General Knowledge · Banking & Risk Management
A diversified conglomerate, Blue Horizon Infrastructure Private Limited, enjoys a sanctioned Cash Credit limit of 45 crore and a Term Loan of 120 crore. In late 2025, it proposed a fresh Letter of Credit (LC) facility of 30 crore and a Bank Guarantee (BG) of 15 crore. During appraisal in January 2026, these facts emerge: One director (40% equity) is a Willful Defaulter in another bank; Current Ratio slipped from 1.45 to 1.10; Debt Equity Ratio is 3.5 (industry average 2.0); the board resolution was signed only by the MD (AoA requires two signatures for >10 crore); primary security is a second charge on heavily leveraged assets; Stock Audit report was not submitted. Based on core Principles of Lending and legal requirements, what is the most appropriate response?
- 1Request the company to replace the tainted director, provide a valid board resolution conforming to the AoA, insist on a restoration plan for financial parameters, and resolve outstanding compliances before processing further.✓
- 2Approve only the Non-Fund Based facilities like the LC and BG as they do not involve an immediate cash outlay.
- 3Reject the proposal immediately because the Willful Defaulter status of a director and the unauthorized board resolution create non-negotiable legal and character risks.
- 4Approve the proposal because the company has a long history with the bank and the high value of the assets provides safety.
Correct answer
Request the company to replace the tainted director, provide a valid board resolution conforming to the AoA, insist on a restoration plan for financial parameters, and resolve outstanding compliances before processing further.
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