Credit Policy Group - A

Amrit Shrestha, Deepa Shrestha, Kohinoor Thapaliya, Rabi Shrestha, Netra Bahadur Khatri Sarita Mahajan, Simant Pandit, Suresh Bhandari

CPG on Synergy Development Bank

Group 1: Amrit Shrestha, Deepa Shrestha, Kohinoor Thapaliya, Rabi Shrestha, Sarita Mahajan, Simant Pandit, Suresh Bhandari

Brief Name, Commencement and Definitions

Brief Name, Commencement & Definitions

Policy being entitled as Synergy Development Bank Ltd. , Credit Policy Guideline 2070. Unless otherwise implied by the subject or context, in this policy: Policy NRB SDBL Credit Information Bureau

Brief Name, Commencement & Definitions

Board Management Act Financial Institution GoN

Scope and Objectives

To protect the interests of SDBLs stakeholders. Promotion of clean and renewable energy, infrastructure projects productive sectors and micro finance To amend, delete, or add to any part of this Policy in order to protect the interests of SDBL, to accommodate and adapt to the changing business environment

Scope and Objectives

This is an internal and strictly confidential document for the use of SDBLs Board, management, staff, statutory body, and any person so authorized by the Board.

Guiding Principles
Credit Risk Management will follow the principle of risk dispersion. High credit concentration in a single borrower group, industry type, sector, or geographical area will be avoided at all times. For diversification of risk, SDBL will, as a minimum requirement, follow prevailing NRB guidelines The management may however set its own, more stringent guidelines that it feels are necessary to protect the interests of SDBL.

Guiding Principles
SDBL will explore new business opportunities, apply new lending approaches and strive to develop credit products to meet the demand of dynamic market forces. All credit facilities will be for activities that make sound economic sense and are for legitimate purposes.

Role and Responsibility of the Board of Directors

The Board will ensure that the authority delegated to management is appropriate to the business interests of SDBL. The Board will ensure that SDBLs policy and procedures are implemented in compliance with prevailing NRB directives and applicable laws. The Board will periodically monitor and review the credit portfolio, pricing strategy, risk concentration, and profitability and compliance of the policy

Responsibility of SDBLs Management and Staff

Lines of operational responsibility within branches and units engaged in credit operations; Operating procedures for originating, reviewing, evaluating, and making decisions on credit applications; Guidelines for evaluating, documenting and perfecting collateral; Procedures for detecting, analyzing, working-out and recovery of problem credit facilities; and, Procedures for loan classification and provisioning in accordance with prevailing NRB directives.

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Customer Criteria
prohibitions specified in Section 7, credit facilities may be provided to Nepali individuals and any legally registered entity in Nepal having an explicit authority in its constitution to borrow. Credit facilities - to borrowers with good creditworthiness and a sound reputation

Customer Type
Customer types to which this policy applies are detailed below:
Corporate/Commercial Entities Governments Financial Institutions Personal Borrowers: Individuals Others

Types of Credit Facilities

A) Credit Facilities - Fund Based
i) Overdraft (OD) ii) Working Capital Loan (WCL) iii) Demand Loan (DL)

iv) Project Financing

v) Term Loan (TL)

Contd.
a) Medium or Long Term Loan (MTL or LTL) Fixed Assets Investments b) Short Term Loan (STL)

vi) Housing Loans (HL) vii) Hire Purchase Loans (HPL)/Clean Transport Loan (CTL)/Auto Loan (AL) viii) Bridge Financing (BF) ix) Bills Purchase or Negotiation x) Loan against Fixed Deposit Receipt (FDR) xi) Loan against Shares xii) Loan against Government Securities

Contd.
xiii) Personal Loan xiv) Education Loan

xv) Lease Financing

xvi) Real Estate Loan

xvii) Consortium Loan

xviii) Deprived Sector Loan

Credit Facilities Non Fund Based

SDBL shall provide following non-fund based credit facilities to its clients: i) Bank Guarantees (B/G) A B/G is a definite undertaking issued by SDBL on behalf of customer to pay a certain sum of money to named beneficiary upon its claim provided all the terms and conditions of the guarantee is met. a) Bid Bonds Issued for the purpose of bidding and reimbursement to be made upon request of the beneficiary subject to compliance of all the terms and conditions.

Credit Facilities Non Fund Based

b) Advance Payment Guarantee Issued for the purpose of obtaining advance payment and reimbursement to be made upon request of the beneficiary subject to compliance of all the terms and conditions. c) Performance Bonds Issued for the purpose of performing a job and reimbursement to be made upon request of the beneficiary subject to compliance of all the terms and conditions. ii) Letter of Credit SDBL may also provide Letter of Credit facilities to its clients if the same is permitted by NRB and the prevailing law.

Credit Risk Evaluation

Credit facilities will be supported by a comprehensive and accurate appraisal of the risk associated with the proposed facility.

Credit Risk Evaluation

Such an minimum: appraisal will include as a

Historical operation and financial analysis Projected operation and financial analysis Management history and competence Market analysis Process and technology analysis analysis of debt service capacity and, Assessment of measures to protect against loan loss.

Credit Risk Evaluation

The management may determine the scope of appraisal required in respect of the type of borrower and nature of facility being appraised. A credit proposal shall include the following information as a minimum;
Amount Purpose Security Pricing Repayment Conditions And Covenants

Risk Category
SDBL currently adopts a risk rating technique whereby all customers are judged on the basis of loan classification as prescribed by Nepal Rastra Bank Directives.

Risk Category
The risk perceives mechanism should be based on the following credit risk: Industry/ Market Risk Business/Management Risk Financial Risk Account Performance Risk

Risk Category
Risk Category (RC) 1: RC 1 has been mapped as PASS category as per NRB Guidelines. Hence all PASS or GOOD Customers/ Exposure qualify for RC 1.

Risk Category
Risk Category (RC) 1 A: RC 1 A to be assigned if the exposure is fully secured against liquid instruments ( Cash or near cash security) as Under: Fixed Deposit Receipt Lien over Deposit Accounts NRB/Government Bonds Unconditional Bank Guarantees issued by International Rated Bank

Risk Category
Risk Category (RC) 1 B: RC 1 B to be assigned in all other personal loans. However, the Relationship Officer may propose for better Category if the borrower is of a high net-worth and hold strong public / personal position.

Risk Category
Risk Category (RC) 2: RC 2 has been mapped as Sub-Standard Loan as per NRB Guidelines.All loans qualify as RC 2, if principal Repayment is in arrears greater than three months and less than six months.

Risk Category
Risk Category (RC) 3: RC 3 has been mapped as Doubtful Loan as per NRB Guidelines. All loans qualify as RC 3, if Principal Repayment in arrears is greater than six months and less than twelve months.

Risk Category
Risk Category (RC) 4: RC 4 has been mapped as Bad Loans as per NRB Guidelines. All loans qualify as RC 4, if Principal Repayment is in arrears is greater than twelve months.

Risk Category
Risk Category (RC) 4: However the loans would still be classified as RC 4 even if the principal repayment is in arrears is less than twelve months under following circumstances: If the security proven to be insufficient If the borrower becomes bankrupted If the borrower has absconded If the bills purchased / guarantees has remained unpaid greater than ninety days If the loans proven to be used for other purpose than intended If auction process has been initiated ( greater than six months) If the legal process has been filed against the borrower If the borrowers has been blacklisted as per Credit

Risk Category
Risk Category (RC) 5: RC 5 has been mapped as Restructured / ReScheduled Loan as per NRB Guidelines. All loans qualify as RC 5, if the loan has been Restructured / Rescheduled.

Security and Collateral

Security and Collateral

SDBL may accept as security one or more of the following assets and guarantees as security: Assets including land, buildings, vehicles, machinery and equipment, fixtures and fittings, raw materials, inventories, work in progress, finished goods in stock, including agricultural products and livestock;

Account receivables, advances/deposits, government subsidy receivable, payment assurance contracts including power purchase agreement,

Security and Collateral

SDBL may accept as security one or more of the following assets and guarantees as security: In case of project financing, assets of the project can be taken as security Financial paper including fixed deposit receipts, debentures, bonds, saving certificates, lien over deposits at SDBL, treasury bills, other bills, promoters and public shares of listed companies, import-export bills, letters of credit or any other financial paper acceptable to SDBL

Security and Collateral

SDBL may accept as security one or more of the following assets and guarantees as security: Guarantees from domestic or foreign banks and financial institutions (or as specified by NRB); and, corporate houses or business entities.

Group and personal guarantees under deprived sector lending;

Security and Collateral

SDBL may accept as security one or more of the following assets and guarantees as security: Gold, silver, ornaments and any other valuable items subject to prevailing NRB directives. Academic and professional certificates Any other security within NRB guidelines

Security and Collateral

The above types of security and collateral may be accepted in SDBLs favors in one or more of the following forms as appropriate within the NRB guidelines to applicable legal provisions:
mortgage Assignment Charge over Subordination Guarantee Pledge Lien Hypothecation Undertakings Underwriting.

Procedures and Documentation

Procedures and Documentation

The management will formulate detailed procedures and documentation for the application, appraisal, approval, disbursement and recovery of credit facilities. All such procedures and documentation will be specified in SDBLs Credit Manual/Circular/Financing Guidelines. CEO is authorized to approve the credit manual formats and procedure required for credit related matters including Credit Product Papers.

Loan Application

Credit flow process

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