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Banking is dealing in money Investment to earn money Bulk of income derived by lending funds provide loans on security of some assets Risk in defaults of payments Sound lending policy Banks in India have the responsibility of fulfilling social obligations
PRINCIPLES OF LENDING
SAFE Y 1. Security offered by the borrower 2. Repaying capacity and willingness of the borrower to repay the loan with interest. 3. Security offered is adequate and readily realizable 4. Good lending-safety 5. One must feel that the advance is safe 6. Right type of borrower
Source of repayment is definite 7. 5. . 3. 6. 2. 4.CONTINUEDu T 1. LIQUIDITY Repay the depositors on demand Funds in liquid form Ability of an asset to convert Into cash in short time Money should come back on demand or in accordance with agreed terms of payment. Payment within a reasonable time after demand for repayment is made. If a banker lends a large portion of its funds to borrowers from whom repayment would be coming in but slowly the ability of the banker to meet the demands made on him would be seriously affected ± no safety.
2.CONTINUEDu T PROFITABILITY: 1. reserves etc. They should earn profit to pay interest on deposits. Banks should earn profit for their survival 4. Banks are commercial institutions. declare dividend to their shareholders. . Invest in such a way that maximum returns can be obtained. meet administrative and operating expenses and provide for depreciation. 3.
Loan Policy provides framework for bank lending.LOAN POLICY Lending is a crucial activity of banks. . Amount of credit to be extended Industries to be focused on Geographic area Type of credit to offer Type of proposals to finance Amount and type of security Repayment schedule Top management sets standards A policy document which goes into all these areas is called as loan policy of the bank.
Margins should also cover the risks a bank is exposed to.LOAN PRICING Deployment of loan should be at rate that covers the cost of funds and leaves a margin to the lender after meeting the expenses. Objectives of loan pricing are: 1. Balancing risk reward profile 3. Ensuring market rates Margins ensure profits. the balanced risk reward profile ensures sustenance and the market rate ensures the banks presence in the market . Maintaining margins 2.
) Banks are free to fix Benchmark Prime Lending Rate (BPLR) for credit limits over Rs. It is usually used as a benchmark for loans.CONTINUEDu Cost plus.2 lakh with the approval of their respective Boards. . Loan pricing is used as a tool of risk management. PLR( prime lending rate) (Prime Lending Rate / Board Rate is the interest rate charged by the bank to its best and most credit-worthy customers [usually large. conservatively financed businesses]. return on equity Rate of interest can be fixed or floating Floating rate of interest is applicable to housing or educational loans etc.
For secured loans-pledge. Balance should try to balance their spreads and the risk levels. assignment etc.LENDING FUNCTION Lending is the main function of banking. Priority sector lending . Loans can be secured or unsecured. Major component of the assets side of the balance sheet of a bank is loans and advances. hypothecation.
CREDIT RISK Most common risk is the credit risk. It is the risk of non payment of the loan by the borrowers. Monitoring of the credit Many other risks banks are exposed to Sound credit policy . Credit appraisal/ evaluation 2. Principles of credit risk management are: 1. Pricing of the credit 3.
The market value of the security should not be less than the amount granted. . Secured loan Unsecured loan Secured loan provide safety to bank by creating charge on the assets in favor of the bank.FUND BASED LENDING Banks lend money either on the personal security of the borrower or on the security of some tangible assets.
5. It is a right of creditor ( bank) to retain the properties belonging to the debtor ( borrower) until the debt due is repaid.IMPORTANT MODES OF CREATING CHARGE ON SECURED ADVANCES LEIN: 1. Ownership is not transferred from the customer to the banker. . 2. Retain all securities of the customer in respect of general balance due to the customer. The borrower submits declaration to the banker that his assets mentioned are free from any charge. 3. 4. Only the right to retain the possession of the goods.
bailee 5. Goods which are of movable in nature are pledged to the bank. Pledge: 1. 4. . It is the bailment of goods. A pledge is created when goods are delivered by one person to another for securing debt. Two parties ± bailor. 7.CONTINUEDu. a security for payment of debt.. The person who pledges the goods is called the bailor and the person to whom the goods are pledged is known as bailee 6. A pledge occurs when goods ate delivered in the possession of the bank and the goods will be returned to the borrower on repayment of the loan. 3. 2. Transfer of possession is compulsory in case of pledge though ownership continues to remain with pledgee.
. Mortgage: 1. It is the transfer of an interest in specific immovable property for the purpose of securing the loan. Possession remains with the borrower and the ownership is transferred to the bank.CONTINUEDu. 4. Legal mortgage 6. Equitable mortgage.. 2. 5. The instrument by which the transfer is effected is called mortgage deed. If the mortgager is a limited company the charges of mortgage must be registered with the registrar of companies within 30 days from the date of creation. 3.
The borrower undertakes to give possession of the goods when requested by the bank. In case of hypothecation a charge over the movable property is created for an amount where neither ownership nor possession is passed on the bank. possess and sell the goods.CONTINUEDu.. Hypothecation allows the borrower to retain. The borrower insures goods adequately. Right to inspect the goods There is a high risk of multiple financing . T HYPOTHECATION: It is the mortgage of movable property for securing loan.
3..it is the transfer of any existing or future right.Normally assignments are made of actionable claims such as book debt. 4.An actionable claim. insurance claims etc.The debtor should also confirm that the assignment is made . 2.CONTINUEDu. T ASSIGNMENT: 1. property or debt by the borrower to the bank for loan.
5. The interest is charged for the full amount of loan at periodical intervals. 2. The entire amount is paid to the borrower or credited to his current account. 3. . long term.TYPES OF LOANS Term Loans: 1. 4. Term loans may be medium term. The loam is repaid in installments together with interesrt. The bank advances a lump sum amount for a certain period of an agreed rate of interest.
They have also started providing medium tem loans finance to the businesses. The loan once repaid in full or in part cannot be drawn again by the borrower unless the banker sanctions a fresh loan. Short and medium term loans are advances made by banks with or without security. These are granted for meeting working capital requirements.SHORT AND MEDIUM TERM LOAN 1. . Commercial banks in India provide only short term credit to the business firms. The rate of interest charged by a bank in the case of loan is normally lower than the interest on cash credits and overdrafts because it involves the lower cost of maintenance on account of not frequent operation of the account and the bank gets interest on the total amount sanctioned whether the borrower withdraws the whole amount of loan or not. 6. 5. 3. 2. 4.
It is secured against mortgage of fixed assets or hypothecation of movable properties of the borrowing companies. BRIDGE FINANCE: It is loan taken by a company from commercial bank. Rate of interest is higher than term loans. . There is always a time gap between the date of sanctioning and its disbursement by the financial institutions to the concerned borrowing company. pending disbursement of term loan form the financial institution.LONG TERM LOANS The loan policy in respect of each broad category of nature is to be laid down by every bank with the approval of its board. In order to prevent delay in starting their projects companies arrange from the commercial banks short term loan which are later on repaid as and when term loan disbursements are received from the financial institutions.
Two or more banks agree to finance a particular project.LOAN SYNDICATIION It is a commitment for term loans from the financial institutions and banks for financing a particular project. . One of the bank or financial institutions may become a lead institutions and bring about co-ordination in the financing arrangements of different financial institutions or banks. The borrower may directly make the loan application to a lead financial institutions or bank which in turn gets in touch with other financial institutions/ banks interested in participating in the financial assistance to the borrower.
Cash Credit is a running account to which deposits and withdrawals can be made frequently.CASH CREDIT. It is an arrangement for long and medium term and the borrower need not draw the sanctioned amount at once. . It is the most favorable form of loan. This arrangement can be made by the bank against the pledge or hypothecation of goods. This type of loan provides flexibility because the sanctioned limit can be changed according to the needs of the borrower. Interest is charged only for the amount withdrawn not for the amount of loan sanctioned.OVERDRAFT. He can draw the amount as and when required.BILL DISCOUNTING Cash Credit: It is an arrangement by which a borrower is allowed to borrow money up to certain limit.
overdraft is an arrangement between a bank and its customer by which the customer is allowed to withdraw over and above his credit balance in the current account. 3. The borrower is permitted to withdraw and repay and withdraw any number of times up to the sanctioned limit. 4. This is temporary facility usually provided to the current account holders. .CONTINUEDu. 2. Overdraft: 1. There is a agreed limit of overdraft.
. Loans can be granted against it. The amount of the bill after deducting the discount is credited to the account of the customer.CONTINUEDu. The bank receives the interest in advance at the time of discounting. 4. 3. 5. Banks Usually grant loans to their customers by discounting bills of exchanges. The bank collects the full amount of bill on maturity from the drawee of the bill. 2. Bill Discounting: 1. Some banks purchase the bill 6.
NON FUND BASED ACTIVITIES AND SERVICES OF THE BANKS .
NON FUND BASED SERVICES PROVIDED BY THE INDIAN BANKS 1) Collection of cheque. bills and promissory notes 2) Collection of dividend and interest 3) Execution of standing orders 4) Remittance of funds .
METHODS OF TRANSFER OF FUNDS 4 (1) Bank Draft: A bank draft is an order from one branch to another branch of the same bank to pay a specifies sum of money to a person named therein or to his order. A draft is always payable on demand. . Banks issues drafts at the request of the customers on their branches at the place of destination for remitting money from one place to another place. Purchase a draft Bank charges some commission Commission amount depends on the amount of the draft Bank draft is like a bill of exchange payable on demand.
Loss of the draft Valid title holder should only be made payment Draft may be cancelled by the bank if it is not delivered to the payee. When a bank draft is delivered to the payee he acquires a right in the instrument which cannot be set aside by the stop payment order issued by the purchaser. . 4 (2) Mail Transfer: Sending money through the post to any person at any place where the bank has a branch and the person receiving the amount has an account in other branch of the same bank. The validity of the draft that is the period may be clearly indicated on the draft form.CONTINUEDu. Bank charges commission.
4 (3) Telegraphic Transfer: If the customer wants to send the money urgently he can request the banker for telegraphic transfer on payment of nominal charges to cover the telegram charges. The cost of telegraphic transfer is higher than the cost of mail transfer.CONTINUEDu. . However the money is transferred quickly. Facility is available at selected branches only.
There are two keys Opened by both keys Valuables like jewellery and documents etc. . There are lockers available to the customer on a nominal charge. SAFE DEPOSIT VALUE A bank undertakes the safe custody of the customer valuables and documents by providing a safe deposit value. A register is maintained by the bank Lockers are provided on hire basis.5. These are kept in specially constructed strong rooms.
6. It specifies as to when payment is to be made which may be either on presentation of documents by paying bank or at some future date. Many parties are involved: Buyer of the goods ( he makes an application to the banks) ( banks who issues the LOC is known as the issuing bank) Seller of the goods a) b) . ISSUE OF LETTER OF CREDITS A letter of credit is a commercial instrument of assured payment. It is widely used by the businessmen for various purposes The bank undertakes to make payment to a seller on introduction of documents stipulated in the letter of credit.
Its traditional and primary use is to dispense cash upon insertion of a plastic card and its unique PIN i. .e. It is a secret number which is only known to the account holder.7) ATM ( AUTOMATED TELLER MACHINE) ATM is a channel of banking services to its customers. Personal Identification Number. ATM card is a plastic card with a magnetic strip with the account number of the individuals . The bank issues ATM cards to their customers having current or savings account holding a certain minimum balance in their accounts. ATM can be accessed round the clock . When the card is inserted in the machine the sensing equipment of the machine identifies the account holder and asks the PIN.
The customer is given access to his account upon matching the account number and the T ±PIN.PIN) is provided to each account holder which is similar to ATM PIN. The customer can call the exclusive tele banking numbers and provide the details to identify himself to the automated voice. Though cash withdrawals and deposits are not available through this service banks have started offering a cash delivery or collection service to certain classes of customers.8) TELE BANKING Tele banking is a service offered by banks to enable customers to access their accounts for information or transactions. . A telephone PIN ( T.
9) INTERNET BANKING Internet is a channel of service to banking customers. Transactions such as e business. Payment of Bills. The access to account information as well as transaction is offered through the world wide web network of computers on the internet. Each account holder is provided with a PIN similar to that of ATM or phone banking Matching Of PIN ±ACCESS A higher level of security may be reached by an electronic fingerprint. . Transfer Of money can be carried out while sitting in the house with the help of an internet. Railway-Air Reservation.
. The outstanding on account of use of the credit card is payable by the card holder to the bank over a specific period which carries a fixed amount of interest. card number and expiry date are printed on the plastic cards. It is a source of revolving credit The cards are plastic cards issued by the banks to their customers. Some banks also use the photographs Purchase goods or services The card issuing bank makes the payment to the supplier or seller. The name of the customer.10 ) CREDIT CARDS A credit card is an instrument of payment.
Services offered: Project consulting Mutual funds Portfolio management Raising funds from the capital market M&A 1) 2) 3) 4) 5) . consulting and rendering corporate advisory services in relation to such issues.11) MERCHANT BANKING Banks are also providing various services relating to capital market and finance to companies which are known as Merchant Banking services. MB are the bankers who are engaged in the business of issue management. Includes arranging funds from outside the country.
. The main link between the buyers and sellers of foreign exchange in the foreign exchange in the foreign exchange market is the bank. The foreign exchange market is the clearing house through which the purchase and sale of foreign exchange are offset against each other. credits and balance payable in any foreign currency.FOREIGN EXCHANGE Foreign exchange means the foreign currency and it includes deposits. Foreign exchange is also used to denotes the process or system by which the currency of one country is converted into that of another country. Foreign exchange transactions arise mainly from trade transactions among residents of different countries.
. It takes place through the electronically linked network of banks. It does not have a physical place. There are multiple currencies There is a need for foreign exchange market.FOREIGN EXCHANGE MARKET A market for the purchase and sale of foreign currencies is known as ³Foreign Exchange Market´ Facilitate international trade and investments. FEM aims at permitting the transfer of purchasing power denominated in one currency to another whereby one currency is traded for another currency. foreign exchange brokers and dealers.
They play the role of market making. . They trade with other banks in their own monetary centers and in other centers of the in order to maintain the inventory of foreign currencies within the trading limits. They earn profit from buying foreign exchange at a bid price and reselling it at a slightly higher price.PARTICIPANTS IN THE FOREIGN EXCHANGE MARKET 1) Foreign Exchange Dealers: Banks and non-bank agencies are important participants in the foreign exchange market. They actively deal in foreign exchange for their own accounts. These participants buy and sell major foreign currencies on a continuous basis.
multinationals. These firms are the exporters . 3) Foreign Exchange brokers: They are the commission agents who bring together suppliers and buyers of foreign currency. tourists and others who have to use foreign currency in order to facilitate the execution of commercial or investment transaction.. importers. 2) Individuals and Firms: Firms who operate internationally have to pay suppliers and employees in the local currency of the country in which they operate and may recive payments form customers in different countries. . They are specialized in certain currencies They provide the services of giving information on the prevailing anf future rates of exchange . international portfolio investors.CONTINUEDu.
Central bank and treasuries: They use the foreign exchange market for the purpose of buying and selling of country¶s foreign exchange reserve. Speculators and Arbitragers: Speculators buy and sell currencies in order to earn profit from anticipated changes in exchange rates. 5. A large portion of the speculation and arbitrage take place on behalf of major banks. .. 4. Speculators and arbitragers trade in the foreign exchange market in their own way trying to make profits through normal and speculative operations. Currency speculations is combined with speculation in short tem financial instruments like treasury bills.CONTINUEDu.
In case of this transaction only the delivery and payment take place at a future date. The date of settlement is known as ³ value date¶.TYPES OF TRANSACTION Different types of transaction carried out in a foreign exchange market by the various participants. The rate quoted in such a transaction is called a µSpot Rate¶. The rate quoted in such a transaction is called forward rate. Forward Transaction it is a transaction where a specifies amount of one currency is exchanged for s specifies amount of another currency at a future value date. Spot transaction. .purchase of foreign exchange delivery and payment for the same take place between banks usually on the following second business day. the exchange rate being determined at the time of agreement.
1) American terms 2) European Terms . The dealers incurs no unexpected foreign exchange risk since the transaction executed within a single counter party. Both the purchase and sale are with the same counter party. Foreign Exchange Rates: the price of one currency expressed in terms of another currency is called as µ Foreign Exchange rate¶ A statement of willingness to buy or sell at a specifies rate and a specific value date is called as foreign exchange quotation.CONTINUEDu SWAP transaction is the simultaneous purchase and sale of a given amount of exchange for different values dates.
e. dollars and cents if you are in the United States) is given per unit of the foreign currency.. For example.80 EUR = 1 USD. Bid rate Ask rate . a direct quote for the euro would be 1. An indirect quotation is quoted in the amount of the foreign currency per unit of domestic currency. in the United States.CONTINUEDu Direct quote : It is one in which the amount of the domestic currency (i.25 USD = 1 EUR. An indirect quote would be 0.
ROLE OF COMMERCIAL BANKS IN FOREIGN EXCHANGE Active part in financing foreign trade. Maintain accounts in foreign countries to meet the requirements of foreign exchange of the public. The RBI has allowed banks to offer foreign currency . They quote rates at which they buy and sell foreign exchange in accordance with the rules and regulations of the RBI and Foreign Exchange dealers Association of India. The rates quoted depends upon the rates prevailing in the international markets. All the sales and purchases of foreign exchange are routed through the accounts they maintain with banks in important financial centers in the foreign countries.
documentation. The manufacturing activity or assembling starts with the confirmation of export order. clearing & forwarding and payment of freight.EXPORT/ IMPORT FINANCING Every business requires finance. insurance. packing. Further orders has to be executed. . Export finance refers to the finance of the goods from the home country to the importer¶s port. The export financing begins with as soon as an export order is received and accepted. taxes. The exporter needs finance for transportation. It takes 3 to 6 months to realize the export bills. Payments for imports are made on shipment of goods. Most of the export trade is carried out on credit basis.
pricing policy and product policy. type of organization. technology etc. Overall financial strength of the company. The various agencies involved in the provision of finance are the RBI.CONTINUEDu Importer also needs finance for importing capital goods. Short term credit facility is extended is extended for a period from 30 days to 180 days. ECGC and other financial institutions. EXIM bank. Support is required. Credit may be short term or medium term The credit policy may depend upon sales volume. Importers have to approach their bankers for credit facilities. . raw material. Long term credit is extended for a period from 5 years to 20 years.
It is also known as PACKING CREDIT. components. packing and shipment of the goods for exports. Pay freight for shipment of goods 7. Pay for transportation and warehouse expenses 3. 1. processing. Pay insurance premium on shipment of goods 5. equipment. machinery.PRE SHIPMENT FINANCE Pre shipment finance defined by the RBI ³ Any loan to an exporter for financing the purchase. It is provided by any bank or financial institution. . manufacturing or packaging of goods´ It is an interim advance provided by the bank for helping the exporter to purchase process. and technology 2. Provide additional working capital form time to time. Purchase of raw materials. For specialized export packing of goods 4. Pay commission to overseas agent 6.
FEATURES OF PRE SHIPMENT FINANCE 1) 2) 3) 4) 5) 6) 7) 8) Purpose Eligibility: Exporter who produces a confirmed export order and/or letter of credit received in his own name. Indirect exporters are also eligible Form of finance Amount of finance % of exporter¶s Profit Nature of goods Ability to repay Period of loan ( max 180 days extra 90 days RBI) Rate of Interest Documentary evidence Security and loan agreement 9) Maintenance of accounts .
Exporter needs post shipment finance for the following purposes: 1) To pay premium 2) To pay freight and other shipment expenses 3) To participate in the fairs and exhibitions 4) To pay to overseas agents 5) To pay to various authorities such as custom. 6) To pay regular expenses between the shipment of goods and realisation of export bill. .POST SHIPMENT FINANCE When the exporter needs an advance after completing the process of shipment of goods is called as µ post shipment finance¶. port and inspection etc.
FEATURES OF POST SHIPMENT FINANCE
1. 2. 3. Purpose ( meeting working capital requirements). Eligibility: ( exporters who have actually shipped the goods) Form of advance: ( discounting the export bills) Amount of advance ( extended upto100% of the invoice bill) Period of advance Short term ( upto 90 days) Medium term ( upto 5 years) Long term ( 5 ± 12 years) Rate of interest Documents ( shipping bill, receipt, export bill etc) Loan agreement
RURAL FINANCING/ FARM LENDING
Agriculture is the backbone of Indian economy. The financial requirements of the Indian farmers is known as rural credit. Pre-independence ( Money lenders) Charged exorbitant rates of interest Manipulated accounts to their benefit Forced farmers to sell the agricultural produce to them at very low prices. Expansion of institutional credit to agriculture. Co-operatives came into picture Nationalization of 14 major commercial banks in 1969 and 6 more banks in 1980. Objective was expansion of rural credit In 1975 Regional rural Banks were established National Bank Of Agriculture And Rural Development ( NABARD) In 1982
A. B. C. 1. 2. 3. Rural Credit means credit to farmers. It is also known as agricultural credit Credit needs: Short term ( less than 15 months) ( moneylenders, cooperative scarcities) Medium term ( 15 months -5 years) (moneylenders, cooperative scarcities, relatives and commercial banks) Long term ( More than 5 years) ( Land development banks or commercial banks) Rural needs can be even classified in the following terms: Productive Consumption Unproductive needs Indian farmers often borrow money from moneylenders.
Basic objective of this policy were: 1.NATIONAL POLICY ON RURAL CREDIT After independence the Government and RBI framed a national policy on rural credit and multi agency approach consisting of cooperatives. Private credit was defective. 4. Provide adequate and cheaper loans to farmers. Private credit was based on profit motive Institutional credit is fully integrated Farmers should be taught improved farming methods. To provide larger credit support to areas covered by special programmes. commercial banks. To make available credit facilities to all the regions of the country. RRb. 3. . expensive and inadequate. To reduce and eliminate the role of moneylenders from the rural credit. 2. To ensure timely and increased flow of credit to the farm sector.
INSTITUTIONAL STRUCTURE OF RURAL CREDIT INSTITUTIONAL STRUCTURE OF RURAL CREDIT COOPERATIVE CREDIT SOCIETIES COMMERCIAL BANKS REGIONAL RURAL BANKS NABARD .
short term period ± upto 1 year 8. The short term credit structure is based on three tier structure: I) PRIMARY AGRICULTURE CREDIT SOCIETIES ( PACS): 1. Profits were distributed among members in form of dividend . Loans to farmers.A)CO-OPERATIVE CREDIT SOCIETIES Provide funds to the farmers for agricultural operations at low rates. Providing rural credit 3. Co-operative movement -1904 2. PACS the lowest tier in co-operative credit sector 4. Treasurer 7. President. Value of each share was generally nominal ( 10-100) 6. Rate of interest was also low ( 10-12%) 9. Secretary. Ten or more persons 5.
. Regional imbalances II) CENTRAL CO-OPERATIVE BANKS: Second tier of the rural co-operative credit structure.. Staff is inefficient and static. PACS have failed miserably PACS plagued by the problem of high level of overdue. PACS are the weakest in the entire co-operative structure. Chief Task: Advance loans to PACS in times of need so that they can fulfill the requirements of the farmers. Few private individuals as shareholders who provide finance as well as well as management Attract deposits from general public.CONTINUEDu. Surplus was used for the welfare of the people.
inefficiency. RBI & NABARD formulates schemes for the rehabilitation of weak DCCB¶s Liberal assistance to the state government for contributing to share capital for contributing to the share capital of the weak banks selected for rehabilitation. III) STATE CO-OPERATIVES BANKS: 3rd tier in the rural co-operation credit structure. losses. Advance loans to DCCB¶s ( in turn loans to PACS) Co-ordinate and regulate the working of DCCB¶s . heavy overdues etc. Problems of over staffing. Form apex of the co-operative credit structure.CONTINUEDu.. Most of these banks are in the hands of political leaders.
B) COMMERCIAL BANKS: Important role in rural credit. SCB obtain working funds from share capital. poultry etc. Term loans for varying periods for purchasing pump set. agricultural machinery etc. Link between NABARD. DCCB¶s and PACS. reserves.CONTINUEDu. tractors. deposits from general public and loans & advances from NABARD.. Initially nationalized banks concentrated their attention on large cultivators. Integrated Rural Development Programme ( IRDP) CB to finance IRDP CB are financing co-operatives ( indirect finance) . CB extend loans for activities as dairying.
SBI is playing an active role. NEED FOR CO-ORDINATION . CREDIT NORMS AND SCALE OF FINANCE 2.. SECURITY AGAINST LOANS TO CULTIVATORS 4.CONTINUEDu. MARGIN OF SECURITY 3. Small Farmers Development Agencies ( SFDA¶s) Identify small farmers RBI GUIDELINES FOR FINANCING OF AGRICULTURE BY COMMERCIAL BANKS: 1. CB extend credit to manufacturing or distribution firms. Finance co-operatives engaged in the marketing and processing of agricultural produce. RECOVERY OF DEFAULTS 5.
The area of RRB¶s was limited to a specific region comprising one or more districts. In 1971 5 RRB¶s were established. 2.. . The RRB¶s granted direct loans and advances only to small and marginal farmers.CONTINUEDu. C) REGIONAL RURAL BANKS ( RRB¶S): Main objective of the RRB¶s was to provide credit and other facilities particularly to the small and marginal farmers etc. The lending rates of RRB¶s were equal to the prevailing lending rates of co-operative societies in the particular state. 3. rural artisans and agricultural laborers for productive purposes. Such RRB had an authorized capital of Rs 1 crore and paid up capital of 25 lakhs. RRB is different form commercial banks: 1.
The RRB¶s were allowed to maintain cash reserve ratio at 3% and statutory liquidity ratio at 25% 6. 4.CONTINUEDu. RRB¶s were provided refinance facilities through NABARD. Main aim of opening RRB is opening the rural economy by providing credit for the development of agriculture trade. The sponsoring bank and the reserve bank of India provide many subsidies and concessions to the RRB¶s to enable them to function effectively.. . 5. commerce and industry as well as other productive activity in the rural areas were fulfilled.
RBI contributed half and other half was contributed was by GOI. Set up in July 1982 by an act of parliament.NABARD Was set up to take over the agricultural credit functions of RBI as well as refinance functions. . NABARD draws funds from the Government of India. the World bank and other agencies. It also borrows from RBI. Bank was linked organically with the RBI.
FUNCTIONS OF NABARD Looks after the credit requirements of the rural sector. Provide short and medium tem credit to state co-operative bank and RRB¶s Provide long term credit for investments. Co-ordinate the activities central and state governments and planning commission. Maintain R&D Fund to promote research in agriculture and rural development. . Supervise the functioning of the co-operative sector Inspect RRB DCCB¶s etc.
BANK GUARANTEE It is defined as a contract to perform the promise or discharge the liability of a third person in case of his default. DEFERRED PAYMENT GUARANTEE 4. Principle Debtor To whom the guarantee is given is called creditor. The person who gives the guarantee is called the surety. PERFORMANCE GUARANTEE 3. Guarantee may be oral or written Banks extend guarantee on behalf of their clients TYPES OF GUARANTEE: 1. SHIPPPING AND RAILWAY GUARANTEE . FINANCIAL GUARANTEE 2.
E. DOUBTFUL ASSETS ( EXCEEDING 18 MONTHS) ( WEAK) 4. SUB-STANDARD ASSETS ( NOT EXCEEDING 18 MONTHS) 3. overdraft and other advances For agricultural loans overdue for two harvest seasons is considered as NPA W. This period applies for term loan. STANDARD ASSETS 2.NON PERFORMING ASSETS What are a non performing assets? Any loan facility which is overdue for interest or installment for a period of 180 days is considered as NPA.F march 2004 banks have to classify their assts as NPA if they fail to recover either a portion of principle or interest within 90 days instead of 180 days applicable earlier. CLASSIFICATION OF ADVANCES: 1. LOSS ASSET .
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