Bank’s Process
Procedure for Sanction, Disbursement, Supervision and Renewal of Advances Each bank has its own procedures for sanctioning, disbursal, supervision and renewal of advances. Following is the common process across banks w.r.t. advances.
Sanction
Initiation of process of sanction of advance is receipt of a formal request from the applicant. The request may be in the form of a standard
format (Loan Application Form) of the bank or in the form of a letter in which case the bank requests the intending borrower to furnish the standard format duly filled in. All applications are entered in a Loan Applications Received Register (the exact nomenclature may vary from bank to bank). The required supporting documents are to be furnished along with the application. The Bank should ensure that the documents are obtained from respective borrowers as per the Loan policy of the Bank.
Credit Appraisal
The proposal is evaluated in the context of the directions of the RBI including prudential exposure limits and the bank’s own credit policy and risk
management guidelines. Besides, the proposal is appraised on the following parameters to ensure technical feasibility, economical viability and commercial acceptability (the degree of scrutiny depends largely on the amount of the advance):
Performance of the unit vis-a-vis other similar units.
Conduct of its accounts with the lenders.
Experience, competence and profile of the management of the unit.
Guarantees and collateral securities offered.
Trend and ratio analysis to see that the unit’s growth is healthy, financials are sound, liquidity is comfortable and the promoters have a reasonable
stake in the unit.
Availability of inputs for production.
Market condition.
Technology in use.
Unit’s capability to achieve the projected operating and performance levels and to service the debt.
Applicability of norms/benchmarks relating to scale of finance, e.g., Nayak Committee recommendations for SSI units, scale of finance fixed by the
bank for agricultural finance to be extended in the local area, etc.
CIBIL, RBI List of defaulter, Credit and confidential reports from other banks. These are to be checked from respective websites.
Latest Govt. policy about particular industry / Locational restriction, etc.
If the official concerned finds the proposal acceptable, a detailed appraisal note is submitted along with necessary supporting documents with
recommendations to the authority having powers to sanction it. Each official who has been vested with powers to sanction advances has a monetary ceiling upto which he can sanction advances to the specified kind of borrowers (like individuals, partnerships, companies, etc.) and/or for the specified activities (like agriculture, industry, professional education, business, etc.) and / or for the type of facility (term loan, overdraft, cash credit, etc.). Such powers are properly documented and circulated by the bank to all its offices as Delegation of Powers. The officials at the branch can sanction only those advances, which fall within their delegated powers. For advances, which require to be sanctioned by higher authorities, the branch has to carry out the appraisal and send the proposal along with its recommendations to its controlling office for necessary sanction. As and when the advance is sanctioned by the competent authority (which could be an official, a committee of officials or the board of directors of the bank, depending on the amount involved), the fact of sanction along with detailed terms and conditions of the sanction are communicated by the controlling office to the branch.
Disbursement
After the sanction of the advance, the branch communicates the terms and conditions of the sanction to the applicant and obtains its consent for the arrangement. Thereafter, the documents as prescribed by the bank are obtained, charges created and, the bank’s charge over the unit’s assets noted with the authorities concerned, e.g., Registrar of Companies, Road Transport Authority, insurance company, land records authority, CERSAI, etc. In the case of an advance to a partnership firm, while the account is opened in the trade name of the firm, the security documents are got executed from the partners in both their individual capacity (i.e., without mentioning the name of the firm or affixing the stamp of the firm) and in their capacity as partners of the firm. This is to ensure that the advance may be recovered from the assets of the firm as well as from the individual assets of the partners.
After the above formalities have been completed, the advance is released in the following manner:
Term loans (granted generally for acquisition of fixed assets, etc.) are disbursed on the basis of quotations/ proforma invoices obtained by the
borrower from the vendors and submitted to the bank either along with the application or later. In case of large projects, the schedule and status of
completion of projects have also to be seen. Banks generally stipulate a stated percentage of the cost to be met by the borrower from his own
funds. Once the borrower provides his contribution to the bank, the branch debits the Term Loan account with the balance amount and pays the amount to the vendor directly along with a letter stating the purpose of the funds. The term loan may be released in one or more instalments. As and when the asset is received by the borrower, the bank officials inspect it, record the particulars in their books, and obtain copies of the final invoices for their record from the borrower.
There may be instances where, on business considerations, the borrower has already acquired the asset. In such a case, he submits the documentary evidence to the branch and seeks reimbursement to the extent permissible. The branch officials inspect the asset and verify books
of account of the borrower and, if satisfied, credit the eligible amount to the borrower’s account (current / cash credit, as desired by the borrower) by debiting his term loan account.
Cash credit advances are released on the basis of drawing power calculated as per the stock statements (which may be book debts, stockin- trade, trade creditors, advance received from customers, advance given to trade creditors, Buyer’s Credit, etc.) submitted by the borrower as per the periodicity laid down in the terms of sanction. The branch officials verify the stock statements (in some cases, tangible securities like stockin- trade are also physically verified) and calculate the ‘drawing power’ based on the security held by the borrower and the margin prescribed in the sanction. In case of consortium accounts, the drawing power calculation and allocation is made by the Lead Bank and is binding on the Member Banks (Circular No. C&I/Circular/2014-15/689 dated 29 September 2014 issued by the Indian Banks Association). This ‘drawing power’ is noted in the system in respect of Cash Credit accounts and is a guide to the official concerned while authorising debits to the account.
The procedures of many banks require the branch manager to periodically submit a certificate to the controlling authority (i.e., regional or zonal office) that all disbursements during the relevant period have been made only after completion of the necessary formalities.
Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)
The auditor needs to keep abreast the mandatory requirements related to registration of mortgages and compliance thereof by the lender bank, as
applicable to the various forms of securities offered as security for the advances.