Lending Policies for Direct Assistance

Financing Criteria
Credit Evaluation constitutes the basis for sanction of assistance. Each project is evaluated with regard to promoters' background, managerial competence, technical feasibility, financial soundness, commercial prospects, international competitiveness and economic justification. The promoter's background, track record, resourcefulness and expertise in implementation of similar projects are assessed. The past performance of the company is analysed based on its financial statements viz., profit and loss account and balance sheet. Interim comparisons are made. The risk relating to future financial projection is evaluated by considering, inter-alia, the financial and profitability indicators for the project and the level of competitiveness in both domestic and international market. Market Research Department (MRD) carries out industry research and provides inputs to Project Appraisal Department in their appraisal and follow up work. MRD maintains a large updated data base built up during the past 10 years. Generally, IDBI expects a minimum promoters' stake of 25% to 30% of project cost and Debt Equity ratio of about 1.5 though it has a flexible approach in this regard. The other parameters used for evaluation of projects are the internal rate of return, economic rate of return and effective rate of protection. In financing industries of polluting nature, it is ensured that facilities necessary for treatment and disposal of effluents are incorporated to safeguard the environment. Special emphasis is laid on energy conservation and cogeneration in energy intensive projects. The repayment schedules are generally fixed considering the cash flow projections of the project. Project loans are normally repayable within a period of five to ten years including a moratorium period of two to three years. The loans are secured by a mortgage over the immovable property of the borrowing unit and a floating charge over its other assets, subject to a charge in favour of banks on specified movables for working capital borrowings. The criteria for working capital and other non-project related finance are generally similar to that for project finance. However, as certain project specific criteria discussed above are often not applicable to this type of finance, more emphasis is placed on the debt-equity and debt service coverage ratios, the security cover and the general creditworthiness of the borrower.

Approval Process
In the context of emerging environment, the Credit Delivery mechanism has been. revamped based on the recommendation of Booz-Alen & Hamilton, the consultants appointed by IDBI. The customer base has been segmented into corporate and midcorporate divisions; industry wise/group wise focused Corporate Finance Departments have been carved out. A dedicated group has been constituted to deal with infrastructure related projects. The sanctioning authority has been shifted largely to Committees. There are five Zonal Committees functioning at Mumbai, Delhi, Kolkata, Chennai and Guwahati. The Credit Committee is empowered to sanction assistance upto specified limits with respect to Head Office and also in respect of cases emerging from branches where the assistance recommended for sanction exceeds the power of the Zonal Committees. The proposals

beyond the threshold of Credit Committee are referred to the Executive Committee which meets at least once a month. Further, in order to deal with the cases of restructuring, OTS and negotiated settlements, the Bank has set up two committees viz. High Powered Committee and Empowered Committee.

Lending Rates
IDBI fixes the minimum term lending rate (MTLR) from time to time. Interest on specific loans are fixed within a band over the MTLR depending upon the risk perception of the project, the track record of the borrower and the industry outlook. Short and Medium Term loans are sanctioned at rates relates to the maturity. IDBI has also introduced a Minimum Short-Term Lending Rate (MSTLR) which is applicable to short-term/working capital loan. IDBI has also announced a new floating interest rate scheme which is based on the sixmonth average of secondary market yield of five-year government paper, to be updated on a quarterly basis.

Follow-up and Monitoring

A project monitoring system has been built-up by IDBI over the years. Project monitoring is done both during implementation and operating periods through periodical progress reports/annual reports furnished by the borrowing units, follow-up visits and periodic interaction with the Chief Executive/Senior Executives of the companies. The system enables IDBI to monitor the progress of the project, diagnose difficulty if any and work out remedial measures when needed. Where considered necessary on grounds of higher exposure, IDBI also considers nomination of IDBI officers/outside professionals on the Boards of borrowing companies.

Lending Policies for Indirect Assistance

IDBI ascertains the business plans and resource forecasts of State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs) to evaluate their fund requirements. Limits for refinancing and lines of credit are fixed taking into consideration other resources available. Under Bills Rediscounting, IDBI extends annual limits to Commercial banks, Electricity Boards, State Road Transport Organisations and Corporations. The limits are reviewed periodically. Since the credit risk in indirect finance is borne by the primary lender, IDBI fixes uniform interest rates in tune with the movement in prime lending rates for such finance.