Regulation of Bank Finance^445
and generally on half-yearly basis, by a practising Chartered Accountant (other than
the companyís statutory/internal auditors). However, wherever the branch-official picks
up any alarm signal and consider it necessary that a detailed inspection/verification of
the securities charged to the bank is required to be carried out by a Chartered Accountant
or approved valuer/engineer, they may do so (in consultation with the next higher
authority) without waiting for formal approval of the sanctioning authority provided the
branch seeks confirmation for this action within a period of-15-days of having initiating
the said inspection/verification.
Some of the recommendations with suitable modification have already been accepted
by Reserve Bank for implementation. While announcing the Monetary and Credit Policy
for the first half of 1997-98 on 15th April, 1997, Reserve Bank of India inter-alia spelt
out various measures relating to credit dispensation by the banks. Full freedom has
since been given to banks to frame its own methods for assessment of working capital
needs of the borrowers. The details of important measures announced by Reserve
Bank are us under:
(i) Prescription as regards to assessment of working capital needs based on the
concept of Maximum Permissible Bank Finance (MPBF) enunciated by Tandon
Working Group has been withdrawn. Banks may evolve an appropriate system
for assessing working capital needs of the borrowers, within the prudential
guidelines and exposure norms which have already been prescribed by Reserve
Bank of India.
Prudential exposure norms as per extant guidelines of Reserve Bank of India
provide that the maximum exposure of a bank for all its fund based and non-
fund based credit facilities, investments, underwriting, investment in bonds and
commercial paper and any other commitment should not exceed 25 per cent of
its (bankís) networth to an individual borrower and 50 per cent of its networth
to a ëgroupí. It may however, be noted that while calculating exposure, the
non-fund based facilities are to be taken at 50 per cent of the sanctioned limit.
To illustrate the point let us consider the following examples:
Example 1.
Net worth of the bank Rs. in crore
700
Maximum exposure permitted for an individual
Borrower (25% of networth of the bank)175Maximum exposure permitted for all borrowers under the
same group (50% of net worth of the bank)350Example 2.^
Limits sanctioned to a borrower
(i) Fund Based 100
(ii) Non Fund Based^100
Total 200
Total Exposure
(i) For fund Based limits @ 100% of limits 100
(ii) For Non-funds Based limits @ 50% of limits 50
150