Professional Documents
Culture Documents
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Project on Bank of India
PROPOSED METHODOLGY:
The information on the project under study will be obtained from the Bank employees
and officials. Also I have to study various files and the official correspondence of the
Bank The next stage is to understand the actual corporate finance process adopted by
‘S’ Bank. It includes understanding of the credit proposals of certain selected
borrowers as prepared by the Bank. Also bank’s credit portfolio will be analyzed. The
methodology also includes making actual proposal of one of its proposed clients,
which will help to get practical experience of the corporate finance methodology.
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BANKING SCENARIO
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RAISING OF FINANCE
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1. Sole Banking: Only one bank looks after all the financial
requirements of the borrower.
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BANK OF INDIA
Beginning with one office in Mumbai. With a paid-up capital of Rs.50 lakh
and 50 employees, the Bank has made a rapid growth over the years and blossomed
into a mighty institution with a strong national presence and sizable international
operations. In business volume, the Bank occupies a premier position among the
nationalised banks.
The Bank has 3021 branches as on 31.03.2009 in india spread over different
states/union territories including 136 specified branches. These branches are
controlled through 48 Zonal offices. There are 28 branches/offices abroad which
include three representative offices. The Bank came out with its maiden public issue
in 1997 and followed on Qualified Institutions placement in February 2008. Total no.
Of shareholders as on 31/03/09 is 235589 and total no. Of shares as on 31.03.2009
was 525175300 while firmly adhering to a policy of prudence and caution,the Bank
has been in the forefront of introducing various innovative services and systems.
Business has been conducted with the successful blend of traditional values and ethics
and the most modern infrastructure. The Bank has been the first among the nationalise
banks to establish a fully computerised branch and ATM facility at the Mahalaxmi
Branch at Mumbai way back in 1989. The Bank is also founder member of SWIFT in
India. It pioneered the introduction of the health code system in 1982,for
evaluating/rating its credit portfolio.
The bank association with the capital market goes back to 1921 when it
entered into an agreement with the Bombay Stock Exchange (BSE) to manage the
BSE clearing House. It is an association that has blossomed into a joint venture with
BSE , called the BOI Shareholding Ltd. To extend depository services to the stock
Broking community.
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Bank of India was the first Indian Bank to open a branch outside the country,
at London, in 1946, and also first to open a branch in Europe, Paris in 1974. The Bank
has sizable presence abroad, with a network of 28 branches (including five
representative office) at key banking and financial centres viz. London, Newyork,
Paris, Tokyo, Hongkong and Singapore, the international business accounts for
around 17.82% of Banks total business.
PERFORMANCE HIGHLIGHTS
Highlights of the bank’s performance in the year 2009-10 as compared to the previous
year and the performance for the quarter ended march 2010 as against march 2009 are
given below.
Mar.10 Mar.09
DEPOSITS
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ADVANCES
NPA MANAGEMENT
Bank has been able to resolve large number of NPA Accounts. As a result there have
been substantial recoveries in NPA accounts/written off accounts successively for last
several years. Due to heavy slippages, NPA level has been increased during the year
to RS.4882.65 Cr.Cash Recoveries are Rs.621.64 Crores during the year march’10
compared to Rs.675.82 Crores during the year march’09.upgradation have been
Rs.203.56 Crores vis-à-vis Rs.324.53 of previous year ended march’09.Toatl
reduction has been Rs.1568.90 (including write off) compared to Rs.1559.77 Crores
of march’09.
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Bank has already opened 32.63 lac no-frill accounts till 31.03.2010, out of which 4.12
lac accounts are enrolled for issuance of smart cards. 941 Business correspondents are
engaged by the bank who are providing services in 2551 villages.
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Credit Facilities
provided by BOI
Deferred Payment
Guarantee
1. Term Finance
Term Loan/Finance covers funds required for acquiring means of
production such as land, building and plant and machinery etc.
These could be for setting up new projects or expanding the present
activities. Term finance is generally given for a longer period and is
repayable in installments over the period with or without
Moratorium. The period and the installments are determined based
on the repayment capacity of the project / borrower.
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Everyone of us need a place of our own, which we call as HOME. The Home
signifies comfort, security and peace so we strive for owning a house but buying an
immovable property in India is a lifetime challenge because of a combination of
factors. A meticulous planning at the investment stage can save us from sleepless
nights later. Indian Bank realizes the importance of guiding the first time purchasers
of property before making the buying decision.
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Much like the Green Revolution of the 70s that transformed the country’s
agriculture sector, the real estate industry is hoping for a Housing Revolution to be
kicked off in 2008. More than half a dozen realty companies from the gulf are eying
India and according to industry sources more than US$ 50 billion is expected to flow
into the country’s property market in the next couple of years. It is expected that
affordable housing will be dream-cum-true for middle class buyers most of whom are
residing in rented houses at present. As per a survey report 65.31 lacs families in rural
area and 203.15 lacs families in urban area are residing in rented houses.
Home Loan finance is one of the most secured finances and our Home Loan Scheme
is specially designed for middle and upper middle class people. Salient features of the
scheme are given below .
ELIGIBILITY
Bank can finance to
1. Salaried persons
2. Professionals like Doctors, Lawyers, Engineers, Chartered Accountants, etc.
3. Self-employed Persons having regular income/ regular source of income.
4. Non Residents including P.I.O. (Person of Indian Origin) .
5. Staff Members.
6. Farmers/ agriculturists
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PURPOSE
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QUANTUM OF FINANCE
Proposals with exceptional merits and where bank may get assured
concomitant benefits. Such cases may be considered / approved by the
following authorities:
NOTE: Zonal Manager and above – up to the extent of their delegated Authority.
2. For Additions/ Repair/Renovation/Extension Rs. 20 lacs
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However actual amount of advance will depend upon the income criteria
as under :
SALARIED EMPLOYEES
48 times of gross monthly salary OR 4 times of gross annual income based on
Income Tax Returns
CHARTERED ACCOUNTANTS
5 times of gross annual income based on I. Tax returns
DOCTORS
6 times of gross annual income based on I. Tax returns
FARMERS/AGRICULTURISTS
Cases where Income tax returns are not filed or cases where income tax
returns are not required to be filed: Assessment of income based on net income from
farm/other agricultural/allied activities and depending upon repayment capacity of
proponent. For the purpose of income assessment, Branches may verify the
bills/receipts from APMC, Commission agents, procurement agency such as Sugar
Mills/Cotton Mill Federation/Dairy Society etc. and net farm income to be assessed
on the basis of land holding and cropping pattern followed. Branch should mention
clearly basis/sources of income and stream as well as repayment
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FOR INDIVIDUALS
While fixing the limit, it should be ensured that the net take home pay/income
(net of EMI of proposed loan) is not less than 45% of the gross monthly
salary/income of the applicant
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Maximum upto 70% of the notional rental income from the existing/new
house, whichever is lower may be taken into consideration for the
purpose of determining the maximum permissible quantum of loan.
Appropriate consideration should be given to the time-lag after which this
income would be generated.
SECURITY
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INSPECTION
After a decision has been taken to consider the proposal, a second visit is to be
made by another officer of the branch after abstention of valuation report and
satisfactory title verification report from the empanelled valuer and advocate of the
bank. The officer who pays the second visit is required to tally the particulars of the
property being inspected with those provided by the advocate and the valuer in their
reports. The details of findings during the visits by both the officers are to be
incorporated in the proposal.
The system of visiting the property twice by two officials of the branch is to
be applied to all advances proposals of Rs. 5 lacs and above where immovable
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property is being mortgaged to secure the advance. For limits below Rs.5 lacs
inspection may be carried out by a single officer.
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MARGIN:
We can accept margin in the form of liquid Securities like Bank’s TDR,
NSC ,KVP, Govt. security etc. (Principal/ liquid Securities like Bank’s TDR,
NSC ,KVP, Govt. security etc. (Principal/ face value) and Surrender Value of
Insurance Policy in the name of Borrower/ Guarantor. Such security (ies) should be
properly charged/pledged to the Bank.
RATE OF INTEREST:
Loans sanctioned on/or after 10.10.05 are linked to BOIFRR. The revised rate
of interest under this category for new loans sanctioned w.e.f. 21.02.08. (No change
for existing loans as on 20.02.08) is as under:
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Rate of interest for new Rate of interest for new Rate of interest for
loans w.e.f. 21.02.08 loans w.e.f. 21.02.08 new loans w.e.f. 21.02.08
For limits upto Rs.20 lacs For limits over Rs.20 For limits over Rs. 50 lacs
lacs and upto Rs.50 lacs
Upto >5yr >10 >15 Upto >5yr >10y >15y Upto >5yrs- >10yrs >15yrs
5 - yr- yr- 5yrs -10yr r- r- 5yrs 10yrs -15yrs -20yrs
yrs. 10yr 15yr 20yr 15yr 20yr
BOIFRR 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00
Premium 1.25 1.50 1.75 1.75 1.50 1.75 2.00 2.25 2.00 2.25 2.50 2.75
Floating 9.25 9.50 9.75 9.75 9.50 9.75 10 10.2 10 10.25 10.5 10.75
Rate 5
Home loans are to be considered only on floating interest basis. Sanction of loans
on fixed interest basis has been discontinued;
If registered original title deeds are not available for creating equitable
mortgage, for any reason, at the time of disbursement, it may be submitted maximum
within 6 months. Any delay beyond 6 months will attract a penal interest of 0.5% p.a.
from the date of first disbursement . However in genuine cases, the ZM may approve
refund of penal interest charged during a particular quarter after receipt of title deeds.
OTHER INCENTIVE
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REPAYMENT:
• The repayment period should not extend beyond the period of retirement of the
borrower or on his reaching 65 years of age, whichever is earlier.
We may consider selectively requests to capitalize the interest charged during the
moratorium period and repay the same along with the principal. Preferably the interest
should be recovered as and when charged. Where interest applied during the
moratorium period is to be capitalized and recovered alongwith the principal, the
decision should be taken at the time of sanction of the proposal and we should ensure
that EMI is calculated taking into account the interest for the moratorium period. The
interest to be capitalized during the moratorium period shall be within the loan
amount eligible.
The EMI of the Home Loan is linked to rate of interest as well as to the tenure of the
loan. The borrower opting for floating rate of interest for a specific period of
repayment will have to bear the risk of additional higher EMIs whenever there is an
increase in rate of interest.
It is very much essential that we transparently communicate with each of the
borrowers upon increase in rate of interest as per the standard draft communication
(enclosed with rate of interest circulars). Apart from this, during the visit of the home
loan borrower to the branch and/or at the first contact with the borrower for obtaining
annual letters of acknowledgement (L-444C / L-444D), it is essential that we convey
very clearly the increase in rate of interest in home loan account.
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At the time of increase in interest rate of home loans, the request of the borrower, if
any, for retaining the same level of EMI with a longer repayment period needs to be
considered favourably, provided the age of the borrower permits longer tenure of the
loan within the norms of the scheme. We have to consider such request of the
borrowers and make suggestive efforts to find a solution to the problem of the
borrower to meet their future EMI commitment comfortably. These efforts as part of
credit monitoring are essential to ensure a healthy and default free home loan
portfolio.
In exceptional circumstances, where the borrowers have opted for maximum 20 years
repayment period and grant of extension beyond 20 years is not provided in the
scheme, we may undertake a review of the repayment programme and provide for a
step-up in EMI from a future date so as to ensure that the borrower has sufficient
notice and time to meet the enhanced EMI commitments.
In cases where the applicant approaches the bank/FIs for a credit facility to purchase
the built up house/flat, it should be mandatory for him to declare by way of an
affidavit-cum-undertaking that the built up property has been constructed as per the
sanctioned plan and/or building bye-laws and as far as possible has a completion
certificate also.
An Architect appointed by the bank must also certify before disbursement of the loan
that the built up property is strictly as per sanctioned plan and/or building bye-laws.
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a)Taking into consideration modifications made in the Home Loan Scheme, HO have
revised the existing Term Loan Agreement for Home Loans (L-513) in consultation
with Retail Banking Division Head Office The revised Agreement for Home Loans
will replace the existing L-513 and obtention of L-516 in Home loan accounts is also
dispensed with as the relevant contents of the said agreement have been incorporated
in the revised Home Loan agreement. There will not be any change in the other loan
and security documents for Home Loans and those are to be obtained as per the
practice in vogue. (Refer Br.Cir. 99/131 dated 21/11/2005)
b) Letter of guarantee duly signed by the guarantor/s
c) Life Insurance Policy for the amount of loan on the life of the borrower duly
assigned in favour of the Bank, if stipulated.
d) Search and title Investigation Report from an approved advocate certifying
that the title to the loaned house/ flat is clear, marketable and free from any
encumbrance. The report should also list out any special document to be taken for
creation of the mortgage. The Report should be addressed to the Bank
e) Extract record of rights and plan specification of the property as approved by
the local authority (copy of approved plan). (These are not necessary when the
building has been completed and occupation certificate has been issued by local
authority).
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f) Insurance policy for the cost of house/ flat above plinth level covering fire
risks and other hazards duly endorsed in bank’s favour.( If the society has insured the
entire building a copy of the policy may be obtained and kept).
g) A letter of authority issued by the borrower authorizing the bank to pay
premium on both Life Insurance Policy and Fire Insurance Policy by debiting
borrower’s loan/ savings bank account.
h) In the case of salaried persons, a letter addressed to the employer, authorizing
them to deduct from his /her salary the instalments and interest payable to the bank
and remit the same to the Bank.
i) In the case of self-employed persons, an undertaking to deposit with the Bank
24 post dated cheques every two years, well in advance, for equated monthly
instalments payable by him and to keep sufficient balance in his/ her account to
honour the cheque whenever the same is presented for payment.
j) A letter from the builder/ promoter/vendor that all advances and dues
of similar nature on the property have been paid, necessary permission from
the concerned authorities for developing the property have been obtained.
Equitable mortgage of the property by deposit of title deeds and recording of Oral
assent. .
Where a borrower intends to buy a flat in a building which is owned by a co-operative
housing society (as is the case in Mumbai)) from the existing owner equitable
mortgage is to be created by deposit of the following documents:
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a) Registered Agreement for sale executed by the builder/ promoter in favour of the
borrower.
b) A stamped undertaking from the promoter / builder
c) But in cases, where the original Sale Agreement is lodged for registration with the
Registrar/ Sub –Registrar of Assurance (RA/SRA), it often takes considerable time to
get back the same duly registered. In such cases i.e. where receipt of the registered
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A letter addressed to the RA/SRA by the borrower, authorizing him to send the
registered document directly to the bank should be obtained in duplicate and the
original thereof to be sent to the RA/SRA along with a covering letter under property
acknowledgement of the RA/SRA. The original Agreement for sale should be
collected from the RA/SRA’s office when ready and kept with the other security
documents. Equitable Mortgage need not be created afresh.
In this regard, the branches can avail of the services of Bank’s empanelled lawyers for
collecting certified copy of the Agreement and thereafter the duly registered original
Agreement in due course from the RA/SRA. The cost of the services/charges of the
lawyers will be borne by the borrower. A letter authorizing the Bank to debit his
account with such charges obtained along with other security documents. Such
approval for creation of equitable mortgage by deposit of copy of title deeds certified
by RA/SRA and other prescribed documents can be given by a delegate of the rank of
Zonal Manager and above.
Legal Mortgage:
• In case of unavailability of title deeds i.e. mostly in case of ancestral
properties, legal mortgage may be created after obtaining approval of a delegate
of the rank of Zonal Manager and above who will give such approval after fully
satisfying himself about the clean marketable and unimpeachable title to the
properly.
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v) The search should be for 30 years for ascertaining the encumbrance on the
property.
vi) In every title opinion the advocate must give complete list of all
documents/deeds /papers examined by him and full particulars of the
documents which are registered including the dates of execution and
registration of documents and the particulars of entries made in the
bookes/record of the Sub-Registrar/Registration authority with regard to such
documents.Original receipt of fees paid for SEARCH/ENCUMBRANCE
certificate to be obtained and kept on records.
vii) In every title opinion the advocate must trace the chain of title to the land in
question at least thirty years preceding the date of creation of mortgage. The
chain of title given in the title deed must also be verified by the advocate from
the office of the concerned Sub-Registrar /Revenue Authority/Municipal
Authority. A certificate to this effect must be given by him in his title report.
viii) In the report the advocate must state the devolution of title and refer to the
position regarding mutation of the name of the mortgagor in the record of
rights maintained by revenue authorities/Municipal Authorities showing the
title of the mortgagor over the property and certified copies of the mutation
entries must be submitted by the advocate along with his title report to the
bank.
ix) Wherever the position of possession over the land are recorded separately in
the records of the Revenue/ Municipal authorities the advocate must inspect
those records and make a reference to these in the title report and submit
certified copies of extracts from such records along with the reports.
x) In case the property to be mortgaged is occupied by tenants, the advocate must
include comments in his report on the status of occupants vis-à-vis bank’s
right to enforce the security.
xi) It should be addressed to the branch of the bank where the loan is to be
granted and the advocate and the advocate should directly deliver the
report/original documents to the Branch Manager in a sealed cover OR
Branch Officials should collect the same from the advocate in a sealed cover.
In no case the report/document should be handed over to the borrower or his
agent.
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xii) It should certify that the mortgagor has a clear, unencumbered and marketable
title to the property in question.
xiii) It should list the documents which are required to be deposited by the
mortgagor with the bank for creation of equitable mortgage charge.
xiv) It should also specify whether any permission is required to be obtained under
any Act or from any authority whatsoever for creation of mortgage charge in
favour of the bank. In case any such permission is required, details of the same
should be given.
To ensure that proper procedure has been followed for title verification of the
property to be mortgaged and the report contains all the required details as per
procedure of the bank in force, it must be checked and certified that the same meets
completely the requirements of the bank and contains the required details as per the
procedure of the bank in force, by branch officials, namely :
a) By the chief incumbent of the branch in case of branches headed by
officials below the rank of Chief Manager.
b) By the credit in-charge of the branch in case of branches headed by officials
of the rank of Chief Manager and above.
The search and Title Inspection Report need not be insisted upon in the following
cases:
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4. Residence/ownership of Residence
maximum marks-5
House is self employed in same place 5 5
House is self employed at other place 3
House is owned by spouse 3
Rented house in own name >5 yrs 3
Rented house <5 yrs 0
5. Family composition/Dependents
Maximum marks -3
Dependents <2 3
Dependents >2-<4 2 2
Dependents >4 0
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AGE : Age of the individual borrower not to exceed 65 years at the time of
availing the advance.
PURPOSE:
For purchase of new two wheelers/ four wheelers;
Second hand vehicle can also be financed if the age of the vehicle
is up to 3 Years.
Finance can be granted against the second hand vehicle when
Comprehensive Insurance Cover is available.
LIMIT/ QUANTUM:
Maximum limits for finance :-
Individuals (Resident in India):
For Indian make vehicles: Rs.25 lakhs.
For imported vehicles : Rs.75 lakhs.
For companies and corporate entities : Rs.100 lakhs
(Can be a fleet of vehicles)
Non-resident Indians Rs. 25 lakhs
For vehicles run on non-conventional energy and not
required to be registered with RTO :
Two wheelers - Rs.50,000/- (Max.)
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GUARANTEE :
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INTEREST:
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MARGIN:
For second hand vehicles: min 30%( on depreciated value or value assessed by
valuer or sale consideration whichever is lower.)
PROCESSING CHARGES:
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Processing charges waived for senior citizens, staff members & retired
employees of the Bank and pensioners drawing pension from the Bank. No
processing charges at the time of review (same terms).
REPAYMENT:
SECURITY:
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DOCUMENTATION: -
1) Application-cum-proposal.
2) Composite Hypothecation agreement for charge on asset financed by the Bank
– L- 512
3) DP Note and instalment letter.
4) L 515 – Declaration; L 516 - Agreement
5) Statement of asset and liabilities of borrowers/guarantors
6) Letter of guarantee wherever applicable (OD-194)
7) Bank’s charge to be registered with RTO and copy of RC Book with
Bank’s lien noted thereon to be kept with documents.
8) Transfer forms in blank in duplicate.
9) Comprehensive Insurance Policy.
10) Letter from the borrower addressed to the Insurance Company authorising
them to pay vehicle damage claims to the bank.
11) An unstamped document regarding Engine No. And Chassis No.
12) In case of second hand vehicle valuation certificate of an approved valuer.
13) Undertaking to inform change in constitution / address etc.
14) Registration of charge with ROC in respect of finance to Companies.
15) Creation of charge on collateral security if proposed/stipulated.
16) Other due diligence documents -
a) Income tax returns/salary particulars/Balance sheets, etc.
b) For tie-up arrangements with employer, letter of authority to employer
for recovering instalment from salary.
c) In other cases post-dated cheques towards EMIs.
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REVIEW :
DISPOSAL OF APPLICATION :
Application for loans under the above scheme is to be disposed off within a period of
2 weeks. A sanction letter conveying all terms of sanction is to be issued to the
customer in duplicate, a copy of which duly receipted by the customer in token of
having accepted the terms and conditions is to be kept on record.
PERIODICAL CLEARANCE :
The scheme is available to all branches . However after sanction of every 20 accounts
it is to be reported to Zonal Office giving details of accounts sanctioned under the
scheme( along with details of irregular accounts). Financing may be continued upto
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25 accounts but not beyond that . Further financing may be made on receipt of
clearance from Zonal Office.
_______________________________________
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b) Studied abroad:
• Graduation: For job oriented professional/technical courses offered
by Reputed/State Funded universities.
• Post Graduation: MCA, MBA, MS, etc. From State Funded
universities.
• Courses conducted by CIMA – London, CPA in USA, etc.
[Courses which are not cover this scheme are outside the ambit of
the scheme as per se. Independent terms need to be considered for
extending finance to such courses outside the scheme, having
regard to the additional risk factor/s. ]
2. STUDENTS ELIGIBILITY:
• Should be an Indian National & the student parents should be
ordinarily resident of Branch area of Operation.
• Secured admission to professional /technical courses in India or
Abroad through Entrance Test/Merit based selection process.
• The student should not have outstanding education loan from any other
institute.
• No Dues Certificate need not be insisted upon as a pre-condition for
considering educational loan. However, we may obtain a
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The provisions of AICTE Act(52) of 1987 & the regulations laid down therein
makes the approval mandatory for any institution offering technical education
programmes in Engineering & Technology, Management, Computer Application,
Architecture & Town planning, Pharmacy, Hotel management & Catering technology,
applied Arts & Crafts, in India with or without foreign university collaboration.
Therefore, it is advisable to ensure that the loans being given is for course which
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adhere to the provisions of AICTE Act, and student is made aware of the risk of non
compliance.
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Need based finance subject to repaying capacity of the parents/students with margin
and the following ceilings.
Studies in India - Maximum Rs. 10 lakhs
Studies Abroad – Maximum Rs. 20 lakhs
5. MARGIN
Upto Rs. 4 lakhs- nil
SME POLICY
I. MSME Definition:
(i) SME would henceforth be meant to include Micro Small and Medium
Enterprises (MSMEs). As per the MSMED Act 2006 (Micro, Small, and Medium Enterprises
Development Act 2006), the activities of these enterprises are classified into Manufacturing
and Service Categories.
(ii) The definitions of Micro, Small and Medium Enterprises would thus be in
place of the existing definitions of Small & Medium Industries and SSSBEs/Tiny
Enterprises. The following important points may please be borne in mind:
Micro Enterprises would include Tiny Industries also.
Micro, Small Enterprises (Manufacturing) would mean (and replace) Small Scale
Industries (SSIs).
Medium Enterprises (Manufacturing) would mean (and replace) Medium Industries
(MIs).
Micro, Small Enterprises (Services) and Medium Enterprises (Services) would mean
Other Small & Medium Enterprises such as Professional & Self-Employed, Small Business
Enterprises, and Small Road/Water Transport Operators and Other Service enterprises,
engaged in providing/rendering of services.
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BANK OF INDIA
KOPRI COLONY BRANCH
CCIS SUMMARY REPORT FOR THE PERIOD ENDED 31/05/10
(RETAIL & SME)
Investment Criteria:
(a) The following chart indicates the threshold investment levels for both Manufacturing
sector (investment in PLANT & MACHINERY)* and Services sector (investment in
EQUIPMENT)* for the three categories of Manufacturing and Services Enterprises :
Engaged in Engaged In
Manufacturing/ Preservation
Providing/
Enterprise of Rendering of Remarks
Goods Services
(incl. Processing
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Units)
Micro Not to Exceed Not to Exceed 1.Separate threshold
Enterprises Rs. 25 Lakhs. Rs. 10 Lakhs. investment limits
Small More than More than
proposed by the Act
Enterprises Rs.25 lakhs but Rs.10 lakhs but
Manufacturing and
does not exceed does not exceed
Services Sectors.
Rs. 5 Crores. Rs. 2 Crores.
2. Micro Enterprises
Medium More than More than
introduced under both the sectors.
Enterprises Rs.5 Crore but Rs. 2 Crore but
does not exceed does not exceed
Rs. 10 Crores. Rs. 5 Crores.
* While calculating the investment in plant and machinery/equipment referred to above, the
original price thereof shall be taken into account, irrespective of whether the plant and
machinery/equipment are new or second hand.
(b) In case of imported machinery/equipment, the following duty/charges/costs
shall be included in calculating their value:
Import Duty (not to include miscellaneous expenses such as transportation from the
port to the site of the factory, demurrage paid at the port);
Shipping Charges;
Customs Clearance charges; and Sales Tax or Value-added Tax.
Cost of the following plant & machinery/equipments etc would be excluded:;
equipments such as tools, jigs, dies, moulds, and spare parts for maintenance and the
cost of consumable stores;
installation of plant & machinery;
research and development and pollution control equipments;
power generation set and extra transformer installed by the enterprises as per the
Regulations of the State Electricity Board;
Bank charges and Service Charges paid to the National Small Industries Corporation
or the State Small Industries Corporation;
Procurement or Installation of cables, wiring bus bars, electrical control panels (not
mounted on individual machines)
Oil circuit breakers or miniature circuit breakers which are necessarily to be used for
providing electrical power to the plant and machinery or for safety measures;
Gas producer plants;
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Transportation charges (other than sales tax or value-added tax and excise duty) for
indigeneous machinery from the place of their manufacture to the site of the enterprise);
Charges paid for technical know-how for erection of plant machinery;
Such storage tanks which store raw materials and finished products only and are not
linked with the manufacturing process;
Fire-fighting equipment; and
Such other items as may be specified, by notification from time to time.
(c) In case of Service Enterprises, the original cost to exclude furniture, fittings
and other items not directly related to the services rendered. Land and Building would also
not be included while computing the machinery/equipments cost.
The RBI has since taken into account the definition of MSMEs as per the
MSMED Act 2006 for purposes of their classification under Priority Sector. Accordingly all
the following advances would be eligible for classification as Priority Sector. It may
importantly be noted that all advances to Micro & Small Enterprises in both the manufacturing
and services sectors except private Retail Traders with credit limits up to Rs.20 lakhs and
advance to Traders under Public Distribution System or Fair Price Shops/Consumer Co.op
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Socities, have been synchronised with the MSMED definition to fall under Priority Sector
classification.
(i) Direct finance to small enterprises shall include all loans given to micro and small
(manufacturing) enterprises engaged in manufacture/ production, processing or preservation
of goods, and micro and small (service) enterprises engaged in providing or rendering of
services, and whose investment in plant and machinery and equipment (original cost excluding
land and building and such items as mentioned therein) respectively, does not exceed the
amounts specified above under (vi) Investment Criteria. The micro and small (service)
enterprises shall include small road & water transport operators, small business, professional
& self-employed persons, and all other service enterprises, subject to the above investment
criteria. (Please importantly note that Retail Trade is dealt separately below).
(ii) Indirect finance to small enterprises shall include finance to any person providing inputs
to or marketing the output of artisans, village and cottage industries, handlooms and to
cooperatives of producers in this sector.
(iii) Reserve Bank of India has classified Retail Trader advances separate from MSME
Enterprises. As such, advances to Retail Traders would not be classified under MSMEs,
although such advances would be handled and reported by SME-SBU.
• Under Retail Traders, Private Retail Traders with credit limits up to Rs.20
lakhs would alone be eligible to be classified as Priority Sector. Thus, all advances to
Private Retail Traders exceeding Rs.20 Lakhs would not be covered under Priority Sector.
• Retail Trade shall include retail traders dealing in essential commodities (fair
price shops), and consumer co-operative stores (irrespective of credit limits).
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Due to the revised MSMED Act definition of MSMEs, some accounts may
have to be shifted from Medium to Small enterprises. Advances to Retail Traders /Wholesale
Traders/Other Traders would no longer be part of MSME advances. Under Transport
Operators, the number of vehicles (prescribed earlier as not exceeding 10 vehicles) is no
longer the criterion but the overall original investment in such vehicles would determine their
status as MSME.
The RBI has prescribed the following overall target for the Bank as a whole for
Micro & Small Enterprises credit :
Small Advances to small enterprises sector will be reckoned in
Enterprise computing performance under the overall priority sector target
Advances of 40 per cent of ANBC (Adjusted Net Bank Credit) or
credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.
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icro enterprises
(i) 40 per cent of total advances to small enterprises sector should
Advances go to micro (manufacturing) enterprises having investment in pl
within and machinery up to Rs 5 lakh and micro (service) enterprises hav
Small investment in equipment up to
Enterprises Rs.2 Lakhs.
Sector
ii) 20 per cent of total advances to small enterprises sector
should go to micro (manufacturing) enterprises with investment
in plant and machinery above Rs 5 lakh and up to Rs. 25 lakh,
and micro (service) enterprises with investment in equipment
above Rs. 2 lakh and up to Rs. 10 lakh. (Thus, 60 per cent of
small enterprises advances should go to the micro enterprises).
There is a change in the entire registration process with the MSMED Act.2006
coming into force w.e.f. 02/10/2006. Vide Chapter III Section 8 (Page 7), the Act stipulates
certain important requirements from the Entrepreneurs which are quoted verbatim in the
Annexure hereto. Accordingly, the following would be the requirements under the MSMED
Act 2006:
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A. Micro & Small Enterprises in Not mandatory but only discretionary with the
both Manufacturing and discretion left to the Entrepreneur concerned.
Services Sectors.
B. Medium Enterprises in the Not mandatory but only discretionary with the
Services Sectors discretion left to the Entrepreneur.
C. Medium Enterprises in Mandatory.
Manufacturing Sector
In much the same way as above, it is not mandatory for an existing SME
(Mfg.) unit to file the Memorandum as above; however, at their discretion the
SME (Mfg.) may file the Memorandum, in view of the benefits available due to
Registration.
An existing Medium industry (in the manufacturing sector), however,
should mandatorily file the Memorandum as required.
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(b) A detailed list of the activities eligible for classification as SME (Manufacturing &
Services) is as per Annexures V(i) & (ii).
(c) In respect of schematic lendings, or advances under any specialized scheme like
Priyadarshini Yojana, Star SSI Suprime, Star Laghu Udyog Suvidha or medi-mobile
scheme or finance under Star Channel Credit or finance to cluster of accounts under
Cluster Finance, the rate prescribed for the scheme as a whole would prevail over, and
the rate concessions would not be applicable. Thus, wherever the interest rates are:
Fixed the existing rates would continue till reset.
Floating, i.e. the existing rates would be increased/decreased in tune with the
linked to BPLR PLR increase/decrease.
VII. Judicious Concessions: Although the concessions allowed as above are
applicable generally to NEW accounts, Zonal Managers as well as General Managers
overseeing Zones are authorised to offer the concessions selectively under the
following conditions as well:
• Only when there is an imminent threat of take-over of our existing accounts.
Delegatees have to satisfy themselves that such threat of take-over is genuine
and there is every chance of losing the account if the concession is not
granted.
• Our bid for taking over of satisfactory accounts from other Banks through
offer of concessional rates.
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The authority should be exercised with great restraint and with adequate justifications
so that the Bank’s bottomline does not get affected much.
VIII. SME Cells@ Zonal Offices: Specialised SME Credit Cells have been set up at
following Zonal Offices with the following functions:
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X. Credit Appraisal
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Checking out for Wilful Defaulters’ List of RBI, Specific Approval List
(SAL) of ECGC etc,.
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XII.Current Ratio:
While a benchmark current ratio of 1.33:1 is always desirable, it
is felt that some relaxations are provided to SMEs in their Current Ratio. They may
be permitted to maintain a minimum current ratio of 1.20:1 as against 1.25-1.33:1
stipulated for others, although ideally under Turnover Method this ratio should be
1.25:1. Such deviations are not to be allowed except by one level above the
sanctioning authority, particularly if the rating gets below AA. Borrower has to
improve the position by building up the current assets through infusion of more
capital/funds. Classification of Current Assets and Current Liabilities under MPBF
method would be based on extant RBI/Bank guidelines.
XIII. Debt:Equity Ratio:
The following may be accepted as the benchmark in this regard:
W/C Limits up to Rs.5 Crores to Micro & Small Enterprises: 4:1.
W/C Limits over Rs.5 Crores to Micro & Small Enterprises: 3:1.
W/C Limits to Medium Enterprises: 3:1.
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The Bank had already adopted rating models a & c above. The model
for amounts between Rs.1 Crore and Rs.5 Crores is under progress.
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Fund Trust for Micro and Small Enterprises (CGTMSE)- cover is available.
However, the issue of collateral security would be addressed on a case-specific basis.
The credit guarantee cover has been raised from 75% to 80% for the
following category of MSME advances:
• Loans to Micro Enterprises up to Rs.5 lakhs, and
• Loans to Micro and Small Enterprises operated and/or owned by women.
For all others, the cover would be available up to 75% of the amount in default
subject to maximum of Rs.37.50 Lakhs.
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30 0.60 0.30
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