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REGULATION-IV
LINKAGE BETWEEN A BORROWER’S EQUITY AND TOTAL BORROWING FROM BANKS
While granting any accommodation,
banks shall ensure that the total accommodation availed by any borrower from
banks/financial institutions does not exceed 10 times of the capital and reserves (free of
losses) of the borrower as disclosed in its Audited Accounts. Every bank shall, as a
matter of rule, obtain copy of accounts relating to the business of each of its borrower
for analysis and record in the following manner. (For the purpose of this regulation,
accommodation shall have the same meaning as in Regulation-I above):-
| (a) Where the bank’s
exposure does not exceed Rs. 2 million |
Accounts duly signed by the
borrower. |
| (b) Where the exposure exceeds
Rs. 2 million but does not exceed Rs. 10 million |
Accounts duly signed by the
borrower and countersigned by the Internal Auditor of the bank or a Chartered Accountant. |
| (c) Where the exposure exceeds
Rs. 10 million. |
Accounts duly audited by the
practicing Chartered Accountants. |
(d) The regulation shall not apply to loans not exceeding Rs.
500,000/- per borrower.
(e) Compliance with this regulation shall be judged on the basis of written statement
filed by borrower.
2. A borrower who is prepared to inject fresh equity irrespective of
the fact that its equity is negative is eligible to obtain finance from a banking company
to the extent of 10 times of fresh injected equity.
3. (a) Banks shall strictly observe the regulation when sanctioning
fresh/additional credit facilities. Following relaxation is hereby granted upto 30-6-1999
for renewing existing facilities.
Total accommodation availed by a borrower from banks/financial institutions may exceed 10
times of the capital and reserves (free of losses) of the borrower provided the borrower
injects additional equity during extended period.
(b) Export finance and finance provided to ginning and
rice husking factories and finance provided on the basis of lien on foreign currency
deposits shall be excluded from the borrowings for the purpose of this regulation. the
borrowers availing this relaxation shall plough back 20% of the net profit each year until
such time that they are able to borrow without this relaxation.
4. For the purpose of this regulation sub-ordinated loans shall be
counted as equity.
5. Revaluation Reserves determined by approved
firms of Chartered Accountants in accordance with International Accounting Standards would
also count as equity for the purpose of this regulation. The Revaluation Reserves so
determined are required to be reflected in the balance sheets of the borrowers which are
required to be duly audited by the approved firms.
6. Accommodation shall not include non-fund based facilities for the
purpose of this regulation.
