Credit approval committees set up to hasten decision-making

Indian companies can hope for a faster turnaround when they submit loan proposals to nationalised banks.

Nationalised banks have set up credit approval committees (CACs) at their respective head-offices to speed up decisions on loan requests from companies.

Realising that private sector and foreign banks have a competitive edge when it comes to decision making on loans, the Finance Ministry has pushed for a CAC in each of the 20 nationalised banks.

Punjab National Bank, Canara Bank, Bank of Baroda, and Bank of India, among others, are classified as ‘nationalised banks'. They are governed by the Banking Companies (Acquisition and Transfer of Undertakings) Act.

Until a few months back, large loan proposals could only be cleared in management committee meetings (MCMs) of the boards.

“The MCM is convened only once in 20-30 days. Presence of the bank chairman and managing director, executive directors, RBI nominee director, Finance Ministry representative and two other directors is a must in the meeting.

“Sometimes, this requirement leads to pile up of loan proposals for clearance,” said a senior banker.

However, things appear to be changing for the better following the constitution of CACs.

The CAC, comprising the chairman and managing director, executive directors, and chief general manager/general manager in-charge of credit, finance and risk management, can meet as and when loan proposals need to cleared, said a public sector bank official.

That loan approval mechanism has been put on the fast-track is underscored by the fact that the quorum for a meeting of the CAC is just three members. The meeting has to be attended by the CMD and one of the EDs.

In the case of Category ‘A' banks, with business of Rs 3-lakh crore or more, the CAC is empowered to take decisions on loan proposals up to Rs 400 crore. In the case of Category ‘B' banks, with business less than Rs 3-lakh crore, the CAC can take decisions on loan proposals up to Rs 250 crore. However, loans proposals exceeding the limits of the CAC will have to be cleared at the MCM.

Given the powers conferred on the CAC, companies will not have to wait for a month to hear from banks about the fate of their loan application. If there is merit in the proposal, the bank could clear it even in a day or two.

kram@thehindu.co.in

(This article was published on April 10, 2012)
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