02nd October 2022

Positive Attitude Change Everything

Disclaimer: This is our voluntary effort and every care has been taken to give up to-date information based on the
RBI and Bank’s guidelines. Ever, however, users are advised to go through Bank’s Circular and guidelines for details
Contents at a Glance
Subject Page No.

1. OBJECTIVES AND GOALS OF CREDIT MONITORING 3

2. PROACTIVE MONITORING APPROACH 3

3. STAGES OF MONITORING 4

4. REASONS FOR BUILD UP STRESS 6

5. IDENTIFICATION OF STRESS 7

6. EARLY STRESS SIGNALS 11

7. MONITORING TOOLS 12

8. CMCC Portal 37

9. MCMR 42

10. RED FLAGGING OF ACCOUNTS 46

11. LEGAL AUDIT COMPLIANCE 56

12. MONITORING ACTION PLAN 59

13. PREVENTIVE MEASURES 60

14. FINACLE MENUS FOR MONITORING 65

Monitoring is a continuous process to maintain the asset quality which is the most important
indicator of a Bank’s overall condition. Quality of an asset depicts the performance of the
banking system at Macro level. The deterioration in asset quality leads to high level of NPAs
and impacts the functional efficiency along with ability of the Financial Institutions (FIs) to
recycle the resources.

Objectives and Goals of Credit Monitoring:

✓ The disbursal of credit is done in conformity with laid down procedures and stipulated terms
and conditions
✓ The safety of the amount lent and its end use is ensured
✓ Maintain healthy loan book for the bank
✓ The account continues as a performing asset
✓ Focus on borrower comprising his/her credibility, capacity, and ability to meet
commitments.
✓ Usage of tools/technology and corrective action in case of deviation to monitor the borrowal
account optimally throughout its life
✓ Periodical monitoring of the actual performance of the assisted borrower vis-à-vis the
projections accepted at the time of credit sanction.
✓ In case of any incipient weakness / stress in a Borrowal account, identify the reasons for
the same and explore the option of timely remedial measures
✓ Interact with the borrower on a regular basis to have a better understanding of the day-to-
day operations, specific problems faced by the unit, the market trend and the performance
of the borrower.
✓ CMCC Department has adopted the mission as “Mission Swachh Asset” and endeavoring to
make the credit monitoring as pervasive and exhaustive using tools and technology like
CMCC Portal, Potential Stress Accounts, Centralized Call Center, Centralized Overdue
Notice Dispatch, SMS Alerts to Borrowers on payment of overdue and pending review/
renewal of accounts as well as stock statement submission

Proactive Monitoring Approach:

The proactive monitoring mechanism necessitates the understanding of life cycle of a Loan
Account vis-à-vis stages in credit monitoring.

Life cycle of a Standard Loan Account

The typical ‘Life Cycle of a Standard Loan Account’ has two distinct phases viz., the
‘Pre-Sanction Phase’ and the ‘Post Sanction Phase’ and represented as under:

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 Life Cycle of a Standard Loan Account
Pre-Sanction Post Sanction

KYC
Disbursement as per Due
Due Diligence
Diligence, Appraisal &
Appraisal Continuous Till account is
Sanction
Sanction Monitoring paid off fully
Leading to proper end
use of funds & creation of Monitoring is to be done using the
monitoring tools
Asset, for which loan is
sanctioned.

STAGES OF MONITORING
No Stress -- - - - - - - Lower Stress - - - - - - More Stress - - - - - - - Totally Stressed

Sanction EWS SMA NPA

Disbursement Accounts SMA-0, SMA-1, SMA-2
End Use of D-1, D-2, D-3
Funds
Lower Efforts - - - - - - - More Efforts - - - - - - - - - - - Lot of Efforts

Simple Resolution Plan - - - - - - - - - - - Complex Resolution Plan

More Economic Value of Asset - - Less Economic Value of Asset

Apart from SMA classification (financial default only), bank has also introduced a system of
internally classifying ‘Potential Stress Accounts (PSA)’ based upon ‘Early Stress Signals
(ESS)’in MSME Borrowal / loan accounts for above Rs.10 lakhs. The monitoring function will
commence immediately on sanction of a credit limit to a borrower. This involves three different
stages as under:

1. Pre – Disbursement
2. During Disbursement
3. Post Disbursement

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Working Capital - Checklist:
DO’s Don’ts
Compliance of terms and conditions Disbursements to un-related accounts,
Availability of Drawing Power borrowers’ own current / savings
Adequate Insurance of Prime & Collateral account, in cash or transfer to sister
Inspection of Stocks – Quality/Quantity concern accounts, if NOT Permitted by
Verification of major creditors Sanctioning Authority.

Term Loan - Checklist:

DO’s Don’ts
Obtaining of Proforma Invoices and its evaluation Disbursements to un-related accounts,
Disbursement of Term Loan together with borrowers’ own current / savings
promoter’s margin by direct payment to account, in cash or transfer to sister
suppliers/vendors. concern accounts, if NOT Permitted by
Arrangement for financing cost overrun, if any Sanctioning Authority.
Impact of time overrun and cash generations
consequent to such overrun
Certificates from various independent agencies
like Architect / Contractor / Chartered
Accountant (CA) for progress in project
implementation

Post Disbursement:
Some of the monitoring tools that are available post disbursement are:

✓ Compiling of Post Sanction inspection report

✓ Tracking of movement of stocks and rejection of stock
✓ Ensuring that Sales are in line with projections
✓ Monitoring the realization of debtors / age of debtors
✓ Verification of books and other records such as invoices, books of accounts, stores
records / registers etc.
✓ Detecting / avoiding unrelated debits to the account
✓ Keeping a check on cash withdrawals by the Borrowal vis-à-vis limit
✓ Keeping watch on account operations (Cheques / RTGS / NEFT/Transfers)
✓ Timely review of credit facilities
✓ Scrutiny of control returns like Stock Statements / Book Debts statements / QPR /
MSOD
✓ Periodic inspection of the Unit and Verification of the assets and securities charged
to the Bank
✓ Reports of Independent Audit Agencies (Stock Audit Report, Concurrent Audit Report
etc.)
✓ Scrutiny of Audit Report & Financial Statements
✓ Submission of Monthly Credit Monitoring Reports (MCMRs)
✓ Prompt and timely recovery of interest / installment / overdue, if possible through
NACH / Standing Instructions

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 ✓ Watch on Frequent requests for excess or modification in terms and conditions of
sanction vis-à-vis Business Activity / Level of Borrower.
✓ Timely obtaining Credit Report of other Lenders / Attending Consortium Meetings /
Keeping watch on connected accounts with other Banks.

Watch on External Information like:

✓ Market information from Newspapers / periodicals / media reports
✓ Sourcing of information from borrower’s employees (Munims, Accounts Officers
and Workers etc.
✓ Information from Borrower’s Customers, Creditors
✓ Raids / Enquiries by external agencies such as GST / Income Tax / DRI / CBI etc.
✓ Information on changes in Key Personnel / Management
✓ Reference from other Bankers regarding other connected accounts of the
borrower
✓ CIBIL / CRILC Report
✓ Changes in ECAI Ratings / Internal Rating
✓ Government Policy (ies) relating to borrower’s business.

Defaulter List
The Bank has created a repository of Defaulters list of Entities / Individuals in the areas of
CIBIL Defaulters (Suit Filed / Non Suit Filed 1 Cr and above), Willful defaulters (Suit filed /
Non Suit Filed 25 Lakhs & Above), RBI-Cancellation of NBFC Licenses, Caution Advices issued
by PBOD / GBOD, CO under RBI Norms, Central Fraud Registry (CFR), Custom, Excise and
Service Tax Defaulters, Income Tax, Employee Provident Fund Organization (EPFO), SEBI,
Serious Fraud Investigation Organization (SFIO), Shell Companies, Dormant / Inactive /
Unlisted / Strike or Striking Off Companies & LLPs and other MCA data. It also included
Defaulting Directors and Company Secretaries. The list is hosted in CMCC Portal and is
updated on monthly basis.
This defaulter list can be effectively used for credit monitoring in all the three different
stages i.e. pre-disbursement, during disbursement and post disbursement. It is a unique
database containing list of almost all type of defaulters in one place and is available to all
branches / offices through CMCC Portal. Branches / Offices can use this list for routine
monitoring activities and as Enhanced Due Diligence purpose.

Reasons for build-up of Stress in Loan accounts

General Reasons for all types of Borrowal / loan accounts:
✓ In most of the instances, end use of fund was limitedly ensured and funds are used for
the purpose other than that meant for. This lead to shortage of fund and stress.
✓ Projects/Units where Foreign Currency is involved, a steep volatility in exchange rate
also caused stress in the borrowal account.
✓ If product is more vulnerable to Government Policies, change in policy attracted stress
in the account.

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 ✓ Less involvement of Promoter/Management of company and lack of strategies/
financial planning and execution/ capital infusion capacity lead to stress.
✓ Labor unrest in certain cases has led to building up of stress in borrowal account.
✓ Danger of technology used becoming obsolete or fast changing technology or invention
of cheaper replacement product also impacts performance of A/C.
✓ Competition and major market players’ strategy towards the same impacts the health
of a borrowal A/C.
✓ Under financing or over financing is also major reason for stress in A/C.
✓ Absence of Timely and adequate insurance which leads to loss and stress later on.
✓ Lack of regular monitoring the account & its operations closely & absence of
taking/initiating corrective actions at the first instance of observance of incipient
weakness/stress.
✓ Tax incidence/Tax Laws/Litigations etc resulting into attachment of cash flows, Units,
Assets, Properties etc. of the borrowal account.
✓ Lack of Timely & adequate corrective action by Promoter as well as lenders jointly,
to cope up the disruptive circumstances / economic conditions.

Reasons specific to Working Capital Loans:

✓ Cancellation of Government orders /Bulk orders resulted in jamming the cash flow.
✓ If major Debtors of a borrower face stress, the same resultantly creeps into borrowal
loan A/C.
✓ Production of defective or substandard product leading to rejection of bulk order giving
rise to unwarranted inventory being locked.

Reasons Specific to Project / Term Loans:

✓ Many a times, there is delay due to reasons beyond the control of borrower leading to
cost as well as time overrun finally resulting into building up of stress.
✓ Delay in securing various approvals and clearances and Delayed disbursement by lenders
(due to approvals/ margin etc.) lead to stress.
✓ Poor Project Planning/execution/monitoring lead to stress in loan a/c in later stages.
✓ Lack of skilled staff.

Identification of Stress:
As per RBI guidelines and for the purpose of Regulatory reporting:

SMA Basis for classification –

Sub-Categories Principal or interest payment or any other
amount wholly or partly overdue between
SMA – 0 1 - 30 days
SMA – 1 31 - 60 days
SMA – 2 61 - 90 days

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In the case of revolving credit facilities like cash credit, the SMA sub-categories will
be as follows:
SMA Sub Basis for classification –Outstanding balance remains
Categories continuously in excess of the sanctioned limit or drawing
power, whichever is lower, for a period of:
SMA-1 31-60 days
SMA-2 61-90 days
Note: Default for the purpose of Stress means only Financial Default.

✓ Default for the purpose of identifying stress means non-payment of debt when whole or
any part or installment of the amount of debt has become due and payable, is not repaid
by the debtor or the corporate debtor, as the case may be. However, in respect of
revolving facilities like Cash Credit (CC), default would mean, without prejudice to
the above, the outstanding balance remaining continuously in excess of the sanctioned
limit or drawing power, whichever is lower, for more than 30 days. It is also important
to note that Running accounts will be classified as NPA if the account remains “out of
order” as defined by RBI in the Master Circular on “Prudential norms on Income
Recognition, Asset Classification and Provisioning pertaining to advances” dated
01.10.2021

✓ Reporting of Stress to RBI on CRILC Platform: Credit Information, including

classification of an account as Special Mention Account (SMA) is to be reported by the
Bank to Central Repository of Information on Large Credits (CRILC), on all borrower
entities having Aggregate Exposure (AE) of Rs.5.00 crore and above.

Note: Aggregate Exposure (AE) would include all fund based and non-fund based
exposure with all the Bankers/Lenders.

I. Monthly Report: The CRILC - Main Report is to be submitted, by the Bank,

on monthly basis and it is to be submitted by the 15th of the succeeding month.

II. Weekly Report: Bank is required to report to CRILC, information of all

borrower entities (with AE of Rs.5.00 crore and above) which are in default, on
a weekly basis at the close of business hours on every Friday. If in case, Friday
happens to be a holiday, then the reporting should be done on the preceding
working day. The report is to be submitted by Wednesday of the succeeding
week.

Nature of task Name of the department responsible for

undertaking the task
Preparation of the CRILC Main Credit Monitoring & Credit Compliance (CMCC)
Report in the prescribed format at Central Office (CO) with the help of

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 and as per the prescribed Department of Information Technology
periodicity (DIT)/MIS Department.
Submission of CRILC Main Credit Policy & MSME Department (CP & MSME)
Report by uploading the same after receiving the compiled report from the
on the prescribed RBI platform Credit Monitoring & Credit Compliance (CMCC)
at Central Office (CO).

As per internal guidelines and for the purpose of identifying incipient weakness
much before the SMA stage:
a. It is important for the Bank to identify stress at the incipient stage itself
in the borrowal/loan accounts. This will not only enable the Bank to initiate
necessary corrective measures to rectify the situation but also help in ensuring
that the borrowal/loan accounts are stress free and in the performing category.

b. For identifying incipient weakness in borrowal account our Bank has

developed PSA (Potential Stress Assets) Model which works on some pre-defined
Early Stress Signals (ESS) and predict the probability of default in the account.
For detailed guidelines and SOPs, please refer Instruction Circular No. 01848-
2020 dated 10.02.2020 circulated by CMCC, CO.

c. The PSA model covers all MSME sector accounts, all retail sector accounts,
all agricultural UGC accounts and other sector accounts with limit of Rs5.0 crore
& above.

✓ ABC Analysis of the Region:

Risk Categorization of all the Regions into 3 groups (High Risk, Medium Risk & Low Risk) is
now based on important parameters of Credit Monitoring which is as under:
i. Stressed assets percentage Vs ceiling (based on last three months average Vs ceiling
on the last month of the quarter)
ii. Mock run control (actual Vs ceiling (based on last three months average Vs ceiling
on the last month of the quarter)
iii. Slippages during the quarter Vs ceiling of the quarter
iv. Potential Stressed Account percentage Vs ceiling (based on last three months
average Vs ceiling on the last month of the quarter)
v. Pending renewal percentage based on the period of pendency as on last day of the
quarter
vi. MCMR submission percentage based on the last month of the quarter
vii. Timely submission of Legal Audit Compliance submission percentage as on the
previous quarter
viii. Credit Monitoring visits conducted in connection with monitoring Spurt in Advances.

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 New Risk Rating of the Regions henceforth will be done on the following
parameters and the weightage allotted to each parameter is as under:

S No Parameter Weightage
1 Average Stressed Assets Percentage 15.00
2 Average Mock Run 15.00
3 Slippages during the quarter 15.00
4 Potential Stress Account 12.50
5 Review / Renewal 12.50
6 MCMR Submission 10.00
7 Legal Audit Compliance 10.00
8 Credit Monitoring Visits 10.00
Total 100.00

Weightage is given on each parameter to categorize the Regions as High Risk, Medium
Risk, and Low Risk as the case may be.
However, since the accounts maintained at the Industrial Finance Branches (IFBs)
would be categorized under “High Risk” only.
Categorization will be reviewed at quarterly intervals by Credit Monitoring and
Restructuring Department for studying the improvement/deterioration in the RO’s
risk category.

✓ BRANCH RISK CATEGORISATION: Based on the position and performance of a branch

in various stress parameters, the branches are classified as critical and super critical
Branch.
• Critical Branches: Parameters considered for classification of a branch as “Critical
Branches”:
-Slippage in terms of number of accounts,
-Mock Run data for last four months,
-Stressed Assets for last four months,
-Pending Review Renewal for last four months,

• Super Critical Branches: Parameters considered for classification of the branches

as “Super Critical Branches”:
-Branch where stress amount has increased in Dec-21 vis. a vis. Dec-
20,
-Branch deviating the Stress Ceiling limit,
-Branch deviating the Mock Ceiling limit,
-Accounts appearing under stress within one year of sanction,
-Accounts appearing under Mock within one year of sanction,
-MCMR Submitted/Pending position,
-Usage of CMCC Portal (Which shows keenness of the Branch in Credit
Monitoring aspects).

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Early Stress Signals (ESS) – {Earlier Early Warning Signals (EWS)}:
➢ Early Stress Signals which can be noticed within the Bank/Branch:

1 Non – compliance with the terms of 11 Longer period of credit allowed on

sanction Sales
2 Return of cheques for financial reasons 12 Installment overdue beyond 30 days
3 Devolvement of Letter of Credit (LC) 13 Adhoc/Excess/Bill purchase overdue
4 Delay in payment of interest beyond 15 14 Invocation of Letter of Guarantee (LG)
days
5 Reduction in credit summations – not 15 Opening of collection accounts with
routing entire (or pro-rata) another Bank without prior approval of
transactions through the Bank appropriate authority
6 Long outstanding bills in the bills 16 Unplanned borrowing for margin
purchased accounts contribution
7 Bills negotiated through the Bank 17 Frequent return of Bills and late or
outstanding after due dates non-realization of receivables
8 Constant utilization of working capital
18 Constant failure or unwillingness to
limits to the brim mention unpaid stock in Stock
Statements or age of book debts in
Book Debts Statement
9 Frequent requests for 19 Lack of transparency in borrower’s
excess/additional limit or for dealings with the Bank and avoiding
extension of time for repayment of meeting Bank officials
interest/installments
10 Unexplained delay or failure to submit 20 Continuous watch and follow up of
periodical statements such as EWS alerts from comprehensive IT
Stock/Book Debts statements, MSOD, solution.
CMA Data, QPR, Balance Sheets etc.,
and other papers needed for review of
account

➢ Early Stress Signals (ESS) which can be noticed by visiting unit, talking to the
borrower, its employees, from market enquiries or from fellow Bankers:

1 Delay in project implementation 17 Rapid turnover of key personnel

2 Installation of sub-standard machinery 18 Production noticeably below
or machinery not as per the project projected level of capacity utilization
report/approved quotations
3 Labour problem and frequent 19 Non-availability of vital spare
interruptions in manufacturing parts/major raw material
4 Production of unplanned items without 20 Disposal/Replacement of vital Plant &
reporting to the Bank Machinery without Bank’s knowledge
5 Downward trend in Sales 21 Delay or failure to pay statutory dues

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 6 Higher rate of rejection at process 22 Diversion of working capital for
stage/final stage/after sales capital expenditure or for other use
7 Unjustified rapid expansion within a 23 Increase in inventory, which may
short time without appropriate include large quantity of slow and
financial tie-ups non-moving items
8 General decline in the particular 24 Frequent break down in Plant &
industry combined with many failures Machinery
9 Filing of law suits against the company 25 Abnormal increase in debtors and
by its customers, creditors, employees creditor
etc.,
10 No alternate market for product 26 Dependence on single or few buyers
11 Sudden/frequent changes in 27 Reduction in profit / Unit starting to
Management and/or in-fighting within incur losses
the Management
12 Loss of crucial customers 28 Poor or dubious record maintenance
13 Loss of key products lines, franchises, 29 Speculative inventory acquisition not
distribution rights or sources of supply in line with normal purchasing
practices
14 Poor maintenance of Plant & 30 Lack of planning and/or poor planning
Machinery
15 Apathy of promoters/owners in 31 Adverse market reports on the
running the business borrower/concern
16 Threat of action against the borrower 32 Any adverse comments regarding
from statutory bodies e.g., Pollution method and accuracy of valuation
Control Board, Labour Welfare noted/commented during Stock Audit
Department, Income Tax / GST
Department etc.

Monitoring Tools:

Introduction:
Banking Industry is witnessing a paradigm shift in the Credit Monitoring space more particularly
with the advent of “Day One Default” & “Resolution of Stressed Assets”. To address this our
bank has adopted a mission as “Mission Swachh Asset” and endeavoring to make the credit
monitoring as pervasive and exhaustive through various monitoring tools by properly collecting
the data, taking care of its accuracy, disseminating it for proper usages.

Monitoring is responsibility at all level. Certain risk elements are accepted by the Bank at the
time of sanction and priced accordingly. Therefore to keep the accounts within the same risk
level monitoring tools available at the branch / RO level are required to be effectively used. In
order to ensure that the loan accounts are properly monitored, it is important for the field
functionaries to have a thorough understanding of the various monitoring tools.

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Certain risk elements are accepted by the Bank at the time of sanction and priced accordingly.
Therefore, to keep the account within same risk level, monitoring tools available at the branch
/ offices are required to be effectively used.
➢ Policies: Thorough understanding of the various Policies of the Bank in vogue based upon
the nature and type of the loan accounts.
➢ Process/Sanction Note: Key inputs provided by the Process/Sanction Note
➢ End use of funds / Cash withdrawals: Ensuring proper end use of funds and close
monitoring of cash withdrawals
➢ Scrutiny of Stock Statement, MSOD and QPR
➢ Generation and Scrutiny of Monthly Credit Monitoring Report (MCMR)
➢ Credit Monitoring Visits, Root Cause Analysis Visit (RCA) to be carried for analyzing the
unusual spurt in advances for a branch
➢ Review/Renewal of Loan Accounts
➢ Scrutiny, Analysis and Certificate of Rectification (COR) of Regular/ Concurrent / RBI /
Statutory Audit
➢ Down gradation in Internal/External Credit Rating

Monitoring tools at the Branch level

Stock Statements CIBIL / CRILC reports
Book Debts Statements Adverse newspaper / market reports
Q-4 / M-6 Inspection Reports Monthly Select Operational Data (MSOD)
Stock Audit / Concurrent Audit Internal Audit / Flash reports
Unit Visit / Technical Inspection Quarterly Progress Reports (QPRs)
Adverse / Search enquiries from GST Return / Challan and other records to co-relate
other Banks regarding the Account, with Turnover/Account Operation / Balance Sheet etc.
Promoters and / or Guarantors
Audited / Provisional Financial External Credit Rating (ECR) / Internal Credit Rating
Statements (ICR)
Monthly Credit Monitoring Reports CMCC Portal
Scrutiny of operations in the Annual accounts filed with Registrar of Companies –
account for poor Turnover vis-à-vis verification through search at office of Registrar of
sales realization; overdues; Companies by empanelled Company Secretaries /
frequent returns of Cheques / Bills; Chartered Accountants or by our own officers,
issuing cheques unconnected to wherever the need is felt, to ascertain / compare with
main business; constant excess the balance sheet particulars as filed with Registrar of
drawing etc., Companies (ROC)

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Monitoring Tools at Controlling Offices
Statutory Audit Report F-1 / M-27 Timely Scrutiny
Internal / Concurrent Audit Q-8 Statement (Guarantee invoked & paid)
RBI Inspection Report Review / Renewal of Accounts
Management Audit Report Advocate Legal Vetting / Legal Audit Compliance
Overdue Bills Statements Attachment orders of Government Agencies
Market / News Information Monthly Credit Monitoring Reports
Credit Reports of Banks Consortium Meetings Minutes
CMCC Portal ROC Search reports / CIBIL / CRILC
AQMC Meetings ITR / GST Returns / Assessment orders

1. Stock & Book Debts Statements.

This statement is to be submitted every month by the borrower(s) enjoying working capital
facilities latest by 10th of succeeding month and to be fed in the FINACLE before 15th. The
statement provides details like total value of stocks & book debts, total sales & purchases
during the month, details of sundry debtors with dates of origin- with declaration by the
borrower that reported book debts are not encumbered in any manner. Branches have to
scrutinize & ensure that unpaid stocks, stocks received under DA L/C, stocks & book debts
older than 90 days which do not rank for Drawing Power (DP) are excluded while working
out DP. However, in view of borrower’s industry / sector and credit assessment, the
sanctioning authority may permit Book Debts above 90 days to 180 days for calculation of
Drawing Power with an exception of Branch Heads. In other words, the relaxation in period
of book debt for calculation of Drawing Power in proposals falling under the delegation of
Branch Heads can be permitted by RLCCs and proposals falling under the delegation of
RLCCs/SLCCs and above can be considered by the respective Credit Approval Committees
themselves. Book Debt above 180 days for calculation of Drawing Power may be permitted
by next higher authority above the sanctioning authority upto ZLCC level and by respective
sanctioning authority above ZLCCs.

• Quarterly certificate (with UDIN) for verification of Book debts by Chartered Accountants
should be submitted for working capital limits of Rs.1 crore and above

While scrutinizing these statements, special care to be taken to ascertain the following
points:
i. Is the turnover in the Account commensurate with nature of limits?
ii. Is the valuation of Inventory done on realistic basis (basis of valuation)?
iii. Is there any overdue bills/installments? If yes, details thereof:
iv. Is the outstanding in the Account supported with adequate stock?
v. Is the insurance coverage appropriate?
vi. Is the insurance taken with Bank clause?
vii. Is the insurance cover in force and original policy in possession of Bank?
viii. Are the operations in the Account satisfactory?

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 ix. Are there instances of bills/cheques returned unpaid?
x. Is there any unpaid stock procured under LC/LG?
xi. Is there any stock built up through supplier’s credit/co-acceptance/other trade
creditors?
xii. Is there any slow moving/dead stocks?
xiii. Is there any stock meant for packing credit?
xiv. Is there any order of attachment/notice/process from any Court has been received
by us in respect of assets pledged/hypothecated to the bank?
xv. Do book debts include valid, good and fully recoverable items?
xvi. Is there any decreed/disputed/action pending doubtful debt in the list?
xvii. Is the book debt amount netted out against all discounts/commissions/claims/set
off etc.?
xviii. Is each debt free from any claim, lien, encumbrance, assignment, charge etc.
except the charge in favor of the Bank?

2. M6/Q4 statement:

• It is a monthly/quarterly inspection report based on stock & book debt statements. Now
inspection of stock is to be conducted monthly and Q4 is to be compiled once in a
quarter.
• Helps in ascertaining the level of activity, Stock & Debtors position, overall health of
the unit, status of prime & collateral securities etc.
• The Inspecting official has to comment on the authenticity of account operations &
turnover, documentation stipulations & execution, valuation basis for stocks, excess
borrowings over DP, details of insurance policies in force, overdue bills & installments
etc.
• It also checks on display of bank’s name board, letter of free access/no lien and updated
rent receipt- when the business unit does not own the premises. Comments here are
mirror points for the monitoring official to sustain the follow up action for suitable
remedial measures in time.

3. Documentation & Debit Balance Confirmation (DBC):

These tools ensure that the Bank’s right of recovery through legal means is not impeded
by any chance due to mistake, oversight etc. Therefore invariably this should be held
on record.

4. Stock Audit/ Inspection Reports of outside agencies:

❖ In case of Fund Based (FB) and Non- fund Based (NFB) credit exposures, one of the
measures that is adopted by the Bank for ensuring the end use of funds and
monitoring the borrowal account is the system of periodical Stock Audit by the
independent qualified Stock Auditors.

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 ❖ The main objective of stock audit is to ascertain whether the security (borrower’s
stock and debtors) against which working capital finance has been given is safe and
is valued correctly. It is the duty of the Stock auditor to verify the physical existence
and absolute ownership of inventory / movable property charged to the Bank and
to examine the genuineness of the Sundry Debtors list submitted by the borrower.

❖ To physically verify the value of paid Stock {by excluding the total value of unpaid
stock with reference to the level of Trade Creditors and the value of stock procured
under the Non- Fund based credit limits viz., Letter of Credit(LC)/Bank
Guarantee(BG) from the total stock} available in the borrower’s location (office
/factory /godown/ stockyard as the case may be) and confirm that the same
together with the eligible Stock/Book Debts are sufficient to cover the total amount
outstanding in the Working Capital Limits along with the required level of margin.

❖ Stock audit is to be conducted for all accounts with working capital limits (in the
form of fund based and non- fund based working capital limit) of Rs.3.00 crore and
above in case of proprietary/partnership accounts and limits of Rs.5.00 crore and
above in other cases, on a yearly basis by Chartered Accountants firm/Cost
Accountant firm is one of the important tools of credit monitoring for the Bank.
❖ The purpose of stock audit is not only to verify the total quantum of stocks but also
to ascertain the method and accuracy of valuation. It also gives comfort to the Bank
about sufficiency of the security supporting the advance through proper assessment
through a professional external agency.
❖ This is a unique tool to monitor the adequacy of current assets in general and
inventory in particular to derive the correct drawing power.
❖ It also comments on production capacity with regard to licensed, installed, utilized
capacity, method of valuation of stock, correctness of drawing power, acceptability
level of inventory & debtors throwing light on holding period.
❖ In line with quality of the credit portfolio concerns, it also scrutinizes and comments
on documentation, registration of charge, diversion of funds, submission of key
returns including MSOD & QPR and profitability of relationship.
❖ It also comments on whether the mode of depreciation is same or changed.

Following category of loan are excluded for Stock Audit:

i. Loans granted to Central Government Bodies/State Government
Bodies and its PSUs.
ii. Working capital Loans granted where primary securities are not in form
of stock and book debts e.g. loan sanctioned against our Banks
deposits/Insurance Policies etc.
iii. In case of any instances of waiver by appropriate authority

15
 ❖ RBI has mandated that with a view to bring down the divergence arising out of
difference in assessment of the value of security, for NPAs with balance of Rs. 5
crore and above, conduct of stock audit at annual intervals by external agencies
would be mandatory, in order to enhance the reliability on stock valuation.
❖ Advances under Consortium / Multiple Banking arrangement: In case of advances
coming under Consortium Banking arrangement, the Bank may fall in line with the
Leader of the Consortium or Highest lender, as the case may be. In consortium
advances where our Bank is the lead Bank, the stock audit shall be carried out by
our Bank. In case of multiple banking arrangements the sanctioning authority is
empowered to accept the stock audit report of the other Banks of multiple banking
arrangements.

COMPLETION OF STOCK AUDIT AND SUBMISSION OF REPORT:

(i) The Stock Audit should be completed within 30 days from the date of
assignment to the Stock Auditor as per the schedule given below.

(ii) The stock auditors have to give their consent within 7 days of the receipt
of intimation of empanelment. The date of consent will be reckoned as
date of assignment.

(iii) Commencement of Audit work – Within 15 days from the date of

assignment.

(iv) Conclusion of Audit – Within 10 days from the date of commencement.

(v) Submission of Audit Report – Within 5 days from completion of Audit

(vi) Condonation of any delay in above time line is to be done by RH on merits

of the case.

5. Factory /Unit Visit Reports:

➢ Factory visit report is to be done for all the manufacturing companies.

➢ Generally such inspections are done by the branch officials along with the Technical
Officers.
➢ At par with the T.O. report, it also deals with the location of the factory and nature
of land whether it is under lease or rent.
➢ Product description, manufacturing process, infrastructure e.g., water and
electricity supply, shifts, installed capacities, marketing strategy, detailed
information about cost and uses of finance, end use of funds , then the general
inspection at administrative offices for the purpose of financial statements or
managerial skills are covered in the Factory Visit Report

16
 ➢ Assistance of Plant Manager or in charge is sought for.
➢ In the context of widespread sickness, which industrial units are becoming
increasingly susceptible to in recent years, periodical visits to factory by the branch
and the Technical Officer (TO) are necessary to identify the causes of sickness in the
incipient stage and to take remedial measures expeditiously and timely detection of
sickness is facilitated.
➢ Discussion with the workers of the plant would reveal whether full capacity of the
machines are put to use, whether any new machineries installed and if so, the mode
of finance to buy the machineries.

6. Techno Economic Viability (TEV) study and Lenders Independent Engineers

(LIE):

➢ Techno Economic Viability Study (TEV study) shall be conducted by Bank’s

empanelled Third Party Services Providers (TPSPs) in cases of manufacturing
industries / project finance where our exposure in respect of fresh Term Loan is
Rs.25 crores & above (excluding working capital if any) or cost of the project
(availing Term Loan) is Rs.50 crores & above and by Bank’s Technical Officer in all
other eligible cases.

➢ Lender’s Engineers shall be employed wherever Bank’s total exposure by way of

Term Loan is Rs.25 crores and above or cost of the project financed through Term
Loan is Rs.50 crores and above to evaluate the progress of the project and assessing
the amount invested, compliance of sanction norms, etc. In other cases, TEV/LIE
study may be carried out if stipulated by the sanctioning authority. In general, TEV
study is a pre-sanction diligence process and Lender Independent Engineers study is
a post-sanction monitoring of the project.

➢ The Technical Inspection is applicable for project finance and industries involved in
manufacturing or processing or production or preservation of goods. In the eligible
cases as above, Technical Inspection by Bank’s technical officer will be applicable
for all new and enhancement proposals with credit exposure above Rs.200.00 lacs
emanating from branches in Major A class cities and above Rs.100.00 lacs in other
areas. In other cases, it may be carried out if stipulated by the Sanctioning Authority.

➢ Further, Technical Inspection as above for credit limits up to Rs.200 lacs emanating
from branches in Major A class cities and up to Rs.100 lacs in other areas can be
waived by RLCC-I & above. These limits means existing / proposed (in addition to
existing) credit limits.

17
 ➢ In case of new projects, it is ensured that the project is technically feasible and
economically viable.

➢ The technical report/support at the appraisal stage will assist in proper assessment
of financial needs of the venture.

➢ In case of ongoing projects/existing projects, it is ensured through Technical

Officer’s periodical visits/reports that follow up of implementation of the projects
to the completion stage and thereafter continuous monitoring of the functioning of
the units in the interests of the healthy growth of the units affording opportunities
to take appropriate steps whenever difficulties and problems would arise.

7. Concurrent Audit Reports.

➢ The objective of Concurrent Audit is to ensure that the transactions are audited on a
day-to-day basis and shortcomings/deficiencies brought out are rectified immediately.
In case of Concurrent Audit, there is an emphasis in favour of substantive checking in
key areas rather than test checking and the transactions are examined almost
simultaneously with their occurrence.
➢ The main role of Concurrent Audit is to supplement the efforts of the bank in carrying
out simultaneous internal check of transactions by an independent person and other
verifications and compliance with the laid down procedures including
checking/verification of AML/KYC, TDS as per RBI & MOF latest guidelines. Concurrent
Auditors should check the compliance of various latest guidelines issued by RBI & MOF
from time to time.

Following Branches, Business activities /Verticals of the Bank are subjected to

Concurrent Audit:
o Branches rated as High Control Risk or above in the last Risk Based Internal
Audit (RBIA) where serious deficiencies were found in Internal Audit.
o All specialized branches like Large Corporate (IFB), Mid Corporate, SME,
Exceptionally large / Very large branches (ELBs / VLBs).
o All Centralized Processing Units like Loan Processing Units (viz SARALs, ULPs,
USKs), Service Branches, Centralized Account opening Centre, Central
Pension Processing Centre (CPPC) etc.
o Any specialized activities such as ATM, Credit, Debit Card Division, Cash
Management Services, Digital Banking, Back office functions.
o Data Centers.
o Integrated Treasury/ branches handling Foreign Exchange business, Investment
banking, etc. and bigger Overseas Branches as considered by top
Management.
o Central Office Verticals e.g. Corporate Communication, Terminal Benefits
,Support Services, CP & MSME, Large Corporate Vertical etc.

18
 o Any other branches or Departments where, in the opinion of the bank,
Concurrent Audit is desirable.

➢ Tenure of concurrent audit shall be initially for one year and shall be extended for a
further period of two years, overall, three years, based on the performance of the
auditor in the first year/Second year. After completion of specific period, the firm
may be considered for audit assignment in other location or areas after completion of
cooling period. Cooling period of one year shall be observed for a firm to become
eligible for re-appointment. At any point of time, not more than one audit assignment
shall be awarded to any single firm.
➢ As an instantly available support tool to the field, it comments on irregularities in
fresh sanctions & disbursals, ad-hoc or casual sanctions, borrowers with
inadequate/lapsed insurance cover, time barred documents,
invoked/devolved/expired LC & LG, default in interest & installments, status of SMA-
0/SMA-1/SMA-2 & restructured accounts, quick mortality cases, asset classification
justification, recoveries in NPA & prudentially written off accounts.
➢ It also focuses on discrepancies pertaining to FOREX transactions, debits/credits to
FCNR/NRE/NRO accounts, compliance of ECGC formalities with comments on
import/export bills unpaid/unrealized beyond 180 days.

8. Other Audit Reports (internal/statutory/RBI)

❖ All audit reports should be viewed positively as an effective tool to discover the blind
areas for monitoring in a proactive manner.
❖ Towards this end, all types of audit reports in common comment on the quality of
assets, prudential exposure norms, asset classification, leakage of income,
compliance of sanction stipulations, renewal/review of working capital/term loan
through LAS, documentation, nature & composition of collateral securities with
details of legal opinion and vetting.
❖ They comment on non-conduct of credit process audit, correct classification of
balance sheet items, treatment of equity/quasi-equity/debt, CA certified promoter’s
contribution/capital in the system.
❖ They act as an eye opener to initiate actions for adequacy of margin, insurance and
collateral securities. Even if they seem monotonous and repetitive, these reports are
boons in disguise.
❖ Branches to take corrective actions/remedial measures immediately so that quality
of the asset are maintained, preventing any potential loss to the Bank.

9. Quarterly Performance Report (QPRs)

➢ In order to monitor performance in working capital facilities with credit limits of Rs.5
crore and above. This statement needs to be submitted within 4 weeks from close of

19
 each quarter by the borrower. This also includes a half yearly operating fund flow
statement.
➢ QPR as an effective tool throws light on performance in terms of production quantity,
net sales (both domestic and exports) in comparison of actual in the reporting quarter
vis-à-vis the annual plan projections.
➢ It comments on status of working capital funds with details of composition of current
assets, current liabilities, net working capital and current ratio at the end of the last
year in comparison to the same at the end of the quarter vis-à-vis the change during
the current year till end of the reporting quarter in line with the estimates made at
the beginning of the current year.
➢ It derives trends from financing pattern of current assets: shares of bank borrowing,
sundry creditors, other current liabilities and net working capital.
➢ It scrutinizes the levels of inventory, receivables and sundry creditors through
computing the holding periods for all these key items in operating cycle. In addition,
the half yearly operating fund flow statement (HOF) comprising of part A & B makes
meaningful comparison of long term surplus/deficit, changes (increase or decrease)
in current assets and current liabilities other than bank borrowings, changes in
working capital gap, net surplus/deficit from both long term & short term funds.
➢ It resolves the issue whether change in bank borrowings is commensurate with change
in working capital gap.
➢ This is a powerful tool at the time of review/renewal to ensure permissible bank
finance while focusing on the sound functioning of the unit in desirable directions as
per projections and past trends.

➢ It throws light on:

i. Whether quarterly actual Production both in quantity & value with regard
to annual estimates reflect favorable trends in performance?
ii. Whether quarterly figures of domestic as well as export sales represent
sound performance?
iii. Does the pattern of Current Assets & Liabilities holdings justify the net
working capital and current ratio?
iv. Whether financing pattern of Current assets in proportions of bank
borrowings, sundry creditors, OCL and NWC realistic & justified?
v. Whether holding levels of Inventory, Receivables and Sundry Creditors
reflect past trends and distinct peak/lean seasons?
vi. Whether QPR submitted within 4 weeks from close of the relevant quarter?
vii. Whether basis of classification of CA & CL same as in assessment of Working
Capital?
viii. Whether items of deposits, installments of term loan/DPG/debentures etc.
due within 12 months from the end of the quarter included in OCL?

20
 ix. Whether figures of gross sales, net sales, cost of goods sold, overhead
expenses, interest, depreciation, operating profit, other non-operating
income/expenses well synchronized?
x. Is there any healthy surplus from long term sources over long term uses?
xi. Does the changing pattern of Current assets justify the needs?
xii. Does the changing pattern of Current liabilities justify sound liquidity
management?
xiii. Does the pattern of bank borrowings justify the changes in Working Capital
Gap?
xiv. Is the QPR submitted within 6 weeks from the close of the half year?
xv. Is the basis of valuation of Current assets/liabilities consistent with the
same adopted for statutory Balance Sheets?
xvi. Is there any abnormal variation in any parameter needing further
explanation?

10. MSOD (Monthly Select Operational Data) :

In order to monitor performance in working capital facilities, Monthly Select Operational
Data (MSOD) is required to be submitted to the Bank.

➢ This is applicable to Working capital facilities with credit limits of Rs. 500 lakhs and
above
➢ It is a powerful monthly tool to compare and monitor yearly projections with monthly
trends in production, sales, purchases & gross profit to ensure liquidity, healthy
turnover and profitability.
➢ It reflects on the estimates of gross sales, net sales, production value, total debtors
& receivables out of which bills purchased/discounted by the bank comparing the
trends with figures up to the end of the reporting month.
➢ It also provides details of sundry creditors, inventories, stock-in & stock-out during
the month and charged to the bank, gross profit during the month vis-à-vis current
accounting year up to the end of the reporting month.
➢ On the basis of these select operational data, the key monitoring official has to
comment on the action taken to overcome poor turnover in the account, incidence
of bills/cheques unpaid, frequency of cash withdrawals etc. It also gives branches a
sight on the following features ::
❖ Whether current accounting year estimates for production, gross sales and
net sales reflecting the Annual Plan/Projected growth plan of the
borrower?
❖ Are the monthly figures of production & sales commensurate with annual
estimates?
❖ Is the holding pattern of monthly stocks compatible with monthly
purchases & sales?

21
 ❖ Is the basis of valuation of various items in MSOD same as adopted for the
purpose of Balance Sheet?
❖ Are the holding levels of raw material, stock in process, finished goods and
receivables conforming to norms of the Industry/past trends?
❖ Are the details of quantities, rate of valuation, movement and location of
stocks explicit enough to facilitate physical verification?

11. Audited / Provisional Financial Statements:

❖ These statement / documents shall throw light on growth in sales, profitability, cash
accruals, tangible net worth position, investment in associates, non-current assets,
term liabilities, repayment commitment under term loans in relation to cash accruals,
short term leverage etc .
❖ Various ratios worked out based on the financials will help to know how efficiently
unit is working and resources are used.
❖ Wherever deviations or deterioration is observed, immediate/timely remedial steps
should be taken.
❖ Generally in the following cases Audited Balance Sheet is required (As per Income
Tax Act, definition of persons includes an Individual, Hindu Undivided Family,
Company, Firm, Association of Persons or a Body of Individuals (whether
incorporated or not), Local Authority and Artificial juridical person).

Engaged in Engaged in Business

Profession

1. Audited Balance Revenue / Income > 50 Sales Turnover > 1 crore

Sheet required lakh per annum per annum

2. Audited Balance Revenue / Income < 50 Sales Turnover < 1 crore

Sheet not required lakh per annum per annum

3. All companies are required to obtain audited financials under Companies

Act irrespective of turnover (in addition to tax audit report)

4. All Trust / Society are required to obtain audited financials under their
respective Act irrespective of turnover (in addition to tax audit report)

In case of total exposure of the party from all Banks/FIs is Rs.25 lakh and above, audited
balance sheet is required to be submitted in applicable cases as per set periodicity (The cutoff
date for pricing of loan as per credit rating will be the date of rating as per latest Audited
Balance Sheet or 31st December (30th September for Listed companies) of next financial year
whichever is earlier. Branches / Offices should ensure that the credit rating in all eligible

22
accounts is completed on or before the cut-off date.) Branches to note that rating exercise
is to be done even if renewal of the credit limit is not due on availability of ABS as per time
line given above. The rating exercise done on the availability of the latest ABS should be
holistic in nature encompassing all the changes (if any) that has taken in entity like
Managerial, Industrial outlook etc and should not be confined to financial parameters as per
ABS only.

12. Ledger / Account Operations scrutiny:

✓ Most of the irregularities can be identified by careful ledger scrutiny and Bank can
identify problematic accounts in time.
✓ Scrutiny of ledger operations is of paramount importance to know whether:
1 The account is operational in proper 6 Cheques are returned for financial
manner reasons
2 In case of multiple/consortium 7 Cheques for bulk amounts and in round
banking, pro-rata turnover is to be sums are issued and also to check for
routed through our Bank unconnected debits
3 There are unrelated debits in account 8 Cheques deposited in the account are
(check for diversion of funds) returned frequently
4 The account is dormant previously and 9 Funds are transferred to
now becomes active or the other way sister/associated concern or other firms
round not connected with business
5 Interest debited is serviced promptly 10 The turnover of the account is
commensurate with the sales of the part
Further, a separate column in the Monthly Credit Monitoring Report is provided for
comments on ledger operations by Branch Head.

13. Collateral Security Reports

Collateral: Search Report / Valuation Report / Inspection Report-
➢ It is important for the branches/ROs to ensure that the valuation/ revaluation of the
securities charges to the bank is conducted as per banks extant guidelines on or
before the due date.

➢ Securities offered to bank as Prime or Collateral to be revalued in periodical

intervals as per Banks extant guidelines.

➢ In case of collateral security in the form of pledge/lien on LIC policy, NSCs, fixed
deposits, etc., the latest value/surrender value of the security is to be obtained.
Confirmation from the respective authorities that lien has been properly
marked/assigned in favour of the Bank is to be held.

23
 ➢ As per Credit Risk Mitigation Techniques & Collateral Management Policy 2022-2023,
all collaterals (Prime & Collateral) are required to be evaluated and appraised prior
to acceptance.
➢ In respect of any particular property/ies offered as prime/collateral security valued
at Rs.2.00 crores and above, Title Search Report from two empanelled advocates
approved by the Bank shall be obtained and in all cases below Rs.2.00 crores, Title
Search Report from minimum one empanelled advocate is to be taken.
➢ It may be noted that this stipulation is applicable when out of all properties offered
as security any one or more individual property’s valuation is Rs.2.00 crores and
above,
➢ Two independent valuations are to be obtained from the panel valuers in cases
where the value of any particular property (ies) is Rs 5 crores and above.
➢ It may be noted that this stipulation is applicable when out of all properties offered
as security any one or more individual property’s valuation is Rs.5 crores and above.
➢ All stocks, book debts and movables assets should be inspected at least quarterly in
case of standard accounts and more frequently in case of SMA and NPA accounts.
➢ Fixed assets inspection shall be carried out once in six months for primary security
and once a year for collateral security
➢ To safeguard the interest of the bank, revaluation of the assets charged is to be
done on regular intervals, if not done, bank’s interest may be adversely impacted.
➢ During inspection it is to be ensured that
a. Free access to the property is available.
b. There is no encroachment of the property.
c. The property is maintained well to have better value.
d. If there is any additional construction is found, then whether proper
approval of plan from the competent authority is held on record.
e. Latest EC to be taken to ensure no other encumbrance on the property.
f. If the security is only landed property, it is to be ensured that proper
boundaries are laid for identification of the same.
g. Whether there is any change in the classification of the property, viz.
industrial, commercial, residential, agricultural etc.
h. Whether it is a self-occupied property or let out. If it is let out, it is to be
ensured that the occupants can be vacated easily in case of necessity.
i. The marketability of the property depends on its location whether it is
locked on all the sides by other properties,(family partition) , any tenancy
law in force restricting the enforceability of the mortgage , etc.

14. Review/Renewal of accounts:

▪ Timely review/renewal of borrowal/loan account helps the Branch in
ascertaining whether the assumptions/projections made at the time of original
sanction are holding true and whether the borrowal/loan account is able to
achieve the targets/milestones as envisaged.

24
 ▪ Review/Renewal also helps in revisiting the operational efficiency of the unit
and allows for course correction to maintain the borrowal/loan account in a
stress free state.

▪ Review/renewal exercise certainly provides a 360 degree view of the

borrowal/loan account. The process note contains all the information about the
borrowal account such as its‟ constitution, status of account, business operations
in unit/account, financials, details of securities, defaults & litigations, if any,
etc.

▪ Periodical review/renewal of a borrowal account is another tool to assess the

health of the account at specified intervals. The exercise should, therefore,
commence much before the due date, (say 2 to 3 months prior), so that it is
completed on time.

Guideline for Review Renewal:

i. Working Capital (Fund Based & Non Fund based) Accounts are to be renewed
at periodical intervals depending upon the rating of the borrowers. Timely
review/renewal of the account is vital as thorough analysis of the account is
made at the time of such exercise and it enables the Bank to take suitable
steps at the right time.

ii. Non-renewal/review of the account also results in the account falling under
the stressed category and this should be avoided. Hence, review/renewal of
the account has to take place on or before due date.

iii. In case of any delay in renewal and deterioration of rating based on latest ABS,
the existing ROI / service charges shall be permitted for a maximum period of
3 months or till the date of renewal, whichever is earlier. Any delay in renewal
beyond 3 months will attract applicable ROI / service charges based on revised
rating. This shall be informed to the borrower at the time of sanction.

iv. In case of renewal / enhancement of accounts rated UBI/CR-6 and below, the
delegation for sanction of such proposals should be exercised as per policy on
Delegation of Loaning Powers. Wherever feasible, branch may tactfully try to
come out of the exposure either immediately or in a phased manner.

▪ The Bank shall adopt discriminatory time schedule for renewal / review of credit limits
of Rs. 10 lac and above based on the credit rating assigned as under.

25
 Risk Rating Maximum period of Review/Renewal

CR1/UBC1 18 months

CR 2/UBC2 to CR 5/UBC5 Annual (12 months)

CR 6/UBC6 to CR 8/UBC8 Half-yearly (6 months)

v. However, advances where credit rating is not applicable, retail loans

(irrespective of quantum of loan) and advances below Rs. 10 lac will continue
to be reviewed / renewed once in a year.

vi. Also, proposals under restructuring irrespective of credit rating should be

reviewed / renewed on an annual basis unless otherwise specified by
sanctioning authority.

vii. Extension of Expired limit: If due to unavoidable circumstances and genuine

reasons the party is not able to furnish the required particulars, generally, the
extension of the limits by review should be allowed for 3 months which can be
extended for further period of 3 months. Any extension of tenability of limits
up to 3 months can be done through a review by the respective sanctioning
authority twice in any account i.e. maximum up to 6 months from due date of
original review / renewal. However, such review up to 3 months falling within
the delegation of Management Committee of Board is vested with CAC-I. An
account where limit (regular /adhoc) have not been reviewed/ renewed within
180 days from the due date / date of adhoc sanction will be treated as NPA. If
the branch has submitted a full-fledged review proposal recommending renewal
for further period of 1 year, but in view of certain adverse features if the
competent authority has extended the limits only for a period of 6 months, such
review will be treated as full-fledged review.

The importance of timely review/renewal of Borrowal accounts can be

summarized as under:

❖ Any pending compliance with reference to various audits like, internal, external,
RBI, concurrent etc., are to be seen and to be rectified if not already done.
❖ The turnover of the account and operations are to be suitably explained and
commented.
❖ Overdue in the account should not stop the exercise of review/renewal.
❖ Annual review of account should not be taken as a routine matter. When weak
financials are there, steps are to be taken to improve the same even at the
existing level

26
 ❖ In case of consortium, whether we are taking any additional share or our share is
maintained at the same level are to be seen.
❖ Normally the account is renewed/reviewed once in a year and based on the down
gradation of the credit rating (internal), it will be done once in 6 months also.
❖ If the review/renewal of regular/ad hoc credit facility is not done within 180 days
from the due date of actual renewal / review of account, then the account will
slip to NPA category.
❖ In case the regular renewal/review of limits gets delayed for some genuine
reasons like non-availability of provisional / audited financial statements, a
system of conducting short review to take a view on continuation of facilities,
stipulating a deadline for conducting regular review of limits is prescribed.

15. Credit Rating –

❖ Credit rating is one of the important tools for assessment of risk. Monitoring of the
movement of the credit rating indicate health of the accounts.
❖ From FY 2020-2021 instead of rating scoring will be done for exposures above Rs.2.00
lacs to Rs.25.00 lacs. Scoring chart adopted will be as per IBA Model scoring chart.
❖ Scoring exercise should be done to assess whether the borrower falls under the
investment grade. The threshold under scoring based assessment is 60%. The format
of scoring model integrated in LAS.
❖ All general, MSME and Schematic loans with exposures above Rs.2 lacs to Rs.25 lacs
shall not be linked to internal rating. Scoring will be carried out as follows for
exposures above Rs.2.00 lacs to Rs.25.00 lacs:
A Term One time exercise in case of borrower with only term loan facility,
loan this shall be done at branch level at the time of on boarding/ fresh
borrower.
B TL & WC In case of TL one time exercise as in case of borrower with only term
loan facility, this shall be done at branch level at the time of on
boarding/ fresh borrower and in case of working capital facility the
scoring is to be carried out annually or at the time of
review/renewal, whichever is earlier.
C WC Scoring to be carried out annually or at the time of review/renewal,
(FB&NFB) whichever is earlier.

New Credit rating model as per Scoring Based Risk Assessment is as under:
Rating Models Applicable to all Aggregate exposures (FB + NFB)
UBI-II Above Rs.25 lacs to Rs.1 crore
UBI-III Above Rs.1.00 crore to Rs.5.00 crores
UNION TRADE- I Above Rs.25.00 lacs to Rs.50.00 lacs
UNION TRADE-II Above Rs.50.00 lacs to Rs.5.00 crores

27
 Above Rs.5.00 crores will be as per CRISIL RAM MODEL
❖ Based on the internal ratings, the periodicity of the review of the account, pricing
and the delegated authority is decided

❖ For new accounts hurdle rate is CR-5 and for take over accounts CR – 4.

❖ The improvement and deterioration of the ratings are to be commented.

Deterioration in rating reflects deterioration in the health of the assets. CRISIL, CARE,
ICRA, Acuite Ratings & Research Ltd, Brickwork Ratings India Pvt. Ltd., INFOMERICS
Valuating and ratings pvt. ltd, India Ratings and Research pvt ltd, S&P and Moodys
are external rating agencies for external rating.

❖ In case of external rating, hurdle rate for new accounts and takeover accounts are
BB and BBB respectively. Rating reflects the level of monitoring required and also the
specific area where attention is required.

❖ Risk Rating of proposals under Agriculture:

➢ Scoring Model for Land Based Agricultural loans above Rs. 2 lacs viz. Crop
Loan/UGC, farm Mechanization, Minor Irrigation is in vogue and such loan will
not be subject to credit risk rating.

➢ Other Agriculture loans more than 10 lacs, within the scope of rating system
of the Bank in nature of manufacturing activities under Food and Agro
Processing unit/ production /services activities shall be rated as per Credit
rating Model I, II & III or CRISIL Ram Model, whichever is applicable.

➢ However, agriculture loans accounts having total credit exposure upto Rs. 1
cr will remain delinked with rating for fixing rate of Interest and credit risk
rating will be done to know whether the account is coming under investment
grade or not. Rate of Interest in agriculture loan accounts having aggregate
loan amount more than Rs.1.00 crore will be linked to Credit Risk Rating.

16. Consortium Meeting Minutes

Minutes of consortium meetings would help to know the following issues:

➢ The assessments and disbursement of the loans are at different places / Banks.
➢ To have a common approach in monitoring the accounts consortium meetings are
held.
➢ The required explanation for any discrepancy in the projections from every
individual member Banks is to be suitably addressed by the representatives of the
company.

28
 ➢ The minutes are recorded with the purpose of having undertaken the discussions
over the issues and the solutions suggested by the promoters / company.
➢ Whether the same is done as promised or advised by the consortium meetings is to
be confirmed first before starting the next consortium meetings.
➢ Common inspection, rotation and lender’s engineer’s role are discussed well in
advance and recorded.
➢ The same acts as a tool for continuous monitoring of the account by way of
inspection and confirmation of assessment by various Banks’ duly cross checked by
other member Banks.
➢ The exchange of information and the allotment of the drawing power by the
consortium leader are the monitoring tools of the member banks in addition to
inspection etc.
➢ Recently, the Vigilance Commission of India has reported that there have been
non-compliances in the areas of holding of meetings on important matters such as
status of accounts, outstanding, overdue, operations in the accounts, audit
observations, sanction of adhoc limits, dealings of the borrower with banks outside
the consortium

17. Credit Process Audit

✓ All accounts with Rs. 1.00 crore and above credit limits are subject to CPA and for
Retail Rs.10 lacs and above for rural/semi urban branches, and Rs.50 lacs and above
for urban/metro branches. In case of KCC Loans the limits above Rs.25.00 Lac CPA
should be carried out invariably and for project like fisheries the CPA officer shall
be given additional assignment to verify the genuineness of land records,
seasonality for Pisci culture and cash flow etc.
✓ Wherever ASM/LIE is not appointed, a CPA to be conducted for all term loans
with exposure above Rs. 50 Crore before each disbursement which is linked to
milestone achievement.
✓ The officer for conducting CPA is nominated by the Regional Office. The officer is
an independent and experienced one and not connected with the sanction or
disbursement.
✓ They are confirming the compliance of all pre-disbursement terms and conditions.
✓ Documentation, vetting of documents, creation of charges etc. are taken care.
✓ Inspection of the collateral security is also to be conducted by CPA officer if it is
specially stipulated as per terms of sanction
✓ In case any of the sanction terms cannot be complied before disbursement then the
waiver of the condition or extension of time for compliance, has to be obtained
from the sanctioning authority.
✓ In case of any deviation permitted by the competent authority, the responsibility
of compliance of such deviation will rest with the permitting authority.
✓ Virtually it is a tool for certifying the documentation and compliance of terms and
conditions.

29
 ✓ Acts as a last buffer in case of any undisclosed information came to light. During
this period the disbursement can be withheld pending compliance of certain issues
which has adverse effect on the informed processing done by sanctioning authority.
✓ CPAO has to ensure :
➢ Account is opened as per correct Interest Rate as mentioned in Sanction
advice
➢ Processing charges is recovered
➢ Account is opened with Correct MIS code
• Branch has to ensure that CPA is conducted and reporting is done as per the formats
{Annexure-II , IV and IV A (IC 7658 dated 09.05.2007), Annexure A in case of Retail and
Annexure B in case of Non- Retail as per IC 526-2016 dated 22.07.2016) }
Follow up and compliance to the observations of Credit Process Audit:

• In respect of all eligible accounts pertaining to sanctions up to RLCC I, ROs to ensure

that Credit Process Audit is conducted and the observations/deficiencies pointed out
therein are complied with/rectified.
• Accounts pertaining to IFB, MCB and Foreign branches, verticals concerned at CO viz.,
LCV, MCV and T&IB to ensure that Credit Process Audit is conducted and the
observations/deficiencies, pointed out therein are complied with/rectified.
• All other sanctions of ZLCC and out therein are CACs at CO, FGMO concerned to ensure
that all eligible accounts have gone through Credit Process Audit and all qualifications/
observations are attended to/rectified.

18. F-1 statements

➢ Any excess over limit/DP or TOD allowed by the branch/RH/FGM/Credit approval
committees should be reported in fortnightly statement(F-1) to next higher authority
for ratification

➢ Excess over Limit is the Facility of a temporary nature sanctioned for meeting the
temporary mismatches in cash flows of the borrowers for a period normally not
exceeding 15 days to the extent of 10% of the regular sanctioned limits or delegated
loaning powers whichever is less, subject to availability of drawing power.
➢ The ceiling of 10% of limit will not be applicable to the controlling offices and IFB
branches. Hence in case the amount of excess over limit requested by the party is more
than 10% of regular sanctioned limit or the power of excesses, whichever is less, the
branch should approach its controlling office for allowing excess beyond the above
mentioned ceiling.

➢ The reason for allowing excess over limit be very specific in nature inter alia covering
aspect like specific purpose for which EOL/TOD is allowed

➢ Whenever excess over limit is required to be given the same should be

reported to delegate authority and giving full particulars as under:

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 ➢ Name of party

➢ Amount of excsess requested with specific purpose

➢ Details of beneficiaries

➢ Period of excess over limit

➢ Justification for such excess over limit.

➢ The approving authority for such excess should only be the respective committee under
whose delegation such excess falls.
➢ Unconfirmed excesses should not be allowed to continue and steps are to be taken for
immediate recovery of the same.
➢ For account having Credit Rating CR-6 and above, the delegation for granting of EOL
within the delegation of Branches/ RLCCs is now withdrawn and any requests for
granting EOL is such accounts/ limits rest with ZLCC. The delegation for grant of EOL
for ZLCC & above shall remain unchanged.

19. M-27 – Delegated Authority statement

➢ This is one more important tool. Branches sanctioning loans under their delegated
authority have to report to their RO about such sanctions with copies of sanction papers
for limits above Rs.10.00 lacs.
➢ M-27 deals with all the sanctions done by the branch manager under his delegated
authority.
➢ RO to scrutinize the same and take up with branches for any irregularities for immediate
rectification.
➢ Submission of the same in bunches should be avoided.
➢ Any deviations in sanction, rate of interest, delegated authority, security stipulations,
margin etc. to be taken by RO with branches immediately for compliance.
➢ Generally M-27 is a monitoring tool in the hands of the next higher authorities.
➢ The purpose of sending process note for Rs.10 lakhs and above is solely for rectifying
the mistake if any in the processing.
➢ Again attended copies of M-27 are to be obtained and held on record.

20. CMA Data

❖ CMA data will throw light on the nature & extent of the existing facilities enjoyed
by the borrower from the Banking system and the pattern of limit utilization in
Working Capital Limits.
❖ On analysis of CMA data, following observations can be derived which will act as
trigger for proper monitoring of the Account:
➢ Is there any existing/proposed exposure through LEASE/HIRE
PURCHASE/ICDs/ECBs etc.?
➢ What are the main terms & conditions of existing Term loan/DPG?

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➢ Is there any exposure through Debenture/Long Term Borrowings?
➢ Is there any mismatch between domestic & export sales in EOU?
➢ Is the growth rate of sales conforming to market/industry trends?
➢ Is the quantity and value of sales conveying the true picture of growth?
➢ Is the inventory level maintained in healthy proportions?
➢ Is there any unusual overload in work-in-process?
➢ Are the overhead expenses justifying the production pattern?
➢ Is the operating profit before interest compatible with operating profit after
interest?
➢ Is the non-operating income commensurate with nature of activity?
➢ Is the non-operating expenditure reasonable?
➢ Is the provision for tax in line with the prevailing rates?
➢ Is the dividend rate and amount compatible with net profit trends?
➢ Is the proportion of retained profit to net profit healthy?
➢ Is short term borrowing like ICDs, CPs etc. classified as current liability?
➢ Is provision for tax taken as a current liability?
➢ Is dividend declared yet to be paid treated as current liability?
➢ Are the items of other statutory liabilities due within one year treated as
current liability?
➢ Are the installments of term loan/DPG/debenture/ECB/deposits due within
one year classified as current liability?
➢ Are the figures of Net-worth plus revaluation reserves and Net-worth minus
revaluation reserves compatible?
➢ Are items of short term investments including fixed deposits with
Banks/MMMF/CP/CD taken as current assets?
➢ Is it ensured that inland receivables less than 6 months only reckoned as
current assets?
➢ Is it ensured that only installments of deferred receivables due within one year
treated as current assets?
➢ Is the Gross Block appropriate to the nature & size of business?
➢ Is the rate of depreciation in conformity with statutory guidelines?
➢ Are the items like investments in subsidiary/associate/sister concern/dues
from directors/deposits with Govt. Dept. & Statutory bodies/non-consumable
stores & spares treated as non-current assets?
➢ Are the items of patents, goodwill, preliminary expenses, and un-provided bad
& doubtful debts treated as intangible assets?
➢ Is the tangible net worth healthy?
➢ Is the net working capital within acceptable norms?
➢ Are current ratio, debt-equity ratio and DSCR conforming to loan policy
benchmarks?

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 ➢ Is there any contingent liability in form of arrears of dividends, un-provided for
gratuity liability, disputed excise/customs/tax claims, bills
purchased/discounted under LC etc.?
➢ Are there frequent movements of Inter Company Deposits (ICDs) placed with
others and ICDs taken from others?
➢ Are there any established/acceptable norms for holding period of
Inventory/Receivables/Sundry Creditors?
➢ Is there any marked deviation in norms?
➢ Is the proportion of Net Working Capital (NWC) to Total Current Assets (TCA)
justifiable?
➢ Is the proportion of flexible bank Finance (FBF) to Total Current Assets (TCA)
appropriately justified?
➢ Is the share of Sundry Creditors to build up TCA appearing realistic?
➢ Do the long term sources and uses of funds result in a healthy surplus?
➢ Does increase/decrease pattern of current assets reveal the realistic business
trends?
➢ Do the movements in current liabilities other than bank borrowings reflect
assured sources of short term funds?
➢ Does the increase/decrease in bank borrowings justify the movements in
working capital gap?
➢ Are the cash flows from business operations, non-business operations and
capital accounts in acceptable synchronization?
➢ Is there any indication of acute liquidity crunch?

21. Advocate’s vetting report :

❖ Documents in respect of advances above Rs. 10 lacs and upto Rs.1 crores are to be
vetted by law officer attached to RO/FGMO/panel advocate and documents in
respect of advances above Rs.1.00 crores are to be vetted by approved advocates
before release of limits. Documents in respect of advances up to Rs.10 lacs are to
be vetted /certified by Branch Manager/ Advance Officer himself/herself.
❖ It contains the empanelled lawyer’s remarks & certificate on the correctness of the
documents executed as per sanction stipulations.
❖ Emphasis is made on the qualifying remarks on adequacy & quality of
documentation process with reference to the sanction terms.
❖ Taking a cue from this report, the branch officials need to ensure that all relevant
documents have been obtained, charge created is legally enforceable and all
documents are adequately stamped conforming to law of limitation period.

22. Visit report of key officials from controlling office:

❖ Visit report gives a clear picture of overall functioning of Loan portfolio of the
branch like No. of loans sanctioned with amount, adherence to the set guidelines,
deficiencies and irregularities found in processing, sanction and documentation.

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 ❖ Branch to take immediate steps for rectification of the deficiencies and confirm to
RO.
❖ It also comments on NPA management & recovery with details of position of NPAs
at the beginning of the year, addition of slippages, deductions through cash
recovery/up-gradation/write off etc. vis-à-vis the ceiling level target.

23. Asset Quality Management Committee (AQMC) minutes

AQMC is the most important committee at the level of the Administrative Offices. One
of the prime objectives of the committee is to ensure that the stressed assets of the
Branches/Regions/FGMO are kept under check and are reduced on a month-on-month
(M-o-M) basis. The parameters on which the performance will be reviewed during the
AQMC meetings and the minutes should be submitted latest by the 20th of every month.

➢ It emphasizes on the follow up & timely renewal of limits for up-gradation from stress
to stress-free category, by recovering the overdue.
➢ It revisits the justification of moratorium & EMI to ensure that no account should be
under stressed category for technical reasons like non-receipt of stock/book debt
statements, non- review or renewal of limits etc.

24. CIBIL report:

➢ Is a data mine for bankers to get the credit history of both existing and prospective
borrowers, this report provides a scoring pattern in the range of 300-900 points .For
retail advances, a score of 700 points and above is considered to be a good score.
➢ Factors influencing rating/scoring include payment history, outstanding debt,
length of credit history, number & type of credit accounts, utilization of sanctioned
limits and application for new credit lines.
➢ These factors impact the score either positively or negatively. Factors which cause
negative impact include willful default, written-off & suit filed history.
➢ This report reflects on the overall commitment and financial character of the
borrower.
➢ This report need to be generated (now it is to be done through LAS module) and
studied both at the time of new sanction and subsequent review/renewal to
ascertain any change in status affecting the health of the account.
➢ CIBIL report provides two scores, Personal Score and Transunion Score. While
Personal score is given with regards to unsecured loans of the individual, Transunion
Score is given with regard to both Secured and Unsecured loans. Branches / offices
are, therefore, advised to use CIBIL Transunion score which is hereinafter referred
to as CIBIL score.

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 25. Monthly Credit Monitoring Report (MCMR)
➢ Discuss separately in the Chapter of MCMR

26. Monthly Cash Budget

➢ Cash budget method is used for assessment of working capital for specific/
seasonal industries like software development, film, construction, sugar,
fertilizer.
➢ Working capital requirement is assessed based on the projected cash flow (cash
budget).
➢ From the monthly cash budget submitted by the borrower, the quantum of
drawals should be allowed in line with the projected cash flows i.e., cash deficit
or surplus.
➢ Any variation with the projections gives an indication which should be looked
into and corrective measures should be taken immediately.

27. Overdue Bills statement (Domestic & Export)

This statement generated by the system will show details of bills like, date of the bill,
date of discount, due date, overdue since, amount etc.
Based on the overdue bill statement, follow up with the borrower to be made for
adjustment of the bills. Reason for any inordinate delay in payment of bills should be
ascertained. Apart from regular follow up for overdue bills, immediate corrective steps
should be taken in case of recurrence of overdue bills from specific importer/buyers
28. Adverse/search enquiries from other Banks regarding the account, promoters
or guarantors:
Any enquiry, oral or in writing from other Banks/financial institutions should be taken as
a signal. If such enquiry reveals anything adverse about the party, immediate steps are
to be taken to find out the veracity and also remedial actions are to be initiated.

29. RBI defaulters’ list/ECGC specific approval list:

RBI’s Defaulters list and also ECGC specific approval list is to be scrutinized to find out
whether any borrowers/company/directors name appear in this list.

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 CMCC Portal –
Complete solution towards Stress Management
In CMCC portal all important parameters of credit monitoring are available at one place and
there is facility of data extraction for thorough scrutiny by different users.
Branches/ROs/FGMOs can use the option for easy monitoring. The options available in the CMCC
PORTAL are highlighted as under:

Main parameters helpful for Monitoring by CMCC Portal:

a) Home:
This contains three (3) Dashboards which give a clear picture/snapshot of the
Branch/Office using it. In other words, Dashboards contain the summary of all
parameters and the users can see at a glance the start position as well as progress made
under each section on a daily basis and also the balance position which is still to be
acted upon. One new feature SAS Dashboard is also added which provides graphical
presentation of data on 7 parameters i.e. Call Centre Operation, Centralized Dispatch,
Credit Card SMA, Slippage, Review-renewal, SMA Monitoring & Technical Slippage. The
CO/ZO/RO can view data of Zonal Offices / Regional offices / Branches falling under
their jurisdiction. The data can be viewed as a summary or account-wise.

b) Mock Run:
All accounts (i.e., account wise data) pertaining to the Branch coming under the
jurisdiction of respective office appearing in Mock Run will appear under this section.
This data is uploaded 3-4 times in a month by CMCC, CO after taking it from DIT / MIS.

The Mobile Number and Mail-IDs that are available in FINACLE in Customer Master is also
incorporated in this report to enable all the users to make a call or send a mail to
Borrower on the various defaults like Mock Run, CRILC, PSA (Potential Stress Asset),
SMA-0, 1 & 2, Review / Renewal etc.

c) SMA:
In the SMA section, accounts having financial default on last day of the previous month
will appear. Under SMA section, there are 3 sub sections of SMA-0, SMA-1 & SMA-2.

d) CRILC:
It is mandatory for Banks/Lenders to report defaults in accounts with AE Rs.5.00 crore
and above under CRILC platform even if the default is for one day. This adversely affects
the reputation of party particularly where default occurs for a day or two. This section
internally provides the data on such defaulted accounts enabling the Branch/RO/FGMO

36
 to streamline the timely collection and credit of interest/installment to the
borrowal/loan account. This list is updated on a monthly basis.

e) Potential Stress Accounts (PSA):

Under this section all accounts (MSME, Retail , Agriculture , Corporate as mentioned in
the Instruction Circular no.01848:2020 dated 07.02.2020 issued by CMCC,CO) indicating
Early Signals of Stress (ESS) is provided which enables the Branches/ROs to address the
issue for each account well before the account actually reaches the stage of SMA. This
list is also updated on a monthly basis and is a good tool to prevent future stress in asset
portfolio. ROs have to keep track of each account of their Region for action taken by a
Branch over these accounts.

f) Ceilings Vs Actual:
Starting FY 2018-19, Bank has started allocating month wise ceiling on 4 parameters
viz., Potential Stress Account (PSA), Stress Position, Mock Run and Slippages. The
ceilings are allotted month-wise and actual achievement of the Branch/Region/Zone is
mapped to the ceiling allotted. This will enable the Branch/Region/Zone to assess their
performance vis-à-vis allotted ceilings under the given parameters. This data is
uploaded once in a year after finalization of targets/ceilings but updated on a monthly
basis for actual against ceilings given for that particular month.

g) Review / Renewal:
Presently, ROs/FGMOs maintain records of review/renewal of accounts falling under
their or higher delegation. Accounts falling under branch delegation come to light only
when the overdue for renewal exceeds 3 months (unless RO generate list of such
accounts at their end from FINACLE in advance). Under this head all accounts which are
due for review/renewal till the last date of previous month will appear thus enabling
the RO/FGMO to follow-up with branches for timely review/renewal of the accounts
particularly of accounts falling under Branch delegation. This list is updated on a
monthly basis.

h) Legal Audit Compliance (LAC):

As per RBI guidelines, all accounts having Aggregate Exposure of ˆ 5.00 crore and above
needs Legal Audit Compliance (LAC). This section contains the list of such accounts
where LAC is pending. The list is updated on quarterly basis and ROs / Branches have to
provide the updated status. This will give FGMOs & Central Office instant information
about pending LAC and thus matter will be expedited.

i) Monthly Credit Monitoring Report (MCMR):

This is an excellent tool to monitor submission of MCMRs in eligible accounts at different
levels. This data is updated on monthly basis. It will improve timely submission of
MCMRs.

37
j) Credit Card:
This section has data on stressed Credit Card Accounts. This list is also updated on
monthly basis and enables the Branches to recover amount in such accounts. This data
is provided separately because the other accounts of the borrower like Retail, MSME
etc., may also slip to NPA on percolation basis. Apart from SMA Credit Card Data, data
for Credit Card NPA is also provided for follow-up & recovery of Credit Card dues.

k) Technical Slippage:
Under this section, all accounts which have slipped to NPA category due to technical
reasons like Limit Expired, Stock Statement not received, No credit for 90 days will
appear. Branches/ROs are required to follow-up with the borrowers for rectification of
these irregularities so that these can be upgraded at the earliest. This list is updated on
monthly basis.

l) Defaulter List:
This section has three unique features and contains details are as under:

✓ Defaulter Entity /ies List: It is collated from RBI, SEBI, Income Tax, Central
Fraud Registry, MCA Website, EPFO, Customs, Service Tax, CIBIL etc.

✓ Defaulter Director(s) List: It is collated from MCA Website.

✓ Defaulter Company Secretary / ies List: It is collated from MCA Website.

These features are enabled to support field functionaries in initial due diligence while
opening of Current Accounts, Processing Loans and also checking status of
Beneficiary(ies) while opening / issuing of LCs/BGs and making large value remittances
under RTGS/NEFT etc. This will help the field functionaries in initial instant
checking of defaulting entities and individuals. The field functionaries shall, as per
various policies in vogue, also refer to the websites whose links are hosted in
“UBINET” for further details.

m) Credit Monitioring Visits:

This section shall be available only to ROs. Under this section, there are two sub
sections:

✓Spurt in Advances – Spurt in number of loan accounts or amount in a Branch will

be available under this sub section. ROs have to pull out these reports from the
portal and visit branches where Spurt in Advances is observed.

✓Others – Under this sub section data related to M-27, F-1, Documentation, High
Stress Branches, Mock Run etc., is available.

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n) MSME Base Restructuring Data:
This section is also provided to all branches / offices to know the MSME Accounts Base
Data (2019/2020 Scheme) in their jurisdiction to undertake MSME One Time
Restructuring as per extent guidelines. With this the branches / offices may follow up
with the related borrowers for viable restructuring. MSME Relief list is updated on a
quarterly basis.

o) Recovery & Upgrade:

Under this section account-wise details of newly slipped accounts are hosted for focused
attention on recovery / up gradation.
p) Stock Statement & Insurance Pendency:
The portal is also added with account-wise pendency list for stock statement and
Insurance and shall act as reminder / alert for the branches / offices to obtain the same
timely. This section is updated on a monthly basis.

q) Centralized Follow-up Data:

This tab / section is added recently. It consists following two sub-tab:

i. Call Centre:
Under this section data of SMA borrowers provided to Call Centre for follow-
up is hosted. Also it contains the discrepancy data i.e. invalid mobile number,
incorrect mobile numbers etc. and cases of non-responsive / hostile
customers. Branches are supposed to update the correct contact details in
FINACLE and follow-up non-responsive / hostile customers in person.

ii. Centralized Dispatch:

Under this section list of SMA borrowers to whom overdue notices have been
sent through Centralized Dispatch model is provided for the knowledge of
branches / offices. Also it contains the discrepancy data i.e. incorrect
addresses, unavailability of borrower due to shifting of residence / office etc.
Branches are supposed to redo due-diligence and update the correct details
in FINACLE.

r) NACH Mandates:
This section will give data on NACH/SI related data on 2 parameters namely – NACH
Data allotted & NACH Data Failure

s) Possible Account Error Alerts:

This section will give alerts for an account on Possible Errors like error in Loan Period,
Moratorium (Int. Def. Period), High Interest Rate etc.

39
t) Credit Indiscipline Alerts:
Bank has a robust system (Ethics Package) to trigger alerts on the basis of pre-defined
parameter/s and threshold, the said ALERT inputs (Serious / Advisory) were
incorporated in the said Tab.

u) CMRD Letters / Note:

This sections is added wherein important letters written to branches /offices and notes
on high value accounts placed before top management are hosted. The same are made
available to concerned branches / offices only.

v) Reports:
This section is available only to Regional offices, Field General Manager’s Office and
CMCC, Central Office. Branch wise, Region wise or Zone wise report can be pulled out
using this section for further analysis and devising suitable action plan.

40
 Monthly Credit Monitoring Reports (MCMRs)
Monthly Credit Monitoring Report (MCMR), devised by the Bank, has to be submitted in all the
accounts as per the cutoff limit to the respective monitoring authority giving meaningful and
crucial information.
Preparation of Monthly Credit Monitoring Report should be taken as an opportunity to identify
the irregularities observed at the time of compiling the report and effective steps are required
to be taken immediately at the Branch level.
In the normal course, Branch Heads and other officials involved in the exercise should take
suitable proactive steps immediately instead of waiting for any directives from monitoring
authority.

Monthly Credit Monitoring Report should be prepared carefully without leaving any column
blank. All the branches have to go through the checklist very carefully and tick the appropriate
column and give clear and complete information in the MCMR.

Branch should submit the report in time and ensure that all information is duly incorporated
and updated before submission. Respective Controlling office will scrutinize and communicate
the irregularities to branches for rectification. After scrutiny, Credit Monitoring and Credit
Compliance (CMCC) at Central Office will submit a consolidated note to Managing Director &
CEO (MD & CEO) I Executive Director (ED) about asset quality of Bank. Monthly Credit Monitoring
Reports (MCMRs) should not be submitted merely as rituals and irregularities should not be
repeated in following months.

Cut-off limits for Monitoring:

The level of cut-off limits for monitoring are fixed in view of the volume (number) of MCMRs
and the value (amount) which can be handled at each level, i.e., Branch I RO/ FGMO/ Central
Office. Cut off limits fixed for monitoring are retained at the existing level as under:

S. Credit Monitoring Reports to be submitted Cut Off Limit

No.
By To
1. Concerned Monitoring officer Branch Head Upto Rs.50.00 lakhs
at Branch
2. Concerned Monitoring officer Branch Head headed by Upto Rs. 5.00 crore
at Branch (including IFBs) GM/DGM & Industrial
Branches (IFBs) Finance Branches (IFBs)
3. Concerned Branch Regional Office Above Rs.50 lakh & upto
Rs.5.00 crore
4. Concerned Branch FGMO Above Rs.5.00 crore &
upto Rs. 10.00 crore
5. Concerned Branch Central Office Above Rs. 10.00 crore

41
Cut-off Limits / Exposure for Submission of MCMR, both Fund Based and Non-Fund Based
limits/exposure, should be taken together.

Monitoring Responsibilities at different levels:

Monitoring of accounts is the responsibility at all tiers of management - right from the
Branch level and the responsibility to monitor the account is not confined to any single wing of
the Bank viz., Branch, Regional Office, Field General Manager's Office or Central Office. The
Executives / Officers monitoring the accounts are responsible to ensure that proper and clear
cut directions are given to bring the accounts out of stress and they have to use all the tools to
prevent slippages.

At Branch level:

• Monthly Credit Monitoring Reports are to be submitted in Lending Automation Solutions

(LAS) module by nominated monitoring officers at Branch level to respective controlling
offices as per cut-off limit within time line of 7th of succeeding month.
• Branches shall submit Monthly Credit Monitoring Reports (MCMRs) in respect of all stress
free standard accounts above Rs.50 lakhs to the respective monitoring authority as per
the cut off limits on quarterly basis except in SMA-O, SMA-1and SMA-2 accounts.
• For the sake of convenience and taking into consideration work load at the branches
during quarter end, Monthly Credit Monitoring Reports on all stress free standard
accounts shall be submitted in the months of February, May, August and November every
year for the preceding 3 months period i.e., November-January, February-April, May-
July and August-October, respectively.
• In respect of accounts above Rs.5.00 lakhs and up to Rs.50.00 lakhs in lieu of the
Monthly Credit Monitoring Reports, a statement containing details of SMA-0, SMA-1 and
SMA-2 accounts along with the nature of irregularities shall be sent by the branches to
the Regional Offices in the form of Annexure-C generated from LAS.
• Further, the branches have to prepare Appendix-C in respect of accounts up to Rs. 5.00
lakhs monitored at their end and send a copy of the same to the Regional Office.
• Branch Head or the Credit Monitoring Officer or any other officer assigned with duties
of inspection of security should inspect the prime security invariably every
month/quarter as the case may be and other securities at least once in year.
• As the branch gets Early Warning Signals (EWS) and most of the activities take place at
the branch level only, the responsibility of monitoring of all accounts irrespective of the
limits or exposure will rest with Branch.
• In case of glaring irregularities, the Desk Officer (DO) or the Credit Monitoring Officer
(CMO) handling the file should draw the attention of Branch Head (BH) immediately
without waiting for the end of the month to compile the MCMR.

42
 • Based on such reports and other monitoring tools available at his disposal, the Branch
Head in turn shall take appropriate and timely steps and shall escalate the matter to
RO/FGMO/CO for information and guidance.
• Branch may also receive letters from RO/FGMO/CO in respect of accounts monitored at
their level where the concerned authority requires confirmation on rectification of
certain irregularities observed by them.
• The branch, immediately on receipt of such letters, should take steps to rectify the
irregularities and confirm compliance immediately.
• In case of irregularities that cannot be rectified immediately, a specific time frame
should be adopted and communicated to the Regional Office I Sanctioning Authority as
the case may be.
• The officials at the branch level are responsible to ensure submission of Monthly Credit
Monitoring Reports (MCMRs) in respect of all eligible accounts to the respective
Monitoring Authority including newly sanctioned or disbursed accounts.
• Branches shall submit Monthly Credit Monitoring Reports (MCMRs) in respect of all
restructured accounts above Rs.1.00 crore to the respective monitoring authority with
a copy to Restructuring Cell of Credit Monitoring & Restructuring Department, Central
Office.
• The Branch Head should make specific comments under Part-D of the Monthly Credit
Monitoring Report in each account. He should specify the line of action proposed by him
in case of irregularities observed. This column should be taken seriously and not filled
up mechanically.

At Regional Office level:

• Regional Office shall also go through Annexure-C, generated from LAS and submitted by
the branches, containing SMA-O, SMA-1 and SMA-2 accounts up to Rs.50.00 lakhs that
are monitored at Branch Level, and take such corrective steps as required based on the
position of the branch.
• The Regional Office to identify those Branches under his jurisdiction where large
numbers of accounts exhibit/reveal Early Warning Signals (EWS)and to take such
measures to arrest the trend and to put the branch on normal track. This may include
among others, ascertaining reasons for such occurrence at the Branch, sending a
monitoring officer and other team if necessary and in extreme cases, shifting the
personnel from the branch, if warranted.
• The Regional Office to ensure that based on the copies of letters written by FGMO or
CO, the branch takes appropriate steps so that the irregularities pointed out are
rectified.
• The Regional Office to ensure that the Monthly Credit Monitoring Reports in all eligible
accounts are submitted by the branches and they have to reconcile this figure on a
monthly basis.

43
• The Regional Head to ensure that AQMC meets every month and discharges its functions
effectively as laid down in Credit Risk Management Policy.
• Regional Offices to ensure that the monitoring mechanism at their level and at the level
of branches under their jurisdiction is effective.
• A senior officer, not below Scale-III, is to be nominated by every RO as Nodal Monitoring
Officer-RO (NMO-RO) of the Region. He will be responsible for entire monitoring function
of credit portfolio of Region and for liasioning with CMCC at Central Office.
• Monitoring Officials, other senior officials from the Regional Office should also visit the
branches under their jurisdiction having high concentration of stressed assets at least
once in 3 months and once in 6 months to other branches to ensure that branches are
carrying out effective monitoring of credit portfolio.
• They should also conduct meetings with borrowers whose accounts are regularly coming
under stress to make them stress free. Minutes of meeting with stressed account
borrowers are to be held on record and timely follow up to be made to regularize the
account.
• The nominated Nodal Monitoring Officer-RO should be in constant touch with branches
and even with customers whenever need be.
• SARAL Head/Credit Head/Regional Head should review the functioning of Nodal
Monitoring Officer-RO (NMO-RO) every week and guide him in his work.
• Branches are expected to fill all the columns of the MCMR, appropriately tick mark the
relevant irregularity in checklist (Appendix-B) by ensuring utmost accuracy in this job.
• In respect of adhoc limit sanctioned at any level, the MCMR will be sent to the original
monitoring authority as if the adhoc is not sanctioned. In other words, if the cut-off
limit without the adhoc limit is Rs.5.00 crore and with adhoc limit the total limit goes
to Rs.7.00 crore, the MCMR will still be sent to RO only and not to FGMO.

44
 Red Flagging Of Accounts
1. Background:

Looking to the incidence of increasing frauds in Banks, RBI has issued guidelines in
relation to prevention, early detection and prompt reporting to RBI and the
Investigative Agency. Banks have to ensure that normal conduct of the business and
their risk taking ability is not adversely impacted and no new and onerous
responsibilities are placed on them.

2. Concept of RFA:

Having recognized that early detection of fraud and necessary corrective action are
important to reduce the quantum of loss, the concept of Red Flagged Account (RFA) is
introduced by RBI as an important step in fraud risk control. To start with, applicability
of Red Flagging of Account (RFA) will be for accounts with a credit limit of Rs. 50.00
crores and above.

3. Triggers for RFA:

Our Bank, while adopting the illustrative list of 42 (Forty two) Early Warning Signals
(EWS) circulated by RBI has added a 9 (Nine) more signals to the list and grouped them
into 5 categories based on the nature of the EWS. The guidelines were initially
circulated vide Instruction Circular No: 181:2015 dated 06.08.2015 and reiterated vide
Circular Letter No: 2673:2018 dated 12.10.2018 by Credit Monitoring & Restructuring
Department, Central Office. Further, the template containing the EWS, is attached as
“Annexure” to the said circulars and is made a part of the Monthly Credit Monitoring
Report (MCMR) to be submitted by the Branches through the Lending Automated
Solutions (LAS) module.

4. Reporting through MCMR:

In order to have a clearer picture of the loan accounts, it has been decided by
the Bank that, the branches while preparing the MCMRs in accounts with AE of
Rs. 50.00 crore and above, should offer their comments on the manifestation of
EWS that may exist in each of the accounts.

Branches have to indicate “Yes (Y)”, “No (N)” or “Not Applicable (NA)” on the
manifestation of each of the EWS in the MCMR along with cogent reasons in case
the manifestation is marked as “Yes (Y)”. Further, the branch should also give
its specific comments / recommendations as to whether account needs to be
marked as “Red Flagged Account” or otherwise.

45
 The Early Warning Signals pertaining to LC/LG devolvement are monitored at CM & CC
Dept., CO level and regular follow-up with branches / offices are made. Further, the
data pertaining to LC/LG devolvement are also made available to branches / offices
through CMCC Portal.

5. RBI Guidelines:

Some of the salient features of framework containing the concept of Red Flagged
Accounts (RFA) circulated by Reserve Bank of India vide notification
No:DBS.CO.CFMC.BC.No:007/23.04.001/2014-15 dated 07-05-2015 are given below for
ready reference:

6. Objective:

The key objectives of this framework are to direct the focus of Banks

a. On the aspects relating to prevention and early detection,

b. Prompt reporting to the RBI and the investigative agencies
c. Timely initiation of the staff accountability proceedings
d. Ensuring that the normal conduct of business of the Banks and their risk
taking ability is not adversely impacted
e. No new and onerous responsibilities are placed on the Banks.

6.1 Need:

The early detection of Fraud and the necessary corrective action are important
to reduce the quantum of loss lest the continuance of fraud, may otherwise
entail.

6.2 Methodology:

Concept of “Red Flagged Account (RFA)” is introduced as an important step in

fraud risk control. A RFA is one where a suspicion of fraudulent activity is thrown
up by the presence of one or more Early Warning Signals (EWS). Bank must use
these signals as a trigger to undertake a detailed investigation into RFA.

6.3 Other important features:

a. Threshold exposure for Red Flagging of Accounts: Accounts with an exposure

of Rs. 50 crores or more at Bank level irrespective of lending arrangements
(sole, multiple or consortium) are to be red flagged.

46
b. Reporting structure: All accounts beyond Rs.50.00 crores classified as RFA
or ‘Frauds’ must also be reported on the CRILC data platform together with
the dates on which the accounts were classified as such.

c. Tracking of EWS in Loan account should not be seen as an additional task

but must be integrated with credit monitoring process in the Bank, so that
it becomes a continuous activity and also acts as a trigger for any possible
credit impairment in the loan accounts.

d. A Fraud Monitoring Group (FMG) should be constituted by the Bank for this
purpose for reporting to the top management with specific
recommendations to classify the accounts as RFA or otherwise. (Already
formed at the Central Office level).

e. A report on the RFA accounts to be put up to the Special Committee of the

Board for monitoring and follow-up of Frauds (SCMF) providing, inter alia, a
synopsis of the remedial action taken together with their current status.

f. Emphasis: The emphasis is on early detection and reporting at all stages viz.,
During Pre-sanction, Disbursement, Annual review, Staff empowerment,
Role of Auditors, with incentive for prompt reporting.

g. Initial decision for any Standard / NPA account to be declared as RFA will
be at individual Bank level and it should be reported to CRILC by the
particular Bank.

h. Within next 15 days such Bank will request consortium leader or convener
of JLF to convene a meeting and discuss the issue. In case there is a broad
agreement among the lenders the account will be classified as fraud. If
broad agreement is not there, then on the basis of majority (60% share in
total lending) all the lenders will Red Flag the account and then the account
will be subjected to forensic audit by consortium leader or convener of JLF.

i. Forensic audit to be initiated by consortium leader or largest lender under

MBA. All the banks, as a part of the consortium or MBA shall share all the
costs and provide necessary support for such investigation. In case of Sole
Banking arrangements then the individual Bank has to get the forensic audit
conducted and entire exercise to be completed within 6 months from the
date when first member reported the account as RFA or fraud on the CRILC
platform

j. Staff Accountability: The process of staff accountability exercise must be

completed within three months from the date of classification as fraud.

k. Filing complaint with Law Enforcement Agency: Banks are required to lodge
a complaint with Law Enforcement Agencies on detection of fraud.

47
 l. It should not be delayed as it may lead to loss of relevant ‘relied upon’
documents, non–availability of witnesses, absconding of borrowers, asset
disposition etc.

m. Penal measures for fraudulent borrowers: Penal provision as applicable to

willful defaulters would apply to fraudulent borrowers including the
Promoter Directors and Whole Time Directors of the Company. No
restructuring or grant of additional finance will be allowed, in case of RFA/
fraud accounts.

n. Central Fraud Registry: A Central Fraud Registry has been made available by
RBI based on fraud monitoring returns filed by the banks and select FIs
including updates, for which banks have been given access through user ids
and passwords by RBI.

o. Early Warning Signals (EWS): RBI has provided an illustrative list of the EWS,
to which our Bank has added a few more.

p. Role of Auditors: It is possible that the auditors, during the course of audit,
come across the instances where the transactions in the account or the
documents point to the possibility of fraudulent transactions in the account.
in such a situation, the auditor should immediately bring to the notice of
the Top Management and if necessary to the Audit committee of Board (ACB)
for appropriate action.

7. Creation of Red Flagged Account (RFA) Menu in FINACLE:

DIT, Powai, has created a menu “RFA” in FINACLE for Red Flagging of accounts and the same
has been made operational. It may, however, be noted that the authority of Red Flagging of
an account vests with the “Credit Monitoring and Restructuring Department, Central Office”
only.

Branches / Offices have only to send us the MCMR along with Annexure-1 of the policy and their
specific comments for taking up the matter with the Fraud Management Group (FMG) set up at
Central Office. The Early Warning Signals (EWS) mentioned are indicative only and may be used
as a trigger for detailed investigation, if warranted, for possible fraud. Branches should not
have any confusion and the presence of one or more EWS in an account should not necessarily
be viewed as “suspected fraud” in the said account.

48
Early Warning Signal (EWS):
Reserve Bank of India vide Circular dated 07.05.2015 has issued guidelines in respect of Early
Warning Signals & Red Flagging of Accounts in the New Framework for dealing with loan frauds.
These guidelines were updated vide RBI circular dated 01.07.2016. RBI has prescribed 42 alerts
to be implemented as Early Warning Signals (EWS). Govt. of India (DFS) as part of EASE Agenda
prescribed 84 signals for implementation.

A Red Flagged Account (RFA) is one where suspicion of fraudulent activity is thrown up by the
presence of one or more Early Warning Signals (EWS). These signals shall alert the Bank on a
weakness or wrongdoing, which may ultimately turn out to be fraudulent. By using these signals
as trigger, the Bank shall launch a detailed investigation into RFA.

v. The threshold limit prescribed by RBI for EWS and RFA is an exposure of Rs. 50 Crore or
more. A Web based solution provided by Bahwan Cybertek Pvt. Ltd., has been implemented in
our Bank with effect from 31.03.2021. The thresholds are further reduced duly covering all
exposures of Rs.5.00 Crore and above. EWS alerts flashed by the EWS package for accounts with
limits of Rs. 5 crore and above are hosted in CMCC portal for effective monitoring.

Brief Details of the Package & Standard Operating Procedure

1. It is a web-based application which consumes data from various sources including

internal sources like Finacle-CBS, Internal Rating System, CRILC data, and external data sources
available in the public domain and CRM Forms for collecting Monthly operational data.

2. The captured data from various sources is collated, analysed and inference will be drawn
through provided solution. System will analyse & provide in-depth inference for taking
appropriate action.

3. The package is configured for generation of 42 alerts indicated by Reserve Bank of India
and 84 alerts suggested by DFS. In addition, two alerts specific to our Bank in the package are
customized capturing details of RFA/ Fraud declared by other banks and for identification of
Diversion of funds.

Implementation of EWS Package

1. The Package threshold is fixed for implementation of borrowal accounts with aggregate
exposure of Rs. 50 Crore and above from the banking system. The thresholds are further
reduced covering borrower exposures of Rs.5.00 Crore and above.

2. URL to access the Package is provided in the existing CMCC portal / UBI Net (Fast Access
Link) for login to the EWS Solution. Access to the package is through the User IDs provided
separately for Maker and Checker.

49
IFBs, MCBs, SAM Branches, ARBs and administrative units are provided with a separate Maker
and Checker IDs&Passwords as detailed hereunder. The users are named as Maker (L1), Checker
(L2) and View only users (L3).

(a) All IFBs and MCBs are provided with Maker (L1) and Checker (L2) ID/Password.
(b) All SAM Branches & ARBs are provided with Maker (L1) and Checker (L2) ID/ Password.
(c) All ROs are provided with Maker (L1) ID/Password.
(d) All FGMOs are provided with Checker (L2) ID/Password; and
(e) All Credit Verticals, RMD, Audit & Inspection at Central Office are provided with View
Only (L3) ID/Password.

3. Entry of gap data by branches ( CRM Forms ): IFBs, MCBs, SAM Branches, ARBs & ROs
(for the accounts pertaining to branches other than IFBs, MCBs, SAM Br & ARBs) shall update
the following details in the Tabs provided in the Solution for smooth flow of information with
least user intervention.

TABS Details
Customer Information Basic Information including Group code, Name, CIN, TAN, PAN
etc., Pincode
Associates/directors Directors
Interconnected Companies
Key Management Personnel
Related Parties
Approved Parties
Account Information Primary Security
Secondary Security
Operational Performance Financial Projections
Comments on Operational Performance II
Documentation Documentation
Operational Statements
Compliance terms Compliance to sanction terms and conditions
Project Finance Project Finance
Branch Comments Branch Comments

Gap Data entry pertaining to the previous month shall be completed by the respective L1 users
before 30th of the succeeding month for alert generation.

4. Alerts generation:

• All the IFBs & MCBs, SAM Brs & ARBs wherever User IDs are provided for login to the
package are to check the Alert inbox provided in the Package on daily basis.
• For other Branches where the USER IDs are not provided, the alerts will be generated in
the Package available/ mapped to the concerned ROs.
• ROs shall facilitate the alerts through e-mail to the respective Branches duly
downloading the alerts.
• The alerts generated are made available in the e-mail Inbox of the respective branch by

50
 RO.
• Branch users must check the mail in box regularly and indicate the action to be taken
against each alert, immediately on receipt of the alert.

The modes available for viewing the alerts are as follows:

A. Dashboard

This menu provides statistics regarding various alerts or signals generated for the borrowers.
Dashboard provides the pictorial representation of Alerts by various cuts and dimensions such
as Top 10 most generated Alerts, Top 10 customers by Risk Classification Month-wise Alert
Statistics and Trend on various alerts.

This menu is provided to all L3 users.

B. The EWS alert management module comes with the following

i. Alert Inbox - Daily alerts shall be made available in the EWS application detailing the
Alerts triggered for the previous day (T+1 basis). Alerts can be accessed in the Alert Inbox by
clicking the mail Icon in the main page of the package. These alerts shall be available for the
users for taking appropriate actions through a system-based workflow mechanism.

ii. Workflow – For managing the monthly alerts. This menu provides to manage workflow
with the appropriate escalations, corrective actions and follow up.

iii. Reports menu for MIS & monitoring the EWS alerts generated is available to L2 & L3
users in the package.

5. The users concerned must login to the EWS Solution daily for verification of alerts
pertaining to the accounts of respective branches/ROs/FGMOs/Verticals at CO. The
responsibility of the users includes continuous monitoring of the accounts with exposure of Rs.
5 Crore and above and track the EWS, if any, in the accounts.

6. Procedure for Closure EWS alerts

Action taken on EWS alerts shall be treated as closure. All alerts shall be closed within 3
days of generation of the alerts. Any further information / clarification required is to be sought
within the timeline. L1 user shall furnish the required information / clarification required is to
be sought within the timeline. Appropriate action shall be taken on the alerts generated in the
package by the respective users.

A. Industrial Finance, Mid Corporate Branches & SAM Branches and ARBs

i. The Maker (L1) shall analyse the alerts received and recommend to Checker (L2) for
closure with due reason/s;

51
ii. Simultaneously, the status of alerts shall be reported in Monthly Credit Monitoring
Reports (MCMR) with recommendations for Red-Flagging wherever warranted.

iii. Basing on Maker (L1) recommendations, the Checker (L2) shall close the alert as per the
action suggested in the Package.

iv. At no point of time, the alert shall remain unattended for more than 2 days at branch
level.

v. While processing credit proposals, the details of EWS alerts generated in the account
during the review period shall be incorporated in the appraisal note. The sanctioning authority
shall examine the alerts generated and take cognizance of the same while taking credit
decision.

B. Role of Branches Other than IFBs, MCBs, SAM Brs. & ARBs:

i. Branches to necessarily to go through the EWS alerts received from Regional Offices
through e-mail on daily basis and act on the same.

ii. The action taken is required to be conveyed to the Respective Ros on daily basis.

iii. The details of EWS alerts generated in the account if any, are required to be
incorporated in the periodical MCMR/ Review/ Appraisal Notes.

C. Role of Regional Offices

i. All alerts pertaining to branches under the jurisdiction of RO concerned shall be acted
upon by the RO Maker (L1) in co-ordination with the respective branch to which the alert
pertains to. ROs shall facilitate the alerts through e-mail to the respective Branches.

ii. The Maker (L1) at ROs shall act upon the views and recommendations of the branch
concerned and recommend to FGMO for closure with proper reason/s received from respective
branches. The branches concerned are also to be instructed to incorporate status of alerts in
Monthly Credit Monitoring Reports (MCMR) with recommendations for Red Flagging wherever
warranted.

iii. At no point of time, the alert shall remain unattended for more than 2 days at RO level.

iv. In respect of accounts sanctioned within its delegation, RO shall take appropriate action
for rectification of irregularities.

vi. While processing credit proposals, the details of EWS alerts generated in the account
during the review period shall be incorporated in the appraisal notes. The sanctioning authority
shall examine the alerts generated and take cognizance of the same while taking credit
decision.

52
D. Role of FGMO

i. Basing on RO Recommendations, the Checker at FGMO (L2) shall close the alert as per
the action suggested in the Package.

ii. In respect of accounts sanctioned within its delegation, FGMO shall take appropriate
action for rectification of irregularities.

iii. At no point of time, the alert shall remain unattended for more than 2 days at FGMO
level.

iv. The ROs concerned are also to be instructed to incorporate status of alerts in Monthly
Credit Monitoring Reports (MCMR) with recommendations for Red Flagging wherever warranted.

v. While processing credit proposals, the details of EWS generated in the account during
the review period shall be incorporated in the appraisal notes. The sanctioning authority
concerned shall examine the alerts generated and take cognizance of the same while taking
credit decision.

E. Role of SARALs / ULPs/ USKs:

i. While processing credit proposals, SARAL & ULPs shall ensure that the details of EWS
generated in the account during the review period shall be incorporated in the appraisal notes,
wherever applicable.

ii. The sanctioning authority concerned shall examine the alerts generated and take
cognizance of the same while taking credit decision.

F. Role of Verticals at Central Office

i. The Credit Verticals at Central Office are provided with View Only (L3) ID and Password.
The Credit Verticals concerned must observe the EWS alerts generated in their respective
accounts and take suitable action wherever necessary.

ii. While processing credit proposals, the details of EWS generated in the account during
the review period shall be incorporated in the appraisal notes. Respective sanctioning
authorities have to examine the alerts and take cognizance of the same while taking credit
decision.

iii. Risk Management Vertical and Inspection & Audit Departments are also provided with
the user IDs for accessing the package (L3) and shall observe manifestation of the EWS
generated in their respective accounts during their periodical reviews and inspections
and suggest to the respective vertical on suitable actions wherever necessary.

53
G. Role of Credit Monitoring & Credit Compliance (CMCC) Department at Central
Office/FGMO/CO

i. CMCC Dept., Central Office/FGMO/RO shall co-ordinate with the identified branches
and the Vendor/Service Provider for Finacle Masters Updation and gap data entry with the
respective users within the timelines for alert generation.

ii. CMCC Department, Central Office shall examine the alerts generated in the previous
month and put up to Fraud Monitoring Group for facilitating /taking a decision of Red Flagging
the accounts or otherwise, wherever recommended/warranted.

7. The EWS Solution provides information about vulnerable accounts on regular basis as
such the users of the EWS Solution should login to the solution on daily basis for verification of
alerts generated.

8. User Manual is available in the EWS package which is helpful for guiding the users for
using the package. CRM gap data forms for uploading the information to the package are
available under the CRM forms Tab.

9. The EWS (Early Warning Signals) generated in the package are also made available on
monthly basis in CMCC portal.

54
 Legal Audit Compliance (LAC)
Background

It is an initiative by RBI while reviewing control mechanism to ensure genuineness of title of

documents with reference to large value loans. So, Title deeds and other documents in respect
of all credit exposures of Rs. 5.00 crore & above are to be covered under periodic legal audit
and Periodic re-verification with relevant authorities till the loan stands fully repaid.

Guidelines on periodicity for conducting legal audit:

S.No Advance account with exposure Periodicity

(Both FB & NFB Credit Limit) of

1 Rs. 5.00 crores and above and up to Rs 100.00 Once in 5 years.

crores.

2 Above Rs 100.00 crores. Once in 2 years.

In case of any change /substitution in securities in the intervening period of 5/2 yrs. fresh
legal audit is to be done within 3 month of the change/substitution.

Legal audit for mortgage based retail loan.

Accounts with outstanding of Rs.10 lacs and above and falling under SMA-II category as on 30th
April every year.

All mortgage based retail loan accounts other than those falling under SMA-II category will be
subject to legal audit every five years.

Importance of legal audit.

It is very much important for a bank that the amount lent are safe and secure and Interest of
the bank is protected all the times with Proper documentation & creation of valid and
enforceable charge on securities.

Guidelines in connection with properties obtained as prime/collateral security.

Obtaining title investigation report of the proposed/existing property to be mortgaged by an
advocate on bank’s panel, Obtaining valuation report from approved valuer on the bank’s panel,
Conduct of due diligence of the property, Obtaining security documents and creation of
mortgage (EM),Vetting of Security documents, Registration with various authorities like
Registrar of Companies, Sub-Registrar of assurance in case of EM (as per law of the

55
state),CERSAI in case of all properties accepted as security, Revenue authorities in case of
Agricultural land. Apart from that Periodic inspection of mortgaged properties has to be done.

Standard operating procedure (SOP):

Role of branches in legal audit compliance.

To identify the account eligible for LAC, Diarize the date of conduct of legal audit and if it is
pending informing to RO.

Role of regional office.

Regional office has to Collect the information of such accounts and diarize the date of audit
conducted along with next due date to follow up.
Ro has to appoint empanelled legal advocate for conduct of legal audit, Scrutinize the legal
audit report by CRLD Team/law officer, Identify whether the legal audit report is Qualified or
Unqualified.
If legal audit report is unqualified, RO to inform the FGMO as well as CMCC -CO for compiling
& reporting to “Audit committee of the board”.
If report is qualified, the deficiencies pointed out by the advocate to be discussed with BM,
Borrower and deficiencies are to be corrected and submitted to the same advocate for
supplementary report confirming deficiencies are rectified. Finally obtaining an unqualified
legal audit report.

Role of CMCC at CO.

Calling for the necessary details from regional office at quarterly intervals and placing a note
to Audit Committee of Board / Board (as per RBI).

Submission of certificate on status of legal audit compliance (LAC).

RO is required to submit the status of Legal Audit Compliance at the end of every quarter.

Annexure-1 Status of Legal Audit Compliance(LAC) where Union bank of India

is sole lender and/or the Leader in case of consortium Banking
Arrangements.

Annexure-2 Status of Legal Audit Compliance(LAC) where Union bank of India

is only member but not the leader in case of Consortium Banking
Arrangements.

Annexure-3 Account wise status of deficiencies pointed out by advocate &

status of rectification- This is to be submitted to to GM(Law) CO.

56
 Annexure-4 Account wise details where Legal audit compliance is pending.

Annexure-5 Age wise Bread up of Pendency shown in Annexure-1 &2

Exemption for conducting legal audit

• Accounts with standalone loans/overdrafts against deposits may be exempted from

Legal Audit.
• Limit sanctioned against 100% deposit may be excluded while arriving at Borrower’s
Aggregate Exposure eligibility (Credit exposure of Rs.5.00 crores and above) for
Legal Audit.

57
Monitoring Action Plan (MAP):
➢ Accounts in which irregularities surface (showing EWS) will usually require an Action
Plan in one or more of the following ways:

Action Plan by the Bank:

1 Immediate discussion with the 8
Stopping further discounting/ purchase
borrower and even with the guarantors of bills/cheques in case of frequent
dishonour of cheques/bill
2 Hiking of margin requirements on 9 Increasing rate of interest on entire or
primary securities excess portion of the outstanding
3 Asking for additional collaterals or 10 Detailed stock inspection through
guarantees outside agency
4 Reducing the limits 11 Taking possession of securities
5 Disposal of certain saleable securities 12 Asking debtors to pay directly to the
such as shares, encashing surrender Bank (where Book Debts are
value of LIC Policy, margin in the shape hypothecated)
of FDRs etc.
6 Restriction on withdrawal by partners 13 Recalling the advance/filing of suit
7 Restriction on dividend declaration 14 ****

Action Plan by the Borrower:

1 Stop operations with other Banks 5 Stop other business activities
2 Bring in more funds to set right ‘out of 6 Bringing down level of outstanding
order’ position through cutbacks
3 Bringing back funds diverted to sister 7 Sale of unwanted surplus assets
concerns (especially fixed assets)
4 Quickening debtors’ realization by 8 Creation of amortization fund to meet
offering discounts future liability

58
Preventive Measures
✓ Timely Review of the account
✓ Timely Restructuring of the Account
✓ Monitoring of Restructured Accounts: All the restructured accounts above Rs. 1.00
crore shall be monitored by the Credit Monitoring & Credit Compliance Department, CO.
This shall be done on a monthly basis whether the account is with or without stress.
✓ Feedback on Restructured Accounts
✓ Need Based assessment of additional finance: It may be in the form of Adhoc or
Working Capital Term Loan (WCTL) and should be based strictly on merits of each
individual case.
✓ Tendency of recovering only critical amount to be curbed
✓ Ledger Scrutiny:
Scrutiny of ledger operations is of paramount importance to know whether:

1 The account is operational in 6 Cheques are returned for financial reasons

proper manner
2 In case of multiple/consortium 7 Cheques for bulk amounts and in round
banking, pro-rata turnover is to be sums are issued and also to check for
routed through our Bank unconnected debits
3 There are unrelated debits in 8 Cheques deposited in the account are
account (check for diversion of returned frequently
funds)
4 The account is dormant previously 9 Funds are transferred to sister/associated
and now becomes active or the concern or other firms not connected with
other way round business
5 Interest debited is serviced 10 The turnover of the account is
promptly commensurate with the sales of the part

Further, a separate column in the Monthly Credit Monitoring Report is provided for comments
on ledger operations by Branch Head.

✓ Accounts operated with other Banks

✓ Rectification of irregularities pointed out in audit reports
✓ Credit Process Audit (CPA):
✓ In all accounts for Rs.1.00 crore and above, except Retail Loans, the system of Credit
Process Audit (CPA) is mandatory.
✓ However, in case of Retail loans, the system of Credit Process Audit will be mandatory
in the following cases:
i. Rural & Semi Urban Branches - for accounts of Rs.10 lakhs and above
ii. Urban and Metro Branches - for accounts of Rs.50.00 lakhs and above.

✓ Legal Audit Compliance (LAC): Ensuring timely legal audit compliance

59
➢ Red Flagging of Accounts: Prompt identification of early warning signals and marking
them Red flagged for accounts with credit limit of Rs.50.00 crore and above

➢ Credit Monitoring Visits by RO officials

➢ Transgression / Violation of Delegated Authority (DA): Transgression/Violation of

Delegated Authority (DA) by a Delegatee of the loaning powers is doing an act, for which
an officer has been restricted/prohibited from doing the same by regulator or Bank or
any such authority, while exercising his/her DA or exercising the DA for which he/she
has no right/authority at all either through ignorance or intention or malice or mistake
of whatsoever nature.

➢ Devolvement of LCs or other NFB limits / Invocation of Guarantees:

When ‘devolved LC ’or ‘invoked BG’ is paid by opening a separate demand/forced loan
account, it should be clubbed with Cash Credit/Overdraft limit for the purpose of
monitoring.

➢ Stock Audit:
As per limits fixed by the Bank, accounts with working capital limits, both Fund Based
and Non-Fund Based, of Rs.3.00 crore and above in case of Proprietary/Partnership
accounts and limits of Rs.5.00 crore and above in other cases are subject to Stock Audit
on a yearly basis by Chartered Accountants’ firm appointed for this purpose. The purpose
of Stock Audit is not only to verify the total quantum of stocks but also to ascertain the
method and accuracy of valuation.

In case Agencies for Specialized Monitoring (ASM) is appointed in an account and all
aspects of stock audit are included in the scope of work assigned to ASM, separate
stock audit from empanelled stock auditors may not be insisted upon.

As a measure of strengthening the due diligence process, stock audit report shall include
photograph of owner with the unit in the background during inspection of the unit. In
case owner is not available his/her representative may be considered for obtention of
photograph.

Direct Balance Confirmation shall be obtained from top 10 debtors of borrowers with
exposure of Rs 5.00 crore and above. Such details should be included in the stock audit
report. The sanctioning authority shall have discretion to allow relaxation for
justifiable reasons in this regard.

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➢ Unhedged Foreign Exchange exposure: Unhedged Foreign Currency exposure, as
disclosed by the customer, should invariably be captured in the MCMR by the branch and
the same should be monitored on an on-going basis.

Post sanction review system:

✓ The Sanctioning Authorities at various levels have to report all their sanctions in M-27
statement along with copies of the process note for limits above Rs.10.00 lakhs to the
next higher authority.
✓ The higher authority while scrutinizing the M-27 statement can also call for copies of
process notes from Branches/Offices, in accounts with limits below Rs.10.00 lakhs.
✓ On receipt of these reports/process notes, the concerned authority should ensure the
following:
i. Proposals sanctioned are within the Delegated Authority
ii. The sanctioning authority adhered to the prudential norms of the Bank as well
as of RBI with regards to security, margin requirements, Rate of Interest (ROI)
and other financial parameters.
iii. Projections accepted for assessment of limits are realistic and based on the past
track record of the party and future market scenario.
iv. Credit rating is scrutinized by the risk officer attached and the same is found
correct as per the guidelines. In case an account is taken over from another
Bank, takeover norms are to be adhered.
v. Any deficiency found in the exercise, by the concerned office, should be
communicated to the respective sanctioning authority for immediate
rectification and/or modification.

➢ Exit Option: Exit option should normally be resorted to in the following cases:
✓ Early Stress Signals (ESS) received indicates likely further deterioration in the long run
and chances that the unit will come out of such problems are remote.
✓ When the borrower is indulging in any unethical practice and the Bank has come to
know of the same like deliberate over-valuation of the stocks or debtors,
understatement of creditors, diversion of funds, misrepresentation, manipulation of
the accounts or stock, double financing or concealment of vital and material
information etc.,
✓ Market report suggests that the party is no longer good enough for assistance from the
Bank.

➢ Economic Intelligence:
✓ Fluctuation in the value of the Rupee often poses a challenge to the
businesses dealing in Exports and Imports.
✓ Change in fiscal policies of the Government may also have an adverse
impact on some of the industries.

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 CMCC, CO has started circulating Daily News Bytes wherein news / development in mid
& large corporate of our bank is compiled from information available in public domain.

➢ Submission of Monthly Credit Monitoring Report (MCMR)

➢ Asset Quality Management Committee (AQMC)

➢ Allowing drawings in sanctioned limits in case of continuous irregularities

Devolvement of LCs on continuous basis, Invocation of B/Gs at regular intervals, return
of bills purchased in large numbers (above 25%) etc., are the areas where the branches
should take extreme care. If the above features are observed regularly in the account,
extension of such facilities should be done only with the permission of Regional Office
in writing. In respect of branches under Large Corporate Vertical (LCV), permission of
the General Manager, LCV should be obtained in such cases. Steps should be taken to
identify the problems and the party should be put on notice to avoid recurrence of such
irregularities. In other words, allowing of drawings in such accounts should not be causal
and the reasons for continuing such accounts should be documented and approved by
the sanctioning authority. The irregularities should be rectified and the account should
be brought out of SMA-0, SMA-1 and SMA-2 category in a phased manner.
➢ Confirmation of Compliance:
✓ Submission of Monthly Credit Monitoring Reports (MCMRs)
✓ Submission and scrutiny of M-27
✓ Submission and scrutiny of F-1
✓ Credit Process Audit
✓ Effective use of LAS
✓ Monitoring of restructured accounts
✓ Asset Quality Management Committee (AQMC) Meetings
✓ Rectification of irregularities observed by Monitoring Authority
✓ Observation of Sanctioning Authority on SMA-0, SMA-1 and SMA-2 accounts at the
time of renewal: This confirmation shall be sent by RO on a quarterly basis i.e.
March, June, September & December.
✓ Confirmation that the accounts are routed through SMA-0, SMA-1 and SMA-2
before they slip into NPA
✓ Visit to Branches / ROs : ROs/FGMOs have to give details of visits

➢ Implementation of Risk Based approach for Supervision (RBS):

Reserve Bank of India used to deploy ‘Compliance Testing Approach’ and ‘CAMELS’
framework for evaluation of Banks which was replaced by Risk Based approach for
Supervision (RBS). RBI has since adopted the revised supervisory approach which is termed
as Supervisory Program for Assessment of Risk and Capital (SPARC).

The following ratios suggested in the RBS are applicable for credit monitoring purposes.

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✓ Ratio of fresh slippages to actual recoveries
✓ Three year weighted average of fresh slippages to outstanding standard advances
at the beginning of the year
✓ Slippages in restructured accounts

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FINACLE MENU FOR MONITORING

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