Short Term Loans

ALLAHABAD BANK
Credit Policy & Risk Management Department

Head Office: 2, Netaji Subhas Road, Kolkata 700001
Instruction Circular No: 9164 /CP RMD/2006-2007/ 03
Date: 12.05.2006
To All the Offices & Branches

Banks Policy on Short Term Loan
In a competitive environment, the bank has been launching various credit products in order
to meet the diverse needs of various types of clients. With the same in view, it has been felt
necessary that there should be a well defined guidelines to meet the short term funds requirement
of existing as well new borrowers, having good track record of profitability and repayment.
Accordingly, the Board of Directors of the Bank in their meeting held on 24.04.2006 has
approved policy regarding sanction of Short Term Loans.
Broad Objectives of the Policy:
To deploy the short term /surplus funds of the Bank to good corporate and other top rated
clients at rates which are better than deploying in call market.
To meet genuine & diverse needs of customers to enable them to meet market competition.
To tap reputed corporates who are not our clients & strengthen our ties with existing good
clients by meeting their new requirements like R&D expenditure etc
Coverage of the new Guidelines:
The policy is meant for meeting the short term funds requirement of existing as well new
borrowers, having good track record of profitability and repayment, like working capital
requirement to execute large work orders within short time ,to meet temporary working capital
shortage and development /expansion of new markets/products and short fall in margin
requirements etc,
Detailed Guidelines on Short Term Loan Policy are as per Annexure I, for perusal and guidance
by the functionaries at all levels.
(S. Raychaudhuri)
General Manager
ANNEXURE I
Banks Short Term Loan Policy- Detailed Guidelines
1. Facility:
Short Term Loan for a period up to 6 (six) months.
2. Eligibility:
2.1. Existing Customers:
i)
PSUs & Other Listed Companies which are earning net profit.
ii)
The Rating of the accounts should be within AB-1 to AB-4.
iii)
The borrowers having sound past track record & performing asset.
2.2 New Customers:

i)
PSUs with the track record of net profit for last 3 years
ii)
iii)
Navratna Companies
Requests from other non-customers (Listed Public Limited companies only) having
tangible net-worth not less than Rs.50.00 Cr as per last audited Balance-sheet can also be
considered on a selective basis with rating of account AB-1 to AB-4.
The targeted company should have sound past track record & performing asset with their
existing banker.
iv)
3. Purpose:
The loans can be considered for any genuine commercial purpose in line with the regular
business activity of the customer. These would include term loans for:
To meet their working capital requirement
Shoring up the net working capital (NWC)
Ongoing expenditure such as replacement of parts of machineries, etc.
Repayment of high cost debt
Research and Development expenditure
Implementing Voluntary Retirement Scheme in the company
Acquisition of trade marks/ patents/ brand equity (in exceptional cases only)
Any other commercial purpose other than speculative activities.
4. Quantum of Finance:
i)
Minimum loan which may be sanctioned will be Rs. 5.00 Crores.
ii)
Loan to the extent of 50% of Working Capital enjoying from our bank/other banks, or
limit from Consortium may be considered.
5. Margin: Nil
6. Discretionary Authority:
The Chairman & Managing Director, The Executive Director and the General Manager
(Credit) at Head Office are authorized to sanction the loan proposals under the scheme within
the existing per borrower delegated authority for secured term loan. The existing per
borrower delegated authority is as underMCBOD
The C& MD
The ED
GM(Credit),HO
Full
Rs 30 Crores
Rs 22.50 Crores
Rs 5.00 Crores
7. Pricing including Service Charge:

i)
Minimum PLR-2% (Floating)
ii)
The Chairman & Managing Director, and in his absence the Executive Director may
reduce the rate of interest up to the cost of fund on business considerations.
iii)
No processing fee to be realized. However actual expenses for the documentation will
be borne by the borrower.
8. Repayment :
i)
Repayment period will not exceed 6 months
ii)
Mode of repayment may be fixed as equal monthly installments or bullet payment or

balloon repayment of interest and principal. However in case of bullet repayment,
monthly interest to be serviced.
9. Security:
i)
First charge/ parri-passu charge on assets acceptable to the Bank.
ii)
In case where bank intends to take exposure on high rated / good companies (new /
existing customers), where charge on assets is not feasible/available an unsecured loan
may also be considered on case to case basis. However, Corporate Guarantee, promoter
directors guarantee etc be explored in such cases.
iii)
Post dated cheques for interest as well as principal repayment will be obtained.
10 Assessment & Financial Benchmark:

The assessment to be done as per policy applicable to Working capital / term loans, however
the assessment should be supported with the cash flow statement.
The acceptable financial ratios as per the latest audited financial statements will be as under:
a. Current Ratio: Normally Minimum 1.33, and in case of finance for improving the
NWC 1.00
b. DSCR: Minimum 1.30:1
11. Monitoring:
As per the existing guidelines on monitoring of loan assets. However, as the purpose of the
loan covers large number of activities, stricter monitoring of end use of funds should have to
be ensured to guard against diversion of funds for speculative unauthorized purposes.
12. Other Guidelines & deviation:

i. All Other Guidelines as per Banks Lending Policy and other operational instructions
issued from time to time shall be followed.
ii. The policy requires a degree of flexibility to the decision-makers to cope with the
competitive business environment. The deviation / exemption from the norms / bench-mark
levels laid down in the Policy may be permitted by Chairman & Managing Director/the
Executive Director (in absence of CMD) only in genuine and exceptional cases, on account
of business exigencies on case to case basis.
Branches/ offices are advised to be guided with the above guidelines.

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ALLAHABAD BANK

Credit Policy & Risk Management Department

To All the Offices & Branches

The Rating of the accounts should be within AB-1 to AB-4.

2.2 New Customers:

To meet their working capital requirement

Shoring up the net working capital (NWC)

Ongoing expenditure such as replacement of parts of machineries, etc.

Repayment of high cost debt

Research and Development expenditure

Implementing Voluntary Retirement Scheme in the company

Any other commercial purpose other than speculative activities.

Minimum loan which may be sanctioned will be Rs. 5.00 Crores.

7. Pricing including Service Charge:

Minimum PLR-2% (Floating)

Repayment period will not exceed 6 months

Mode of repayment may be fixed as equal monthly installments or bullet payment or

First charge/ parri-passu charge on assets acceptable to the Bank.

10 Assessment & Financial Benchmark:

12. Other Guidelines & deviation:

Branches/ offices are advised to be guided with the above guidelines.

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