Professional Documents
Culture Documents
LENDING ,
After maintaining the required C R R AND S L R , BANKS ARE
LEFT WITH FUNDS FOR THEIR LENDING ACTIVITIES.
Bank will use the lendable funds to lend various market segment
according to their requirements .
Banks are expected to evaluate the requirement of a client .
RBI has given clear guidelines on this which is known as
deployment of funds.creditfinancingvarious ac tivities.
THE PROCESS IS KNOWN AS CREDIT
APPRAISAL.
ALL THE CREDIT OFFICERS MUST BE WELL
VERSED IN THE APPRAISAL SYSTEM OF THE BANK
AND THE GUIDELINES GIVEN BY R.B.I. AND
CHANGES HAPPENING IN THE SYSTEM.
BANK WILL LOOK INTO THE PURPOSE OF
FUND REQUIREMENT
ENSURE END USE OF FUNDS
BANK AS AN INTERMEDIARY .WILL LOOK INTO
THE CONCEPT OF RISKWHILE TAKING UP
ANY CREDIT PROPOSAL.
WHAT BANK LOOKS AT.
TECHNICAL
MANAGERIAL
COMMERCIAL
ECONOMICAL
FINANCIAL..
ASPECTS OF THE PROPOSAL.
WHERE DO BANK STARTS UNDERSTANDING THE
PROPOSAL.
DISCUSSION APPLICATIONAPPRAISALSANCTION
DOCUMENTATIONDISBURSEMENTCREATION OF
ASSETS FOLLOWUPINSPECTION ENSURE END
USEMONITORING AND RISK MANAGEMENT.
TILL BANK REALISES THE FUNDS LENT WITH INTEREST.
FUND BASED ACTIVITIES
TERM LOAN
WORKING CAPITAL,
E P C.
BILLS DISCOUNTING
CHEQUES DISCOUNTING
THE ABOVE PRODUCTS WHEN USED BY THE CUSTOMERS
WILL LEAD TO RELEASE OF FUNDS BY THE BANK.
BANKS CREATES ASSETS BY LENDING .THEY DO NOT OWN
ITthey have a charge over the assets created till the currency of the
loan.
TYPES OF CHARGES.
HYPOTHECATION
PLEDGE
LIEN
MORTGAGE
CREATION OF CHARGES AT R.O.C.
BANK GUARANTEES
The above products when used by customers will not lead the bank to
release funds
LENDING ACTIVITY
PRODUCTS
APPRAISAL..
FOLLOW UP
.
FUND BASED FACILITIES..
FOR ACQUISITION OF FIXED ASSETS
A.
TERM LOAN
CASH ACCRUALS.
-------------------------TOTAL TERM LOAN INSTALMENTS IN A YEAR.
WORKING CAPITAL
Any activity requires working funds .
It may be manufacturing, trading or any other services where
funds are required on a day to day basis.
Banks funds such activity under Working capital.
The product is known as Cash credit.
Banks funds this activity to create Current assets
IN A MANUFACTURING ACTIVITY.
They can be identified as.
Raw materials,
Consumables or spares,
Semi finished goods,
Finished goods,( Inventory)
Receivables. ( Payment to be received against sales)
Current assets built up depends on a concept of a Working
capital cycle.
Working capital GAP has to be funded BY THE BANK..
The borrower has to bring in his margin .
o Market credit.
A limit will be sanctioned for a period of 12 months . Based on
the current assets built up, turn over is also considered.
As an operating account Bank fixes a Drawing power based on
the built up of current assets .
Borrower submits a Stock statement to the bank every month
indicating the built up of current assets.
This will be done normally once in a month.
In a working capital finance it is important to understand the
LIMIT.
DRAWING POWER
OUTSTANDING
IRREGULARITY..
Bank reviews the status and renew the limits along with Working
capital.
CONTINGENT LIABILITY CRYSTALISES ON HAPPENING OF
AN EVENT ..PERFORMANCE.
BANK GUARANTEE
Sec 126 of the Indian contract act 1872 defines.a guarantee as.
a contarct to perform the promise or discharge the liability of a third person in
case of his default.
A guarantee is a collateral contract which is consequential to the main contract
between two parties.
FINANCIAL GUARANTEE..
Financial ability or worth of its client to meet certain financial obligations. Involves
general credit appraisal.
PERFORMANCE GUARANTEE.
This forms part of assessing Technical competency of the applicant about the
performance ..This will not fall under the bank norms. Bank cannot complete the
task not completed by the applicant . It only amounts to compensate the Monetary
loss.
Bank issues Guarantees on behalf of the customers.
Purpose for which guarantee is issued is important.
Issued against a bonafide trade and commercial trasactions.
Only financial guarantees.not performance guarantees.
Guarantee will be issued for specific amount and purpose.only.
Will not be issued for more than 10 years.
Guarantees containing onerous clauses will not be issued.
Amendments and extensions are acceptable.
Cannot be renewed automatically
Bank assumes monetary obligation in the event of failure on the part of the
Principle debtor.
Should honour the obligation whenever guarantee is invoked by the beneficiary.
Bank charges a commission on the outstanding guarantees.
Certain margin has to be kept for issue of B G .
************
.
BANK PROPOSAL
REALISTIC ASSUMPTIONS FOR PROJECTED PROFITABILITY
PURPOSE OF LOANSET UP A MANUFACTURING UNIT ..TO
PRODUCE SILK FABRICS.
NEED..TERM LOAN TO ACQUIRE MACHINERY AND ADEQUATE WORKING
CAPITAL AND NON FUND BASED FACILITIES.
UNITSILK INDIA PVT TLD.
PROMOTERS..ABC..
TECHNOLOGY.FROM ITALY
MARKET.EXPORT.100% EOU
LOCATIONOWN BUILDING IN INDUSTRIAL AREA.
MACHINERY..IMPORTED FROM ITALY
RAW MATERIALS..SILK YARNFROM CHINA
Term loanrs 900.00 lakhs .machinery worth..rs1200.00 lakhs
WORKING CAPITALAS PER INVENTORY AND RECEIVABLES.
LETTER OF CREDIT, BANK GUARANTEE NEED BASED
FINANCIALS, TECHNICAL, COMMERCIAL, ASSUMPTIONS
CAPACITY.6,00,000 MTRS P.A.
CAPACITY UTILISATION
1 YEAR...50%
2 YEAR...60%
3 YEAR...70%
4 YEAR80%
SELLING PRICE OF THE FABRIC.RS.600/- MTR
PURCHASE PRICE OF YARN.RS.1500/- TON