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MANAPPURAM ASSET FINANCE LTD.
LOAN POLICY
As amended up to 20-07-2022
A)
INTRODUCTION
The Loan Policy shall act as a guiding post for the top management of the Company in conducting the
business within acceptable risk tolerances and thus ensure both long term profitability and stability in
lending operations.
B)
OBJECTIVES
The main objectives of the Lending Policy are to:
i)
Ensure a healthy balance between loan levels, profits and quality of assets.
ii)
Comply with the regulatory requirements / directives such as Capital Adequacy, LTV, Interest
rates etc.
iii)
Lay down controls for assumption and monitoring of large exposures.
iv)
Develop and inculcate ‘internal values’ in the business of lending.
v)
Facilitate sustained growth without deterioration in the asset quality.
vi)
Lay down proper system & procedures, appraisal standards at various levels in the organization
with sturdy internal controls.
vii)
Adequately protect the collaterals pledged from any possible loss.
viii)
Detail risk management practices and internal audit procedures into the Lending Policy
ix)
Enable the Company to successfully and consistently cope with competition.
x)
Improve the capabilities and credit skills of the employees and officers connected with loan
portfolio at various levels.
xi)
Meet with the expectations on corporate social responsibility and actively participate in ‘financial
inclusion’ programme.
C)
GOLD LOAN
i)
NATURE, TYPE AND TENOR OF LOANS
a)
The Company will normally accept only Household Used Jewellery as security since they are
presumed to carry the invaluable ‘emotional attachment’ of the owner. New gold ornaments may
also be selectively accepted, subject to laid down controls, provided there are no other adverse
indications.
b)
Loan schemes shall be devised in conformity with the Loan Policy of the Company and also the
regulatory directives of RBI as applicable. Loan schemes and terms & conditions thereof shall
keep in view the NPA / Income recognition classification norms laid down by the RBI.
c)
Suitable norms, encompassing inherent / typical risk factors (e.g. restricted items, prohibited
items, large number of similar items, large weight items etc.) should be devised, approved
internally and periodically reviewed. Loans against coins, biscuits, bars etc may not be granted in
compliance with RBI directives. Suitable controls, both system (IT) & non-system based, should
be put in place and compliance monitored.
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d)
The tenure of the loans shall be decided by market practices and regulatory directives, as
applicable.
e)
Loans against pledge of gold ornaments should be sanctioned immediately against acceptance of
the gold ornaments as security. Accordingly, all loans shall be sanctioned and disbursed within a
reasonable time the same day keeping in view the due diligence requirements , number / nature
of items, quantum of loan etc. and also customer satisfaction benchmarks.
f)
Interest rate and other charges on loans shall comply with the Interest Rate Policy and regulatory
directives as may be applicable.
g)
Company may provide facility for ‘‘online gold loan” once the gold ornaments through
Company website or mobile app, whereby customers can avail service 24 hours a day.
ii)
RESTRICTION, PROHIBITION ON LENDING TO CERTAIN CATEGORIES OF CUSTOMERS /
PERSONS
a)
Loans to categories of customers like goldsmiths, jewellers etc. shall be prohibited.
b)
Loans to staff members shall be restricted to Rs 200,000 per employee. Such loans shall be on
the same terms and conditions applicable to the public. However, changes, if any, in the limit or
terms and conditions may be approved by the Managing Director on CEO / CFO.
c)
Loans to borrowers having a history of pledging spurious / low quality ornaments or stolen gold
ornaments or those who have earlier deliberately put the company to material loss of any kind
should not be entertained. Suitable limits defining ‘material’ loss should be defined internally
and got approved by the Managing Director on the recommendations of CEO/CFO/Risk Head.
Procedures for immediate “freezing / blocking” such Customer IDs must be implemented. The
Company shall maintain an updated list of such ‘blacklisted’ / ‘caution’ customers.
iii)
LOAN APPLICATION FORMS, LOAN SANCTION LETTER
a)
Loans shall be disbursed only against fully completed and properly signed loan application form
which will be preprinted in the relevant local language. Separate loan application form must be obtained
for each disbursal. Loan application forms and documentation requirements should comply with the Fair
Practice Code and KYC Policy of the Company.
b)
The various loan schemes (loan per gram, interest rate structure, penal interest, compounding if any,
other charges etc.) should be explained to the prospective borrower and an appropriate scheme offered
based on the borrower’s needs / preferences.
c)
Immediately upon sanction the loan sanction letter (pawn ticket) in duplicate should be given to the
borrower for acceptance. The pawn ticket, which serves as a receipt for the gold ornaments delivered by
the borrower, will also operate as a loan sanction letter incorporating the terms & conditions of the loan.
The acknowledged copy of the pawn ticket should be carefully retained along with the loan application
form for future verification and reference.
iv)
KNOW YOUR CUSTOMER (KYC), DUE DILIGENCE
a)
In compliance with RBI directives all customers availing loan facility from the Company shall be
required to submit suitable and acceptable evidences of Identity and Address commonly understood as
KYC documents. Documents in support of KYC compliance need be normally submitted at the time of
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the first loan when the “Customer ID” (master) is created in the system. Loans should be sanctioned
only after full compliance with the KYC policy as laid down by the Company.
b)
Clear and visible photograph of the borrower using the web camera should be captured and stored in
the system.
c)
The system of capturing and confirming the mobile phone numbers across the counters should also be
extended to cover maximum number of customers.
d)
Adequate due diligence shall be ensured, to the extent feasible and desirable, before the loan is
sanctioned. There should be no prima facie circumstances to indicate that the prospective borrower’s
title to the gold ornaments could be defective. The loan application form must also contain an
undertaking of the borrower certifying his/her undisputed ownership of the gold ornaments.
e)
A valid pledge and charge over the security shall be created only after ensuring the ownership of the
gold, in line with the relevant regulatory norms. Towards this requirement, suitable clauses may be
added in the loan documents and the same shall be mandatorily got signed by the Customer before
disbursement of loans. The title of the gold ornaments will be satisfied with before the gold is accepted
as security. However, in the case of gold ornaments it may not be easy to confirm “ownership” in a full
proof manner, as compared to say lending against property, vehicles etc. To tide over this issue and also
to be in line with the relevant provisions as regards methods of establishment of ownership of gold ,
measures in the nature of obtaining undertaking of ownership in the loan application form, collection of
other relevant documents regarding the ownership namely bills, receipts etc, and /or authorization to
effect pledge on behalf of the rightful owner, ensuring proper KYC procedure, meaningful interaction
with loan applicants and other prima facie checks will be made before the gold is accepted as security.
However, in the process of interaction about personal details it will be ensured that no offense or
embarrassment is caused to the loan applicant.
f)
Further in case if the gold ornaments pledged by the borrower at the time or cumulative loan
outstanding is more than 20 grams, over and above the exercise of above mentioned ownership
verification procedure, BH/ABH shall provide an ownership verification report regarding the pledge
created.
v)
APPRAISAL OF SECURITY (GOLD), DELEGATION OF FINANCIAL POWERS
a)
Gold ornaments shall be accepted as security for loans only after proper appraisal by the staff before
the loans are sanctioned. Gold ornaments of purity below 70% shall not be accepted.
b)
The Company already has laid down the appraisal techniques to be used by the operating staff such
as nitric acid test, color, sound / smell test etc. observance of which should be ensured and monitored.
Colored gold ornaments may not be accepted. Proper facilities for appraisal of gold must be provided
at the branches.
c)
Additionally, the existing risk graded system, related to the amount involved, for pre-disbursement
verification of gold ornaments shall be continued – the guiding principle being that for larger loans
more senior / experienced employee(s) should reconfirm the appraisal done by a junior / less
experienced employee. Accordingly, for all loans atleast 2 employees at the branch should
independently assess the purity as mentioned in the table below. The limits must be reviewed
periodically and modifications, if required, put up for approval of the Managing Director duly
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recommended by the CEO and CFO. Staffing structure and the accounting process at branches should
facilitate implementation of controls.
d)
A system will be in place for separation of duties of staffs regarding mobilization, execution and
approval of loans and preventing frauds by staffs themselves or in collusion with the customers.
vi)
LOAN TO VALUE (LTV) OR LOAN PER GRAM
a) The LTV should be in compliance with RBI directives in force from time to time. The maximum
LTV will be 75% of preceding 30 days’ average of the closing price of 22 carat gold as per the rate as
quoted by India Bullion and Jewellers Association Ltd. (IBJA) .
b) Flexibility in the fixation of differential LTV for specific customer categories, branches, areas /
locations, periods etc. may be provided within the overall lending policy. The Head of the Marketing
Department shall prepare a reasoned proposal, obtain the recommendations CEO / CFO and put up to the
Managing Director for approval.
c) The total eligible amount of the loan shall be calculated by the system (IT) based on the weight of the
gold ornaments net of stone weight and subject to deductions for lower purity, wastages as applicable.
Deductions applicable on account of purity, wastage, local variations etc. should be got periodically
approved by the Managing Director on the recommendations of CEO/CFO.
c) Considering the risk gradation arising from differential rates, as a general rule, LTV and interest rate
on the loan should be positively correlated i.e. a lower LTV loan shall get the benefit a lower rate of
interest. However, exceptional deviations could be made to accommodate various contingencies such as
competition, local issues, special / temporary offers etc. Such deviations shall be approved by the
Managing Director based on the recommendations of the CEO / CFO.
vii)
HIGH / LARGE VALUE LOANS, MAXIMUM EXPOSURE PER BORROWER
Undue reliance on high value loans to accelerate growth should be discouraged considering the inherent
risks. Emphasis must be placed on acquisition of small / medium value loans considering the benefits
arising from broad basing the customers.
a)
High value loans to single customer (or closely connected group of individuals) should be controlled
and monitored as such customers may fall under ‘high risk’ category. Limits up to which branches may
sanction loans to a single borrower (including closely connected group of individuals) should be defined
and reviewed periodically.
Such limits shall be got approved by the Managing Director on the recommendations of the
CEO/CFO/Risk Head. Maximum lending limit may be linked to risk perception in different regions /
states. Any exposure beyond the limit should be subject to sanction at Head Office by an empowered
authority (para viii below).
b)
A structured credit check /profiling format should be used (form MS143) for recommending limits
higher than the maximum permissible at the branch level. Further, in all cases where the loan exposure
to a borrower touches Rs 5 lakh address of the borrower must be verified. Due care in large value
accounts would also be necessitated by the RBI provisions relating to Anti Money Laundering / Finance
for Terrorist Activities. Credit check / profiling / address verification should be done in a discreet
manner without offending the borrower.
c)
Within the prudential limit mentioned in (d) above it shall be further ensured that the exposure taken
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on a single borrower does not exceed Rs 1.5 cr (Rupees one crore fifty lakh). A single borrower shall
include a family unit, a closely associated group such as employer-employee etc.
d)
Loans to large value customers (say above Rs 10 lakh per customer) must not exceed 15% of
the total loan book.
viii)
HIGH INDIVIDUAL EXPOSURES - DELEGATION OF FINANCIAL / SANCTION
POWERS.
Detailed instructions for appraisal of enhanced limits along with responsibility areas, documents
required, procedures etc. should be defined and put up to the Managing Director for sanction by Risk
Management Department duly recommended by CEO. The above mentioned table of delegation of
powers may be reviewed periodically and approved by the Managing Director on the recommendations
of CEO / CFO/ Risk Head.
ix)
CUSTODY OF GOLD, STORAGE ARRANGEMENTS, SECURITY
a)
As an internal control mechanism Gold ornaments and Cash shall be in the joint custody of the 2
senior most officials/ employees in the branch, normally designated as Branch Head / Manager and
Assistant Branch Head. Suitable control systems should be in place so as to ensure that the same
official / employee does not get custody of the 2 different keys even if at different points of time
during posting at the branch. The duplicate keys shall be retained either in the Head Office or as per
suitable arrangements made by Head Office for safe custody thereof.
b)
A proper and systematic procedure should be laid down for handing over charge from one official to
another arising from transfer, leave, resignation etc. so that accountability can be clearly fixed where
required. No Branch Head should be normally relieved of charge unless the gold packets are subject to
minimum verification (consisting of confirming intactness of the packing, affixation of security sticker,
packet count and tare weight) by the reliever.
c)
Overnight storage of pledged gold ornaments and cash shall be in burglar proof safes (non-strong
room branches) or in steel almirahs / lockers (in strong room branches) with secure locking facility
complying with high safety standards. Interim storage during transaction time at the counters should be
kept to the bare minimum by quickly transferring the gold ornaments into the safes / strong room.
d)
Security arrangements (both security guards and electronic devices) should be in tune with risk
perception based on the location of the branch, working hours, business levels etc. Internal guidelines
which are already in place must be periodically reviewed and improved as required. The use of
technology through IP Based Cameras and IP Based Intruder Alarm System preferably with centralized
monitoring capability and having a proper escalation mechanism should be adopted for greater
effectiveness and to reduce costs.
e)
All gold ornaments and cash whether in the safe room, at the counters or in transit must be adequately
insured against various risks such as burglary, fidelity, transit etc. with a reputed insurance company.
Keeping in view the Company’s liability to compensate the borrower for any unforeseen loss the gold
ornaments must be insured at ‘replacement value’ through adequate inclusion of ‘making’ charges along
with the market value of the gold in the cover policy.
x)
Charges
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In case of gold loans reasonable charges on various transaction may be fixed from time to time with the
approval Managing Director .
D)
Loan Against Property, Business Loans, Hypothecation Loans (HP Loans) and Micro-Finance
Loans (MFL)
i)
There shall be well defined guideline governing the documentation required and relevant procedure to
be complied with, while extending loans Loan against property, Business loan , HP Loans(including two
wheeler loans) and Miro Finance Loans to borrowers and same should be within the scope of the
relevant directions issued by RBI from time to time and other statutory directions in place.
ii)
Restricted Profiles/Properties
Company will abstain from lending to Individuals /Firms/Companies etc, declared are willful defaulters
by RBI. Further Company will not lend against the security of properties in which constructions are
prohibited by any law in force.
(iii)
Credit Appraisal of Loan Against property, Business Loans HP Loans and MFL
In case of Loan Against property, HP Loans (including two wheeler loans) and Business Loans
Company should have procedures for appraisal credit worthiness of the customers. Credit score of the
customer from at least one Credit Information Company (CIC) should be considered for analyzing
customer’s credit worthiness. Minimum two persons should guarantee the proposed loan, of which at
least one should be an External guarantor (person outside the family circle of the loan applicant).
Repayment track in similar loans taken by applicant should also be taken into consideration. In case of
MFL, credit appraisal shall be as per its credit policy document.
(iv)
Valuation of security
a)
In case Loan Against Property, where immovable property is security, least of the following will
be considered as value of the security
(1)
Guideline value issued by the government
(2)
Fair value assessed at by a valuer (internal or outside valuer).
(3)
Fair value assed by company official.
b)
In case of HP Loans, where vehicles or Genset are provided as security, least of the following
will be considered as value of the security
(1)
Depreciated value
(2)
Fair value assessed at by a valuer (internal or outside valuer).
(3)
Fair value assed by company official.
c)
In case of Business loan where stock is the primary security, value of the stock as assessed by
the company official will be considered as value of the security.
v)
Loan Ceiling
Maximum loan amount for a single customer in case of business loans and Vehicle loans will be Rs 50
lakhs and in case of Loan against Property maximum loan amount will be Rs 1 crore.
vi)
Loan to Value (LTV)
Maximum LTV will be capped at 60% for Loan against Property and Business loan. For Vehicle loan
Maximum LTV will be 90%
vii)
Maximum Tenure
Maximum tenure in case of Business Loan will be 5 years and for Loan against Property and Vehicle
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Loan maximum tenure will be 7 years.
viii)
Post sanction Monitoring and Re-Valuation of Security in Loan Against property, Business
Loans and HP Loans
a)
Post sanction Monitoring
End use verification of loans above Rs 5 lakhs shall be done by a company official within 3 months of
date of sanction of loan. If deviation is reported regarding end use of the loan, a report regarding the
same will placed before the Board for necessary action.
b)
Re-Valuation and Verification of Security
In case of Loan against Property re-valuation of the property provided as security shall be made at least
once in every 3 years.
In case of Business Loans where the primary security is stock in trade, stock statement from the
borrowers shall be collected at least once in every 6 months.
In case of HP loans verification and revaluation of assets hypothecated to the company should be made
at least once in every year.
ix)
Any subsequent amendments to the directions or tightening or relaxation of norms shall be approved
by MD on recommendation of CEO.
E. Prudential norms on Asset classification
Company shall, after taking into account the degree of well defined credit weaknesses and extent of
dependence on collateral security for realisation, classify its loans and advances and any other forms of
credit into the following classes, namely:
i.
Standard assets;
Categories of Special
mention Accounts
(SMA)
Basis for classification (Principal or interest payment
or any other amount wholly or partly overdue)
SMA-0
Upto 30 days
SMA-1
31 to 60 days
SMA-2
61 – 90 days
ii.
Sub-standard assets;
iii.
Doubtful assets; and
iv.
Loss assets.
“standard asset” means the asset in respect of which, no default in repayment of principal or
payment of interest is perceived and which does not disclose any problem nor carry more than
normal risk attached to the business;
“non-performing asset” ( “NPA”) means:
a)
an asset, in respect of which, interest has remained overdue for a period of three months or
more;
b)
a term loan inclusive of unpaid interest, when the instalment is overdue for a period of three
months or more or on which interest amount remained overdue for a period of three months or
more;
c)
a demand or call loan, which remained overdue for a period of three months or more from the
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date of demand or call or on which interest amount remained overdue for a period of three
months or more;
d)
a bill which remains overdue for a period of three months or more;
e)
the interest in respect of a debt or the income on receivables under the head ‘other current
assets’ in the nature of short term loans/ advances, which facility remained overdue for a period
of three months or more;
f)
any dues on account of sale of assets or services rendered or reimbursement of expenses
incurred, which remained overdue for a period of three months or more;
g)
the lease rental and hire purchase instalment, which has become overdue for a period of three
months or more;
h)
in respect of loans, advances and other credit facilities (including bills purchased and
discounted), the balance outstanding under the credit facilities (including accrued interest) made
available to the same borrower/ beneficiary when any of the above credit facilities becomes non-
performing asset:
“sub-standard asset” means:
1)
an asset which has been classified as non-performing asset for a period not exceeding 12
months;
2)
an asset where the terms of the agreement regarding interest and/ or principal have been
renegotiated or rescheduled or restructured after commencement of operations, until the expiry of
one year of satisfactory performance under the renegotiated or rescheduled or restructured terms:
“doubtful asset” means:
a) a term loan, or
b) a lease asset, or
c) a hire purchase asset, or
d) any other asset,
which remains a sub-standard asset for a period exceeding 12 month
“loss asset” means:
a) an asset which has been identified as loss asset by the company or its internal or external
auditor or by the Reserve Bank of India during the inspection to the extent it is not written off by
the company; and
b) an asset which is adversely affected by a potential threat of non-recoverability due to either
erosion in the value of security or non-availability of security or due to any fraudulent act or
omission on the part of the borrower;
(2) The class of assets referred to above shall not be upgraded merely as a result of rescheduling, unless
it satisfies the conditions required for the up gradation.
F. Provisioning Norms
Company shall, after taking into account the time lag between an account becoming non-performing, its
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recognition as such, the realisation of the security and the erosion over time in the value of security
charged, make provision against sub-standard assets, doubtful assets and loss assets as provided
hereunder:-
Loans, advances and other credit facilities including bills purchased and discounted-
(1) The provisioning requirement in respect of loans, advances and other credit facilities shall as per
RBI guidelines in this regard from time to time
G)
TAKEOVER OF LOANS
a)
Takeover of loans from other companies, banks etc. should not be freely permitted considering
the risks involved. However, the Company may frame suitable instructions with proper internal
controls for takeover of loans and review them from time to time.
H)
FUNDING OF ASSETS
Owned funds should supplement a suitable mix of bank borrowing / credit lines,NCDs AND Subdebts .
Resources for funding the loans should be well diversified and adequate to meet with growth plans.
Tenure of funding should, as far as possible, match with the loan maturity profile (historical repayment
data/trends may be extrapolated)
I)
RECOVERY OF LOANS, SENDING OF NOTICES, AUCTION OF SECURITY
Going by the inherent nature of the security it may be reasonably expected that most borrowers will
service the interest and repay the loan of their own accord. However, as a matter of good practice and
measure of caution, monitoring repayments should be accorded close attention since there would be
many borrowers who repay only after receiving reminders for interest dues, loan repayment etc. On the
other hand there could be a few borrowers who pose challenges for smooth recovery.
J)
Joint Lending with Other NBFCs, Banks and Co-origination of Loans with Banks
RBI has permitted commercial banks to engage with NBFCs to Co-originate loans for creation
of priority sector assets. This arrangement involves sharing of risks and rewards between banks
and NBFCs.MD shall be authorized to approve the lending arrangements with other NBFC and
Banks.
K)
Regulatory Restrictions on Loans and Advances
Loans and advances to Directors - Compay shall not grant Rs 5 cr & above loans and
advances unless sanctioned by the Board of Directors / Committee of Directors, to -
i) their directors (including the Chairman/ Managing Director) or relatives of directors.
ii) any firm in which any of their directors or their relatives is interested as a partner,
manager, employee or guarantor.
iii) any company in which any of their directors, or their relatives is interested as a major
shareholder, director, manager, employee or guarantor.
A director or his relatives shall be deemed to be interested in a company, being the
subsidiary or holding company, if he is a major shareholder or is in control of the respective
holding or subsidiary company.
The director who is directly or indirectly concerned or interested in any proposal should
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disclose the nature of his interest to the Board when any such proposal is discussed. He
should recuse himself from the meeting unless his presence is required by the other directors
for the purpose of eliciting information and the director so required to be present shall not
vote on any such proposal.
The proposals for credit facilities of an amount less than Rs 5 cr may be sanctioned by the
appropriate authority in the NBFC under powers vested in such authority, but should be
reported to the Board.
Loans granted to Directors will be subject to regulatory restriction under Companies Act
2013 and rules made thereunder.
Loans and advances to Senior Officers – Company shall abide by the following while
granting loans and advances to its senior officers:
i) Loans and advances sanctioned to senior officers shall be reported to the Board.
ii) No senior officer or any Committee comprising, inter alia, a senior officer as member,
shall, while exercising powers of sanction of any credit facility, sanction any credit
facility to a relative of that senior officer. Such a facility shall be sanctioned by the next
higher sanctioning authority under the delegation of powers.
In respect of grant of loans and advances to directors / senior officers and their relatives:-
i) Company shall obtain a declaration from the borrower giving details of the relationship
of the borrower to their directors/ senior officers for loans and advances aggregating Rs
5 cr & above. NBFCs shall recall the loan if it comes to their knowledge that the
borrower has given a false declaration.
L)
Gradation of Risk of interest rate and Pricing of Loan
The Lending Rate will be different for different categories of borrowers, considering profile of the
customer, tenure of customer relationship, past repayment track record, customer segment, market
reputation, inherent credit and default risk in the products, subventions and subsidies available, ancillary
business opportunities, future potential, group strength and value to lender group, overall customer yield,
Loan‐to Value (LTV) ratio, nature and value of primary and collateral security etc. The Lending Rate is
determined on a case to case basis.
M)
OTHER DIRECTIONS
a)
Loans will be disbursed by way of single / one time debit to each account and which will then be
monitored for interest servicing and final closure along with other accounts, if any, of the same
borrower. Borrower wise exposure must be available at any point of time to the operating functionaries.
b)
Terms and conditions of loans should be in compliance with the Fair Practices Code of the Company.
c)
Loans to persons of doubtful integrity (to the extent known), customers engaging in illegal/ unlawful
business (to the extent known) etc. shall not be entertained even if the quality of the security offered is
beyond doubt.
d)
The maximum credit exposure per customer shall be within prudential limits. For this purpose the
Company shall not take an exposure exceeding 15% of its capital funds on a single borrower.
