Art of Credit Deployment

Insightful Credit Guide

Conceived by

Repco Bank HO Credit Division

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 Index
S. Subjects Page No:
No
1) Introduction to Credit 3
a. Understanding Credit and Its Importance
b. Role of Credit in Banking
2) Types of Advances 6
3) Credit Proposal Requirements 11
a. Know Your Customer (KYC) Guidelines
b. Business Proof and Validations
c. Income Proof and Financial Documentation
d. Analyzing Financial Statements
e. Pre-sanction Requirements
f. Post interview, Documentary Requirements for Loan
Processing
g. Evaluation of Borrower's Loan Requirement: Need-
Based Assessment
h. Assessment of Adequacy of Security Coverage of
Offered Securities in Relation to Loan Request
i. Completing Loan Applications and Form Filling
j. Importance of Credit Rating
k. Understanding Credit Scores and Reports
4) Bank Account Statements Review 20
a) Significance of Bank Account Statements
b) Evaluation and Scrutiny Process
5) Understanding the Bank’s Credit Policy 21
a. Overview of the Bank’s Credit Policies
b. Compliance and Implementation
6) Loan Sanction Workflow 23

7) Our Loan Schemes 24

a) Repatriates
b) Others
8) Loan Disbursements and Post Credit Follow Up 33
9) Conclusion - Summary of Key Learning 34

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1. Introduction to Credit
a. Understanding Credit and Its Importance

Welcome to the world of banking! As you step into this dynamic field, it's crucial
to grasp the concept of credit and its significance in the financial landscape.

What is Credit?
Imagine this: You're helping someone by lending them something valuable,
say, your favorite book. You trust they'll take care of it and return it to you. In a
similar way, credit in banking is when a bank lends money or resources to individuals
or businesses with trust that they'll repay it, often with a little extra (interest).

Why Credit Matters?

Fueling Financial Growth: Credit is like fuel for economic engines. It allows
people to buy homes, start businesses, or pursue education when they don't have
enough cash up front.

Building Futures: By providing credit, banks help individuals achieve their dreams,
whether it's buying a car, starting a business, or pursuing higher education. This
contributes to personal growth and societal development.

Boosting Economies: When people and businesses have access to credit, they can
invest in ideas and ventures, creating jobs and contributing to the economy's growth.

The Role of Banks in Credit

Banks act as facilitators: They carefully assess who they lend money to, ensuring
that it's given to trustworthy individuals or businesses who can repay it. Banks play a
crucial role in managing risks associated with lending and ensure the overall stability
of the financial system.

Why Banks Charge Interest?

Interest is like rent for money: When banks lend money, they charge interest. It's the
cost for using someone else's money. This interest helps the bank cover its own
expenses and make a profit.

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Importance of Responsible Lending
Ensuring sustainability: While credit is essential, responsible lending is crucial. Banks
need to ensure that they lend to those who can afford to repay, preventing situations
where borrowers struggle with debt.

Conclusion
Understanding credit isn’t just about lending and borrowing; it's about enabling
dreams, driving growth, and fostering responsible financial practices. As you
embark on your journey in Repco Bank, remember the vital role you play in shaping
individuals' and businesses' futures.

b) Role of Credit in Banking

Welcome to the fascinating world of banking! Understanding the role of credit is like
discovering the engine that drives the banking sector.

The Engine of Economic Growth

Picture this: Just as an engine powers a car, credit fuels the economy. It's the lifeline
that keeps businesses running and individuals moving forward.

Bridging the Gap

Making dreams possible: Many times, people have big dreams but limited funds.
That's where credit steps in! Banks lend money to those with dreams—whether it's
buying a house, starting a business, or pursuing education.

Fueling Entrepreneurship
Empowering visionaries: Credit encourages entrepreneurship. It enables budding
entrepreneurs to transform their ideas into reality by providing the necessary
financial support.

Creating Opportunities
Job creators: When businesses grow, they hire more people. So, by facilitating credit,
banks indirectly contribute to creating job opportunities in the economy.

Stability and Growth

Balancing act: Banks carefully assess who they lend money to, ensuring a balance
between risk and opportunity. This cautious approach helps maintain stability in the
financial system while fostering growth.
Building Trust

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Foundation of banking: Credit is built on trust. Banks trust borrowers to repay the
money they borrow. This trust is the cornerstone of banking relationships.

Conclusion
Understanding the role of credit in banking is understanding the heartbeat of the
economy. As you start your journey in the credit department, remember, you're not
just dealing with numbers; you're supporting dreams, fueling growth, and shaping
the future of individuals and businesses in our society.

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2 Types of Advances and Types of
Securities
a) Secured Advances and Unsecured Advances Secured Advances

What they are: Secured advances are loans backed by collateral or assets provided
by the borrower. These assets act as a security or guarantee for the bank in case the
borrower is unable to repay the loan.

Example: It's like lending someone money with a promise that if they can't repay,
they'll give something valuable, like a piece of jewelry, as security.

Unsecured Advances

What they are: Unsecured advances are loans granted without any collateral. The
bank trusts the borrower's creditworthiness and ability to repay based on their
financial history and income.

Example: It's like lending money to a friend based on their promise to pay you back
because you trust them.

a) Types of Advances in Repco Bank

Let's dive into the different types of advances—financial tools that help customers
meet their various needs.

i. Overdraft (SODL-Secured Overdraft Loan)

What it is: An overdraft is like a safety net provided by the bank. It offers a fixed limit
that customers can withdraw from their account, even if there's no money in it. It's
like borrowing from the bank up to a set limit.

How it works: Customers can deposit surplus money into the account and withdraw
up to the eligible limit. Interest is charged on the amount used, and it needs to be
serviced every month.

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Additional Points:
Flexibility: Customers can deposit surplus funds into the account, reducing the
overdraft amount used and interest charged.
Periodic Review: Even though original duration of Overdraft limit is set as 3
years by default, this overdraft facility undergoes an annual review by the bank,
ensuring it aligns with the customer's financial situation.

ii. Loan Against Deposit

Using your own savings: Customers can take a loan against their fixed
deposits held with the bank. It's like using their own savings as collateral to get a
loan.

Additional Points:
Quick Access to Funds: Loans against deposits offer a convenient way to access funds
without breaking the fixed deposit prematurely.
Interest Rates: Typically, interest rates for such loans are lower due to the
collateralization against the deposit.

iii. Term Loans

Structured repayments: These are loans with a predetermined repayment period,
providing customers with a fixed payment schedule. Customers repay a set amount
every month (in general) until the loan is paid off.
Additional Points:

EMI Flexibility: Repayment can be structured from a minimum of 12 EMIs to a

maximum of 120 EMIs, allowing customers to choose a suitable repayment tenure.
Various Purposes: Term loans can be used for diverse purposes like education, home
renovation, or business expansion.

iv. Bank Guarantee

Non-fund credit: Repco Bank issues a guarantee on behalf of its customers to fulfill
certain obligations. This is a promise made by the bank on behalf of its customer,
ensuring payment to a third party if the customer fails to fulfill their obligations.

Additional Points:
Trade and Business Support: Bank guarantees are commonly used in trade and
business transactions, providing assurance to parties involved.

Types of Guarantees: Repco Bank may offer various types of guarantees, such as
performance guarantees, payment guarantees, or bid bonds.

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v. Gold Loans
Quick, short-term loans: These loans are backed by gold as collateral. They can be
short-term, repayable in one bullet payment after six months, or to a maximum of 12
months, with monthly interest payments.

Conclusion
Each type of advance serves different purposes, offering flexibility and solutions to
meet various financial needs. As you interact with customers, understanding these
different types of advances will help you guide them towards the most suitable
financial solution for their requirements.

b)Types of Securities – Direct & Indirect

Direct Security vs. Indirect Security

Direct Security
What it means: Direct security involves providing something tangible, like property
or machinery, as a security or backup for a loan.

Explanation:
Tangible Collateral: For example, when someone mortgages their property or
hypothecates their machinery, they’re offering something physical as a promise to
the bank that if they can’t repay the loan, the bank can take possession of that
specific item to recover the amount owed.

Indirect Security
What it means: Indirect security doesn’t involve offering a specific physical asset.
Instead, it relies on a promise made by someone else to take responsibility if the
borrower fails to repay the loan.

Explanation:
Assurance by Others: For instance, when someone provides a personal guarantee,
they're not offering a specific item like a property or machinery. Instead, they're
promising the bank that if the borrower can't repay the loan, they will step in and
take responsibility for repayment.

Comparison
Direct Security is Tangible: In direct security, there is a tangible asset (property,
machinery) tied to the loan.

Indirect Security is Promissory: Indirect security relies on the promise or commitment

of someone else (guarantor) to support the borrower's repayment.

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Example
Direct Security: Imagine giving your bike as a guarantee for a loan. If you can't repay,
the bank might take your bike.
Indirect Security: In this case, your friend promises to pay the bank if you can't. They
haven't given anything specific like a bike; instead, they've just promised to help out
if needed.

b)Types of Security- Direct

i) Primary Security
Stocks (Inventory)
What it is: Stocks, in the context of banking, refer to inventory held by businesses.
These include raw materials, goods in process, and finished products stored in shops,
warehouses, or factories.

Explanation: Think of it as the goods a shopkeeper or a manufacturer keeps in their

store or factory for sale.

Fixed Assets Purchased Using Bank Loans: Machinery, Equipment, and Furniture
What they are: Fixed assets are tangible assets used for business operations, such as
machinery used in production, equipment for specific tasks, and furniture for office
use.

Explanation: These are the tools, machines, and furniture a business owns and uses
regularly to conduct its operations.

Properties Purchased Using Bank Loans

What it means: These are properties or real estate bought by individuals or
businesses using loans obtained from Repco Bank.

Explanation: If someone buys a house or land with a loan from the bank, that
property can be used as security for loans.

Understanding these primary securities—stocks (inventory), fixed assets, and

properties purchased using bank loans—is crucial in evaluating a borrower's assets
that can be used as collateral for securing loans. This knowledge helps in assessing
loan risks and guiding customers towards appropriate loan options based on their
available assets.

ii) Collateral
i) Mortgage of Properties: Borrowers can offer their properties as collateral, allowing
the bank to sell them as per law if the borrower fails to repay the loan.

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Lien over Self-Deposits as Loan on Deposits
What it means: Lien over self-deposits refers to using your own deposits in the bank
as security for a loan.

Explanation:
ii) Using Deposits as Collateral: Depositors may use their own deposits in the bank as
collateral to obtain a loan.
This means if they can't repay a loan, the bank can use those deposits to cover the
outstanding amount.
Understanding secured and unsecured advances, primary securities, and collaterals is
crucial in assessing risks and ensuring responsible lending practices. As you interact
with customers, this knowledge will help you guide them in choosing appropriate
loan options and understanding the importance of collateral in securing loans.

b) Types of Security- Indirect

i) Guarantors (Sureties): Personal Guarantees of Blood Relatives and Non-Blood
Relatives
Personal Guarantees of Blood Relatives
What it means: Blood relatives, such as parents, siblings, or spouses, can provide
personal guarantees for a borrower's loan.

Explanation:
Family Support: These relatives offer their assurance to the bank that they'll take
responsibility if the borrower can't repay the loan.
Personal Guarantees of Non-Blood Relatives
What it means: Non-blood relatives, like in-laws or relatives by marriage, may also
provide personal guarantees for a loan.

Explanation:
Extended Support: These individuals offer their commitment to the bank, promising
to step in if the borrower defaults on the loan.
ii) Third-Party Personal Guarantees like Friends and Colleagues
Third-Party Guarantees
What it means: Friends, colleagues, or acquaintances unrelated to the borrower may
offer personal guarantees for a loan.
Explanation:
Support Network: These individuals vouch for the borrower's ability to repay the
loan, providing an additional layer of assurance to the bank.

Relationship-based Support: They offer their trust in the borrower's integrity and
repayment capacity.

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3 Credit Proposal Requirements
a) Know Your Customer (KYC) Guidelines
Explanation in Detail:
KYC is a crucial process that banks follow to understand their customers better. It
involves collecting and verifying certain key pieces of information to ensure
customers are who they say they are.

What's Collected: Banks gather personal details like name, address, date of birth,
and government-issued identification documents such as Aadhar card, PAN card,
passport, etc.

Verification Process: This information is verified to ensure it is accurate and reliable.

This helps in establishing the identity of the customer and prevents identity theft or
fraudulent activities.

Preventing Illegal Activities: KYC plays a vital role in preventing illegal activities like
money laundering and financing terrorism by making sure that the bank knows its
customers well.

b) Business Proof and Validations

Explanation in Detail:
When businesses apply for loans, banks need to ensure these businesses are genuine,
legal entities with valid operations.

Document Verification: Banks ask for business registration documents, licenses,

permits, GST Registration and Udayam Registration certificate. This is to ensure that
the business is legally registered and operating lawfully.

Understanding Business Operations: Banks need insights into how the business
functions. Understanding the business models, their markets, customers, suppliers,
and revenue streams would help the bank assess the feasibility of the loan.

c) Income Proof and Financial Documentation

Explanation in Detail:
For individuals and businesses seeking loans, providing proof of income and financial
documentation is essential to demonstrate their ability to repay the loan.

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Income Validation: Banks ask for financial documents like bank statements, salary
slips, income tax returns, or business financial statements. These help banks assess
the borrower's income sources and stability.

Assessing Financial Health: Analyzing these documents allows banks to evaluate the
borrower's financial health, including their expenses, debt obligations, and ability to
manage repayments.

Verification and Scrutiny:

Document Review: The Bank Staff meticulously reviews the provided financial
documents (bank statements, salary slips, ITRs, business financial statements, etc.) to
ensure their authenticity and relevance.
Income Validation: The Bank Staff verifies the consistency and stability of income
sources, checks for irregularities or discrepancies, and assesses the borrower's
capacity to service the loan.

Debt-to-Income Ratio Calculation:

Assessing Financial Commitments: The Bank Staff analyzes the borrower's existing
financial obligations (like existing loans, EMIs, or debts) against their income to
calculate the debt-to-income ratio.

Determining Repayment Capacity: This ratio helps in determining if the borrower

can comfortably manage additional loan repayments based on their income levels.

d) Analyzing Financial Statements

Explanation in Detail:
Analyzing financial statements is a critical step in understanding the financial health
of an individual or business seeking a loan.

Understanding the Numbers: Banks examine balance sheets, income statements,

cash flow statements, and other financial records. This helps in understanding how
money flows in and out of the borrower's accounts.

Risk Assessment: Banks use financial analysis to assess the borrower's ability to
repay the loan. It helps in identifying potential risks associated with lending money,
enabling the bank to make informed decisions.

Verification and Scrutiny:

Reviewing Financial Statements:

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Balance Sheet Analysis: The Bank Staff studies the balance sheet to understand the
borrower's assets, liabilities, and equity. It helps in assessing the financial position
and net worth of the borrower.
Income Statement Analysis: Examining the income statement helps evaluate the
borrower's profitability, revenue, expenses, and overall financial performance.

Cash Flow Analysis:

Cash Flow Assessment: Understanding how cash moves in and out of the borrower's
accounts helps in evaluating their liquidity and ability to meet financial obligations.

Identifying Trends: Analyzing cash flow trends helps the officer gauge the
consistency and stability of cash inflows and outflows.

Ratio Analysis:
Leverage Ratios: Calculating ratios like debt-to-equity, current ratio, and Solvency
ratio helps in understanding the borrower's leverage and liquidity positions.
Profitability Ratios: Ratios such as gross profit margin, net profit margin, and return
on equity assist in assessing the borrower's profitability.

Risk Assessment:
Identifying Risks: The bank staff evaluates risks associated with lending, considering
factors like repayment capability, business stability, industry trends, and economic
conditions.
Making Informed Decisions: Based on the analysis, the bank staff determines the risk
level associated with approving the loan and recommends appropriate actions or
terms.

e) Pre-sanction Requirements
Understanding the Borrower
Before approving a loan, the bank conducts an interview with the potential borrower
to gather essential information and understand their needs.

Purpose of the Interview

Why it matters: The interview helps us learn about the borrower's business, financial
situation, and loan requirements.

What We Look for:

Business Activities: We ask about what the borrower does and how their business
operates.
Business Experience: We inquire about how long they've been in business and what
their future plans are.

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Financial Status: We want to know about their financial situation, like how their
business is doing financially.
Industry Connections: We ask for a list of people the borrower knows in their
industry.
Loan Purpose: Understanding what the borrower needs the loan for and what the
terms are.
Risk Assessment: We assess if there's any risk in giving them the loan and if it's
covered enough.
Regulatory Compliance: We check if there are any rules the borrower needs to follow
and if they're meeting those requirements.
Offered Security: We ask about the assets the borrower is offering as security for the
loan and if those assets are suitable for our bank.

Why It's Important:

Making Informed Decisions: By gathering all this information, we can make sure that
the borrower is reliable, understands their needs, and can repay the loan. It helps us
assess if the loan aligns with our bank's policies and if the borrower meets all the
necessary requirements.

f) Post interview, Documentary Requirements for Loan Processing

⮚ Aadhaar and PAN of Borrower including Co-borrowers, and Guarantors.

⮚ Proof of business-like GST Certification, Udayam Registration Certificate,
minimum latest 3 years Income Tax Returns with income computation
statements.
⮚ Rental Agreement/receipts if business premises is not owned one.
⮚ Trading & Profit & Loss Accounts with Balance Sheets with schedules for the
last 3 years
⮚ Bank Account Statements
⮚ MSME Registration Certificate if applicable
⮚ Partnership Deed
⮚ Memorandum and Articles of Association, copy of certificate of
commencement of business (in case of public limited companies) and copy of
certificate of incorporation (in case of Private Limited Company)
⮚ Assets & Liabilities Statement of Borrower, Co-borrowers,
Guarantors/Partners/Directors
⮚ Project Report
⮚ Pay slip/salary certificate, Form No:16 in case of salaried class and bank
statement for the last 6 months, Identify card issued by the employer (Bank
should also verify the veracity of pf proof from institutions directly.
⮚ Rental agreement for proof of rental income.

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 g) Evaluation of Borrower's Loan Requirement: Need-Based Assessment

Assessing the Borrower's Loan Needs - Realistic Evaluation

Understanding the Business: When someone applies for a loan, we need to make
sure the loan amount matches their business's size and potential.

What We Consider:
Business Performance: We look at how the business has been doing in the past and
present, and what it's expected to do in the future.
Stocks held in the business and Market: We check if the goods they have in stock can
be sold easily and if there's demand for their products.
Competition and Experience: We consider how competitive their industry is and how
experienced the borrower is in that field.
Personal Involvement: We look at how involved the borrower is in the business and
their qualifications or expertise in that area.
Financial Status: We check if the business runs on the owner's money or if they've
taken loans from banks or private sources.
Credit History: We review their past behavior with other banks or financial
institutions regarding repayments.
Emergency Plans: We consider if the borrower has a plan to handle unexpected
problems or setbacks in the business.
Clients and Suppliers: We look at the list of current clients and suppliers the business
has.
Co-Applicants and Guarantors
Checking Support: We also evaluate the financial status and reliability of others
involved in the loan, like co-borrowers or people guaranteeing the loan.

Why It's Important:

Making Wise Decisions: By checking all these things, we make sure the borrower
isn't asking for too much or too little. We want to make sure they can handle the loan
and that it's a good fit for their business.

h) Assessment of Adequacy of Security Coverage of Offered Securities in

Relation to Loan Request:

What We Look for in Properties:

For Immovable Properties (Like Land or Buildings):
⮚ Market Value: We need properties that are easy to sell at a good price, even in
urgent situations.

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⮚ Condition and Marketability: The property should be in good shape and easy to
identify for potential buyers.
⮚ Clear Ownership: We want properties with clear ownership titles, without any
legal issues or debts tied to them.
⮚ Accessibility and Encumbrance-Free Title: Properties should have proper access
and no legal claims against them.
Documentation: We check for documents that prove ownership, like property
tax receipts, water tax receipts, electricity bills, and land-related certificates
namely Patta, Chitta, and Adangal, Plan approval, allotment order, death
certificate, legal heir certificate, and discharge certificate wherever necessary
shall be obtained
Checks and Documentation Required:
⮚ Documents Verification: We thoroughly check property documents for the last 25
years (minimum 15 years) to ensure ownership and history.
⮚ Property Ownership: We only accept properties owned by the borrower or their
family, not third parties.
⮚ Legal Scrutiny: We have our Panel Advocates to review original property
documents to confirm their authenticity and legality.
⮚ Additional Documents: We gather various documents like property tax receipts,
water and electricity bills, land-related certificates, and approval documents.

Why It's Important:

Protecting Our Investment: We need to be sure that the property offered as security
for the loan is valuable, legally sound, and easily marketable. This ensures that if the
borrower can't repay, we can sell the property through legal measures without
problems and recover our loan amount.
i) Assessment of Repaying Capacity
Checking Income Documents:
To Assess Repayment Ability: We review various income-related papers provided by
the borrower, like tax returns, profit and loss accounts, salary slips, rental
agreements, and any other income proofs to the satisfaction of Branch
Head/Officials during the course of the business place site visit.
Factors Considered for Loan Amount:
● Turnover and Purpose: The loan amount depends on the business's sales and
what the loan is for.
● Income and Repayment Capacity: We look at the borrower's income and if
they can repay the loan comfortably.
● Value of Security: The loan amount also considers the value of the property
offered as security for the loan.

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Finalizing Loan Amount:
Based on Various Factors: After considering all these aspects, we decide how much
loan the borrower can safely manage to repay.
Becoming Bank Customers:
Completing the Process: Once everything checks out, the borrower, co-applicants,
and guarantors are enrolled as customers of our bank. We make sure they meet all
the necessary identity and verification norms.
Why It Matters:
Ensuring Feasible Repayment: By carefully reviewing the borrower's income and
other financial documents, we make sure they can comfortably repay the loan
without any financial strain.

h) Completing Loan Applications and Form Filling

Filling Application Forms:

Completing All Details: When applying for a loan, it's important to fill out the
application form completely. No important section should be left blank, and everyone
involved should sign the form.

Necessary Documents:
What You'll Need: Submit photos of the applicant, co-applicants, and guarantors.
Keep copies of the loan application at the branch for reference.

Required Documents: Provide proof of where the borrower/ co-

applicants,/guarantors live, their job or business details, income proof, details about
their business or personal assets and liabilities, and documents related to the
property they're offering as security.

Business Place and Property Inspection:

Visiting the Site: The Branch Head and Assistant Manager/Credit Officer will visit
their business place and the property being offered as security. Discreetly check
things out to ensure everything is in order.

Branch Head's Role:

Submitting the Proposal: The Branch Head reviews everything and sends the loan
proposal, along with their report, to the Head Office promptly. In some cases where
the Branch Head has the authority under BDP -Branch Head Discretionary Power, he
can decide on the loan amount at the branch level. If there are any limitations on the
loan amount, the reasons for these limitations will be recorded.

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Why It's Important:
Ensuring Accuracy: Filling out the forms properly and providing necessary documents
helps the bank understand your needs better. Site inspections and inquiries help in
verifying the details for a smooth loan process.

i) Importance of Credit Rating

What is Credit Risk Rating?

For Higher Loan Amounts: For loans above Rs. 5 lakh, the bank assesses the Credit
Risk Grade using a special form. This helps in evaluating the risk associated with
giving out larger loans.
Parameters Considered:
Three Main Areas: The assessment looks at three main things:
A. Management & Operations: Checks the borrower's managerial skills,
integrity, compliance with loan terms, and business relationships.
B. Market & Industry: Considers factors like competition, future demand,
government policies affecting the business, and technology.
C. Financial & Operational: Examines sales, profitability, key financial ratios, and
the security offered.
D. Security: Security Coverage, Types of Security, Marketability of Security.

Understanding Risk Codes:

Six Codes: There are six risk Codes ranging from the safest to the least safe (CR01 to
CR06). These Codes are based on a score that considers different aspects of the
borrower's profile.

Importance in Decision Making:

Helps in Decision-Making: While interest rates aren't determined solely by risk

Codes, we prefer granting loans to borrowers with a Credit Risk Code of CR 04
(Adequate Safety) and above. This helps us ensure that we're lending to those who
have a better track record and show a lower risk in repayment.

Why It Matters:

Managing Risks: By using Credit rating, we try to understand how likely it is for a
borrower to repay a larger loan amount. This helps us make better decisions and
manage risks while lending money.

j) Understanding Credit Scores and Reports

What's a Credit Score?

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Creditworthiness Rating: A credit score reflects how trustworthy someone is with
borrowing money. Higher scores indicate better trustworthiness; lower scores might
mean more risk.

Score Range: Scores range between 300 to 900 for those with a credit history, and
101 to 200 for those new to borrowing or with no recent loans. A higher score,
especially above 750, is considered good for getting loans from most banks.

How's a Credit Score Calculated?

Five Key Factors: The score is calculated by CIBIL TransUnion, considering:

A. Payment History: How well someone has paid their loans or credit card bills.
B. Credit Use: How much credit one uses compared to their limit.
C. Credit History Length: The duration of their borrowing history.
D. Types of Credit Used: Having a mix of different credit types like loans and
credit cards.
E. Recent Credit Inquiries: The number of recent loan or credit inquiries made.

What's a Credit Report?

Detailed Summary: It's like a detailed report card about someone's credit life. It
includes:

❖ Credit Score: Reflects creditworthiness.

❖ Personal Information: Name, age, PAN, contact details, and employment info.
❖ Payment Behaviour: Late payments, defaults, and overdue amounts.
❖ Credit Accounts: Details about credit cards, active loans, and inquiries.

Why It's Important:

Understanding Applicants: Banks use these reports to understand how responsible
someone is with borrowing. It's like a snapshot of their borrowing habits and helps
decide whether to grant a loan.

Loan Eligibility:
Minimum Credit Score: In Repco Bank, we require a minimum credit score of 500 for
loan eligibility.

Concerns: We're cautious about any overdue loan payments or past loan statuses like
Substandard/Settled/Written off, especially for secured loans.

Monitoring Credit Behaviour: The credit score shows how someone manages their
credit. It's important to keep an eye on it regularly.

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4 Bank Account Statements Review
a) Significance of Bank Account Statements:
Why They Matter: Bank account statements are like a diary of a person's financial
life. They provide a detailed record of someone's money transactions, showing how
money moves in and out of their accounts.

What's Reviewed?
Different Account Statements: We look at the latest six months' statements of other
bank Savings Accounts and Current Accounts belonging to the person applying for a
loan. We also check the last 12 months' statements for their accounts with Repco
Bank and other banks where they have loans.

b) Evaluation Process:
Detailed Examination: We carefully scrutinize these statements to understand a few
important things:

❖ Cheque Bounce Incidents: We look for instances where cheques issued by the
person bounced due to insufficient funds.
❖ Transaction Volumes: We analyze the movement of money in their accounts,
especially in the Savings and Current Accounts.
❖ Account Regularity: Any irregularities or unusual activities in how the
accounts are managed are brought to notice.

Why This Matters:

Assessing Financial Behavior: By reviewing these statements, we aim to understand
how responsibly someone manages their finances. It helps in knowing if they have
enough funds to cover their transactions and if they handle their accounts well.

What We Look for:

Clarity and Transparency: We aim to ensure that the accounts are used regularly,
without any significant irregularities, and that the person manages their funds
prudently.

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5 Understanding the Bank’s Credit Policy

a) Overview of Credit Policies:

Role of the Credit Department: The Credit Department is a crucial part of any bank.
They oversee the entire lending process, ensuring loans are given to low-risk
customers. They also help in taking steps to recover loans if they become overdue.

What's a Credit Policy? It's a document that sets guidelines for lending decisions.
These guidelines help manage risks and guide staff in handling loans effectively,
aiming for quality credit growth.

Key Features of Repco Bank's Credit Policy 2023:

❖ Balanced Business Growth: Aim to grow business while ensuring a mix of
different types of loans.
❖ Targeted Markets: Focus on areas where other banks operate less.
❖ Supporting Sectors: Encourage lending to corporations, retail traders, small
and medium enterprises, and safe real estate projects.
❖ Customer Base Expansion: Introduce new credit schemes and products to
attract more customers.
❖ Quality Management: Emphasis on assessing, following up, and managing
loans effectively.
❖ Risk Mitigation: Use easily marketable securities or valuable properties to
reduce lending risks.
❖ Transparency: Maintain transparency in processing credit proposals, approval
processes, terms, and conditions.

b) Compliance and Implementation Guidelines:

Guidelines to Follow: The bank adheres to specific rules and limits:

● Loan Limits: Limits on individual and group exposures to manage risk.

● Different Loan Assessment Methods: Different ways to assess loans based on
their size and purpose.
● Repayment Periods: Encouragement for specific repayment periods to avoid
financial imbalances.
● Security Coverage: Minimum security coverage for loans backed by property.

Benchmark Ratios for Risk Management:

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Key Indicators: Certain ratios are used to gauge financial health and risk:

● Current Ratio (1.33): Measures ability to meet current obligations.

● DSCR (Debt Service Coverage Ratio- 1.50:1): Evaluates repayment capacity
based on future earnings.
● DER (Debt Equity Ratio- 2.50:1): Shows the proportion of debt to equity in the
borrower's finances.
● Solvency Ratio - 5:1: Measures overall solvency by comparing liabilities to net
worth.

Why It's Important:

Guiding Loan Decisions: These policies ensure loans are given responsibly, managing
risks while promoting business growth. They help in understanding how much to lend
and to whom, ensuring a stable financial position for the bank.

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6 Loan Sanction Workflow (LSW)
What is the LSW System?
Automated Lending Process: The Loan Sanction Workflow (LSW) System is a
computerized process introduced in 2018 for lending purposes. It helps in managing
loan applications more efficiently.

Key Features and Benefits:

A. Integration with Core Banking Solution (CBS): The LSW System is connected
with our Core Banking Solution. This means it automatically gathers basic
customer information from our banking system, making data entry faster and
more accurate.
B. Credit Rating Module: This feature assesses how creditworthy a person is
based on the information provided. It helps in making quick and fair
evaluations of loan applicants.
C. Streamlined Loan Processing: Credit Officers can efficiently handle loan
applications using the system. They can decide to approve, reject, fix errors,
or forward applications for higher approvals, making decisions faster.
D. Automatic Sanction Details: The system fetches details about loan approvals
directly from our banking system using a Sanction Ticket Number. This
reduces manual work and the chance of mistakes.
E. Document Management: It helps in storing and easily finding documents
related to loan applications in PDF format. This ensures we have all the
necessary information available for checking and following rules.
F. Application Tracking: The LSW System lets us track where a loan application
stands in the process. We can see which stage it's at and who needs to review
it next.
G. Reports Generation: There's a feature that helps create detailed reports about
loans sanctioned by different levels of authorities. This includes reports from
Branch Managers and other higher-ups for specific periods.

Why It's Important:

Efficiency and Accuracy: The LSW System helps in handling loan applications more
quickly and accurately. It saves time, reduces mistakes, and ensures we follow proper
procedures while approving loans.

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7.Our Loan Schemes
Apart from traditional loan products like Jewel Loans, Housing Loans and Loan on
Deposit, We have several tailor-made loan schemes catering to all types of
borrowers. Each loan scheme is designed for specific purpose with an aim to bring in
the targeted segment of new customers to our fold
a) Repatriates: The very purpose of staring our bank is for promoting rehabilitation
activities for repatriates from neighbouring countries, mainly from Sri Lanka and
Burma. Hence
Repatriate member customers are given 100% waiver of processing fees in all types
of loans. There are 6 Special Loan Schemes of our bank exclusively for Repatriate
Customers as below

i) Repatriates Small Business loan

 Nature of loan: Unsecured loan for Repatriates
 Loan amount: Rs.25,000/- to Max Rs.1.00 lakh
 Age: Max.65 years
 Purpose: To start small/tiny business venture/ Business
Development/working capital/Purchase of machinery or any other
business need.
 Present rate of interest: 11.50%
 Repayment period: Upto 60 months.
 Surety: Credit worthy surety mandatory.
 Security : Hypothecation of existing & proposed assets created out of loan.
 Processing fee waiver: 100% waiver
 Additional information: Borrower should not be in any regular
employment (Private/Govt).

ii) Repatriates Mahalir Business loan

 Nature of loan: Unsecured loan for Women Repatriates
 Loan amount: Upto Rs.50,000/- only
 Age: Max 60 years
 Purpose: Business Development/working capital/Purchase of machinery
or any other business need.
 Present rate of interest: 11.75%
 Repayment period: Upto 48 months.
 Surety: Credit worthy surety mandatory.
 Security : Hypothecation of existing & proposed assets in the business.

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  Processing fee waiver: 100% waiver
 Additional information: The applicant must be ‘A’ class women repatriate
member of our bank. Business must be in the name of applicant only.
Borrower should not be in any regular employment (Private/Govt/Quasi
Govt).

iii) Salary loan (Repatriate & Others)

 Nature of loan: Unsecured loan
 Loan amount: Rs.50,000/- or 5 times the gross pay, whichever is less
 Age: 65 years
 Purpose: Any domestic purpose
 Present rate of interest: 16.25% (General) & 15% (Repatriates)
 Repayment period: Upto 36 months.
 Surety: Credit worthy surety mandatory.
 Processing fee waiver: 100% waiver
 Additional information: Net take-home pay should be atleast 40% of
Gross pay

iv) Education loan to Repatriates

 Nature of loan: Secured / Unsecured
 Loan amount: Upto Rs.1.00 lakh without security/ Above Rs.1.00 lakh
with security
 Purpose: Education expenses for pursuing studies in regular college(full-
time approved courses)
 Present rate of interest:
o Upto Rs.1.00 lakh (without security) – 4.75%
o Above Rs.1.00 lakh to Rs.2.00 lakh (with security) – 4.75%
o Above Rs.2.00 lakh (with security) – 9.25%
 Repayment period: Upto 36 months from course completion.
 Surety: Production of surety is mandatory.
 Processing fee waiver: 100% waiver
 Additional information: All proposals to be sent to HO

v) Repatriates Two Wheeler Loan

 Nature of loan: Unsecured loan for Repatriates
 Loan amount: Maximum of Rs.1,00,000/- or 75% of the vehicle cost
 Age: Max 55 years
 Co-applicant – Spouse/Parents/Children can be the co-applicants
 Purpose: To purchase of a two wheeler
 Present rate of interest: 9.00% p.a. subject to change from time to time
 Repayment period: Upto 36 months

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  Security : Hypothecation on proposed vehicle
 Processing fee waiver: 100% waiver
 Additional information:
a. Any one of the applicants must be ‘A’ class repatriate member of
our bank.
b. Driving Licence in the name applicant/co-applicant.
c. The applicant must be a salaried individual or business
person/professional/entrepreneur having sufficient repaying
capacity.
d. Those who availed other loan facilities from the Bank can also
avail this facility subject to fulfillment repayment capacity norms.

vi) Repatriates Roof Renovation Loan

 Nature of loan: Secured loan for Repatriates
 Loan amount: Maximum of Rs.1,00,000/- or 90% of the cost estimate
 Co-applicant - Spouse/Parents/Children can be the co-applicants
 Purpose: House Roof Renovation i.e. Renovation/Replacement of Tiled
Roof
 Present rate of interest: 9.00%
 Repayment period: Upto 84 months
 Security : Mortgage to be executed over the house property
 Processing fee waiver: 100% waiver
 Additional information:
a. The applicant/co-applicant must be ‘A’ class repatriate member of our
bank.
b. The applicant shall possess sufficient repaying capacity.
c. Self Estimation for proposed renovation of tiled roof.
d. The applicant/co-applicant should be resident owner.
e. Those who availed other loan facilities from the Bank can also avail
this facility subject to fulfillment repayment capacity norms.

b) Others
There are 13 Special Loan Schemes of our bank as below including Bank Guarantee
– a Non-Fund based Credit):

I) SODL
 Nature of loan: Secured overdraft limit
 Loan amount: Eligible bank finance based on working capital assessment
 Purpose: Working capital
 Security: Property owned by applicant/co-applicant
 Security coverage:

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 (i)Atleast 75% of Least Market Value/Guideline value in case of land and building
(ii)Atleast 65% of Least Market Value/Guideline value in case of vacant site
 Present rate of interest: 15%
 Validity period: 36 months subject ot annual review
 Surety: Production of Credit worthy surety mandatory

II) Repco Surabhi

 Nature of loan: Secured
 Loan amount: Rs.5.00 lakh and above
 Purpose:
a. Term Loan - Any bankable purpose
b. SODL – Working Capital
 Security: Property owned by applicant/co-applicant.
 Security coverage:
(i)Atleast 75% of Least Market Value/Guideline value in case of land and building
(ii)Atleast 65% of Least Market Value/Guideline value in case of vacant site
 Present rate of interest: 9.90% to 11.10%
a. To be fixed based on DLLR with Credit Risk Rating
b. Floating Rate of Interest
c. Powers for fixation of ROI – Head Office
 Repayment period:
a. Term Loan – Upto maximum period of 120 months
b. SODL – Maximum period of 36 months (Reviewable every year)
 Processing fee: As applicable to Secured Loan scheme. No concession is
permitted
 Surety : Creditworthy surety shall be obtained.
 Additional information:
a. Only fresh loans to be entertained
b. Additional loan proposal may be entertained for existing
borrowers
c. Consolidation of existing loan is not permitted.

III) Repco IPL _ Repco Instant Property Loan

 Nature of loan: Secured

 Loan amount: Minimum Rs.2.00 lakh & Maximum Rs.100.00 lakh
 Purpose: All bankable purpose
 Security: Property owned by applicant/co-applicant.
 Security coverage: Mortgaged property value should be minimum of 150%
of loan amount
 Present rate of interest:

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 a. Consolidation of existing loans cum Additional loan – 12.25%
b. All new loans – 12%
 Repayment period: Max.120 months
 Surety : Not mandatory
 Additional information:
a. Consolidation is permitted
b. At least one co-applicant is compulsory.
c. LCC from HO-LARD is not mandatory for loan upto Rs.25.00 lakh,
but unconditional legal opinion is must.

IV) Repco Flexi OD

 Nature of loan: Secured
 Loan amount: Rs.10 lakh to Rs.300 lakh
 Purpose: To meet out day to day business operational requirements.
 Security: Property owned by applicant/co-applicant
 Security coverage :
(i)Atleast 75% of Least Market Value/Guideline value in case of land and building
(ii)Atleast 65% of Least Market Value/Guideline value in case of vacant site
complying vacant site norms.
 Present rate of interest: 12.00%
 Repayment period: Upto 10 Years
 Surety: Production of Third Party Surety. Surety is not mandatory, if Cibil
scores of the applicant and co-applicants are above 750.
 Processing fee waiver: As applicable for SDL (one time at the time of
availing the loan and no annual fee)
a. Additional information: Combination of an overdraft and a term loan
b. Liquidation of limit over a passage of time (Half-Yearly Installment or Yearly
Installment)
c. Withdrawal limit reduces from the sanctioned limit in the opted periodicity
(i.e., Half Yearly or Yearly)
d. Flexibility of depositing and redrawing funds at the borrower’s discretion
e. Eligible for Entrepreneurs, Retailers, Traders, Manufacturers, Sole Proprietors,
Self-employed professionals and Others
f. Interest is calculated on a daily basis for the balance outstanding on day end

v) Secured Loan
 Nature of loan: Secured
 Loan amount: Any amount

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  Purpose: Any bankable purpose including business, trade, industry,
commercial activities.
 Security: Property owned by applicant/co-applicant.
 Security coverage:
(i) Atleast 75% of Least Market Value/Guideline value in case of land and building
(ii) Atleast 65% of Least Market Value/Guideline value in case of vacant site
 Present rate of interest: 15%
 Repayment period: Upto 84 months. (Upto 120 months for selective cases)
 Surety: Production of Credit worthy surety mandatory

VI) Development Loan

 Nature of loan: Unsecured loan
 Loan amount:
a. Based on deposit without property tax receipt - 5 times of balance of
Daily deposit/Term deposits converted out of DD (or) balance in the
above deposit accounts plus additional Rs.1.00 lakh whichever is
lower (rounded off to lower Rs.1,000/-)
b. Based on deposit with property tax receipt of immovable property in
the name of applicant or spouse - 5 times of balance of Daily
deposit/Term deposits converted out of DD (or) balance in the above
deposit accounts plus additional Rs.2.00 lakh whichever is lower
(rounded off to lower Rs.1,000/-)
 Purpose: Business Development
 Present rate of interest: 16.25%
 Repayment period: Upto 36 months.
 Surety: Production of Credit worthy surety mandatory
 Additional information: If the property owned by the applicant’s spouse,
evidence of relationship proof shall be obtained and he/she shall be
included as co-applicant.

VII) Mahila-shakthi Loan

 Nature of loan: Secured
 Loan amount: Rs. 5.00 lakh and upto Rs.50.00 lakh
 Purpose: Any bankable purpose
 Eligibility: Loan shall be entertained from existing/new female customers.
Either the security or the repayment capacity shall be possessed by the
women applicant.
 Security coverage:
(i)At least 75% of Least Market Value/Guideline value in case of land and building

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(ii)At least 65% of Least Market Value/Guideline value in case of vacant site
 Present rate of interest: 14.25%
 Repayment period: As applicable to SDL. For salaried class, maximum
repayment of 10 years or restricted to retirement period.
 Surety: Credit worthy surety mandatory
 Processing fee waiver: As applicable to the scheme
 Additional information: Consolidation permitted. Loan shall be
entertained from existing/new female customers. Either the security or
the repayment capacity shall be possessed by the woman applicant.

VIII) Repco LAP (Loan Against Property) : It is a pure mortgage based loan.
 Nature of loan: Secured
 Loan amount: Minimum Rs.5.00 lakh & Maximum Rs.1000.00 lakh
 Purpose: All bankable purpose
 Security: Property owned by applicant/co-applicant.
 Security coverage: As per existing norms for secured loan
 Present rate of interest:
Duration Interest
Upto 5 Yrs 12.20%
Above 5 Yrs – Upto 7 Yrs 12.45%
Above 7 Yrs – Upto 10 Yrs 12.65%

 Repayment period: Max.120 months

 Processing fee: As applicable to secured loan scheme
 Surety : Credit worthy surety shall be obtained
 Additional information:
a. Only fresh loans to be entertained
b. Consolidation of existing loans is NOT permitted

IX) Housing loan Residential

 Nature of loan: Secured
 Loan amount : Upto Rs.50.00 lakh
 Purpose: Residential purpose (Purchase of land for immediate
construction/ Purchase of ready-built house/flat/ Construction of
house/Extension/ repairs to own house)
 Security: Property owned by applicant/co-applicant
 Security coverage:
(i)Atleast 75% of Least Market Value/Guideline value in case of land and building
(ii)Atleast 65% of Least Market Value/Guideline value in case of vacant site

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  Present rate of interest: 14.75%
 Repayment period: Upto 84 months(Upto 120 months for selective cases)
 Surety: Production of Credit worthy surety mandatory
 Additional information: Building Plan approval is mandatory. Loan
amount will be disbursed in stages based on progress of construction
ensuring end utilization and infusion of applicant's margin at every stage.

X) Housing loan Commercial

 Nature of loan: Secured
 Loan amount: As per eligibility norms
 Purpose: Commercial purpose (Construction of commercial complex/
Construction or purchase of second house/flat / Mortgage of immovable
property for income generating purposes)
 Security: Property owned by applicant/co-applicant
 Security coverage:
(i)Atleast 75% of Least Market Value/Guideline value in case of land and building
(ii)Atleast 65% of Least Market Value/Guideline value in case of vacant site
 Present rate of interest: 15%
 Repayment period: Upto 84 months (Upto 120 months for selective cases)
 Surety: Production of Credit worthy surety mandatory
 Additional information: Building Plan approval is mandatory. Loan
amount will be disbursed in stages based on progress of construction
ensuring end utilization and infusion of applicant's margin at every stage.

XII) Housing loan Special

 Nature of loan: Secured
 Loan amount: Up to an amount of Rs.75.00 lakh
 Purpose: Construction and Outright purchase of Residential house/flat
only. Not for commercial building / Purchase of vacant plot.
 Security: Property owned by applicant/co-applicant
 Security coverage ratio: Minimum of 1.50 times
 Present rate of interest: 12.75%
 Repayment period:
(i)Upto 180 months (Upto age of 65 years of applicant).
(ii)If all legal heirs join as co-applicants, upto the age of 75 years of applicant.
 Surety: Production of Credit worthy surety mandatory
 Additional information:
 Building Plan approval is mandatory.

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  In case of Govt. servant/Quasi Govt/bank employee/other salaried class
applicant, repayment capacity after retirement from service may be
assessed.
 Loan amount will be disbursed in stages based on progress of construction
ensuring end utilization and infusion of applicant's margin at every stage

XIII) Bank Guarantee (Non-Fund Based Credit)

 Nature of loan: Secured (Non-fund based loan)
 Loan amount: Upto Rs.1.00 lakh may be issued under BDP, Above Rs.1.00
lakh shall have prior approval of HO.
 Purpose: Guarantee on behalf of member customers in favour of
Government departments, public sector undertakings, Corporations,
companies etc.
 Present rate of interest: Applicable commission
 Period of guarantee: The guarantee shall be issued for a specific period.
The period of guarantee shall not exceed the maturity date of deposit
placed by member customer.
 Security: Bank guarantee shall be fully secured by equivalent amount of
deposits/Immovable property. A margin of 5-10% shall be insisted.
 Processing fee waiver: NA
 Additional information: Lien shall be marked on the deposit. Premature
withdrawal or loan on deposit shall not be permitted as long as bank
guarantee is in force.

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8) Loan Disbursements and Post Credit Follow Up
● If it is HO sanction, the requirements as per LSO (Loan Sanction Order)
conditions to be followed.
● The necessary documents to be executed by the concerned parties to be
prepared.
● The evaluation fee and other charges to be collected before the execution of
the loan documents.
● The mortgage deed as per LSO condition should be prepared and get the
mortgagor/borrower to register the mortgage deed registered at the
concerned SRO.
● The registered mortgage deed along with the latest EC with the entry of
charge of mortgage created in our favour should be furnished.
● Any other special conditions mentioned in the LSO should be complied with.
● In respect of branch sanction also, the same procedure shall be followed
● Inspect/follow of unit once in 3 months and review or transactions.
Follow-up:
The branch should adopt Loanee Adoption Scheme from day 1 onwards and they
should follow up for regular repayment of loan, Each visit to the borrower should
be recorded. The branch should ensure that regular accounts do not slip into Non
Performing Assets (overdue beyond 90 days).

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10) Conclusion:

Summary of Key Learning

Understanding the Basics of Loan Processing:

Throughout this booklet, we've explored the journey of loan processing in banks,
starting from understanding the various types of loans - secured and unsecured, to
delving into the significance of collateral, guarantors, and credit evaluations. Here's a
quick summary:

 Types of Advances: Loans can be secured or unsecured. Secured loans involve

collateral like properties or assets, while unsecured loans are based on
creditworthiness.

 Primary Security and Collaterals: Properties purchased using bank loans,

machinery, equipment, and stocks can act as primary security. Collaterals like
mortgage properties and lien over bank deposits provide additional security.

 Guarantors (Sureties): Personal guarantees can come from blood relatives,

non-blood relatives, or third-party individuals like friends. They act as a
support for the borrower.

 Pre-sanction Requirements: Initial interviews help understand a borrower's

activities, financials, and loan purpose, ensuring the risk is manageable and
regulatory requirements are met.

 Documentary Requirements: Obtaining essential documents and evaluating

the borrower's actual fund requirement is crucial before proceeding with loan
approvals.

 Assessment of Borrower's Loan Requirement: Evaluating the borrower's need

for funds based on their business turnover, profit, credit habits, and financial
standing.

 Assessment of Securities: Checking the adequacy of offered securities

concerning the requested loan amount.

 Assessment of Repaying Capacity: Analyzing the borrower's income sources,

profit records, and financial stability to determine their ability to repay.

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  Preparation of Loan Proposal: Filling application forms and compiling
necessary documents for loan proposals.

 Credit rating and Credit Information Reports: Understanding credit scores,

reports, and CIBIL scores to assess a borrower's credit behavior and financial
status.

 Reviewing Bank Account Statements: Scrutinizing account statements to

understand transaction patterns and financial behavior.

 Understanding Bank's Credit Policy: Grasping the bank's guidelines for

lending, exposure norms, and benchmark ratios.

 Loan Sanction Workflow (LSW): Utilizing automated systems to streamline

loan processing, integration with Core Banking Solution, and efficient
document management.

 Holistic Approach: Looking beyond traditional methods by considering non-

traditional data sources for loan assessments.

In essence, this booklet provides an overview of the various steps involved in

assessing loan applications, ensuring that bank makes informed decisions while
extending credit facilities to borrowers.

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