and court
379
 documents. The plaint/ application shall be signed and verified by the
Manager/ Officer as an Attorney and Principal Officer (if so, of the branch) of
the Bank.

10.5 The statement of account may include details of rate of interest charged from
time to time for the respective periods, the relevant circular of Bank/any other
reference relied for charging such rate.

13. INTERIM RELIEF

13.1 If a debtor is removing property or is about to abscond out of court's

jurisdiction or is about to dispose off his property to obstruct or delay
execution against him, application for attachment of the property before
judgment, should be made to the court and injunction obtained in
consultation with counsel.

13.2 Wherever necessary, application for appointment of Receiver should also be

made.

14. EVIDENCE

14.1 The Manager should assist the counsel and see that proper evidence on
behalf of the bank is filed/produced.

As per Debt Recovery Tribunal (procedure) Rules facts can be proved by filling
of affidavit. In most of the Tribunals the affidavit are accepted at the time of
filling of the Original Application (OA). As such after consulting the counsel the
affidavit of the concerned official can be filed along with the OA. If the official
whose affidavit is to be filed is not posted in the Branch or nearby, the
affidavit can be sent to the Branch where the official is posted well in
advance for sighing and getting the same notarized and resubmitting to the
concern Branch for filling in DRT.

In matters where civil suits have been filed, the names of the witnesses can
be ascertained in consultation with the dealing counsel and keeping in view the
issues framed in the case. If the witness is bank staff, his present place of
posting is to be ascertained and noted in the concerned file/ record.
Arrangement shall be made to issue instructions to the concerned witness to be
present on the hearing date for examination.

14.2 Usually in DRT presence of Bank witness is not required as evidence is filed
on affidavit. However, if Bank officials are called to prove the documents and
also their authority to file the suit in the litigation relating to recovery matters at
the time of hearing in the Courts. These documents are to be proved in
accordance with Indian Evidence Act, 1872. For proving the authority to file the
suit and for proving the documents, generally the Branch Manager who filed
the suit is called and is produced as a witness. He testifies his authority to file
the suit on behalf of the bank and also the documents which are necessary to
be proved in accordance with law.

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14.3 The power of attorney issued by the bank is executed before and
authenticated by the Notary Public. The notarized and authenticated power of
attorney, in terms of Section 85 of Indian Evidence Act, 1872 is presumed to
be duly executed.

In the case of Bank of India vs Ajaib Singh Pritam Singh (reported in AIR 1979
NOC Delhi 199) Delhi High Court held that production of Resolution of the
Board of Directors is not necessary and the power of attorney which was duly
executed and authenticated before the Notary Public empowering the attorney
to issue and sign the pleadings, was enough to prove the authority.

The transaction under Section 85 of the Evidence Act. is, however, rebuttable.
The original minute book and certified copy of the Resolution in question,
should be produced only when the above presumption is rebutted by the
opposite party who has challenged the authority of the attorney.

14.4 With respect to the documents, which have to be proved in the court in
respect of litigation involving less than 1 lakh, the person who executed the
document or who signed the plaint, should be produced in the court only if he
is posted at a station within the district where litigation is pending. If the person
to be produced is posted beyond the district then some other officer/employee
of the branch concerned who was posted there at the time of the execution
and signing of the documents and who saw the execution and signing of the
same and who is conversant with the handwriting of the executants should be
produced before the court and the same would be in accordance with law. It
should be ensured that the person to be produced in the court in this
respect was serving in the branch at the time the documents in question were
executed and signed.

Calling the officer from far off places beyond the district for this purpose in
respect of small litigations should be avoided. In case it is necessary to call
the witness beyond District, the permission of the Circle Head under whose
jurisdiction the employee proposed to be called as witness is working be
obtained. The concerned Regional Manager will accord the necessary
permission only when the Regional Manager of that Branch whose suit is
being tried, confirms that presence of proposed witness is required.

15. CLAIM FOR INTEREST

15.1 In respect of commercial transactions, the courts can award future interest up to
agreed rate of interest in terms of loaning documents.

15.2 The grant of interest after the filing of the suit is at the discretion of the
court, and the agreed rate of interest is the upper ceiling fixed by the law.
Though the award of future interest is the discretion of the court, yet it is to be
exercised judiciously, based on principles of justice and equity.

Keeping this legal position in view, a good case should be made on bank's

381
 behalf in courts for the award of future interest at the agreed rate. The
branches should ensure that the plaint/application should contain a prayer for
the grant of future interest at the agreed rate and further, our
advocates should be fully briefed to make a strong argument for the award of
future interest at the agreed rate as well. It may, inter-alia, be argued to the
court that bank is a nationalised bank with social responsibility cast upon it
which enjoins it to give advances to the weaker sections of society at
concessional rates of interest. Hence, Bank should be suitably compensated
in the other area of lending with the grant of agreed rate of interest till the
realisation of dues.

15.3 In terms of Section 21-A of the Banking Regulation Act, 1949 notwithstanding
anything contained in Usurious Loans Act, 1918 or any other law relating to
indebtedness in force in any state, the transaction between the banking
company and its debtor shall not be opened by any court on the ground that
rate of interest charged by the Banking company in respect of such transaction
is excessive. This section applies to nationalised banks as well.

16. IMPLEADING LEGAL HEIRS

If the borrower is an individual and he dies during the pendency of the suit, his legal
representative will have to be brought on record within the time prescribed.

17. GENERAL

i) The counsel shall be assisted in all respects and the matter be followed with
him regularly. He shall also be requested to give reports of progress of the
suits from time to time.

ii) Fees for the counsel should be settled in advance and he shall be paid as per
the instructions contained in the circulars that are in force and issued from
time to time. Other bills e.g. for expenses, incurred or to be incurred be settled
without delay.

iii) The Manager should see that the counsel files the fee certificate/ memo of costs
as per the rules/requirements of the court/tribunal and the cost is also
included in the decree/recovery certificate.

iv) Only counsels who are on the approved panel should be entrusted with the
Bank's cases. Where there is no approved counsel or the circumstances
warrant otherwise, prior permission of the appropriate authorities should be
sought for engaging the counsel not included in the approved panel.

v) It is desirable that material dates of hearing are attended by the Manager or

someone acquainted with the facts of the case to assist the counsel.

vi) At times, suits/application are filed long after the decision for filing suit in the
account is taken by the competent authorities. Such delay is likely to affect the
bank's interest. Further, courts/ DRTs also take a serious view of the matter of
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 such delays by denying awarding of interest for the period of delay. Hence,
unless there is good reason for deferment, the suit/application be filed as early
as possible.

vii) Non-pursuit of the case or absence of the bank official or advocate on the date
of hearing is viewed seriously by the courts and DRT who, in such cases
either dismiss the suits/applications or award heavy costs. Such like
predicaments should be avoided.
18. EXAMINATION OF JUDGEMENT/DECREE/ORDER OBTAINED

18.1 As soon as a copy to the judgement/decree order is obtained from the

court/tribunal, it should be read carefully with a view to ensure that the
judgement/decree/order passed/awarded is in terms of the prayers made in
the plaint/application and if there is any clerical mistake/error, it should be
brought to the notice of the counsel, his advice should be sought and if need
be, necessary application for amendment of decree/order be made.

18.2 In mortgage suits, the application for final decree should be made at the
appropriate time, within limitation.

18.3 If the amount of civil suit filed was less than 10 lakh but after passing of
decree the amount recoverable in terms of decree becomes 10Lakh or more
than application has to be filed before DRT for issuance of Recovery Certificate
and Execution in Civil Court should not be filed.

18.4 Further legal action (appeal/review/revision)

When a case/any legal aspect is decided partly or wholly against the bank,
desirability to file an appeal/review/revision (as the case may be) or otherwise
should be considered and if appeal/review/revision is to be filed, the Branch
Head should send his recommendations along with counsel's opinion and a
copy of the judgement preferably with the grounds for appeal/review/revision
petition to the competent authority through Circle Office for sanction and
approval. Such recommendations should clearly depict the likely loss to be
incurred, if further legal action/appeal against the judgement is to be waived.
The limitation for appeal/revision/review should be indicated clearly in the
reference forwarded and steps should be taken in time.

19. EXECUTION

19.1 If the judgement debtor does not pay in terms of the decree/ order, further
steps for execution of the decree/recovery certificate by attachment and sale
of the properties, by arrest of the judgement debtor etc. as may be deemed
fit be taken appropriately. If the case involves sale of property, necessary non-
encumbrance certificate be obtained so that the case can be proceeded
without any delay.

19.2 If the property is situated outside the jurisdiction of the court which passed the
decree, the decree should be got transferred to the court in whose
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 jurisdiction the property is situated and the matter should be further pursued
without delay. All the litigations should be followed up vigorously.
20. WAIVEMENT OF LEGAL ACTION

20.1 Each individual case should be examined as per its merits and attendant
circumstances and further recourse be taken. Accounts, where the Regions are
of the opinion that the merits of the case do not permit continuing the suit with
the Court/DRT or following up execution of decrees/ RCs, then the proposal
for waiver of legal action should be placed before the competent authority for
consideration.

20.2 If the waivement of legal action is approved, then an appropriate statement may
be made before the Court/ Recovery Officer that the bank is not interested
in further pursuit of Suit/ Decree/ Recovery Certificate.

20.3 It is for the Court/ Recovery Officer to record the statement and pass further
orders.

******************
.

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 ANNEXURE I

By Regd. Post

LETTER FOR ISSUING NOTICE TO BORROWER(S)

DATE: _____________
________________
________________
________________

Dear Sir(s),

With reference to your ___________________________ account against the security

of _____________________, we point out that the account has become irregular due
to the following reasons:

________________
________________

We regret that no steps have so far been taken by you to set right the irregularity.
Under the circumstances, we are unable to permit continuation of the aforesaid
account. The account shows a debit balance of Rs. ________________ as on
______________ with interest calculated upto ________________.

We request you to pay the aforesaid amount with further interest at the rate agreed
upon upto the date of actual payment within ___________ days from the receipt of this
letter, failing which the Bank will be constrained to take such legal steps as may be
necessary at your risk and responsibility to recover the amount with interest, costs and
other charges and enforce the securities held against without any further notice.

We have full confidence that you will be good enough to settle the account within the
aforesaid time and will thereby preclude the contingency of a legal action.

Yours faithfully,

Manager

385
 ANNEXURE II

By Regd. Post

LETTER FOR ISSUING NOTICE TO GUARANTOR(S)

DATE: _____________
________________
________________
________________

Dear Sir(s),

In connection with ____________________ account of Shri/M/s ________________

(Borrower) guaranteed by you, we point out that the account has become irregular due
to the following reasons:

________________
________________

We have recalled the payment of balance due in the above account/s vide notice
dated _____________ to the borrower/s.

We regret that no steps have so far been taken by you to set right the irregularity.
Under the circumstances, we are unable to permit continuation of the aforesaid
account. The account shows a debit balance of Rs. ________________ as on
______________ with interest calculated upto ________________.

We hereby invoke the guarantee and call upon you to pay the aforesaid amount with
further interest at the rate agreed upon upto the date of actual payment within ______
days from the receipt of this letter, failing which the Bank will be constrained to take
such legal steps as may be necessary at your risk and responsibility to recover the
amount with interest, costs and other charges* and also enforce the securities without
any further notice.

We have full confidence that you will be good enough to settle the account within the
aforesaid time and will thereby preclude the contingency of a legal action.

Yours faithfully,

386
 Manager

*specify, if any – delete if not applicable.

ANNEXURE III

AAPLICATION UNDER SECTION 19 OF THE RECOVERY OF DEBTS DUE TO

BANKS AND FINANCIAL INSTITUTION (ACT), 1993

For use in Tribunal’s Office : ____________________________

Date of filing : ____________________________

Date of receipt by post : ____________________________

Or

Registration No : ____________________________

______________________

Signature

Registrar

387
 IN THE DEBTS RECOVERY TRIBUNAL
(Name of the place)

BETWEEN
A B APPLICANT
AND
C D DEFENDANT

DETAILS OF APPLICATION :

1. Particulars of the applicant :

(i) Name of the applicant :
(ii) Address of Registered Office :
(iii) Address for service of all notices :

2. Particulars of the defendant:

(i) Name of the defendant :
(ii) Office address of the defendant :
(iii) Address for service of all notices :

3. Jurisdiction of the Tribunal :

The applicant declares that the subject-

matter of the recovery of debt due falls
within the Jurisdiction of the Tribunal

4. Limitation :

The applicant further declares that the

application is within the limitation
prescribed in section 24 of the Recovery
of Debts Due to Banks and Financial
Institutions Act, l993.

5. Facts of the case :

The facts of the case are given below :

(Give here a concise statement of facts

In a chronological order, each paragraph

388
 containing as nearly as possible a separate
issue, fact or otherwise.)

6. Relief(s) sought :

In views of the facts mentioned in para

5 above, the applicant prays for the
following relief(s) :

[Specify below the relief(s) sought

explaining the ground for relief(s) and
the legal provisions (if any relief upon)]

7. Interim order, if prayed for :

Pending final decision on the

application, the applicant seeks
issue of the following interim order :

(Give here the nature of the interim

order prayed for with reason).

8. Matter not pending with any other

court, etc. :

The applicant further declares that the

matter regarding which this application
has been made is not pending before
any court of law or any other authority
or any other Bench of the Tribunal.

9. Particulars of Bank Draft/Postal Order

in respect of the application fee :

(1) Name of the Bank on which drawn :

(2) Demand Draft No. :
OR
(1) Number of Indian Postal Order(s) :
(2) Name of the issuing Post Office :
(3) Date of issue of Postal Order(s) :
(4) Post Office at which payable :

10. Details of Index :

An index in duplicate containing the

details of the documents to be relief
upon is enclosed.

11. List of enclosures :

389
 VERIFICATION
I__________________________________________________________son/daughter/
(Name in full and block letters)
wife of Shri _______________________ being the _____________________________
(Designation)
of __________________________________________holding a valid power of attorney
(Name of the company)
from _________________________________________________hereby verify that the
(Name of the company)
the contents of para 1 to 11 are true to my personal knowledge and belief and that I
have not suppressed any material facts.

Place:
Date:
Signature of the applicant

To:

The Registrar,
____________________
____________________
____________________

390
 ANNEXURE IV

PROPOSAL FOR APPROVAL OF ENGAGEMENT OF ADVOCATE

1. Name of account:

2. Brief description of facts for

which suit is proposed to be
filed with approximate amount

3. BO: CO:

4. Panel of Advocates for BO/CO as related to BO)

Sr. No. Name Qualification/Experience No. of cases Allotted

at BO Totally for
Bank
1.
2.
3.
4.
5.

5. Recommendations of BO with reasons, if any.

BRANCH MANAGER

6. Sanction of Regional Manager

REGIONAL MANAGER

391
 ANNEXURE V
BRIEF FOR FILING SUIT/APPLICATION

BRANCH__________________ Regional Office _____________________

1. Name of the Borrower

2. Brief history of the case

3. Particulars of borrower

a) Constitution

b) Parentage (in case of

individuals/partners

c) i) Previous Address

ii) Present Address

4. Name of guarantor/s Parentage Address

Previous Present

5. Details of securities

6. List of property of Borrower/Guarantor

(besides the property charged, pledged

or mortgaged in the account)

7. Particulars of documents (facility-wise)

Documents Place of Date of Facilities Name & address

Execution execution secured/ of each person
Guaranteed with whom the
documents is/
are executed.

Loaning and
security
392
Documents

Guarantees

8. Mortgaged Property: Details Place where property Facility

is situated secured

9. Dates of BC letters taken: from borrower from guarantor

(to be given in sequence from
the date of loaning documents)
10. Particulars and position of Insurance Claim
filed or to be filed.(in case filing of suit/
reference to arbitration against the Ins. Co. is
necessary, the position of limitation be also indicated)

11. Recall notice/statutory notice

a) Whether notice of Recall made/served

b) If so, date of first recall notice

i) against borrower
ii) against guarantor(s)

c) Whether reply, if any, is received

d) In case railways/carrier or any other party

is liable, whether required statutory notice
has been served within the time prescribed
(special limitation period under the respective
statutes to be kept in view)

12. If the account is transferred to another branch,

the name of branch and date of transfer

13. Name of office which is maintaining original ledgers,

vouchers and paid cheques and other books of a/cs
and in possession of other movable securities.

14. Details of particulars of charge/modification of charge

filed and certificates obtained(in case of companies)

15. Any other information (not covered by the above) in

possession/knowledge of the branch, like pendency
before BIFR/AAIFR or winding up proceedings before
Company Court etc.

16. List of enclosures

a) Copy of sanction of competent authority

authorising filing of suit application
393
b) Copies of loaning and security documents including
TD register entries and letters confirming creation
of mortgage.

c) Copies of BC letters taken

d) Copies of charge particulars filed (in case of companies)

e) Copy of accounts bearing the certificate under Bankers

Books Evidence Act, 1891.
f) Copies of notices (recall/statutory)

g) Copy of reply

h) Copies of letters/correspondence passed between the bank

and the party (having bearing and relevance to the case)

i) Latest CR of the party

j) One copy of `Proforma' submitted to SAMD for transferring

the account to Protested Category/filing suit.

MANAGER

394