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Lesson ID 101015
Version 02/28042020
CREDIT POLICY – DUE DILIGENCE

1. INTRODUCTION

The challenge before the Bank is dual, that only good quality assets are added, and the quality of assets
is maintained. Due diligence plays an important part in lending process as it covers compliance to
guidelines of KYC and AML, gives a fair basis for taking lending decision on borrower’s profile, track
record, integrity as well as acceptability of all the entities in the credit process offered by the borrower
like security, financial documents etc. It helps in mitigating risks of lending process in bank and ensures
maintenance of the asset quality, through-out the life cycle. The “Due Diligence” discussed hereunder is
by no means exhaustive, it being a subjective and continuous process. Many a times the level of due
diligence will be guided by the gut feeling on interviewing the proponent.

2. DUE DILIGENCE OF THE PROFILE OF THE BORROWER

A Comprehensive assessment of the profile of the borrower has to be made on the following aspects
while appraising the credit needs of the borrower:

a. Purpose / need for credit,

b. Types of facilities required,
c. Due diligence on the Borrower(s) /Guarantor(s)/Group(s)
d. Borrower’s business expertise, status of his economic activity,
e. Current risk profile and its sensitivity to changes,
f. Internal Credit rating,
g. External credit rating, wherever applicable,
h. Track record of repayment / cash flow projections for capacity to repay,
i. Legal capacity to assume the liability,
j. Adequacy and enforceability of the tangible securities / guarantees under various scenarios.
k. Verification of PAN Card details
l. Verification of DIN/Father’s name
m. Verification of Detect report from CRIF Highmark / CIBIL / Experian / Equifax
n. Market information on Promoter(s)/company/firm/group companies / partners
o. Verification of CRILC
p. Verification of Central Fraud Registry in respect of accounts with exposure of Rs 1 crore and
above.

3. CHECK LISTS AND TOOLS OF DUE DILIGENCE

a. While entertaining proposals, it is to be verified whether the names of the borrower /

Directors / Promoters find place in:

i. RBI Defaulters List – Non-suit filed

ii. RBI Willful Defaulters List – Non-suit filed
iii. RBI Caution list circular issued from time to time
iv. OTS List
v. CIBIL: Suit Filed account of Rs.1.00 crore and above
vi. CIBIL: Willful defaulters list of Rs.25.00 lakh and above
vii. CIBIL: Suit Filed account of below Rs.1.00 crore (updated on daily basis)
viii. CIBIL: Willful defaulters list of below Rs.25.00 lakh (updated on daily basis)
ix. ECGC: SAL
x. CIBIL Detect
xi. CERSAI Search & Registration
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xii. CRILC
xiii. Banned List of Promoters of SEBI
xiv. List of Disqualified Directors available in the website of Ministry of Company affairs
(MCA)
xv. Central Fraud Registry in respect of accounts with exposure of Rs 1 crore and above

b. Also following measures of due diligence may be taken to further safeguard Bank’s
interests –

i. KYC Documents - For identifying individual borrowers, guarantors, promoters and

non-individuals with beneficial owners in line with KYC policy.
ii. e-KYC - This is the best method to verify the identity of the person, as it involves
biometric authentication.
iii. CKYC
iv. Voter ID verification - Voter id can be verified online by using the URL
http://electoralsearch.in/
v. MCA portal – For company and LLP
vi. E-verification of certificates - Under the National e-governance plan of Indian
Government, many state governments have developed a portal for online verification of
certificates issued by them. It is used to verify the genuineness of certificates. Many
universities and institutions also provide the facility of online verification of their
certificates, which is useful in due diligence.
vii. Verification through personal visits and discrete enquiries
viii. Identification of Shell Companies - The list of shell companies is available on the
MCA portal besides due diligence on common trends.
ix. Legal Entity Identifier (LEI) for large corporate borrowers
x. Due diligence report as per RBI format - In case of listed Corporate and also PSUs
banking with many banks, Banks may obtain credit report from firm of Chartered
Accountants /Company Secretaries instead of individual credit report from other Banks
in addition to Exchange of Information with due diligence certificate.
xi. The borrower’s existing activity / employment and the income generated there-from
should be verified by visits to the unit / residence or the employer wherever required.
xii. There is also a need to ascertain the activity / employment and income status of the
guarantors. It is also to be ascertained, the extent of the loans, guaranteed by a person,
vis-à-vis his means to honor the same, in case of need.
xiii. The genuineness of the ITR-V (for e-filed returns) can be checked by verifying the
acknowledgement on-line through genuine link of the GOI
(incometaxindiaefiling.gov.in – Quick Links – ITR status). By entering the details of
PAN, Acknowledgement number (ITR-V) and captcha code, we can know the
genuineness of the ITR filed.
xiv. Further, the last six digits of the acknowledgement number is the date of filing of the
return. Crosschecking of the ITR-V with tax challans, TDS certificate, Form 26AS and
other financial statements should also be done. The ITRs may also be got verified from
chartered accountants.
xv. Asset and Liability or Net Worth Statements should contain all the required details of
the assets, liabilities, Income for the previous year, Tax assessment etc. and should be
supported by documents viz. copies of FDRs and other liquid securities, copies of title to
immoveable property, tax returns / assessments etc.
xvi. State governments are providing the online verification / encumbrance certificate
generation facility in many cases where land records are computerized. This can also be
used to find out the genuineness of ownership and nature of property (agricultural /
homestead / commercial / industrial etc.)
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c. Some leading questions to ascertain character and capacity of the prospective borrower

There can be no standard questionnaire on this, which is the be-all and end-all. Often, reply to a
question will lead to the next question & so on and the idea is to capture as much meaningful
information on the first go, as possible. Some sample questions are given hereunder -

i. What is his present activity & since when; as also income there-from. Why he wants a
loan for the proposed activity / asset purchase? Has he filed the last 03 years Income
Tax returns? What other taxes is he paying?
ii. Who are his family members and what are their activities / occupation and income?
iii. Where is their place of residence? What other properties does he or his family members
own? Any loans on these properties? Has he given any properties on rent?
iv. How many family members depend on him? What are the mandatory expenses on
education and health as also the repayments of previous loans if any? How much surplus
is he able to generate?
v. How educated he is? What about his parents & also children?
vi. What are his total borrowings, including borrowings from the unorganized sector /
market?
vii. What experience he has about the proposed activity? Who all will support him in the
proposed activity?
viii. Which are the banks where he or his family members have their banking accounts with
details? Why did he not approach those banks for the proposed loan?
ix. What will be the borrower’s stake – Own land / building; Equity / Margin etc.
x. What are the other Units of similar nature in the area and how will he survive the
competition?
xi. Whether he has all the approvals and licenses in place?
xii. Whether someone is willing to provide guarantee for his proposed loan? Who? Why will
he guarantee your loan?
xiii. Is he active on social media? What are his credentials?
xiv. In how much time will he repay the loan? What is his larger plan / vision say in next ten
years?
xv. The key issues we need to consider when taking third party security are – the benefit to
third party arising out of the guarantee and whether the guarantee is being extended for
any consideration, besides undue influence, misrepresentation or legal wrongs, if any?

4. CREDIT INFORMATION REPORTS (CIR) FROM CREDIT INFORMATION COMPANIES

(CIC) / BUREAUS

a. Presently, the credit information provided by Credit Information Bureau in its website contains
both consumer and commercial credit reports pertaining to individuals/other entities.
b. Credit Information Bureaus referred in our Bank are CRIF HIGHMARK, CIBIL, EXPERIAN
and EQUIFAX and score of the same above threshold to be considered for all loan proposals
which are to be rated internally only
c. Acceptable Scores:
Discretionary Authority CIBIL Other CICs
Respective Sanctioning 700 650
Authorities
ZLCC 650 600
FGMCAC 600 575
COLCC (GM) <600 <575

d. CIRs to be invariably obtained, recorded and commented upon in credit appraisals in case of all
new accounts and existing accounts (at the time of renewal).
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e. Wherever access to Credit Information Bureau is not available, branches to seek the help of ZO
for verifying the credit history of the customer.
f. The consumer credit report shall be obtained in respect of the proprietor, partners, directors,
guarantors etc. and also the commercial entity.
g. Scrutiny of the CIBIL report or any other CIC report should not be merely restricted to the score
but also to other references like suit filed, written off / settled accounts, references to joint loans,
loan guarantee etc. The CIRs of all the connected persons viz. proprietor, partners, directors, etc.
should be scrutinized.
h. Minimum 2 Commercial Credit Information reports (CIR) should be obtained for corporate
borrowers with exposure of Rs.50 lakh and above.
i. Verification from any one of the above four Data Base/Credit information companies (CIC) in
case of loan amount of less than Rs.50 lakh.
j. Verification from any two of the above four Data Base/Credit information companies (CIC) in
case of loan amount of Rs.50 lakh and above.
k. Branches/offices shall invariably draw Detect Search Report in addition to the Credit
Information Report from CRIF HIGHMARK/ CIBIL/ EXPERIAN/EQUIFAX and satisfy
themselves that there is no adverse information about the borrower in the reports drawn.
l. CIR verification is exempted for the following:
i. Advances against security of Bank’s own Deposit
ii. Advances against, NSC, KVP, LIP & pledge of Gold Jewellery
iii. Advances against government securities including RBI Bonds, Food Credit etc.
iv. Advances to Staff Members
v. Advances against security of Units, Bonds etc. of UTI and Advance against shares
vi. Bills Discounting under LC issued by Prime Banks and negotiated/ discounted after
acceptance of issuing banks
vii. Bills discounted/negotiated under non-prime banks LC or other bills, exposure is
considered on borrower, and rating will as per Borrower category
viii. For Customers whose exposure (both fund based and non-fund based-domestic), which
are fully secured by 100% cash margin at any point of time
ix. If the counterparty is central or state sovereign. This kind of exposure includes
exposure to RBI, DICGC, CGTMSE and CRGFTLIH.

m. Understanding the terms and keywords in a ‘CIBIL’ Report

Key Term Explanation
Asset Classification STD, SMA, SUB, DBT, LSS denotes
respectively – payments within 90 days,
Special mention account moving towards Sub-
standard, Substandard, Doubtful & Loss
accounts
Amount Overdue Amount that is due but has not been paid to the
bank.
Days past Due (DPD) The DPD indicates how many days a payment
on that account is late that month. Anything
other than ―000‖ is considered negative.
Sanctioned amount, Limit, Balance, These are usual banking terms & provide
Repayment tenure, EMI etc details about each account reflected in the
report, which can be used to ascertain further
creditworthiness of the client.
High Credit It applies to Credit Cards and running
facilities. It reflects the highest amount ever
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billed (in case of Credit card) or highest

Overdraft in running account.
Ownership It shows the status of the client with respect to
the listed account i.e. responsibility for
payments of the loan account viz. Single, Joint,
Authorized user (e.g. add-on cards), Guarantor
(if principal does not pay)
Settlement amount It shows that the account has been settled for a
certain sum (that is mentioned)
Suit Filed / Willful default If lender has filed a suit against the borrower, it
will appear in the report as – No suit filed ( or
left blank), Suit Filed, Willful default, Suit
filed (Willful default)
Written-off and settled status Possible values are – Restructured loan,
restructured loan (Govt. mandated), Written-
off (WO), Post (WO) settled. These terms are
self-explanatory & reflect upon the past credit
history of the subject.
Written-off amount When reported by banks, this information is
also available in the report.

5. OTHER DUE DILIGENCE MEASURES

a. In all cases of fresh sanction, pre appraisal/pre sanction unit visit has to be made by branches.
b. Personal guarantee of the spouse to be encouraged for credit facilities extended to all types of
borrowers.
c. Personal guarantee of promoters (guarantees may not be insisted upon from persons who are
connected with the management solely by virtue of their professional/technical qualifications
and not consequent upon any significant shareholding in the company concerned) to be
endeavoured while taking fresh exposure which is below investment grade.
d. In case of unsecured loans of Rs 5 crore and above (where total value of primary as well as
collateral security is less than 10% of loan amount), guarantees may be insisted from major
shareholders having stake of 5% or more, irrespective of being in management or not.
e. In all credit proposals, the details of inspection of securities, observation, follow up action taken
and compliance of Terms & Conditions of the sanction to be incorporated.
f. Passport details of Directors/Guarantors/Promoters for advances of Rs 5 crore and above to be
captured in CBS.
g. To prevent confusion in acceptability of Directors of firms / companies with similar names in
defaulters list, RBI suggested Director Identification Number (DIN) to be included in such
defaulters list data; as such, DINs should be mentioned in credit appraisal format and in case
similar names appear, DINs should be cross-checked.
h. TIN / GSTIN in all eligible cases to be obtained strictly while considering credit facilities.
i. More vigilance and complete due diligence required in case of borrowing companies where
frequent changes in management structures are obtained and credit appraisals should contain the
information with regard to the change of management, if any, subsequent to the last sanction /
review / renewal.
j. To ensure, government dues owed by the borrowing entities such as dues to provident fund,
employees state insurance corporation, CENVAT, Sales Tax, Income Tax, Labour Dues are paid
up to date, a certificate from an independent company secretary or Chartered Accountant to this
effect to be taken on yearly basis for borrowal accounts of Rs.5 crore and above with due
verification through UDIN etc.
k. To ensure non-dilution of the stake by the promoters of the company for which Bank has
considered facilities, the information / data of pledge of shares by the promoters to other
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Financial Institutions/Banks needs to be in place and SEBI has mandated disclosures regarding
pledge of shares by the promoter and persons forming part of the promoter group to the stock
exchanges, where shares of the company are listed. Hence, the Branches / Zonal Office shall
collect copy of the details submitted to SEBI from the listed companies for whom our Bank has
considered facilities (more than Rs.10 Crore) on a monthly basis and submit the same to the
sanctioning authority. If the borrower is an unlisted company, the information shall be obtained
from the company / signed by the company secretary and submitted to Sanctioning Authority.
l. Wherever certificates from the Company Secretary / Chartered Accountant / Cost
Accountant/Stock Auditors are submitted, the Institute registration number and full address
should be obtained. Wherever Certificates from CAs are obtained, the same need to be verified
as to their genuineness.
m. The audited balance sheet received from the customers are to be sent to respective chartered
accountants/chartered accountants firms and seek their confirmation in writing with regard to the
genuineness of the same. If no reply is received within 15 days from the date of receipt at their
end it should be construed that the same are genuine. The above time frame should be indicated
in the letter addressed to the Chartered accountants/Chartered accountants firm. Further ROC
site is also to be verified in all the cases where the filings by the borrowers is mandatory and
record of such verifications shall be kept on the records. Branches to utilize the Unique
Document Identification Number Portal introduced by Institute of Chartered Accountants of
India for the same.
n. Wherever the financials certified by CAs are found to be fudged, procedural guidelines of the
Bank for reporting their names as third-party entities involved in frauds, to IBA (through
CO/Inspection Department) should be complied with.
o. wherever there is a contract with intermediaries while entrusting the job of Stock Audit,
Concurrent Audit, Legal Audit, Legal opinion, Engineer’s valuation, Chartered Accountant
Certificates etc, a condition to be incorporated that “I/We certify that this certificate is issued
after verifying the necessary details and I / we are aware that giving false certificate is a criminal
act and is a punishable offence”. The condition is to be incorporated in all letters issued while
appointing Advocates, Valuers, Chartered Accountants for Legal Audit, Stock Audit, Legal
opinion, Engineer Valuation etc and also for getting all Chartered Accountant certificates.
p. All appraisal notes should contain a clause “No Third party is involved at any stage in the loan
sanction process”.
q. All loan proposals that are submitted to Corporate Office should be accompanied by a
Certificate signed by Branch Manager/Zonal Manager stating that no third party is involved at
any stage in the process of loan proposal.
r. 100% verification of documents obtained towards KYC compliance in respect of each of the
obligors shall be done by our Bank. Copies of such documents, duly authenticated by the Bank
official, shall be kept on record.
s. The import export documentation in customs takes place through Indian Customs EDI System
(ICES). The stakeholders have access to information in the ICES through a portal called
ICEGATE (www.icegate.gov.in) which all stakeholders use regularly. The status of any
shipping bill or Bill of Entry can be checked by giving the Shipping Bill (Or Bill of Entry)
number, date and port of export. In order to prevent the fraud by submission of fake / forged
export bills, field level functionaries are advised to
i. verify every Shipping Bill online through www.icegate.gov.in before discounting
relevant bills
ii. verify the Shipping Bills in cases where relevant bills have been discounted and amount
is outstanding
t. Periodic inspection by Branch officials must be done in a meaningful manner. This should
include Stock & book debts verification, Verification of immoveable securities, Verification /
scrutiny of other issues such as Insurance, payment of utilities, Statutory dues, Employment &
wages, Industrial relations, Taxes, rent payments, status of licenses / permissions, Continuity of
availability of RM, Storage facilities, product diversification if any etc. that have a direct impact
on the functioning of the unit.
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u. This also includes verification of Inventory management practices of the borrower, facilities for
preservation / storage of stock, veracity of stock statements with books / record as to quantity,
rate, value, age, marketability, etc., age-wise & party-wise book debts as per Books/ records and
prospects of their realization, physical stock verification to ensure its conformity with stock
statements, segregation of obsolete & non-moving stock, adequacy of insurance, ownership of
stock (paid stock) etc.
v. At the time of visit to any immoveable property charged in favour of the Bank, Ownership /
Title, tenancy, litigations, acquisitions, Valuation, any factor likely to erode value,
Marketability, Boundaries, Demarcation, Approach, Area, Vicinity, Construction, Permitted
Usage, Deviation from the earlier reports, Co-relation with the reports of third parties etc. are the
areas which need to be looked into.

6. TEV STUDY REPORT

Applicable for manufacturing companies and other projects –

a. For credit proposals up to Rs 25 cr. no separate viability report (TEV) from an outside agency
need be insisted upon.
b. Credit Proposals of Rs 10 crs to Rs 25 crs - technical viability report by an Industrial
Development Officer (IDO)/ an Official with engineering background to be submitted.
c. Credit proposals beyond Rs. 25 crores (fresh/addition/Expansions) should be accompanied by
TEV study from an outside agency.
d. TEV study from an outside agency may not be insisted in case of expansion/up
gradation/modernization of existing unit where the borrowers have gained adequate in-house
experience / expertise and in case of infrastructure (Road) projects under HAM (Hybrid Annuity
Model) provided project study has been done by NHAI.
e. There may be exceptions for obtention of TEV in case of brown field projects (where the
borrower is going for expansion of its unit at the same site using basic infrastructure of the
existing plant only), where the promoters / the flag ship company have successfully
implemented at least one such project in the past and/or are in the similar line of activity for
more than five years. In such cases an In-house project report may be accepted.
f. Information as to who prepared the Project Report/TEV Report and who appraised the project
should be obtained and kept on record.
g. TEV Reports from approved external agencies may be waived in case of builders & developers,
who have already completed at least three projects and is in the business for last five years.
h. If considered necessary, Sanctioning authority may appoint LIE for physical progress &
financial verification of the projects.
i. Information memorandum is not considered as substitute for an appraisal/TEV report.
j. The Bank should carryout independent and objective credit appraisal in all cases and must not
depend on credit appraisals reports prepared by outside consultants especially the in-house
consultants of the borrower company. A certificate should be submitted with the appraisal note
by the appraisers that they have verified the technical and financial aspects of the project and
based on their assessment, the project is technically viable and economically feasible.

7. DUE DILIGENCE OF PROPERTIES

a. In addition to complying the existing regulatory guidelines, to counter check the valuation of the
properties from the available market sources before finalizing the lending arrangement against
property.
b. Second Legal Opinion to be obtained for securities/ properties to be charged to advances of
Rs.100 lacs and above.
c. Whenever any Immovable property is offered as security, branches have to take care of lease
agreement/Tenancy Act before mortgage
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d. Details of CERSAI Asset ID, Security ID, CERSAI registration date, Geo tagging reference No.,
Geo tagging date, Sale deed Number, Sale deed date, Sale deed amount, Name of the lawyer,
Legal Opinion date, EM value, Date of EM, Name of the valuer, Area of EM property with
units, Memorandum of Deposit (MOD) of Title Deeds value, MOD date, Extension of EM
details, supplementary MOD details are to be entered in a separate menu.
e. During the visit it should be ascertained that an independent motorable access / approach to the
property is available and this should also be verified from the details mentioned in the title
deeds.

8. DUE DILIGENCE OF SPECIFIC LOAN TYPES – Indicative Measures

a. Home Loans and Real Estate Loans:

i. If the developer has done large scale township projects and delivered them on time, it
shows good track record.
ii. It is a riskier situation when a developer has entered into collaboration with a landowner
instead of owning the land entirely.
iii. The developer must have an approved building plan from the civic authorities. He must
also have the approved floor plan, which shows where the different parts of the building
will be situated.
iv. He must also have no-objection-certificates (NOCs) from the water and sewage board,
the electricity board, and the pollution control board, besides specific approvals from
airports authority, if near airport, from forest department, archeological department,
environment authorities etc.
v. The developer must have the conversion order to make non-agricultural use of
agricultural land.
vi. The Project must be registered under RERA.
vii. Escrow account availability should be checked.

b. Educational Loans

i. The approval / accreditation of the institutions / colleges / universities in case of loans

for job-oriented courses to technical/ professional degrees, post graduate degrees/
diplomas may be checked at the following web sites of Government - www.ugc.ac.in,
www.education.nic.in, www.aicte.org.in.
ii. Standing of foreign institutions and universities may be perused through website-
www.webmetrics.info

c. Vehicle Loans
i. Verifying directly from the vehicle manufacturers, about their authorized dealers, their
addresses and other credentials, to rule out any fake or unscrupulous dealer who may
dupe the customers / bank.
ii. During the visit, capture the Bank account details, verify them from the Bank where
accounts exist and use only RTGS / NEFT for fund transfer.
iii. Check the prices of the vehicles and ensure borrower’s stake in the form of Margin
iv. For pre-owned vehicles - The details of the ownership & charge on vehicles at the
RTO can be checked through the Vahan - national Register e-services
(http://vahan.nic.in). The facility is also available through mobile phone (SMS facility)

9. DUE DILIGENCE IN SPECIAL SCENARIOS

a. Non-Cooperative Borrowers: Classifying/declassifying a borrower as Non-Cooperative borrower

and reporting information on such borrowers to Central Repository of Information on Large
Credits (CRILC). Reference to CRILC to be made to check for it.
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b. Defaulters / Willful Defaulters:

i. Loan to individuals: In case of Personal loan products, any two of the four Credit
Information companies (CIBIL/CRIF HIGHMARK/ EXPERIAN/ EQUIFAX) are to be
verified.
ii. Loan to non-individuals: CIBIL Commercial Credit Information Report to be verified
iii. Branches/offices shall invariably draw CIBIL Detect Search Report in addition to the
CIR from CIC‟s and satisfy themselves that there is no adverse information about the
borrower in the reports drawn.
iv. No additional facilities shall be granted to the willful defaulters whose name appears in
the RBI willful defaulters’ list.
v. The entrepreneurs/promoters of companies where banks/FIs have identified siphoning /
diversion of funds, misrepresentation, falsification of accounts and fraudulent
transactions should be debarred from institutional finance from the scheduled
commercial banks for 5 years.
vi. In case such a person is already on the Board of the borrowing company, it would take
expeditious and effective steps for removal of that person from its Board. Nominee
directors are excluded for this purpose.

c. If the names of borrower / Guarantor/ partner/ director / company/trustee appear in the Specific
Approval List (SAL) of ECGC: prior permission from ECGC to be obtained for coverage.
Administrative clearance from COLCC (GM) to be obtained to consider fresh sanction /
enhancement of the limit / review / renewal on merits by the respective sanctioning authority.

d. In the case of Advances to the same party or Associate concern classified as NPA (Other than
wilful defaulter): Review/renewal can be exercised by COLCC (GM) and above. Fresh /
enhancement/adhoc can be considered only by COLCC(ED) and above up to 50% of the
General Discretionary Powers with suitable risk mitigants.

e. Stressed Assets:
i. In cases of stressed accounts of Rs 5 crore and above reported under CRILC as SMA-2
within last one year except reported due to technical reasons, any requests for fresh /
additional limits to such borrowers shall be considered by FGMCAC up to ZLCC
powers.
ii. If any group having exposure beyond Rs 5 crs and showing any signs of stress in any
account of the group companies further exposures should be taken only with the
approval of FGMCAC up to ZLCC powers.

10. REFERENCES

Sl. Circular / Resources Date Description

No.
Main Sub
1 ADV-217/2019- Conv.-28 31.03.2020 CREDIT POLICY 2020-21
20