Based on the suggestion received from IBA, our Board has approved the following methodology of Calculation of Drawing Power (DP) under MPBF.

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1 MAIN : ADV-138/ DT a SUB : CONV-26 CO/CREDIT DIVISION FILE M-2 S-205 SUB : Revised method of arriving Drawing Power (DP) and other issues as advised by Indian Banks Association (IBA) Working Capital facilities are considered against Hypothecation of Stocks and Book Debts. Only paid for stocks are taken into account for arrival of Drawing Power (DP). In case of Book Debts, age of the same as per sanction terms is being considered. Presently, the following procedure is being adopted by our Bank with regard to Drawing Power Calculation as prescribed in our Documentation manual: OCC Stock/ Book Debts Limit Insurance in force upto for Rs Total Value of goods hypothecated A B C Less: Creditors Less a) Margin at.% b) Ineligible stock D Advance value against stocks (C D) E Total Value of Eligible Receivables F Less Margin at.% G Advance value against Receivables (F G) H Total Advance Value/Drawing Limit (E + H) I Debit Balance as on J The lower of A or I is taken for arriving DP. Revised guidelines communicated by IBA IBA has recently considered the reference received from Reserve Bank of India (RBI) relating to calculation and allocation of Drawing Power under (Maximum Permissible Bank Finance (MPBF) in respect of accounts under Consortium and CDR/ Bilaterally Restructured accounts along with other issues and came out with revised guidelines. IBA has also stated that banks can adhere to the revised methodology under MPBF in case of standalone facilities also, for the sake of uniformity and consistency.

2 Based on the suggestion received from IBA, our Board has approved the following methodology of Calculation of Drawing Power (DP) under MPBF. Revised method for Drawing Power calculation: (closing balance of stocks, their value as per market rates or cost price, whichever is lower) A B C Net Value of Stock Add: Eligible Trade Debtors including advance for stocks and expenses as envisaged at the time of assessment Less: Outstanding under Bills discounted Net value of Debtors Total Eligible Current Assets Less: Stipulated Margin Advance value Sanctioned limit Drawing Power D=A-B-C E BD F=E-BD G=D+F H I= G-H J I or J whichever is lower The above methodology is uniformly applicable to all categories i.e. Consortium, CDR / Bilaterally restructured accounts and Stand alone credit facilities where Working Capital is assessed under MPBF method only. The Allocation between the Consortium members shall be done by the consortium leader pro-rata to the exposure assumed by these banks under consortium. The DP allocation advised to the consortium members will be binding on them for conduct of borrower s account. This is also applicable to the facilities under the Multiple Banking Arrangements. Accordingly, wherever we are leader bank, branches have to compute the Drawing Power (DP) as per revised methodology and communicate the same to member banks. Wherever we are member, it should be taken up with the leader bank. In all the standalone accounts and Multiple Banking accounts (if DP is arrived independently by banks), the Drawing Power (DP) is to be computed as per the revised methodology. 2

3 Other guidelines Security coverage in case of restructured account and CDR accounts: As regards the status of restructured account and accounts referred to the CDR mechanism, the instructions issued by CDR Cell should uniformly apply, which are furnished as under - Fully Secured: When the amounts due to a bank (present value of principal and interest receivable as per restructured loan terms) are fully covered by the value of security, duly charged in its favour in respect of those dues, the bank dues are considered to be fully secured. While assessing the realizable value of security, primary as well as collateral securities would be reckoned, provided such securities are tangible securities and are not in intangible form like guarantee etc. of the promoter/others. However, for this purpose, the bank guarantees, State Government Guarantees and Central Government Guarantees will be treated on par with tangible security. As regard to these accounts, the impact of stock audit should be ignored if the account is fully secured as indicated above by Total Security ie, Primary and Collateral and is otherwise adhering to the terms of restructuring under the Restructuring or CDR terms. The field level functionaries are advised to take note of the above. The revised method of computation of Drawing Power (DP) under MPBF comes into effect immediately. Further, all the sanctions hereafter shall contain the details of following items considered for the Working Capital assessment, to enable the field level functionaries to meticulously follow the revised method for the purpose of Drawing Power calculation. a) Accepted level of Sundry Creditors (Stocks) b) Accepted level of Other Sundry Creditors c) Advance for Stock/Expenses considered at the time of WC assessment For the working capital facilities assessed under Turnover method, the existing method of Drawing Power calculation continues. For the easy understanding of the field level functionaries, illustrations based on the revised methodology of DP calculation are given in the Annexure. K Malathy General Manager (CR/SP) 3

4 ANNEXURE Example 1: Let us assume that a Cash credit limit of Rs Crores has been sanctioned with an accepted level of Sundry Creditors (stocks) at Rs Crores, Other Sundry Creditors at Rs.5.00 Crores and Advances for Stocks and Expenses at Rs Crores, at the time of arriving the MPBF with a stipulated margin of 25 %. Particulars submitted as per the monthly Stock statement: Value of Stocks: Rs Cr Eligible Trade Debtors: Rs Cr Advance for Stocks/Expenses: Rs.5.00 Cr Outstanding under Bills discounted: Rs.5.00 Cr Sundry Creditors (stocks): Rs Crores Other Sundry Creditors : Rs Crores DP calculation (as per the revised methodology): (closing balance of stocks, their value as per market rates or cost price, whichever is lower) Amount in Crores (A) --NIL- (B) --NIL- (C) # Net Value of Stock (D=A-B-C) Add: Eligible Trade Debtors (Rs Cr) & advance for stocks (E) $ and expenses (Rs 5.00 Cr which is within the envisaged amount of Rs Cr at the time of assessment)--(30+5 = 35) Less: Outstanding under Bills discounted 5.00 (BD) Net value of Debtors (F=E-BD) Total Eligible Current Assets (G=D+F) Less: Stipulated 25 % (H) Advance Value (I=G-H) Sanctioned limit (J) Drawing Power ((I or J whichever is lower)) # Creditors are not deducted as the amount of creditors declared in the stock statement is lesser than the assumed level of Creditors at the time of assessment. $ Advance for stocks/expenses if any can be added, as envisaged at the time of assessment. 4

5 Example 2: Let us assume that a Cash credit limit of Rs Crores has been sanctioned with an accepted level of Sundry Creditors (stocks) at Rs Crores, Other Sundry Creditors at Rs.5.00 Crores and Advances for Stocks and Expenses at Rs Crores, at the time of assessing the MPBF with a stipulated margin of 25 %. Particulars submitted as per the monthly Stock statement: Value of Stocks: Rs Cr Eligible Trade Debtors: Rs Cr Advance for Stocks/Expenses: Rs Cr Outstanding under Bills discounted: Rs.5.00 Cr Creditors (stocks): Rs Crores Creditors (others): Rs Crores DP calculation (as per the revised methodology): (closing balance of stocks, their value as per market rates or cost price, whichever is lower) Amount in Crores (A) (B) 5.00 (C) Net Value of Stock (D=A-B-C) Add: Eligible Trade Debtors (Rs Cr) & advance for (E) # stocks and expenses (Rs Cr as envisaged at the time of assessment) - (30+10=40) Less: Outstanding under Bills discounted 5.00 (BD) Net value of Debtors (F=E-BD) Total Eligible Current Assets (G=D+F) Less: Stipulated 25 % (H) Advance Value (I=G-H) Sanctioned limit (J) Drawing Power (I or J whichever is lower) # Here advance for stocks/expenses envisaged at the time of assessment (Rs Cr) only is considered along with the eligible Trade Creditors. 5