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CONCEPT OF CREDIT

FUND BASED
NON FUND BASED

FUND BASED NON FUND BASED


FUND BASED
AGAINST BANKS DEPOSITS

AGAINST
TIME
DEPOSITS

AGAINST
SPECIAL
TIME
DEPOSITS AGAINST
RECURRING
DEPOSITS
A/Cs
OTHER THAN BANKS DEPOSITS

OTHER THAN
BANKS
DEPOSITS

SHARES AGAINST LISTED AGAINST UNITS


AND DEBENTURE MAGNUMS OF UTI
OTHER THAN BANKS DEPOSITS - CONT
D
FUND BASED

• WORKING CAPITAL ADVANCES


• TERM LOAN
• CHEQUE PURCHASE
• BILL PURCHASE
• PACKING CREDIT & POST SHIPMENT CREDIT
• DEFERRED PAYMENT GUARANTEE
• CONSORITIUM ADVANCES
• CREDIT SYNDICATION
NON FUND BUSINESS

• LETTER OF CREDIT
• BANK GUARANTEE
• FORWARD CONTRACTS
TYPES OF ADVANCES

TYPES OF
ADVANCES

DEMAND
OVERDRAFT TERM LOAN CASH CREDIT
LOAN
DEMAND LOAN

• ONE TIME ADVANCE FOR A FIXED AMOUNT,


• NO FURTHER DEBIT IS ALLOWED EXCEPT FOR INTEREST, INSURAN
CE PREMIA, OTHER SUNDRY CHARGES
• IT IS SANCTIONED AGAINST PLEDGE OF GOLD ORNAMENTS, BANK’S
TERM DEPOSITS, AND SECURITIES OTHER THAN BANK DEPOSITS e.
g. NSC / KVP / IVP, PENSION LOAN, AGAINST SHARE/DEBENTURES
• SECURITY DOCUMENTS :- a) DEMAND PROMISSORY NOTE b) D P NO
TE DELIVERY LETTER
• HOLDER OF D.P.NOTE MAY SUE UPON WITHIN 3 YRS FROM THE DAT
E OF ITS EXECUTION
• BEFORE EXPIRY OF 3 YRS REVIVAL LETTER OF D.P.NOTE IS TAKEN
LEST DOCUMENT WILL BE TIME BARRED
• DETAILS OF DOCUMENTS ARE DIARISED IN document register
OVERDRAFTS

• OVERDRAFTS MAY BE SANCTIONED AGAINST SECURITY OR


WITHOUT ANY SECURITY (CLEAN OVERDRAFT)
• THESE SECURITY MAY BE BANK’s OWN TERM DEPOSIT, SPEC
IAL TERM DEPOSIT, L I C POLICIES, UNITS OF UTI, NSC, MAGN
UM CERTIFICATES, SHARES AND DEBENTURES
• OVERDRAFT – DRAWING EXCEEDING WHAT STANDS TO YOU
R CREDIT
• CUSTOMER IS ALLOWED TO DRAW WITHIN THE SANCTIONED
AMOUNT
• D.P. NOTE, D.P.NOTE DELIVERY LETTER AND SECURITY DELI
VERY LETTER IS TAKEN
GOLD LOAN

• GOLD LOAN IS SANCTIONED AGAINST PLEDGE OF GOLD ORNAMENT


S TO THE BANK – BOTH UNDER Per AND Agrl Segments CUSTOMER
• MAY BE SANCTIONED SINGLY OR JOINTLY.
• D.P. NOTE AND ACCOUNT OPENING –cum-DELIVERY LETTER IS TAK
EN
• PURITY OF ORNAMENT IS TESTED BY CASH OFFICER AND IN CASE
OF NEED CERTIFICATE OF PURITY MAY BE OBTAINED FROM APPRO
VED GOLD SMITH ALSO. NITRIC ACID TEST METHOD AND WEIGHTME
NT IN WATER TEST METHODS IS USED
• WEIGHT IN AIR X AND X – X/19 SHOULD BE EQUAL TO THE WEIGHT
OF ORNAMENTS IN WATER Y . IF Y IS LESS THIS SHOWS IMPURITY
• ORNAMENTS ARE KEPT IN JOINT CUSTODY
IRREGULAR DEMAND LOAN / GOLD LOAN

• EVERY GOLD LOAN AND DEMAND LOAN IS FOLLOWED BY A F


IXED REPAYMENT PROGRAMME AND DRAWING POWER DEC
REASES AS THE TIME PASSES AND IT SHOULD BE WITHIN DR
AWING POWER.
• IN CASE OF GOLD LOAN IN NO CASE OUTSTANDING SHOULD
EXCEED THE VALUE OF GOLD ORNAMENTS
• REMINDER HAS TO BE SENT TO THE DEFAULTER CUSTOMER
S
• VALUATION OF GOLD ORNAMENT IS ADVISED REGULARLY BY
THE BANK
• PART DELIVERY IS PERMITTED AND IN CASE OF DEFAULTER
BORROWER SALE OF ORNAMENT IS DONE AS PER NORMS
TERM LOAN

• TERM LOAN IS SANCTIONED FOR ACQUIRING FIXED ASSETS


e.g. CONSTRUCTION OF HOUSE, PURCHASE OF FLAT, PURCH
ASE OF VEHICLE, PURCHASE OF PLANT & MACHINERIES, ED
UCATION LOAN, PERSONAL LOAN, RENOVATION OF ASSETS
• IT IS FOLLOWED BY A FIXED REPAYMENT PROGRAMME.
• ASSETS CREATED OUT OF BANK’S FINANCE IS HYPOTHECAT
ED TO BANK
• AFTER FULL DISBURSEMENT OF T/L NO SUBSEQUENT DISBU
RSEMENT IS ALLOWED EXCEPT INTT. INSURANCE PREMIA, A
ND OTHER SUNDRY CHARGES
• IT IS GRANTED FOR A FIXED TERM OF NOT LESS THAN 3 YRS
WITH REPAYMENT SCHEDULE NORMALLY NOT EXCEEDING 7
YEARS
CASH CREDIT

• FUNDS REQUIRED TO MEET DAY TO DAY REQUIREMENT FOR


PRODUCTION AND SALES
• FOR PRODUCTION WE NEED FUND FOR PURCHASE OF RAW
MATERIALS/FUEL / LABOUR PAYMENT / ELECTRICITY CHARG
ES etc
• CUSTOMER IS REQUIRED TO INFUSE HIS/HER MONEY ALSO A
S MARGIN MONEY. IT DEPENDS UPON NATURE OF BUSINESS
• DRAWING IS ALLOWED WITHIN DRAWING POWER ARRIVED A
T.
• DRAWING POWER IS CALCULATED AGAINST ASSETS HYPOT
HECATED TO BANK
• DRAWING POWER IS DIFFERENT FROM LIMIT SANCTIONED
CHEQUE PURCHASE

• CHEQUE MAY BE DRAWN LOCALLY OR ON OUTSTATION BRA


NCH
• NORMALLY OUTSTATION CHEQUES ARE SENT TO DRAWEE B
RANCH FOR PAYMENT AND FUND IS PROVIDED TO CUSTOME
R ON REALIZATION OF CHEQUE
• HOWEVER, WE MAKE AVAILABLE AMOUNT OF OUTSTATION C
HEQUE TO CUSTOMER ON THE DAY OF PRESENTATION ALSO
AND IS KNOWN AS CHEQUE PURCHASE
• THIS FACILITY IS AVAILABLE TO Per Segment CUSTOMER UPT
O Rs.20000/
• THIS FACILITY IS AVAILABLE TO BUSINESS HOUSES ALSO BA
SED ON THEIR NEED AND FINANCIAL ASSEMENT AFTER RET
AINING SOME MARGIN AND SUCH FACILITY IS KNOWN AS CH
EQUE PURCHASE
BILL PURCHASE

• AMOUNT OF BILLS DRAWN (BOTH DRAWN LOCALLY OR OUTS


TATION) IS MADE AVAILABLE TO THE BUSINESS HOUSES AFT
ER RETAINING CERTAIN MARGIN.
• THIS FACILITY IS KNOWN AS BILL PURCHASE
• FACILITY IS ASSESSED ACCORDING TO NEED AND CREDIT W
ORTHINESS OF THE BUSINESS HOUSE
• BOTH IN CASE OF CHEQUE PURCHASE AND BILL PURCHASE
WE KEEP CLOSE WATCH AND ENSURE THAT ITS PROCEEDS
ARE REALISED WITHIN STIPULATED PERIOD
• IN CASE OF RETURN OF CHEQUE / BILL PURCHASED PROCEE
DS IS RECOVERED ALONG WITH INTEREST AND OTHER CHA
RGES
PACKING CREDIT ADVANCES

PACKING CREDIT

POST SHIPMENT:
PRESHIPMENT :
FINANCE AFTER
FINANCE PRIOR
SHIPMENT
TO SHIPMENT
DEFERRED PAYMENT GUARANTEE

• CONTRARY TO TERM LOAN COST OF MACHINERIE


S IS PAID ON DEFERRED TERMS
• THE BANK EXECUTES A GUARANTEE ON BEHALF O
F THE BUYER TO THE SELLER’S BANKER WHO, ON
THE STRENGTH THEREOF, DISCOUNTS THE BILL D
RAWN ON BUYER.
• THE SUPPLIER RECEIVES PAYMENT OF THE BILL O
N BEING DISCOUNTED BY HIS BANKER AND BUYER
REPAYS HIS OBLIGATION IN INSTALMENTS TO THE
SELLER’S BANKER BY RETIRING THOSE BILLS ON I
TS MATURITY DATES
CONSORITIUM ADVANCES

• WHEN BORROWER’S CREDIT NEEDS ARE LARGE A


ND FINANCING BANK’S RESOURCES ARE SMALL O
R INADEQUATE OR A SINGLE BANK IS RELUCTANT
TO SANCTION VERY LARGE LOAN TO A PARTICULA
R GROWING COMPANY, FEW BANKS MAY MEET TH
E NEEDS JOINTLY WITH COMMON APPRAISAL, COM
MON DOCUMENTS AND JOINT SUPERVISIONS AND
FOLLOW UP EXERCISES
CREDIT SYNDICATION

• COMPANY CHOOSES A LEAD MANGER (BANK / FINA


NCIAL INSTITUTION)
• LEAD MANAGER WOOS THE PARTICIPANT BANKS F
OR EXTENDING CREDIT TO THE COMPANY
• IT SAVES THE TIME OF THE COMPANY SEEKING FI
NANCE
• SYNDICATE MANAGER ACTS AS AN AGENT AND EA
RNS FEES FOR ARRANGING SYNDICATION. HE MAY
OR MAY NOT CONTRIBUTE THE LOAN SYNDICATIO
N
NON FUND BUSINESS – LETTER OF CRE
DITS
• LETTER OF CREDIT IS A MEANS TO ENSURE PAYMENT TO TH
E SELLER OF GOODS & SERVICES SUPPLIED TO THE BUYER
AND IT ALSO ENSURES THE DELIVERY OF GOODS AND SERVI
CES TO THE BUYER
• PARTIES TO LETTER OF CREDITS ARE a) APPLICANT b) ISSUI
NG BANK c) ADVISING BANK d) BENEFICIARY e) NEGOTIATING
BANK
• UNDER L/C BILLS DRAWN ARE SENT TO THE BUYER’S BANK A
ND IT IS PAID BY THE BUYER AS AGREED UPON BY BUYER A
ND SELLER
BANK GUARANTEE

• IN COMMERCIAL TRANSACTION, THE LENDER DESIRES THAT


MONEY LENT IS RECEIVED BACK WITHOUT FAIL. SO HE SEEK
S FROM THE LOANEE THE GUARANTEE OF ANOTHER PERSO
N FOR THE REPAYMENT OF THE DEBT IN CASE THE LOANEE
FAILS TO REPAY.
• IT HAS THREE PARTIES a) APPLICANT – THE PRINCIPAL DEBT
OR AT WHOSE REQUEST GUARANTEE IS BEING EXECUTED b)
BENEFICIARY – PERSON TO WHOM THE GUARANTEE IS BEIN
G GIVEN AND WHO CAN ENFORCE IT IN CASE OF DEFAULT c)
GUARANTOR – THE PERSON WHO UNDERTAKES TO DISCHAR
GE THE OBLIGATIONS OF THE APPLICANT IN CASE OF DEFAU
LT
FORWARD CONTRACT

• A FORWARD CONTRACT IS A CONTRACT BETWEEN


TWO ENTITIES WHERE SETTLEMENT TAKES PLACE
ON A SPECIFIED DATE IN THE FUTURE AT TODAY’S
PRE AGREED PRICE.