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Basics of Credit

by

S.MURALI, Adjunct Professor

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AGENDA FOR THE TALK

y PRINCIPLES OF GOOD LENDINGy QUALITIES OF GOOD SECURITY y TYPES OF FACILITIESy FUNDED & NON FUNDED LIMITSy TYPES OF SECURITIESy TYPES OF CHARGES

y STAGES IN CREDIT ADMINISTRATIONy FOLLOW UP & MONITORINGy NPA & RECOVERY

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Funds for Lending

y CRR 6%y SLR 25%y Funds available for lending 69%

Current Bank Rate is 6%

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Principles of Good Lending

y Safety Exposure Limits Not exceeding 15% of its Capital Funds for Individual Borrowers and40% for Group Borrowers. In case of infra

structure, it is 20% and 50% respectively.y Liquidity y Purposey Profitability y Security y Spready National Interest/Policy validation

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Principles of Good Lending (contd)

y Banks Safety y Business Safety y 3 Cs Character, Capacity andCapital

y Other3Cs Collateral,Conditions and Credit Record.

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GRANTED TO A RELIABLE CUSTOMER FOR AN APPROVED PURPOSEIN WHICH THE CUSTOMER HAS

ADEQUATE EXPERIENCESAFE IN THE KNOWLEDGE THAT THE

THE MONEY WILL BE USED TOADVANTAGE AND

REPAYMENT WILL BE MADE WITHINA REASONABLE PERIOD FROMTRADING RECEIPT OR OTHER KNOWNMATURITIES

(L.C.Mather)

AN IDEAL ADVANCE

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Liquidity

y Business Liquidity y Loan liquidity

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Purpose

y Productive/approvedy Feasibley Not anti socialy Legaly Not speculative

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Profitability

y Business profitability y Banks profitability

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Spread

y Activity wisey Borrower wisey Geographically

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Policy Validation

y Validate with credit policy y Not opposed to National Interesty National Policy y National Prerogatives

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Qualities of a Good Security

y Marketability y Storability y Durability y Ascertainment of Titley Easy Transferability y Absence of Contingent Liability y Yield

Concept of Margin on Advances

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Types of Credit Facilities

Fund Based Non Fund Based

CapitalInvestment

Workingcapital needs

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Types of Credit Facilities

y Fund Based:- Working capitaly Cash Credit/Overdrafty Bills Finance Purchase/Discounty Short Term Loansy Capital Investment

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Types of Credit Facilities

Non Fund Based:y Bank Guaranteesy Letters of Credity Deferred Payment-Guarantee

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Types of Borrowers

y Individuals.y Joint borrowers.y

Minors.y Married Women.y Illiterates.y Blind persons.y Pardanishin ladies.y Sole Proprietary concerns.

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Types of Borrowers

y Joint Hindu Familiesy Partnership Firmsy Incorporated companiesy Clubs, Societies, Charitable

Institutions.

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Types of Borrowers

y Trustsy Other Institutions/Agenciesy Govt/ Semi Govt. bodies.y Agents, Executors & Administratorsy Liquidators.

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Types of Securities

Personal Impersonal(Tangible)

Own ThirdParty

Primary Collateral

CleanMovable /

Immovable

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Types of Securities

y PersonalOwnThird party

y Impersonal (Tangible)

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Types of Securities

y Primary y Collateralyy MovableMovableyy ImmovableImmovable

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Types of Charges

y Lieny Mortgagey Pledgey Hypothecationy Assignment

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Stages in Credit Administration

y Building up of credit proposal- Credit investigation

y Appraisal and Assessmenty Sanctiony Sanction communicationy Documentation and disbursement

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Follow up and monitoring

y Off site monitoring - Ledger page supervision

- Stock statements anddrawing power

- Financial statements

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Onsite Monitoring

y Unit Inspectiony Physical verification of stocksy Verification of books and registers.y Interactions with borrower, employees

of the borrower, market, debtors,creditors and competitors.

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Recovery

y N.P.A.y Recovery Actions.

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Some Types of Accounts

y Loan against Depositsy Gold Loansy Agriculture Crop Loansy Agriculture Term Loansy Vehicle Loansy Housing Loans

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Thank You