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Lesson ID 101039
Version 01/28042020

CREDIT MONITORING POLICY–A GLIMPSE

1. INTRODUCTION

Credit Monitoring function is considered to be backbone of the modern-day banking and placed
as an inseparable part of banking activity. The efforts of the Bank in expanding credit can be
sustained only when the health of the credit portfolio is maintained in good condition.
Continuous monitoring of the performance and constant evaluation of associated risks during
the post sanction period goes a long way in maintaining the quality of assets of the Bank.

2. OBJECTIVES OF THE POLICY

a. Monitor the health of loans and advances on an on-going basis.

b. Maintenance of Asset Quality by taking corrective action to preserve asset quality.
c. Maintain the asset quality and meeting the asset management challenges.
d. Compliance of delegation of powers and adherence to policy guidelines with respect to
scrutiny of sanctions.
e. Ensure that Assets in the Standard Category do not slip to SMA/NPA.
f. Identify weak/stressed accounts and take corrective action to protect the quality of
asset
g. To mitigate and minimize the risks associated with the lending by fine tuning the
systems and controls to ensure effective and meaningful monitoring.

3. ROLES AND RESPONSIBILITIES

a. Corporate Office: Credit Monitoring Department at Corporate Office shall be primarily

responsible for framing of Policies relating to Credit Monitoring. Additionally, Scrutiny/
Review of sanctions of FGMO/of various sanctioning authorities, Review of NFB
portfolio, follow up of SMA accounts and Maintenance/Reporting of CRILC platform are
among the main functions of the department.

b. FGM Office: Field General Managers have the overall responsibility of monitoring the
health of the credit portfolio in Zones/branches within their jurisdiction apart from
monitoring / scrutinize the sanctions made by ZLCC.

c. Zonal Office: Zonal Managers have the overall responsibility of monitoring the health of
the credit portfolio in their branches also for monitoring of high value advances through
Monthly CRM reports. Zonal Risk officer and/or designated Credit Monitoring Officer
shall be responsible for monitoring risks associated with credit portfolio of the Zone.

d. Branch: At branch level, the Branch Manager and the Officer in charge of Credit is
responsible for all Credit Monitoring related activities.

4. MONITORING TOOLS

To ensure proper credit monitoring at different levels of administration, several tools can be
made use of for taking remedial action. Some of the important credit monitoring tools are:
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a. At Branch Level:
i. Unit/Factory Visit Reports
ii. Stock Statements/Book Debts Statements
iii. Reports on Concurrent audit, Credit Audit, Risk Based Internal Audit, Statutory
Audit, RBI Inspection, Stock Audit, Legal Audit etc.
iv. Quarterly Information System (QIS).
v. Monthly Credit Relationship Manager Report (CRM REPORTS)
vi. Scrutiny of operations in the account
vii. Sales Tax Return / Challan, Excise Duty Challans / Production Report / Account
Operation / Balance Sheet / Quarterly Progress Report etc.
viii. Audited/Provisional Financial Statements
ix. Annual accounts filed with Registrar of Companies.
x. Adverse newspaper, market reports.
xi. Exchange of information/reports with other banks in consortium meetings.
xii. External / Internal Credit Rating.
xiii. Sharp fall in the share price of the Company

b. At ZO / FGMO / Corporate Office (CO) Level:

i. Due diligence certificate and Advocate’s Report on Documentation.
ii. Unit visit report of Branch/ZO Officials
iii. Monthly Credit Relationship Manager Report (CRM REPORT).
iv. Frequent devolvement of LCs/invoking of BGs.
v. Consortium Meeting Minutes/Exchange of information with other Banks
vi. Visit report by Officials from Controlling Offices to Branches
vii. Credit Audit Report/Internal Inspection Reports/Special Audit Report/RBI
Inspection Report/ Statutory Audit Reports/Stock Audit
viii. External/Internal Credit Rating
ix. Audited/Provisional Financial Statements
x. Information from Market/Media.
xi. Call Centre.

5. STAGES OF MONITORING

The Monitoring of loan assets is a continuous process and is essential at each stage of the life
cycle of any credit asset. Various Monitoring tools at different stages are:

A. Funded Facilities
a. Pre-disbursement:
i. All the pre-release terms and conditions viz Mortgage formalities, CERSAI, ROC
charge etc stipulated in sanction letter should invariably be complied with and
ZO should monitor each sanction and ensure that Branch has submitted all
annexures like NBG clearance (New Business Group) if required, due diligence
report, legal opinion, engineer valuation, Rating, Visit report (unit and security)
etc., in respect of ZO / CO sanctions.
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ii. Documentation: Should be completed before disbursement and legal audit may
be obtained wherever required and Concurrent Auditor has to verify the
completion of documentation before disbursement.

iii. Pre-Release Audit / DeVA*:

1. The system of “Pre - Release Audit” is in place for all advances (fresh or
enhancement) of Rs.50 lakh and above. Wherever concurrent auditor
certifies compliance of terms and conditions in the prerelease stage,
separate pre –release audit need not be conducted by other officers.
Branches are not permitted to make disbursement of the loan without
approval from Zonal Office on the pre-release audit report submitted.
2. All the loan documents (including mortgage) should be uploaded in
“DeVA” (Document Electronic Verification and Archival) and be approved
before release of any fresh/ enhanced Credit Facilities in any loan
account.
a. For all New Loans - Loan Documents to be uploaded in DevA
and after obtaining DeVA approval certificate, loan should be
disbursed.
b. For Review/Renewal:
i. In case of enhancement of limit fresh documents has to
be uploaded in DevA and after obtaining DeVA approval
certificate, loan should be disbursed.
ii. Where there is no change in limit DeVA approval will still
be obtained by uploading renewal application, sanction
letter, acknowledgement of sanction letter, fresh AOD and
limit Pronote
iii. In both the above cases DeVA approval certificate relating
to the previous documents should be uploaded.
3. For Adhoc limit: Fresh Loan documents along with DeVA approval
certificate relating to the previous documents should be uploaded

*Pre-release audit would be followed by all existing Indian Bank branches and DeVA
approval by all eALB branches till further instructions in this regard

iv. CRILC: RBI has set up the CRILC to collect, store and disseminate data on all
borrowers' credit exposures including Special Mention Accounts (SMA 0, 1 & 2)
having aggregate fund-based and non-fund based exposure of Rs.50 million
and above. Information about Non-Cooperative Borrowers, Wilful defaulters,
RFA/Fraud accounts, written-of accounts and current accounts is also available
at CRILC portal. The Bank shall submit CRILC returns as per RBI guidelines
periodically

v. Legal Entity Identifier (‘LEI’) code for large corporate borrowers: LEI is a
20-digit unique code to identify parties to financial transactions worldwide. It is
mandatory on the part of all borrowal accounts having limits of Rs.5 crores and
above, to obtain LEI code.
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b. Disbursement and End-Use Verification:

Monitoring during disbursement is very important, especially; to ensure that the

borrower has not diverted and/or siphoned off the loan proceeds and the amount has
been used for the purpose for which it was extended.

i. Term loan
1. Original invoices should be obtained in respect of machinery / vehicles /
equipment / builders etc and same amount mentioned should be
checked.
2. Term Loan amount shall be made direct to the suppliers as far as
possible and shall not be made to current/cash credit accounts unless
specifically approved by the sanctioning authority.
3. The disbursement of the loan amount should be made after collecting
the margin money from the borrower
4. Where the loan is to be disbursed in instalments, it should be done only
after satisfying the progress made and that the borrower has complied
with the prescribed conditions.

ii. Working Capital

1. Disbursement should not be in cash or transfer to accounts of sister
concern or to unrelated Accounts or to borrower’s current / savings
account, without proper justification and shall be as per terms of
sanction.
2. Adequate insurance for the stocks with Bank Clause shall be ensured.
3. Availability of Drawing Power subject to verification of stock/Book debt
statement shall be ensured.
4. In case of new projects, releases are to be made in proportion to
achievement of sales and build-up of inventory/debtors.
5. In the case of working capital advances, particularly to new borrowers,
disbursement should not be made in one lump sum and drawings should
be regulated on the basis of level of production/business activity as also
scale of operation.
6. Utilization of large value working capital limits shall be tracked,
particularly in the corporate and export segments, to identify instances of
unusual increases in credit growth not in consonance with the regular
requirements of the borrowers.

c. Post disbursement

Post disbursement monitoring is very important to identify early warning signals and to
take remedial measures wherever warranted to monitor asset quality.

i. Pending Charge Creation if permitted post disbursement

ii. Unit Visit to be conducted regularly and recorded properly

Exposures of 2.00 Crore & above are classified into 4 categories namely A, B, C
& D. As per this category different level of Executives/ Officers at Zonal level are
required to conduct unit visits, details of which are furnished below:

Category Exposure ZO executive / Periodicity of

official to conduct the unit visits
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the unit visit

A Rs.25 Crore & above Field General Yearly
Manager
B Rs.10 Crore to 25 Deputy General Yearly
Crore Manager / Zonal
Manager
C Rs.5 Crore to 10 AGM/ Deputy Zonal Yearly
Crore Manager
D Rs.2 crore to 5 Crore Chief Manager at Yearly
Zonal
Office (Including
Branch sanctions)

iii. Credit Audit: The accounts covered under Loan Review Mechanism (LRM) and
Credit Audit put together will not be less than 50% of the standard non-food
credit outstanding as on the previous year-end.
1. Recommends independently corrective action to improve credit quality,
credit administration and credit skills of staff, etc. for following accounts

Category Limit
Standard borrowal A/Cs with rating of IB-BBB Rs.5 Crore and above
(Obligor) and above
Standard borrowal A/Cs with rating below IB- Rs.1 Crore and above
BBB (Obligor)

2. Credit audit to be commenced within 3 months from the date of rating,

below BBB (Obligor), for all accounts with exposures of Rs 1.00 Cr and
above.

iv. Verification of Stock/Book Debt and Submission of stock statements

1. Borrowers should be advised that penal interest will be charged when

the stock statement for any month is not submitted before the 7th of the
succeeding month till the date of submission. However, the delay in
submission shall not be for a period of more than 7 days.
2. Non-submission of statements or habitually delayed submission of
statements by any borrower should be dealt with by the Branch
Managers and take suitable action either by cancellation of the facility or
not renewing the same, as proper and up-to-date maintenance of books
of accounts and stock register is the most essential requirement in these
advances.

v. Stock Audit: Stock and book-debt audit should be conducted on yearly basis*
(the gap between two such audits should not exceed 15 months) for all
advances except NBFC (sanctioned against stocks/books debts as primary
security) having aggregate fund based and non-fund based exposure equal to or
above the threshold limit as given below:

Sl. No. Type of customer Threshold Time period

limit(FB+NFB)
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for Stock
Audit in cr
1 Individual / Partnership 1.00
Firm

2 Private Limited 2.00

Companies

3 Public Limited 5.00

Companies
4 Public Sector Exempted
Undertakings Stock and book-debt
audit should be
5 Consortium Advances As mentioned conducted on yearly
- As Leader above in Sl. no basis (the gap
1 to 4 between two such
audits should not
6 Consortium Advances As per policy
exceed 15 months).
– As Member of leader

7 Multiple Banking As per the

policy of the
Bank having
the largest
Exposure

8 Contractors (first class 5.00 (provided

contractors who the exposure
are contractors for is covered with
highways, 100%
power collateral
projects and other security.)
infrastructure projects)

Working
9 For NPA Account capital limit of
Rs.1.00 Crore
and above
irrespective of
constitution

If the obligor rating of the borrower under RAM is “IB AA” & above and the
rating is less than 12 months old, the stock and book-debt audit shall be
conducted once in 2 years (the gap between two such audits should not exceed
27 months).

vi. Legal Audit:

1. Legal audit to be done for accounts with exposure of Rs.100 Lakh and
above where mortgage of property is involved.
2. In case of consortium accounts, where our Bank is the lead Bank and
the mortgage is created with our Bank, legal audit is to be carried out by
our bank and in case we are members, carrying out such legal audit will
be guided by the decision of the Consortium
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3. In case of Multiple Banking Arrangement, legal audit is to be carried out

by our bank, if the mortgage is created with our Bank
4. Whenever legal audit is not completed within 3 months, the issue has to
be escalated to the next higher-level authority
5. Periodical legal audit to be done within three years from the last legal
audit in case of all credit exposure of Rs. 5.00 Crore and above

vii. Review / Renewal of borrowal accounts

1. All the borrowal accounts sanctioned under CO Powers, as well as other
discretionary powers, should be reviewed (in case of term loans) /
renewed once in a year.
2. For CO sanctioned accounts, branch should send the proposal at least
three months in advance before the due date to ensure sanction in time.
3. Branch to endeavour achievement of 100% review / renewal of borrowal
accounts and maintenance of such standards at all points of time
4. Wherever any warning signals are observed, suitable steps may be
initiated for restructuring the account in genuine cases as per laid down
norms /considering exit option or recovery steps may be initiated without
delay.
5. Analysis of the QIS/MSOD returns, quarterly / half yearly results, scrutiny
of Audit Report, Financial Statements shall be done as soon as they are
received from the borrower. These statements shall be verified to
compare the projections with the actual and the reasons for any unusual
variation shall be ascertained and explained with proper justification.

viii. Monthly Credit Relationship Manager Report (CRM Reports)

For monitoring of high value advances of Rs. 1.00 Crore and above, the Monthly
Credit Relationship Manager Report (CRM REPORTS) is to be submitted
through the software made available in EWS portal.

B. Non-Funded Facilities

i. The due date of the LC / BG / Bill plays a major role in NFB monitoring.
Monitoring the NFB ahead of the due date will give the bank an update on the
position of the contingent liability.
ii. In case of default, alternate measures shall be put in place by recovering the
amount from the customer or in genuine cases, the tenor can be extended.

6. LOAN REVIEW MECHANISM

i. LRM is an independent assessment, which evaluates the effectiveness of the

loan administration, maintains the integrity of the credit rating process, and
assesses the loan loss provisions, portfolio quality etc.
ii. Coverage of Advances for Fresh / Enhancement proposals under LRM:
Sanctioning Exposure Reviewing Frequency
authority authority
FGMCC / Fresh/Enhanced LRMC at CO Reviews of high
ZLCC/BM sanctioned Above value loans
Rs.2cr should be
ZLCC/BM Fresh/Enhanced ZLRMC at undertaken
sanctioned up to respective Zonal usually within
Rs.2cr Offices three months of
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sanction/renewal,
FGMCC/ZLCC Existing borrowal LRMC at CO or more
accounts frequently when
sanctioned limit factors indicate a
Rs.2cr and above potential for
ZLCC Existing borrowal ZLRMC at deterioration in
ac sanctioned limit respective Zonal the credit quality
below Rs.2cr Offices

BM Rs.0.50cr and ZLRMC at

above respective Zonal
Offices
iii. All Review/Renewal proposals with limits of Rs.5 Crore and above shall be put
under LRM (within 6 months from date of sanction).
iv. Proposals sanctioned under IBHL / IBVL / Educational Loans are exempted
from LRM.
v. Coverage under LRM shall not be less than 40% of the standard domestic credit
outstanding as on the previous year end, respectively. in case the standard
accounts with a limit of Rs.50 Lakh and above do not constitute about 40% of
the exposure under Zonal Office powers, exposure excluding Jewel Loan and
Loan against deposits portfolio shall be considered and LRM to cover 40% of
the remaining portfolios.

7. SCRUTINY OF SANCTIONS

i. The process of scrutiny of sanctions made by lower authority beyond a

threshold limit by next higher authority is called “Scrutiny of Sanction”.
ii. Scrutiny of sanction is to ensure that the sanction is as per Credit Policy/Credit
Risk Policy guidelines, is within the delegated powers of the sanctioning
authority and conforms to other extant norms in force.

Sanctioning Authority Scrutinizing Time period

Authority
Branch Sanction of above Rs.10 ZLSCC The process notes,
Lakhs sanction letter
along with
ZLSCC sanctions ZLCC applicable loan
review formats
Sanctions of ZLCC(AGM/DGM) FGMCC shall be submitted
to the reviewing
Sanctions of FGMCC CO / Credit authority
Monitoring Dept immediately on
sanction of the
credit facilities and
in any case, not
later than 7 days
from succeeding
month.
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8. REFERENCES

Sl. Circular / Resources Date Description

No.
Main Sub
1 ADV- CONV.29 31.03.2020 Credit Monitoring Policy 2020-21
219/2019-20