1. These instructions will not be applicable to credit for the following service activities for which separate sets of guidelines have been prescribed by the Bank.
   a) Non-banking financial services;
   b) Service activity in the nature of development and export of software;
   c) Construction activity including financing of real estate agencies, construction companies, etc.
   Further, advances to Trade and Services activities which are eligible for classification as priority sector advances in terms of RBI guidelines will not be governed by instructions contained in this Chapter. All trade and services enterprises not eligible for advances under SIB segment can be financed under C&I segment provided the proposals are bankable and economically viable.
2. Eligible activity: Any lawful trading activity i.e., trading in goods and in services is considered eligible for bank finance. A list of activities that can be financed subject to the Bank’s general guidelines on credit is given below by way of illustration.
   Activities relating to trade sector: Trading in agricultural or industrial commodities, whether as stockists/dealers, wholesalers, semi-wholesalers, large retailers like departmental stores or big merchants in high value goods, dealers of consumer durables, electronic products, bulk suppliers in iron & steel products, cement and other building materials, sanitary wares, hard-wares, etc., trade/export houses, other export/import intermediaries/grain merchants, fertilizer dealers and dealers of commodities falling under the purview of Selective Credit Control.
   Activities relating to services sector: Business enterprises, professionals and self-employed persons, transport operators, contractors, cinema houses; Tourism related facilities: Hotels/Motel chains, Private Airlines, Travel Agents, etc.; Large transport operators of passenger buses/fleet owners; Large transport operators of goods; Concerns running fleet of taxis; Professionals/others who operate hospitals, or clinics on commercial lines, large Nursing Homes/Hospitals, in the organised sectors, Modernisation/expansion of the hospital facilities/clinics; Hire purchase finance companies/firms; Construction, Transport and Supply contractors; Maintenance contractors (maintaining, decorating, painting buildings, etc.); Commercially run educational institutions; Owners of markets, godowns/warehouses, drama theatres, marriage halls, etc.; Consultancy firms/Chartered Accountants, Agencies engaged in advertisement and publicity services; Publishers; Architects; Auditors; Lodging houses; Other professionals, self-employed persons, etc. falling outside SBF scheme; Large housing co-operatives, industrial estates, real estate firms, commercial/residential property developers.
3. Application & Appraisal Forms
   Trading activities:
   Fund-Based Working Capital (FBWC) limit size Application and appraisal formats

a. Rs.1 crore and above Application accompanied by the Annexures-Trade-PBS-1 to 5; Appraisal as prescribed for assessment under PBS method.
($) If the FBWC limit required is Rs.10 lacs or below and fully secured by tangible collateral security in the form of immovable property, the application and appraisal formats will be as applicable to large SBF advances (Specimen in Annexure-SBF-1, Chapter 37, Volume III).
Service units: In case of service units, the general application/ appraisal forms are to be used with appropriate modifications.
Application forms for Trade advances should be accompanied by two copies of audited financial statements for last 3 years, the latest not being more than 12 months old. Audited balance sheets should be obtained in all cases. However, in the case of borrowers of long standing for whom FBWC limits up to Rs.5 lacs are proposed, financial statements extracted from the books of accounts and certified by a Chartered Accountant (without usual certificates by the auditor) may be obtained. Appraisal forms should be accompanied with, among other things, the following:
(i) Analysis of financial statements.
(ii) Assessment of working capital requirements.
(iii) Terms & conditions.
(iv) Opinion reports on borrowers and guarantors.
(v) Review of existing account, if any, for the past 12 months.

5. Other aspects of credit to T&S sector
   5.1 Nature of Facilities: The following need-based credit facilities may be sanctioned for purposes noted thereagainst:

Purpose Credit facility
(Fund-based & Non-fund based) Security

Working Capital
• Cash Credit (stocks)

• Cash Credit against pledge of documents of title to goods (RRs, LRs, etc.) • Pledge/ Hypothecation of stock-in-trade
• Document of title to goods

•   Cash Credit ( Book debts)

• D.D Purchase [Cheques]
• D.D Purchase [Bills (Clean or Documentary)]

• BD/IB limits (Clean or Documentary) • Hypothecation of book-debts
• Cheques/bills
• Documents of title to goods in case of documentary bills

Letters of credit/Bank guarantee    Cash margins, Collateral security, or lien on the drawing power against stock in case of usance LC, etc. 

Capital Expenditure Term Loan for
a) acquisition of land/building etc.
b) purchase of equipment/ vehicles, etc. • Mortgage of land/building
• Pledge/ hypothecation of equipment/vehicle(s)
In addition to the above, a general purpose term loan viz., ‘Flexi loan’ (minimum Rs.5 lacs and maximum Rs.25 lacs) may be sanctioned to units in trade & services sector for any of the following purposes like:
• Holding of stocks/book-debts
• Acquisition of land and building
• Building construction/ Up-gradation and renovation of offices, show rooms, godowns etc.
• Purchase of equipment, furniture and vehicles etc.
• Shoring up networking capital
• Payment of long term deposits / advances to suppliers
• General Trade purposes

Often the terms ‘Financial Markets’ and ‘Capital Markets’ are used interchangeably and for many, ‘Financial markets’ mean only ‘Capital markets’, but internationally, Capital Market is only a small part of the financial market.

Similarly, select dealers of identified large corporate borrowers of the Bank are also be eligible for loans from Rs.5 lacs up to Rs.1 crore by way of cash credit and term loan under the Bank’s ‘Channel Financing’ scheme. The special provisions under the scheme are detailed in Chapter 29-8.

5.2. Credit Risk Assessment and Pricing: The pricing of all trade advances, except for those under ‘Channel Financing’ scheme, under C&I segment is linked to the CRA rating. Therefore, all such loans/advances are to be subjected to credit risk rating review as explained in Chapter 3.
5.3. Quantum of advance: Bank finance should be appropriately linked to the needs of the borrowers assessed on the basis of the turnover, the level of inventories and book-debts required to be carried and the extent of finance already available from different sources i.e., capital as equity, sundry creditors, loans and deposits of long term nature from family members, etc. However, in cases where the turnover and other operational data of the traders are not reflected fully in their books, branches should assess the requirements based on the disclosed figures and financial statements only.
Sometimes, traders may not bring the entire capital as equity, part of it being brought in by way of loans, deposits, etc., from family members. In these cases, such sources can be treated as quasi-equity provided they are retained in the business throughout the year and supported by undertakings from the promoters, friends and relatives, for treating these as quasi-equity.
5.4 Norms for assessment of fund-based working capital (FBWC) limits
The method of assessment of working capital advances in general, has been detailed in Chapter 7. The changes envisaged for Trade and Services sector in respect of some of the norms for assessment are given below:
i) Current Ratio (CR): The benchmark level of Current Ratio will be 1.33 for FBWC limits of Rs.1 crore and above. For FBWC limits below Rs.1 crore, a relaxation in the ratio may be permitted if profitability is good but the CR should not be below 1.0. In other words, the net working capital in the business should not be negative.
ii) TOL/TNW ratio: A TOL/TNW ratio higher than 3.00 would be permissible as a higher gearing is a normal feature in trade activity. In the case of service units the position of outside liabilities should be examined and accepted on a case to case basis.
iii) Profitability ratio: New exposures to T&S units will be permissible as long as the units are earning profits. In the cases where Term Loans or Clean Cash Credit limit subject to repayment are granted, the profit earnings of the unit should be adequate to service the debt.
5.5 Appraisal of Term Loan (TL): In all cases where a TL is proposed for acquisition of fixed assets, a detailed appraisal prescribed for TL (refer Chapter 12) will be followed. In the cases where only a single item of equipment, car or a transport vehicle is to be financed, it will be adequate if a simplified assessment is carried out. Accordingly, in such cases, it will not be necessary to examine in detail the projected debt service coverage ratio (DSCR) if the current level of profits is adequate to service the proposed repayment obligation. Also in this case, the projected cash flow statement need not be compiled.
5.6 Term Loan facility for borrowers of another bank: In select cases of financially strong and well established trade or services units of repute, branches may extend TL finance to them without taking part in the WC finance. Branches may explore the prospects of taking over the borrowers’ entire business in due course. The guidelines on take-over of advances to trade and services sector are given in paragraph 5.11, Chapter 1.
5.7 Clean advances: Such assistance can be extended to the full extent of the requirement on the following terms:
i) Clean Cash Credit (Clean CC): A clean CC facility repayable in a period up to 3 years and fully secured by tangible collateral security in the form of immovable property can be sanctioned for the following:
To a wholesale dealer/ retailer For giving long term deposit (security deposit) or advance to suppliers.
To a trade or services unit For meeting shortfall in long term funds/margins required for WC purposes.
To a trade or services unit For outlays in WC, other than in stocks-in-trade and receivables (e.g. advance payments for purchases, advance tax paid); in this case the clean CC facility will, normally be repayable within a period of one year.
To a trade or services unit In exceptional cases, for long term revenue expenditure like advertisement, cost of franchise, licences, etc.

ii) Clean Term Loan (clean TL): A clean TL facility repayable in a period up to 5 years and fully secured by tangible collateral security in the form of immovable property can be sanctioned towards cost of setting up show room/office space or expenditure like rental deposit, cost of interior decorations, etc., which do not result in acquisition of a tangible asset.
5.8 Terms & conditions of advance
i) Primary and collateral security: In addition to the primary security by way of charge on the assets financed by the Bank, the loans/ advances will be secured by tangible collateral security by way of mortgage of immovable property, pledge of shares/debentures, assignment of surrender value of life insurance policies, lien on fixed deposits, etc. As a general rule, collateral security of immovable property should be obtained and normally this should be, at least, 50% of the total exposure (fund and non-fund) to a trade or service unit (for facilities other than clean advances mentioned in sub-paragraph 5.7 above).