Q: What is Demand loan.
A:Loan with or without a fixed maturity date, but which can be recalled anytime (often on a 24-hour notice) by the lender and must be paid in full on the date of demand. Also, the borrower can pay off a demand loan at any time without incurring pre payment penalties. In india normally this is granted against securities like bank deposits,lic policy,nsc, gold jewellery etc.
Q:What is Term Loan.
A:A loan from a bank for a specific amount that has a specified repayment Period(term) and a floating or fixed interest rate. Term loans may have repayment period between one and 30years.
Q:What is Overdraft.
A:An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn".
Q:What is cash credit limit.
A: In Cash Credit facility an amount of loan is given to the borrower for his working capital needs.A customer can draw upto a limit that depends upon Drawing Power calculated based on value of security.
Q: What is Pre Shipment credit (Packing Credit).
A:Pre-shipment / Packing Credit also known as ‘Packing credit’ is a loan/ advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment. Packing credit can also be extended as working capital assistance to meet expenses such as wages, utility payments, travel expenses etc; to companies engaged in export or services. Packing credit is sanctioned/granted on the basis of letter of credit or a confirmed and irrevocable order for the export of goods / services from India or any other evidence of an order for export from India.
Q: What is Post Shipment credit.
A:'Post-shipment Credit' means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realisation of export proceeds as per the period of realization prescribed by Reserve Bank of India (RBI) and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time. As per extant guidelines of RBI, the period prescribed for realisation of export proceeds is 12 months from the date of shipment.
PERSONAL COACHING CLASSES FOR BANK INTERVIEW(THE FACILITY IS AVAILABLE TO CANDIDATES LIVING ALL OVER INDIA):
Mr Anil Aggarwal (a banking expert and interview process expert) is conducting Personal coaching classes for bank interviews .The focus of his sessions are:
- What type of questions can be raised from you on the basis of your profile?
- How to attempt your answers during interview?
- What are the expectations of selection board?
- How you can present your skills in live interview situation?
- What to read, what not to read?
- How to prepare for interview?
- How to cover one's weaknesses?
- How to improve confidence level?
and so on........_
Mr ANIL AGGARWAL is able to bring about a lot of improvement in level of candidates through his motivational and informative talk. His motto is to achieve very high success rate for his candidates. you can read success stories of his candidates.
TO KNOW DETAILS OF PERSONAL COACHING CLASSES :
FOR DELHI / NCR CANDIDATES
- You may call at 09811340788 or 011-22242640 between 3 P.M. to 8 P.M..
FOR OUTSTATION CANDIDATES FROM ALL OVER INDIA :
- You may call at 09811340788 or 011-22242640 between 3 P.M. to 8 P.M..
- Candidates can avail facility of telephonic sessions.
PAST TRACK RECORD
81.8% enrolled candidates cleared their interviews with high scores and they are now working with various banks..
DELHI OFFICE ADDRESS:
ANIL AGGARWAL COACHING
NEAR MADHU VIHAR GURUDWARA,
I.P Extension , PATPARGANJ, DELHI, 110092
Credit Management Areas in Banks
CREDIT APPRAISAL IN BANKING SECTOR
WHAT IS CREDIT APPRAISAL?
Credit appraisal means an investigation/assessment done by the bank prior before providing any loans & advances/project finance. This involves following viability checks:
Financial Viability: The ability to generate sufficient income to meet operating payments, debt commitments and, where applicable, to allow for growth, while maintaining service levels. In banks, this is measured in terms of DSCR & Debt Equity Ratio for term loans and Current Ratio for WC Loans.
Technical Viability: This report analyses the locational advantage of project, production process and technology to be employed, availability of market to sell its products, availability & suitability of raw material, cost of equipment and its availability. Further it analyses availability of other facilities such as fuel, water, electricity, transportation etc. and whether these are available at reasonable prices. It also discusses availability of skilled, unskilled and supervisory staff besides managerial staff.
In case of individual loans, the credit worthiness of applicant is foremost factor. The factors such as:
» Number of dependents
» Nature of employment
» Continuity of employment
» Repayment capacity
» Previous loans, etc. are taken into account while appraising the credit worthiness of a person.
Proper KYC in terms of RBI guidelines about identification of the persons is also carried out.
Banks give lot of importance to 3 ‘C’ while considering credit proposals viz.,
BROAD CLASSIFICATION OF LOANS IN BANKS
Loans can be classified as fund based & non-fund based:
» FUND BASED
Working Capital Loans such as Cash Credit Limits or Overdraft Limits.
Term Loans for acquiring fixed assets.
» NON-FUND BASED
Letter of Credit: A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.
Bank Guarantee: A Bank guarantee is a promise from a bank that the liabilities of a debtor will be met in the event that you fail to fulfil your contractual obligations.
CREDIT APPRAISAL PROCESS IN BANKS (STEP-WISE) [PRE SANCTION]
Receipt of application from applicant on bank’s prescribed form
Receipt of supporting documents such as 3 years’ balance sheet, projected balance sheet, KYC documents, MOA, AOA in case of companies or Partnership Deed in case of a partnership firm & photocopies of title deeds of properties to be mortgaged etc.
Spot verification visit by bank officers or its authorised vendors
To check RBI defaulters list, wilful defaulters list, CIBIL data, ECGC caution list, etc. to check past record of the borrower
Obtaining non-encumbrance certificate from bank’s approved advocate
Valuation report of the properties from empanelled valuer/engineers
Preparation of financial data based on CMA and carry out risk rating as per bank prevailing model
Proposal preparation: this contains detailed information about borrower, its rating analysis of financial data, computation of PBF, terms and conditions of sanction and past conduct of account. This is prepared by one officer lower than sanctioning authority and such officer is called recommending authority. If there are more than one such officer then all of them have to sign.
Sanction/approval of limits/loan by competent sanctioning authority. In banks, various officers as per their rank are vested with loaning powers.
Documentation: This involves execution of appropriate agreements by borrower/guarantor.
Disbursement of term loan is done in phased manner as per progress of project. In case of WCL, limit is fixed in an operative account such as cash credit or overdraft and operations are allowed as per available drawing power. The drawing power is computed based on value of security available at a given point of time.
CREDIT FOLLOW UP PROCESS IN BANKS [POST SANCTION]
Post sanction follow up involves 3 major areas named as Follow Up, Supervision and Monitoring.
Follow Up: After disbursement of loan, bank has to keep a track on loan accounts to ensure timely repayment of loan by borrowers. For this purpose, they follow up by issuing reminders through various modes such as telephonic, written or visit
• Ensure terms and conditions of sanction is intimated to borrower
• Borrower advised to ensure compliance of the same
• Ensure receipt of acceptance of terms and conditions and kept on record
• Ensure all terms and conditions are fulfilled before disbursement.
•To ensure compliance with the terms and conditions of sanction
• To ensure that assumptions for credit sanction was correct
• To ensure end use of funds
• To ensure adequacy of credit on an ongoing basis depending on the needs of the borrowers
• To monitor the health of the unit and detect signs of weakness in the financial position of the borrower
Monitoring: This requires receipt of various statements from borrower that needs to be scrutinised diligently by the bank.
In case of Term Loan
Loan to be disbursed as per the schedule approved by the bank
Disbursement of installments related to actual progress in implementation of the project – Site visits periodically
Progress in project implementation should be as per schedule – For any delay seek borrowers view on steps taken for rectification
Monitor costs being incurred, borrower’s contribution, reasons for cost overruns
In case of Cash Credit
If sanctioned along with Term Loan - Must be disbursed only when the unit commences commercial production
Drawing power is calculated based on value of security. DP = VOS - Margin
Enables bank to keep check on the stocks charged to the bank
Obtain first hand information about the functioning of the unit
Verify adequacy of stocks
Physical verification of stocks – do a test check
Valuation of stocks – to be done on cost price or market price basis whichever is lower
Quality of stocks charged – Stock should not be old, obsolete, rejected goods etc. Ensure its saleability
Segregation of stocks – Stocks not hypothecated to the bank must be kept separately
Checking of Record – Books, register maintained by borrower must be verified to check the actual movement of goods and system of stock reconciliation with physical quantity
Match with the stock statement of the borrower
For limits sanction against book debts, appropriate documentary evidence supporting sale of goods must be verified
Bank’s name board to be prominently displayed indicating the goods hypothecated
Ensure that godown is well maintained
Goods are stored properly
Entries in the godown register maintained appropriately
If required conduct stock audit
Operations of the unit
Inspection of unit to be carried out periodically
To ascertain first hand on the working conditions, activity and progress Availability of raw materials, spares, power supply any other issues that may affect the unit
Maintenance of Inspection Register
Bank must maintain register to record comments on findings of inspection
Inspecting officer’s signature required
Irregularities / deviation to be brought to the notice of the borrower To be followed up vigorously
Operations in the account
Non payment of interest and installments on due dates to be followed up with the borrower
Bank should have a system of issuing reminders in advance about the repayment obligation
Cash credit account
Frequent overdrawals not to be encouraged
Frequent requests for overdrawals should be looked into
In case of shortage of working capital consider enhancement
Credits in account to be checked to see sales reported are routed through the account
Look for transactions with sister concerns
Book debt statements to be scrutinized to ensure that credit sales are realised within the stipulated period
For old debts check from the borrowers steps taken to recover the dues
Bills purchased / discounted, payment on due date to be closely monitored
Bank to ensure that securities offered have adequate and proper insurance cover on continuous basis
Cover to be obtained for full value of security
Value of security should be more than the limit sanctioned and deterioration in its quality checked
Seek information at regular intervals for Progress in implementation of the project financed
Quantum of production / sales Levels of current assets and current liabilities Stock position Debtors position Creditors position
Funds flow and cash flow
Information may be sought on regular basis
Above statements called for from borrower enables bank to monitor the levels achieved vis-à-vis projected figures of the unit. Stock statement reveals the quantity of paid and unpaid stock, their price and movement. Statement on book debt reveals age-wise breakup of debtors and creditors. Timely and qualitative information must be obtained.
System of annual review/renewal of account.
To scrutinise: Balance Sheet, P & L Account, Tax Returns of borrower
Undesirable features to be discussed with the borrower
Credit report of the borrower to be updated on a regular basis
Mechanism to initiate corrective action
To recalculate permissible bank finance based on projected figures as well as actuals.
CREDIT APPRAISAL QUANTITATIVE:
To check exposure norms as prescribed by RBI:
Credit Exposures of bank to an Individual/Group Borrowers
The following ceilings be kept in mind by banks while sanctioning loans to borrowers
The exposure ceiling limits would be
15 percent of capital funds in case of a single borrower.
40 percent of capital funds in the case of a borrower group.
The capital funds for the purpose will comprise of Tier I and Tier II capital as defined under capital adequacy standards
Credit exposure to a single borrower may exceed the exposure norm of 15 percent of the bank's capital funds by an additional 5 percent (i.e. up to 20 percent) provided the additional credit exposure is on account of extension of credit to infrastructure projects.
Credit exposure to borrowers belonging to a group may exceed the exposure norm of 40 percent of the bank's capital funds by an additional 10 percent (i.e., up to 50 percent), provided the additional credit exposure is on account of extension of credit to infrastructure projects.
Working capital Limits: Current Ratio should be atleast 1.33:1
Term Loan: DSCR Net (min.) 2:1, Debt/ Equity Ratio (max.) 2:1 and Promoters’ contribution (min.) 30%.
Risk Rating of Borrower:
To be carried out as per Risk Rating Model of particular bank.
The rating of a borrower gives insight about financial health of a borrower and also used for pricing of loan.
For credit limits upto Rs 2 cr (simplified method)
The WC requirements worked out on the basis of projected sales turnover. Minimum of 20% of projected annual turnover of borrower can be allowed as permissible bank finance.
For credit limits above Rs 2 cr (second method of lending)
A - Current Assets
B - Current Liabilities other than Bank Borrowings
C - Working Capital Gap (A - B)
D - Minimum Stipulated NWC (25% of CA excluding export receivables)
E - Actual / Projected NWC
F – [C–D]
G – [C–E]
H - MPBF (F or G whichever is less)
NON-PERFORMING ASSETS (NPA)
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.
A non performing asset (NPA) is a loan or an advance where;
interest and/ or instalment of principal remain overdue for a period of more than 90 daysin respect of a term loan,
the account remains‘out of order’ as indicated at paragraph 4 below, in respect of an Overdraft/Cash Credit (OD/CC),
the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
the instalment of principal or interest there on remains overdue for two crop seasons for short duration crops,
the instalment of principal or interest there on remains overdue for one crop season for long duration crops,
the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.
in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
Banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.
‘Out of Order’ status
An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
KISAN CREDIT CARD
The scheme aims at providing adequate and timely credit for the comprehensive credit
requirements of farmers under single window for their cultivation and other needs as indicated
a. To meet the short term credit requirements for cultivation of crops
b. Post harvest expenses
c. Produce Marketing loan
d. Consumption requirements of farmer household
e. Working capital for maintenance of farm assets, activities allied to agriculture, like
dairy animals, inland fishery and also working capital required for floriculture,
f. Investment credit requirement for agriculture and allied activities like pump sets,
sprayers, dairy animals, floriculture, horticulture etc.
Note: The aggregate of components a. to e. above will form the short term credit limit
portion and the aggregate of components under f. will form the long terms credit limit
2. Area of operation
Through all rural and semi urban branches.
i. All Farmers- individual/Joint borrowers who are owner cultivators.
ii. Tenant Farmers, Oral lessees, Share Croppers..
iii. SHGs or Joint Liability Groups of Farmers including tenant farmers, share Croppers etc.
iv. Illiterate and blind persons intending to avail of this facility may be allowed after taking
proper safeguard against misuse and tampering.
v. Maximum Age limit at the entry point for an individual is 70 years. However, in case of
individuals 70 years of age, Kisan Credit Card may be issued with joint borrowers /co-
loanee having age of less than 70 years.
It is intended that both term as well as short term/working capital credit facilities will
be provided through single Kisan Credit Card. The card will be issued for the
a) short term credit for cultivation of short duration crop including post harvest
expenses ,produce marketing loan, consumption requirement of farmer house hold.
b) working capital credit for activities allied to agriculture and also working capital
required for floriculture, horticulture ,plantation crops etc.
c) term credit (repayable beyond 12 months) for agriculture and allied activities
including production of long duration crops like
sugarcane,banana,pineapple,beetlevine and other fruit and plantation crops.
However, it is to be ensured that transaction records of different loan facilities are
5. Fixation of Credit limit
The credit limit under the Kisan Credit Card may be fixed as under:
5.1. All farmers other than marginal farmers
5.1.1. The short term limit to be arrived for the first year: For farmers raising single
crop in a year: Scale of finance for the crop (as decided by District Level Technical
Committee) X Extent of area cultivated + 10% of limit towards post-harvest / household
/ consumption requirements + 20% of limit towards repairs and maintenance expenses
of farm assets + crop insurance, PAIS & asset insurance.
BANK BALANCE SHEET:
LIABILITY SIDE COVERS FOLLOWING HEADS:
RESERVE AND SURPLUS.
BORROWING FROM OTHER BANKS.
BORROWING FROM RBI.
DEMAND DEPOSITS FROM PUBLIC.
DEMAND DEPOSITS FROM BANKS.
TERM DEPOSITS FROM PUBLIC.
TERM DEPOSITS FROM BANKS.
OTHER DEMAND LIABILITIES.
REFINANCE FROM SIDBI.
REFINANCE FROM RBI.
REFINANCE FROM EXIM.
REFINANCE FROM NABARD.
PROVISIONS FOR TAX.
PROVISIONS FOR EXPENSES.
ACCEPTANCE, ENDORSEMENT AND OTHER OBLIGATIONS.
AND SO ON.
Loans and Advances to customers
What is Self Help Group(SHG)
Self Help Group is a homogeneous group of micro entrepreneurs with affinity among themselves, voluntarily formed to save whatever amount they can conveniently save out of their earnings and mutually agree to contribute to a common fund of the group from which small loans are given to the members for meeting their productive and emergent credit needs at such rate of interest, period of loan and other terms as the group may decide.
To meet the credit needs of the poor by combining flexibility, sensitivity and responsiveness of the informal credit system with the strength of technical and administrative capabilities and financial resources of the formal credit institutions.
To build mutual trust and confidence between the bankers and the rural poor.
To encourage banking activity both on thrift as well as credit side in a segment of the population that the formal financial institutions usually find difficult to cover.
The group should
Be in active existence for at least a period of six months.
Have successfully undertaken savings and credit operations from its own resources.
Maintain proper accounts/records.
Work democratically wherein all members feel that they have a say should be evident.
Be formed to reflect genuine need to help each other and work together and Branch Manager should be convinced that the group has not come into existence only for the sake of participation in the project and availing benefits there under.
Have members preferably with homogenous background and interests.
Types of loans
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:
credit card debt
credit facilities or lines of credit
corporate bonds (may be secured or unsecured)
The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. In the United Kingdom, when applied to individuals, these may come under the Consumer Credit Act 1974.
Interest rates on unsecured loans are nearly always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible.
Demand loans are short term loans  that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be "called" for repayment by the lending institution at any time. Demand loans may be unsecured or secured.
A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In the context of college loans in the United States, it refers to a loan on which no interest is accrued while a student remains enrolled in education.
A concessional loan, sometimes called a "soft loan," is granted on terms substantially more generous than market loans either through below-market interest rates, by grace periods or a combination of both. Such loans may be made by foreign governments to poor countries or may be offered to employees of lending institutions as an employee benefit.
What is the difference between overdraft and cash credit?
The difference is very subtle and relates to the operation of the account. In the case of Cash Credit, a proper limit is sanctioned which normally is a certain percentage of the value of the commodities/stock/debts pledged/hypothecated by the account holder with the Bank.
Overdraft, on the other hand, is allowed against a host of other securities including financial instruments like bank deposits,shares, units of mutual funds, surrender value of LIC policy and debentures etc.
Some overdrafts are even granted against the perceived "worth" of an individual. Such overdrafts are called clean overdrafts.
Definition of 'Term Loan'
A loan from a bank for a specific amount that has a specified repayment schedule and a floating or fixed interest rate. Term loans almost always mature between one and 10 years.
What is Demand loan
Loan (such as an overdraft) with or without a fixed maturity date, but which can be recalled anytime (often on a 24-hour notice) by the lender and must be paid in full on the date of demand. Also, the borrower can pay off a demand loan at any time without incurring early-payment penalties. In india normally this is granted against securities like bank deposits,lic policy,nsc, gold jewellery etc.
Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II.
Tier I Capital
A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.
Tier II Capital
Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital.
Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank's books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale.
Definition of 'Debt-Service Coverage Ratio - DSCR'
In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.
In government finance, it is the amount of export earnings needed to meet annual interest and principal payments on a country's external debts.
In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.
In general, it is calculated by:
PAT+DEP+INTEREST ON TERM LOAN / INSTALMENT OF TERM LOAN +INTEREST ON TERM LOAN
Debt-Service Coverage Ratio (DSCR)
explanation of 'Debt-Service Coverage Ratio - DSCR'
A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time.
2 With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where;
interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan,
the account remains ‘out of order’ for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC),
the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and
any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
'Out of Order' status
An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for six months as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
Categories of NPAs
Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues:
A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrower/ guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.
A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, – on the basis of currently known facts, conditions and values – highly questionable and improbable.
A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.
Loan Facilities for Short Term Agricultural Operations:
Crop Loans are also called short term loans for “Seasonal Agricultural Operations.” The Seasonal Agricultural Operations connote such activities as are undertaken in the process of raising various crops and are seasonally recurring in nature. The activities include, among others, ploughing and preparing land for sowing, weeding, transplantation where necessary, acquiring and applying inputs such as seeds, fertilizers, insecticides etc. and labour for all operations in the field for raising & harvesting the crops. Thus, the credit required to meet the current expenditure for raising the crops on land till the crops are harvested is construed as production or short term credit for seasonal agricultural operations.
Kisan Credit Card SchemeCrop loans are generally disbursed by the banks through the mode of Kisan Credit Card (KCC). The Kisan Credit Card Scheme is in operation throughout the country and is implemented by Commercial Banks, Cooperative Banks and RRBs. All farmers including small farmers, marginal farmers, share croppers, oral lessees and tenant farmers are eligible for issuance of KCC. KCC holders are also covered under Personal Accident Insurance Scheme (PAIS) against accidental death/permanent disability. Bank assesses farmer’s eligibility on the basis of land available for cultivation and the scale of finance fixed by the District Level Technical Committee in that district and the credit history of the farmer. The scope of the KCC has recently been broad-based to include term credit and consumption needs. Government has advised the banks to convert Kisan Credit Card into a Smart Card cum Debit Card. Some of the main features of KCC scheme are :Assessment of crop loan component based on the scale of finance for the crop plus insurance premium x Extent of area cultivated + 10% of the limit towards post-harvest / household/consumption requirements + 20% of limit towards maintenance expenses of farm assets.Flexi KCC with simple assessment prescribed for marginal farmers.Validity of KCC for 5 years.For crop loans, no separate margin need to be insisted as the margin is in-built in scale of finance.No withdrawal in the account to remain outstanding for more than 12 months; no need to bring the debit balance in the account to zero at any point of time.
Term Loans are provided to Agriculturists for a variety of purposes including the development of commercial horticulture, establishment of orchards and plantations.
Warehouse Receipt Financing:
Bank offers warehouse Receipt financing to Farmers and Small Traders acts as Collateral against the stocks stored with an approved warehouse. Bank funds up to a certain percentage of the value mention in the receipt.
What is money laundering?
Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source.
What is a Money Laundering offence?
Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering.
What are proceeds of crime?
Proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.
Net Working Capital
Net Working Capital Formula:
NWC = CURRENT ASSETS - CURRENT LIABILITY
The formula for net working capital (NWC), sometimes referred to as simply working capital, is used to determine the availability of a company's liquid assets by subtracting its current liabilities.
Use of Net Working Capital Formula
Net working capital is used in various other financial formulas that deal with cash flows. Examples of these formulas include the free cash flow to equity formula and free cash flow to firm formula.
In the formula for free cash flow to equity, the change in net working capital is subtracted. An increase in net working capital is considered a negative cash flow and not available for equity. In other words, an increasing requirement for capital for short term operations in the company is not available to equity.
The variables of the net working capital formula are the same as those used in the current ratio. The current ratio formula instead divides current assets by current liabilities. And such, a company with a current ratio of greater than 1 will have positive net working capital. These formulas, along with others, are referred to as liquidity ratios as they are measures of a company's ability to meet its short term obligations.
THESE TERMS ARE USED FOR INVESTMENTS BY BANKS:
Held Till Maturity(HTM)
The securities acquired by the banks with the intention to hold them up to maturity.
Held for Trading(HFT)
Securities where the intention is to trade by taking advantage of short-term price / interest rate movements.
Available for Sale(AFS)
The securities available for sale are those securities where the intention of the bank is neither to trade nor to hold till maturity. These securities are valued at the fair value which is determined by reference to the best available source of current market quotations or other data relative to current value.
Yield to maturity (YTM) or Yield
The Yield to maturity (YTM) is the yield promised to the bondholder on the assumption that the bond will be held to maturity and coupon payments will be reinvested at the YTM. It is a measure of the return of the bond.
Cropping seasons of India- Kharif & Rabi
The agricultural crop year in India is from July to June. The Indian cropping season is classified into two main seasons-(i) Kharif and (ii) Rabi based on the monsoon. The kharif cropping season is from July –October during the south-west monsoon and the Rabi cropping season is from October-March (winter). The crops grown between March and June are summer crops. Pakistan and Bangladesh are two other countries that are using the term ‘kharif’ and ‘rabi’ to describe about their cropping patterns. The terms ‘kharif’ and ‘rabi’ originate from Arabic language where Kharif means autumn and Rabi means spring.
The kharif crops include rice, maize, sorghum, pearl millet/bajra, finger millet/ragi (cereals), arhar (pulses), soyabean, groundnut (oilseeds), cotton etc. The rabi crops include wheat, barley, oats (cereals), chickpea/gram (pulses), linseed, mustard (oilseeds) etc.
PRE-SHIPMENT EXPORT CREDIT
1.1 Pre-shipment Credit in Foreign Currency (PCFC)
'Pre-shipment' means any loan or advance granted or any other credit
provided by a bank to an exporter for financing the purchase,
processing, manufacturing or packing of goods prior to shipment, on
the basis of letter of credit opened in his favour or in favour of some
other person, by an overseas buyer or a confirmed and irrevocable
order for the export of goods from India or any other evidence of an
order for export from India having been placed on the exporter or some
other person, unless lodgement of export orders or letter of credit with
the bank has been waived.
With a view to making credit available to exporters at internationally
competitive rates, authorised dealers have been permitted to extend
Pre-shipment Credit in Foreign Currency (PCFC) to exporters for
domestic and imported inputs of exported goods at LIBOR/EURO
LIBOR/EURIBOR related rates of interest as detailed below.
POST-SHIPMENT EXPORT CREDIT
2.1 'Post-shipment Credit' means any loan or advance granted or any other credit
provided by a bank to an exporter of goods from India from the date of
extending credit after shipment of goods to the date of realisation of export
proceeds and includes any loan or advance granted to an exporter, in
consideration of, or on the security of any duty drawback allowed by the
Government from time to time.
2.2 Post-shipment advance can mainly take the form of -
(i) Export bills purchased/discounted/negotiated.
(ii) Advances against bills for collection.
(iii) Advances against duty drawback receivcable from Government.
2.3 Post-shipment credit is to be liquidated by the proceeds of export bills received
from abroad in respect of goods exported.