Loans Against Securities

Against Govt Of India Relief Bonds
Advances can be extended against the security of Govt. of India Relief Bonds issued in different series with 15% margin on the face value.

Maximum amount of lending is limited to Rs.10 lakh.

Loans Against Term Deposits

  1. Advances against Banks deposits are granted by way of Overdraft or Loans .
  2. Such advances should be normally made to depositors in whose names the deposits stand.
  3. Advances to third parties against Banks Deposits can be made with due sanction of the Authorities to whom powers are granted duly complying with the prescribed norms .
  4. Deposits in the name of minors can be considered only for the benefit of minor depositors and an undertaking letter to the effect that the amount of advance would be utilised for the benefit of the minor should be obtained from the guardian.
  5. The maximum duration may be from the date of advance to the date of maturity of the deposit.
  6. No. advance shall be made against the deposits belonging to a minor with guardian appointed by a court without court order.
  7. No. advance shall be made against deposits of other banks.
  8. The interest rate chargeable in respect of advances shall depend upon the category of the borrower and the purpose of the advance.

Advances Against Nre And Fcnrb Deposits
For guidelines on loans against the security of deposits of NRI/FCNR refer H.O.Gen.circular 8/2001 , Gen. circular No.3/02. and guidelines issued by International Banking Division, H.O. Bangalore, and RBI from time to time.

Advances Against Ivp/Kvp/Nsc

  1. Loans/Overdrafts can be sanctioned for productive purposes at the Banks usual rate of interest with a margin of 25% on the face value of IVP/KVP for a period not exceeding the maturity period of IVP/KVP as the case may be lodged as security.
  2. Genuineness of the Bearer securities and bonafide of the borrower shall be ensured by the Branches by observing the guidelines given in MOA-Vol-II.Item No.27-11-6.
  3. The margin prescribed at 35% in case of NSCs purchased within a period of the proceeding 12 months and 25% in other cases on the face value.
  4. Only after the concerned Post office makes an endorsement on the relative certificate to the effect that the certificate has been transferred as security to the Bank, the advance may be allowed.

Advances Against Shares

  • Advances against companies debentures and approved shares may be made either as loans or as Overdraft.
  • While considering grant of advance against shares/Debentures, Banks must follow the normal procedures for pre-sanction appraisal and post sanction follow up.
  • Advances against primary security of shares/debentures may be given only to
    • Individuals
    • Stock & share brokers
    • Trusts & endowments.
  • Loans & Advances against demated approved shares & debentures-Maximum Limit Rs.20 lakh
  • Margin – 40% on demated shares.
  • Margin – 50% on physical / Infotech shares on the lowest price as on the last Friday of the month in a recognised stock exchange or monthly average price whichever is lower.

Mortgage Loans Against Immovable Properties
Immovable Property includes land, benefits to arise out of land and things attached to earth but does not include standing timber, growing crops or grass.

Though the proposals of the following categories will continue to be regarded as low priority, proposals of such categories may be entertained subject to fulfilling the eligible norms stated in HOC.5/2002 and guidelines given at chapter 44 of MOA-Vol-3.

  1. Loans to Real Estate/Property developers/Builders.
  2. Loans to construction of cinema Theatre.
  3. Loans to Community/convention/Meeting/Marriage halls.
  4. Loans to Educational Institutions.
  5. Loans for setting up Hotels, Lodges, Holiday resorts, Private clubs.
  6. Trading in Tobacco & Processing
  7. Advances to coffee curing and trading in coffee beans.

While granting advances against immovable properties branches should obtain legal opinion and valuation report on the properties in the Banks prescribed format covering all the aspects at the stipulated intervals. Property inspection should be carried out & the inspection report in the prescribed format shall be held on record. While accepting immovable property as security and in order to prevent deposit of fake title deeds, certain precautions are to be taken as envisaged in HOC 270/99

Advances Against Hypothecation Of Machinery
Where machines are proposed as security, the following procedure should be followed :

  1. If the plant and machinery proposed to be hypothecated are permanently embedded to the earth and the land and building in which they are so embedded are owned by the applicant but have already been mortgaged by him to someone else, such Machinery can not be taken as security and therefore Branches should not take interest in such proposals.
  2. If the land & building belongs to a person other than the applicant and has been taken on lease by the applicant, hypothecation of machinery installed thereon subject to proof of applicants ownership may be accepted even if it is embedded to the earth, provided a letter of no claim is received from the owner of the land.
  3. If the machinery proposed to be hypothecated is permanently fixed in the building owned by the applicant but which is not encumbered in any manner, the security of such machinery could be accepted.
  4. The machinery proposed to be hypothecated should be generally new. If the machinery is second hand, the year of purchase, residual life and the normal depreciation to be allowed should be taken into account to determine the value of security.
  5. Branch Manager should ensure that the machinery proposed to be hypothecated to the Bank is suitable for the project.
  6. After hypothecation of the machinery, it should be got insured against the risk of fire with Bank clause incorporated in the policy.
  7. Small tin plate with wordings “Hypothecated to Vijaya Bank …………Branch” should be fixed on each item of machinery to evidence that the plant & Machinery are under hypothecation to the Bank.
  8. If the borrower is a limited company, the charge created in favour of the Bank should be got registered with Registrar of companies.
  9. The Machinery should be got valued by a competent engineer approved by the Bank.
  10. The original invoice should be got scrutinised. The market value of machinery may be taken into account for purpose of valuation after considering its life.
  11. Whenever advances are granted against Machinery/equipments, branches should ensure that the prescribed margin on the value thereof is maintained at all times.
  12. When advances are granted against motor vehicles, banks lien on such vehicles should be got registered with the Regional transport Authorities.
  13. The various instructions contained in the chapter on advances against motor vehicles and industrial advances should be followed.

Loans To Real Estate Property Developers And Builders
Though the proposals of Real Estate Property Developers and Builders will continue to be regarded as low priority, proposals of such categories may be entertained subject to fulfilling the eligible norms stated in HOC.5/2002 and guidelines given at chapter 44 of MOA-Vol-3.and policy guidelines issued from time to time.

Loans To Construction Of Cinema Theatres Production Of Motion Pictures
Though the proposals of Real Estate Property Developers and Builders and loans to construction of Cinema theatres will continue to be regarded as low priority, proposals of such categories may be entertained subject to fulfilling the eligible norms stated in HOC.5/2002 and guidelines given at chapter 44 of MOA-Vol-3.and policy guidelines issued from time to time.

Hypothecation of Book Debts and Receivables
While extending such facilities, the terms of contract with the drawee companies should be studied to ensure that the period of credit does not exceed 90 days generally. Though advances against book debts is now being classified as secured advances (HOC 189/2000), there is a ceiling (within the total limits) to be observed while exercising the delegated powers. In respect of advance against supply bills, irrevocable power of attorney executed by the borrower in favour of the bank should be got registered with the drawees on whom the bills are drawn or to whom supplies are made.

Loans To Educational Institutions
Though loans to Educational Institutions will continue to be regarded as low priority, proposals of such categories may be entertained subject to fulfilling the eligible norms stated in HOC.5/2002 and guidelines given at chapter 44 of MOA-Vol-3.and policy guidelines issued from time to time.

Loans For Construction Of Community Convention Meeting And Marriage Halls

Though loans for construction of community/Convention/Meeting and Marriage Halls will continue to be regarded as low priority, proposals of such categories may be entertained subject to fulfilling the eligible norms stated in HOC.5/2002 and guidelines given at chapter 44 of MOA-Vol-3.and policy guidelines issued from time to time.

Loans And Advances For Purchase Of Estates
Though the proposals for purchase of Estates will continue to be regarded as low priority, proposals of such categories may be entertained subject to fulfilling the eligible norms stated in HOC.5/2002 and guidelines given at chapter 44 of MOA-Vol-3.and policy guidelines issued from time to time.

Working Capital Finance To Information Technology

  1. Advances up to Rs.1 crore sanctioned to software industries can be taken under Priority sector advances.
  2. PBS forms for Assessment of working capital Finance of Software companies –A appendix-xi-Annexure- A of Manual of Advances Vol-III.
    For Working capital finance to I.T. refer HOC.277/98.

Against Pledge Of Goods Or Document Of Title To Goods
Advances against goods are allowed to traders for their trading activities, to manufacturers and producers for their requirements of raw materials etc and also to enable them to sell their products at better prices. The account is to facilitate the borrower to hold on to the goods for a short period, by creating a pledge in favour of the Bank. This is a type of account where the credit for a specified period of time, generally for one year and release of goods are allowed any number of times during the currency of the limit, within the limit/Drawing power. This limit cannot be allowed to be operated by the borrower by issuance of cheques or by deposit of cash and other instruments for collection.

Advances against goods are allowed on the basis of pledge or hypothecation of goods depending upon the credit worthiness and the requirements of the borrower, keeping in mind that the security by way of pledge, where possible and practical is always preferable to hypothecation.

Advances should not be made against goods which are not the sole property of the borrower or where the borrowers right to sell is restricted.

Pledge of goods means bailment of goods as security for payment of debt or performance of a promise. This is a voluntary transfer of possession of goods. Delivery may be either physical or constructive. Pledge is created when the actual possession of goods is transferred to the Bank as security or by any other means by which delivery is affected, as in the case of endorsement and delivery of a document of title to the goods.

Guidelines/instructions given in MOA-VOL-II at Sl.No.31.7.1 to 31.18 should be complied with.

Hypothecation Of Other Movable Assets

  1. While granting facilities on hypothecation basis, limited companies are preferred since charges on the securities can be got registered with the Registrar of Companies. Exceptions are made in case of borrowers who maintain good inventory control system.
  2. When facilities are cash credit basis, It is necessary that the borrower should pass through the cash credit account all his business dealings.
  3. Advances against seasonal commodities should be got liquidated by the end of the season.
  4. The other instructions contained in the chapter on Advances against goods Manual of advances should be followed.
  5. Goods should be readily marketable and fast moving.
  6. Easily perishable and inflammable goods should not be accepted.
  7. The advances should be granted against the security of those goods in which the borrower normally deals in.
  8. Seasonal goods should not be retained for more than one year without sanction of H.O.
  9. Goods whose quality and value cannot be easily determined should not be accepted
  10. In the case of manufactured goods, Branch Manager should verify the manufacturers invoices
  11. While examining the invoices, it should be ensured that the goods are not held by the borrower on consignment basis or that supplier has a charge either on the goods or on their sale proceeds
  12. Licence or permits for dealing, storing, transporting or handling the relative goods where required from the concerned authorities should be held.

Advances Against Documentary Bill Evidencing Dispatch Of Goods

  1. Limits considered for purchase/discount of bills should be commensurate with the business requirements of the borrowers, based on the normal credit assessment/appraisal./
  2. In the case of usance bills, the usance period should not normally exceed 90 days unless otherwise specifically permitted .
  3. Purchase/discount of bills on drawees who had dishonoured the bills earlier drawn on them, should be avoided as far as possible.
  4. Re-purchase of bills which are returned unpaid except for technical reason are not permitted.
  5. Granting bills purchase/discount facility together with advances against book debts has to be avoided unless different drawees for the bills purchase/discount facility are properly and distinctly identified.
  6. In the case of demand documentary bills documents of title to goods should be of a recent date covering consignments of approved goods in which the customer deals in and drawn on places to which the customer usually consigns goods.
  7. The facility of purchasing /discounting of bills should be made available only to those parties who have sanctioned limits for the purpose.
  8. The borrower is dealing with the same commodity /goods represented by bills and not others.

Advances against bills drawn on and accepted by the drawees
In the case of usance bills, the usance period should not normally exceed 90 days unless otherwise specifically permitted as in the case of foreign documentary usance bills, in which case usance period is extended up to a maximum of 180 days.

Purchase /discount of Bills should be strictly in accordance with the instructions of the Head Office issued from time to time.

Advances Against Bills Drawn Under Letter Of Credit
Advances against inland D/A/D/P bills drawn under letter of credit.
Bills under letter of credit and co-accepted by commercial banks

Exposure Limit

Type of transaction Banks Exposure limit per bank
Negotiation, Purchase, Discount of bills by our Branches under Inland L/c of other Banks Nationalised / Public sector Banks  Rs.5 crore.
Foreign/Pvt sector Banks  Rs.2 crore.

Transactions in excess of the exposure limit may be referred to Credit Dept, H.O.

  1. Branches should not purchase /discount the bills drawn under revocable L/c of other Banks.
  2. Bills drawn under L/cs established by co-op Banks should not be purchased/discounted
    Written confirmation should be obtained from the L/c issuing Bank through their controlling Office.

Advances Against Bills Co-Accepted By Commercial Banks
Usance bills under LC/IDBI rediscounting scheme co-accepted by buyers /All India Financial Institutions.

Advances Against Third Party Cheques/Drafts/Pay Orders
Third party cheques of first class companies, firm, Govt concerns, Bank Demand Draft etc representing genuine trade transactions only should be purchased. Unless otherwise specified local cheques should not b Third party cheques of first class companies, firm, Govt coe purchased.

  1. Accomodation cheques drawn by the borrowers themselves or their branches/close relatives/associates firms should not be purchased.
  2. Post dated cheques are not to be purchased and cheques crossed ‘not negotiable’ are to be purchased only for payee customer.
  3. Re-purchase of cheques which were returned unpaid except for technical reasons are not permitted.
  4. Purchase/discount of cheques should be strictly in accordance with the instructions of the H.O. issued from time to time.

Instant Credit Against Outstation Cheques Upto A Limit Of Rs.15000
Immediate credit of outstation/local cheques tendered for collection to the satisfactorily operated accounts/customers is permitted up to Rs.15000/-

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