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1. a. facility b. c. d. e. 2. Floating rate and Fixed rate of interest loans – as per rate of interest Demand Loan and Loan with fixed maturity period, Revolving loans Secured and Unsecured Loan Understand the role of the Loan officer in making credit decisions. Know various types of Loan products arranged / offered by the Short term and Long term loans- depend upon term or duration of the
How he balances his two roles? (i) Marketing role, i.e. selling the loan product for achieving budget goals/ targets (ii) Credit officer role- making lending decisions as per the credit policy 3. Understand the various steps involved n making a lending
decision. a. Evaluating Creditworthiness of the borrower which includes: Financial Analysis Qualitative analysis Due Diligence Risk Assessment Determining bank’s willingness and ability to lend Amount and Terms of the credit facility Conditions Precedent ( requirements the borrower must satisfy before disbursement) Representations and Warranties ( the information and assumptions relied upon as per the confirmation given by the borrower) Covenant of the borrower (borrower’s ongoing obligation -violation of which creates an event of default).
b. Structuring the Credit Facility and Loan Agreement which include:
Selling of Loans to Third Parties (depending upon bank’s capital position) There are pressures and compulsions on banks to maintain loan portfolio conforming to capital position (Regulatory/BASEL requirement). 1. designing the Loan Agreement and above all in identifying and selecting the Loan officer.- Affirmative covenants Negative covenants Event of Default 4. Long-term and Revolving loans are the main traditional lending products offered by commercial banks. a) Short term Loans: These are Loans with maturity of one year or less sanctioned for working capital requirements ( purchase of inventory). or seasonal credit requirements of the borrowers/firm. . What are the various types of Traditional Bank Lending products? What is commitment charge? Short-term. designing the check-list for verification of the creditworthiness of the prospective borrowers. The various methods available to the bank for sale of loans are: Participation Syndication Asset Sale 5. - Specialized Loans and Credit Products Trade Finance products Letter of Credit (L/C) Banker’s Acceptance ANALYSIS OF THE CASE IN BRIEF Lending is the primary activity of commercial banks and they are supposed to make proper risk assessment while framing the lending policy.
it can't be used again after payment. Lending officer plays a very crucial role in the lending process and managing risks in lending . banks charge commitment charges (generally < 1% per annum ) towards the unutilized limit. What are the Roles of the Loan officer in a commercial bank ? Lending is not free from risks. in contrast to installment credit. he is expected to ensure the credit quality and minimize loan losses and contribute towards higher yield on loans & advances. To minimize the loss due to non utilization of the limit by the customers. he must be able to accurately identify. Cheque facility is also provided for cash credit accounts. refinancing of existing long term debts. 2. Customer is free to draw when ever he wants. auto loan. Housing loans that can't be used again once they've been repaid. Commitment charge : Under cash credit revolving limit. 4. Cash Credit Limits .b) Long-Term Loans: Loans with maturity of more than one year – generally availed for purchase of fixed assets. the borrower is allowed to borrow up to a maximum commitment level and not as a single transaction. Examples are education loan. Banks charge interest only on the outstanding amount drawn by the customer. Commitment charges Non-revolving credit . Education loan c) Revolving Loans : It is a type of credit that does not have a fixed number of payments. For bank to succeed. Evaluating the prospective Customer’s Character. he is expected to develop new banking relationships for marketing and selling the different loan products to achieve the set target and goals. Financial conditions. Credit record. auto loans. What makes a . acquiring of another company. The lending officer is often required to balance two performs two divergent roles like that of a marketing officer and a credit officer While as a marketing officer. H o w t h e l o a n o f f i c e r d e c i d e s a g o o d l o a n ? ( o r . as a credit officer. Example : Credit cards. What are the various steps involved in making a lending Process? Finding the Prospective Customer. Corporate revolving credit facilities are typically used to provide liquidity for a company's day-to-day operations. 3. measure and manage lending risks. Common examples are housing loan. When banks depend on borrowed funds for lending they can’t afford taking undue risks. Purpose. Assessing the Security/Collaterals offered and Monitoring after release of the loan are the main steps in a lending process. Thus in this type of arrangement.
Productive Purpose. Risk Assessment e. 1. 2. Qualitative analysis c. Liquidity. Due Diligence d. Determining bank’s willingness and ability to lend Cardinal Principles of Lending: .whether change in law and regulations could adversely affect the borrower? 5. Conditions – recent trends in the borrower’s line of work and how the changes in economic conditions might affect the loan? 6. Financial Analysis b. This needs study of the following six aspects of a loan proposal. Diversification of . Cash – does the borrower have the ability to generate enough cash? 4.Good Loan?) What are the six C’s of Lending? The following three basic aspects about the loan proposal ensure a good loan proposal.the loan officer must be convinced that the customer has a defined purpose for availing credit and serious intension to repay the loan. Safety. Profitability. Is the borrower Creditworthy? How to know it? b. Capacity – the loan officer must be convinced that the customer has the authority to request a loan. Control . Character . 3. Collateral – does the borrower own enough quality assets to provide adequate support for the loan? 5. Can the Loan Agreement be properly structured and documented so that bank’s interest is adequately protected? c. What are the various steps involved in evaluating the creditworthiness of a prospective borrower? What are cardinal principles of Lending ? a. a. Can the lender enforce its claim against the assets/earnings of the customer in case of default? The six C’s of Lending The basis thing that must be dealt with before finalizing the sanction is whether the customer can service the loan.
But with introduction prudential norms. b. trends in revenues and expenses and compare the ratios with industry averages. d. c. A thorough Financial analysis involves : a. etc. a site visit. revolving. long. operating. There are various techniques and ways of doing an appraisal and these include an interview with the prospective borrower. What are the different methods of selling Loans to third parties? BASEL committee on Banking Regulations. e. Affirmative covenants Negative covenants Event of default 8. and a review of transactions with the bank (in case of existing accounts). margin stipulated and loan limit] Terms of the Loan ( short. regulatory requirements form a part of lending decision. Regulatory and supervisory practices of the Central Bank (RBI) have led the banks to fix their own . He should analyze financial. leverage ratios. Year-on-year comparison of financial statements Cash flow statement Liquidity analysis Analysis of Capital Structure Projections analysis Estimation of assets value Comparison of actual vs budgeted performances 7. 6. How to structure the credit facility and Loan agreement ? Amount of the Loan [ project cost. an analysis of financial statements. f.) Requirements the borrower must satisfy before disbursement) Representations and Warranties (information relied upon as per the confirmation given by the borrower) Covenant of the borrower (borrower’s ongoing obligation -violation of which creates an event of default). What is the significance of Financial Appraisal in making a lending decision and how is it done? The financial appraisal enables the banker to assess the credit risk in the proposal.Risk and Security constitute the cardinal principles of lending. A properly assessed proposal is deemed to be half recovered. g. The loan officer needs to assess quality of the earnings and strength of the balance sheet.
banks are very often forced to sell off a portion (may be all) of the loans they originate. Different practices followed are : Participation ( single loan made to a large borrower by more than one bank) Syndication ( similar to participation.Traditional bank finances 1.exposure norms. and then sells off majority or all to other banks). Trade Finance (Products designed to reduce the risks and uncertainties associated with commercial transactions . Venture Capital Finance 3. Banker’s Acceptance( Bank’s commitment to pay a specific amount of money after a specific date) Non. Reverse Mortgage 5. Loan officer ‘s decision of lending is subjected to bank’s lending capacity. Letter of Credit (issued by purchaser’s bank to a seller) c. but here the participating banks lend out directly to the borrowing firm) MBAs Asset Sale ( Here the lead bank initially takes the full amount of loan to be financed. CP . Therefore. What are specialized Loan and Credit products? a.Letter of credit and banker’s acceptance) b. risk-based capital guidelines and bank’s internal lending policies (bank’s appetite for lending / exposure norms). Bridge Loan 4. 9. Factoring Finance 2.
generally granted to small borrowers. . small industries. etc.SOME BANK LOANS IN INDIAN CONTEXT Composite Loans: When loan is granted both for working capital and other capital assets . etc. marriage. Bridge Loans: Loans arranged to industrial undertakings to meet their urgent and essential needs during the period when formalities for availing term loans are being fulfilled. farmers. such as artisans. Consumption Loans: Granted in a limited scale for meeting expenses towards medical needs.
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