HEDGE FINANCE LIMITED (HFL)

SME CREDIT POLICY (2019-20)

 SME Mortgage Loans- Hedge Grow
Product Name Hedge Grow
Product Type SME Small Ticket Loans
Loan Ticket Size Rs.5.00 lacs to Rs 15.00 lacs
Pricing Pricing as per the pricing circular issued by HFL from time to time.
Tenor 12 Months to 120 Months
End Use - Business Expansion
- Working capital Requirement
- Renovation of shop/factory etc
Target Customers Self Employed Professionals: Doctors, CA/CMA/CS with proof of
qualification with minimum 2 years of practice.
Self Employed Non-Professionals: Traders/Manufactures/Service
providers doing business as proprietorship/partnership/pvt Ltd
(closely held)/Societies/Trusts having minimum 3 years of experience
in the same line of business.
Customer Age Age of the key person in the business should be :-
Profile Minimum : 23 years
Maximum: 65 years
Maximum loan at the maturity of the loan should be less than 70.

(Key person of the business to be identified based on stake in the

business/active involvement/future succession)
KYC Requirement Valid Identity proof, Address proof and signature proof to be obtained
in line with the HFL KYC Circular issued from time to time as per the
RBI Circular
Office Location Within 10 Kilometers from the branch office of HFL.
Residence Anywhere in Kerala except any negative/restricted locations specially
Location declared in the HFL location circular issued from time to time in line
with the internal credit norms of the company.
Ownership Norms Either Permanent/Temporary Residence or Office premises should be
of owned by the customer or his/her parents.
residence/office
address
Telephone Norms Landline/post paid mobile connection is mandatory at office
(Connection should be of minimum 6 months old)
Co-applicant For Proprietorship/Self Employed Professionals: Co-applicant shall be
Norms spouse/son/daughter/ legal heirs meeting the minimum age norms.
For Partnership Firm: All the partners should be in the loan
For Company: All the directors should be applicant to the loan.
Shareholders with minimum 51% stake in the company should be
mandatorily in the loan.
Reference Checks Minimum 2 positive trade reference checks with name, address and
phone number of the referee to be documented by the processing
team.
Banking Parameters  Six Months Bank statement of the primary account should be
obtained.

Credit Policy- SME Loans

  Average Credit Summation in the account during last six month
should be at least 5% of the last year turnover. Specific
justification to be documented for any decline in credit
summation during last six months.
 Average Credit Balance in the account during last six months
should be at least 80% of the proposed EMI with HFL.
 Department deviations to be taken with sufficient justifications if
there is more than 3 inward cheque returns or more than 5
outward cheque returns during the last six months.
Credit CIBIL Parameters  CIBIL Report should not be older than 30 days from the date
History of loan sanction.
 Should never crossed 30+ DPD across all trade lines in last 2
years.
 Proper justification for any credit card writes off more than Rs
10000/- should be obtained and documented in the file. Credit
deviation to be obtained for any credit card writes off during
last two years.
Existing Loan  Details of all the existing loans of the business entity and the
Track applicants are to be documented along with the loan
application (Lender Name, Sanctioned Amount, Sanction date,
Current Outstanding, EMI, Residual Tenor, interest rate,
security offered etc).
 Sanction letters of the existing loans should be collected.
 Loan repayment Track of below loans to be collected and
verified :
a. Loans which are not reflecting in CIBIL.
b. Loans which having DPD during last three years in the CIBIL
report
c. Loans which are availed during last 6 months
 3 Months statement should be obtained of the CC/OD account
if any.
Process Verifications  Residence/office verification by approved agency
 Meeting of the client at the business premises by designated
officer/credit department employee/independent assessing
officer appointed by HFL depends on the nature of the loan
structure and loan amount in line with the verification circular
issued by HFL from time to time.
 PAN no to be verified online from the government website
 Bank statements and ITR documents to be sampled by a fraud
controlling agency designated by HFL (Sampling criteria in line
with the verification circular issued by HFL from time to time).
Repayment  Repayment to be done from the CC/OD account if any
otherwise from the primary account of the business.
 Security Cheque equivalent to the loan amount should be
obtained upfront
 ECS/NACH registration to be done mandatorily or PDC
equivalent to the loan tenor to be obtained upfront.

Credit Policy- SME Loans

Collateral Type Acceptable Collateral/security types
Security  Ready residential property owned and occupied by the
borrower or partially / fully rented.
 Ready commercial property (Shop/offices/franchisee
outlets/industrial building) owned and occupied by the
borrower or partially/fully rented.
 Any other securities as acceptable as per the collateral
security circular issued by HFL from time to time.

Following Collateral/Security types are not allowed:-

 Agricultural land/wet land

 Vacant properties
 Properties owned by HUF
 Property in the name of Minor
 Land where demarcation is not available.
 Property located in restricted/negative area as notified in
the collateral policy circular issued by HFL.
 Property where religious/social sentiments are attached
(eg- Temple, church, orphanage etc)
 Property not having proper connection to the main road
through an acceptable transport means.
 Collaterals having residual age (as per valuation report)
less than 10 years.
Requirements  Collateral should have a clear and marketable title as certified
by a lawyer empanelled by HFL.
 Value of the collateral should be determined from the
valuation report submitted by an approved valuation agency
empanelled by HFL.
 Valuation and legal reports to be issued by the agency as per
the agreed format as per annexures of collateral policy circular
of HFL.
 Deviations to be taken for any deviations in the collateral as
guided by the HFL collateral policy circular issued from time to
time.
Documents to  Minimum 13 years link documents (In case if the lawyer insists
be collected for prior documents, copy/original of the same as required).
 Encumbrance certificate of the property for last 20 years,
same to be verified by the approved lawyer and need to be
documented in the legal report furnished to HFL.
 Ownership proof like property tax receipt, mutation certificate
etc in the name of the owner of the property.
 All the owners of the property need mandatorily to be in the
loan as main/co- borrowers.
LTV  Loan to Value (LTV) grid to be followed in line with the
collateral policy circular issued by HFL from time to time.
Income Net Profit  DBR (Debt Burden Ratio)to be greater than or equal to 1.25

Credit Policy- SME Loans

Eligibility Method times including the proposed EMI with HFL.
Methods  Existing obligations with less than 3 month’s residual tenor
may be ignored while calculating the eligibility
 Eligibility= (NP reported+ Depreciation+ Interest Expense+
Director/partner remuneration)
(Existing EMI+ Proposed EMI with HFL)

Additionally we need to check the following

Current Ratio= Minimum 1.20 times
Leverage Ratio= Maximum 3 times.
Interest coverage Ratio= 1.50 times
Gross Profit  Eligibility to be calculated as follows
Method Accepted Profit
(Existing EMI+ Propose EMI with HFL)

Accepted Profit= Actual Gross Profit or 15% of sales whichever is

lesser

Additionally we need to check the following

Current Ratio= Minimum 1.20 times
Leverage Ratio= Maximum 2 times.
Interest coverage Ratio= 1.50 times

(Gross margin method can be used only for those industries

specifically enlisted in the eligibility circular issued by HFL from time to
time. For few industries instead of flat rate of 15%, higher margin
bracket may be applied in line with the circular.)
Banking If the customer does not meet the eligibility under NP method or GP
Surrogate method, we may resort to banking surrogate program subject to the
following conditions.

 Borrower is into the same line of business for last 5 years.

 Total credit summation during last 12 months is minimum
200% of the reported sales during last financial year.
 No instance of inward cheque returns due to insufficient
balance.
 Leverage ratio is less than 2
 Average monthly credit balance is 3 times of the proposed
EMI with HFL.
 Nil delinquency as per CIBIL report
 Minimum CIBIL score of 700 for the key person in the business

Credit Policy- SME Loans