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Bank Loan Takeover Guidelines

 (from one Bank to another)

Bank circulars & letters

*RBI letter - DBOD No. BPBC-104/21.04.048/2011-12 Dt. 10/05/2012 addressed to all Scheduled commercial Banks.
*Central Vigilance Commission (CVC) letter no. 1114/BNK/17/176557 Dt. 31/05/2012
*Ministry of Finance, Dept. of Banking Services, Deputy Secretary's  letter F.No.7/ 81/ 2011-BOA  Dt. 06 / 07 / 2012 to CEOs of all Public Sector Banks with copy endorsed to Govt. nominee Directors.

Background of Loan takeover policy

CVC had noticed that in various instances where an existing account with one Bank showing signs of sickness, preferred to shift to another Bank with a higher limit sanctioned just to wriggle out from the clutches of NPA for the time being. Such accounts predictably slipped to NPA at the hand of the new bank in the short run. This was a dangerous trend.

Another practice was that when senior executives, CMDs, EDs ,GMs moved from one bank to another, certain accounts moved with them to the new bank as those borrowers were comfortable with those executives.

There were no doubt many genuine cases of changing banks such as ignoring the legitimate credit need of the borrower, stipulating higher collaterals and harassing non placating borrowers but it was the above 2 negative features which prompted the apex bank and the Ministry of Finance to frame a broad guideline of loan takeover which all scheduled commercial banks were directed to adhere to.

The Broad loan Takeover Guidelines

For taking over any account, Banks must put in place, a Board approved policy with regard to take over of accounts from another bank as advised by RBI in its letter Dt.10/05/2012 to all Scheduled Commercial Banks. The above advisory must be incorporated in the Credit Policy /Takeover Policy of the bank. A copy of Board approved policy to be sent to Finance Department for information & record.

Normally, the loan accounts having credit ratings above the level approved by the Board should be taken over subject to the precautions to be taken in the light of CVC's observation.

The concessionary facilities in taken over borrowal accounts should be extended only in extremely deserving cases with specific reasons recorded in writing.

In all cases of take over of accounts, it is necessary to do proper due diligence including visits to the premises of the customer if needed, before the account is considered for take over by Bank.

The guidelines of joint lending should be strictly applied in all cases where the borrower seeks to have additional exposure from the bank after taking over the account.

No cases should be taken over by a Bank from any Bank where any of its ED or CMD have worked earlier. In case, any such account need to be taken over, the proposal is to be put up to the Board with specific reasons justifying the need for taking over the account.


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