Download - L1 - Banking-Corporate Banking
-
8/8/2019 L1 - Banking-Corporate Banking
1/22
Banking
Corporate Banking
-
8/8/2019 L1 - Banking-Corporate Banking
2/22
-
8/8/2019 L1 - Banking-Corporate Banking
3/22
Types of Borrowers
Sole Propreitorship
Partnerships
Limited Companies
Sovereigns
Quasi-sovereigns
-
8/8/2019 L1 - Banking-Corporate Banking
4/22
Types of Credit Facilities
Term Loan
Amortisation of loan facilities should be arranged in accordance with
the cashflow projections
Working Capital Facilities
Short Term Loans
Overdraft Facilities
Trade Facilities
Factoring
Effects Not Cleared
Treasury Product Facilities
Guarantees
-
8/8/2019 L1 - Banking-Corporate Banking
5/22
Types of Guarantees
Bid Bond (also called Tender Guarantee)
It gives the employer compensation for additional costs if the party
submitting the tender does not take up the contract and it must be
awarded to another party
Performance Guarantee
A payment to the employer in the event that the contractor fails to
fulfil contract obligations
Advance Payment Guarantee
This enables the employer to get a refund of advance payments made
in the event of default by the contractor Standby Letter of Credit
This is used as security for payment obligations
-
8/8/2019 L1 - Banking-Corporate Banking
6/22
Calculation of Working Capital Limits
Working Capital requirements upto INR 5 crore Minimum of 20% of the turnover
Working Capital requirements above INR 5 crore. Banks may adoptany of the under-noted methods.
The turnover method, as prevalent for small borrowers,
Since major corporates have adopted cash budgeting as a tool of fundsmanagement, banks may follow cash budget system for assessing theworking capital finance in respect of large borrowers.
The banks may even retain the concept of the MPBF with necessarymodifications.
Calculation of MPBF (Maximum Permissible Bank Finance) Method 1 : MPBF = 75% of [C.A. C.L.]
Method 2 : MPBF = 75% of C.A. C.L.
Method 3 : MPBF = 75% of [C.A. Core C.A.] C.L.
-
8/8/2019 L1 - Banking-Corporate Banking
7/22
Calculation of Working Capital Limits
Method 1 : MPBF = 75% of [C.A. C.L.]
= 75% x (700 280) = 315 (indicates excess borrowing of 85) Method 2 : MPBF = 75% of C.A. C.L.
(75% x 700) 280 = 245 (indicated excess borrowings of 155
Current Liabilities Current Assets
Creditors 200 Raw Materials 300
Other Current Liabilities 80 Work-in-progress 100
S.T. Bank Borrowings 400 Finished Goods 150
Receivables 100
Other Current Assets 50
Total 680 Total 700
-
8/8/2019 L1 - Banking-Corporate Banking
8/22
Types of Security
Deposits
Shares or Other Securities
Land
Goods (pledge or hypothecation)
Guarantees
Stand-by Letter of Credit
Letter of Awareness / Letter of Comfort
-
8/8/2019 L1 - Banking-Corporate Banking
9/22
Credit Application
Background Industry
Management
Suppliers
Manufacturing (stock levels [RM, WIP, FG], condition of plant, efficiency levels,
insurance, power, water , environmental factors)
Marketing
Labour / Staff
Financial Analysis (profitability, liquidity, working capital management, capital
adequacy, cashflow and debt servicing ability of the borrower)
Other Bankers
Facilities Summary
Security
Covenants
Profitability Summary
Recommendation
-
8/8/2019 L1 - Banking-Corporate Banking
10/22
Credit Scoring
Combination of Financial Assessment
Business Assessment
Industry
Company
-
8/8/2019 L1 - Banking-Corporate Banking
11/22
Profitability of Relationships
Economic Profit
= Return on Risk Assets Capital Cost of Risk Assets
Pricing influenced by
Credit risk of the borrower
Competitive pressures
Security offered
Level of non-funds income and other income, and
The effect on overall EP
-
8/8/2019 L1 - Banking-Corporate Banking
12/22
Early Warning Signals
Internal Unauthorized drawings in excess of limits
Delays in the payment of interest and principal
Delays in receipt of financials
Drawings against uncleared funds Breach of loan covenants
Dwindling cash position
External
Decline in market share
Dividend cut
Top Management movements
Institutional sales
Switching auditors
-
8/8/2019 L1 - Banking-Corporate Banking
13/22
Consortium v/s Multiple Banking
Consortium Banking Several banks (or financial institutions) finance a single borrower with
common appraisal, common documentation, joint supervision and
follow-up exercises
Multiple Banking
Different banks provide finance and banking facilities to a single
borrower without having a common arrangement and understanding
between the lenders
-
8/8/2019 L1 - Banking-Corporate Banking
14/22
Exposure Norms
Prudential measures aimed at better risk management and avoidance ofconcentration of credit risks, the Reserve Bank of India has advised the banksto fix limits on their exposure to specific industry or sectors and has prescribedregulatory limits on banks exposure to individual and group borrowers inIndia.
Credit to Individuals/ Group Borrowers
15% of capital funds in case of single borrower 40% of capital funds in case of group borrower
May exceed the exposure norm of 15 percent of the bank's capital fundsby an additional 5 percent (i.e. up to 20 percent) provided the additionalcredit exposure is on account of extension of credit to infrastructureprojects.
Similarly it can go upto 50% in case of group borrower
In exceptional circumstances, with the approval of their Boards, Banksmay consider enhancement of the exposure to a borrower (single as wellas group) up to a further 5 percent of capital funds
-
8/8/2019 L1 - Banking-Corporate Banking
15/22
Exposure Norms
Lending under Consortium Arrangements Will also be applicable to lending under consortium arrangements.
Rehabilitation of Sick/Weak Industrial Units
Not applicable to existing/additional credit facilities granted to weak/sick
industrial units under rehabilitation packages.
Guarantee by the Government of India Would not be applicable where principal and interest are fully guaranteed by
the Government of India.
Loans against Own Term Deposits
Would not be applicable where loans and advances are granted against the
security of a banks own term deposits to the extent that the bank has a specific
lien on such deposits.
Exposure
Exposure shall include credit exposure and investment exposure. The
sanctioned limits or outstandings, whichever are higher, shall be reckoned for
arriving at the exposure limit.
-
8/8/2019 L1 - Banking-Corporate Banking
16/22
Exposure Norms
Banks are allowed to extend credit/non-credit facilities (viz. letters ofcredit and guarantees) to Indian Joint Ventures/Wholly-owned
Subsidiaries abroad and step down subsidiaries which are wholly owned
by the overseas subsidiaries of Indian Corporates (subject to a limit of 20
percent)
The Banks aggregate assets outside India should not exceed 25 percent ofthe bank's demand and time liabilities in India.
The aggregate exposure of a bank to the capital markets in all forms
should not exceed 40 per cent of its net worth. Within this overall ceiling,
the banks direct investment in shares, convertible bonds / debentures,
units of equity-oriented mutual funds and all exposures to Venture Capital
Funds (VCFs) [both registered and unregistered] should not exceed 20 per
cent of its net worth.
-
8/8/2019 L1 - Banking-Corporate Banking
17/22
Lending to Micro, Small, Medium Enterprises
(MSME) / Priority Sector
Enterprises engaged in the manufacture or production, processing orpreservation of goods as specified below:
Amicroenterpriseis an enterprise where investment in plant and machinerydoes not exceed Rs. 25 lakh (10 lakhs)
Small enterprise- more than Rs. 25 lakh but does not exceed Rs. 5 crore (10lakhs 2 crores)
Mediumenterprise- more than Rs.5 crore but does not exceed Rs.10 crore (2crores to 5 crores)
Investment in plant and machinery is the original cost excluding land andbuilding
Categories of Priority Sector
Agriculture (Direct & Indirect)
Micro & Small Enterprises
Micro Credit (50K)
Educational Loans (10 lakhs, 20 lakhs)
Housing Loans (20 lakhs)
-
8/8/2019 L1 - Banking-Corporate Banking
18/22
Lending to Micro, Small, Medium Enterprises
(MSME) / Priority Sector
Domestic Commercial Banks Foreign Banks
Total Priority Sector
Advances
40 per cent of Adjusted Net Bank
Credit (ANBC)
32 per cent of ANBC
Total Agricultural
Advances
18 per cent of ANBC No target
Of this, indirect lending in excess
of 4.5% of ANBC, will not be
reckoned for computing
performance under 18 per cent
target. However, all agricultural
advances under the categories
'direct' and 'indirect' will bereckoned in computing
performance under the overall
priority sector target of 40 per
cent of ANBC
-
8/8/2019 L1 - Banking-Corporate Banking
19/22
Lending to Micro, Small, Medium Enterprises
(MSME) / Priority Sector
Domestic Commercial Banks Foreign Banks
Micro & Small
Enterprise
advances (MSE)
Advances to micro and small enterprises
sector will be reckoned in computing
performance under the overall priority
sector target of 40 per cent of ANBC
10 per cent of ANBC
Micro enterpriseswithin Micro and
Small Enterprises
sector
(i) 40 per cent to micro (manufacturing)enterprises having investment in plant and
machinery up to Rs 5 lakh and micro
(service) enterprises having investment in
equipment up to Rs. 2 lakh;
(ii) 20 per cent to micro (mfg) 5-25 lakhs,
and micro (service) enterprises 2-10 lakhs(iii) The increase in share of micro
enterprises in MSE lending to 60 per cent
should be achieved in stages, viz. 50 per
cent in the year 2010-11, 55% in the year
2011-12 and 60% in the year 2012-13.
Same as for domesticbanks.
-
8/8/2019 L1 - Banking-Corporate Banking
20/22
Lending to Micro, Small, Medium Enterprises
(MSME) / Priority Sector
Domestic Commercial Banks Foreign Banks
Export Credit No Target 12 per cent of ANBC
Advances to
weaker sections
10 per cent of ANBC No target
-
8/8/2019 L1 - Banking-Corporate Banking
21/22
Provisioning Norms
Non Performing Assets : An asset, including a leased asset, becomesnon 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 ofmore than 90 days in respect of a term loan,
the account remains out of order, in respect of an Overdraft/Cash Credit(OD/CC),
the bill remains overdue for a period of more than 90 days in the case ofbills purchased and discounted
Categories of NPAs
Substandard Assets (10%, 10%)
Doubtful Assets (20% 30% 100%, 100%)
Loss Assets (100%)
Standard Assets (Agricultural & SME 0.25%, Real Estate 1%,others 0.4%)
-
8/8/2019 L1 - Banking-Corporate Banking
22/22
Thats it for now!