Professional Documents
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PROJECT ON
COMMERCIAL LENDING BY RBI
SUBMITTED
In partial Fulfillment of the requirement for the
Award of Degree of Bachelor of Commerce – Banking & Insurance.
SUBMITTED BY,
SEEMA DAPKEKAR
ROLL NO. - 16
UNDER GUIDANCE,
Asst. Prof. Priyanka Prasad
CERTIFICATE
Signature of student
Name of Student
MISS. SEEMA DAPKEKAR
Roll No. 16
ACKNOWLEDGEMENT
The college, the faculty, the classmates & the atmosphere, in the college
were all the favorable contributory factors right from the point when the
topic was to be selected till the final copy was prepared. It was a very
enriching experience throughout the contribution from the following
individuals in the form in which it appears today. We feel privileged to take
this opportunity to put on record my gratitude towards them.
PROF. KUNAL SONI made sure that the resource was made available in
time & also for immediate advice & guidance throughout making this
project. The principal of our college DR. T.P. GHULE and our Vice-
Principal Mrs. SANJEEVANI PHATAK has always been inspiring &
driving force. We are thankful to Mr. SANTOSH SHINDE associated
with administration part of Financial Markets & Banking & Insurance
section has been very helpful in making the infrastructure available for data
entry.
EXECUTIVE SUMMARY
The regulatory reforms are driving banks to strategically review and assess
their businesses, and many are making substantial changes to their business
models shifting out of complex products and exiting businesses and
geographies to remain profitable.
CONTENTS
1 Introduction 01
8 Commercial Lending 28
9 Conclusion 29
10 Bibliography 31
TYBBI COMMERCIAL LENDING BY RBI MD College
Introduction
Commercial Lending
Expensive upfront costs and regulatory hurdles often prevent small businesses
from having direct access to debt and equity markets for financing. Similar to
consumer credit, smaller businesses must rely on other lending products, such as
a line of credit, unsecured loans or term loans.
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Term Loan
A term loan is a loan from a bank for a specific amount that has a specified
repayment schedule and a fixed or floating interest rate. For example, many banks
have term-loan programs that can offer small businesses the cash they need to
operate from month to month. Often, a small business uses the cash from a term
loan to purchase fixed assets such as equipment for its production process.
A term loan is for equipment, real estate or working capital paid off between one
and 25 years. The loan carries a fixed or variable interest rate, monthly or quarterly
repayment schedule, and set maturity date. The loan requires collateral and a
rigorous approval process to reduce the risk of repayment. A term loan is
appropriate for an established small business with sound financial statements and a
substantial down payment to minimize payment amounts and total loan cost.
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A fixed-rate loan payment remains the same because the interest rate is constant;
a variable-rate loan requires a different payment amount when the interest rate
changes. A lender may establish an SBA loan with interest-only payments during
a company’s startup or expansion phase; the business then has time to generate
income before making full loan payments. Balloon payments are not allowed
on most SBA loans. The SBA charges the borrower a prepayment fee only
if the loan has a maturity of 15 years or more and is prepaid in the first three
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years. Every loan is secured by all available business and personal assets until
the recovery value equals the loan amount or until all assets are pledged as
reasonably available Commercial term loans are generally longer-term
instruments best suited, from a capital management perspective, to support
expansion initiatives. From plant expansion to market development, or for
possible acquisitions, your relationship manager will work with you to structure
the financing to help get your plans off the drawing board and into motion.
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Short-term instruments to stabilize cash flow or bridge the gap until expected
proceeds from receivables are received.
Asset-based Lines
Supports the purchase of owner-occupied real estate or allows you to access the
equity in your real estate holdings to finance your growth.
Equipment Financing
To support your need for added capacity, financing facilities can range from a
simple term loan for the purchase of new equipment to a longer-term strategy
that allows you to modernize your existing equipment. We also offer a
comprehensive range of equipment financing programs.
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Acquisition Financing
Project finance. For large infrastructure and other projects, banks offer
specific loans which are repaid based on the revenue generated by that project.
For some large and potentially risky projects, the bank can arrange a banking
syndicate, wherein a group of banks each lend a client a portion of a large loan.
Project finance can also include the sale of project-specific bonds.
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More traditional sustainability issues are also critical for the corporate banking
sector. Given its role in facilitating all kinds of corporate practices, banks have
a great role and responsibility in advancing sustainability. Currently, CSR
initiatives directed to corporate banking mainly cover only a small part of
company financing by banks. The Equator Principles, for example, offers clear
indicators to what environmental and social conditions projects have to fulfil to
be financed. Several other banks have adopted other environmental standards
around forestry, oil & gas, and mining. However, corporate banks have a long
way to go in addressing sustainability. For example, most investment banks
still do not perform environmental and social screening on the companies for
which they raise funds. Also, the practice of assisting clients with the use of tax
havens and other offshore markets is very dubious. Since September 11,
governments have paid more attention how these offshore centers can be linked
to all kinds of illegal and unsustainable activities. Although some steps have
been made to prevent money laundering, efforts to combat tax havens have
been limited.
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The banking sector has played a major role in the modern economy since its
introduction during the commercial revolution of the 17th century, providing the
basic infrastructure that underlies most economic activity.
While the banking sector may appear at times to be largely homogeneous, this
is far from the truth, with many specializations existing within the industry. The
difference between corporate and commercial banking is largely the difference
between the customers being served.
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5.3 Government
5.4Globalization
5.4.1 As the modern economy has become more global in nature, corporate
banking has followed suit and become a part of an international network of
investment and trade very much.
Commercial banking has been much slower to follow this trend as
consumers continue to prefer their local banks. The average
consumers are much more likely to trust a bank that they are already
familiar when it comes to securing their own personal savings.
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partnerships to mitigate currency and transactional cost risks (local banks with
offshore partners), or the structure of lending to SMEs with the option to
convert credit in to equity at lower interest rates.
In places like Africa and India, a high percentage of the population lives
in rural areas not meeting the qualifying criteria to open a bank account. In
these countries, the government, together with central banks, are setting up
programmes for regulatory reform, liberalization, and modernization of the
banking industry. The focus is on payment systems, settlement and clearing to
support economic growth. A key success factor of the business model is to
lower the cost of retail banking to service low-income customers with high
efficiency and profitability.
India required a different solution to provide safe, fast and easy payments for
the un-banked population. Only 1% of the cell phone owners in India uses it
for banking transactions. Branch penetration is low, while cost of
banking intermediation is high. The Federal Bank of India introduced an
innovative payment strategy to improve access to banking channels and to
boost electronic transactions. A unique 12- digit number linked to basic
demographic and biometric information (photograph and finger print scan)
prevents fraud and makes it possible to offer personal payment service from
person to person, domestic and international, in a few seconds. The same
number can be used for payments with both cards and mobile
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Not too many banks give great customer service. Therefore, it is exactly in-
service excellence that a competitive bank can differentiate itself from rivals.
This is the key to retaining existing customers and gaining new ones. Having
the right profile of front end staff and giving them, the necessary training and
coaching is critical for success.
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Markets, there are still opportunities to expand the branch network. This
is thanks to the high economic growth, fast-growing middle class and still
relatively low branch penetration. The new branch model will be advisory and
service and sales oriented with a customer friendly pro-active approach
towards the most profitable segments (middle class, Wealth Management and
SME) and this way improve cross-sales and customer profitability.
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branch network.
Western banks worry about the negative impact of the new Basel III
requirements on their profitability and economic growth (higher cost of
capital passed to borrowers). Emerging market bank can be more optimistic
thanks to a higher investment appetite (historically good return of banking
stocks), growth potential of their economies, and having escaped much of the
crisis faced by the West.
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needs may include large leasing transactions, leveraged buyouts, mergers and
acquisitions, monetization of assets, equity/debt analysis and recapitalizations.
CHAPTER 8
Commercial Lending Basics
T1. Commercial Lending Skills: This topic will define commercial lending and
offer information about important skills to succeeding as a commercial lender,
such as product knowledge and sales ability.
T2. Commercial Lending Standards: This topic will emphasize the importance of
the commercial lender position, particularly in aspects such as attendance,
professionalism, compliance, accuracy, and service in person or on the phone.
T3. Handling Confidentiality: This topic will encourage the understanding of
confidentiality as part of the professionalism of a commercial lender, with a focus
on the security of customer and co-worker information.
T4. Types of Businesses: This topic will explain the definition of a business, the
various types of businesses, and their applications in the world.
T5. Types of Commercial Loans: This topic will discuss the five types of
commercial loans, including examples and real-world applications for commercial
lenders.
T6. Types of Collateral: This topic will detail the various types of collateral,
including endorser, real estate, savings, and more.
T7. Collateral is Secondary: This topic will explain the four reasons that a
financial institution is reluctant to repossess collateral, with further information
about additional requirements and bankruptcy.
T8. Financial Information Basics: This topic will introduce the learner to the
process of analyzing financial information, including the examination of
information provided on 1040s, personal statements, balance sheets, income
statements, and more.
T9. Commercial Loan Products: This topic will expound upon additional loan
products offered to businesses, such as working Lines of Credit, equipment
financing, leases, and various loans, with examples for each.
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CHAPTER 9
CONCLUSION
The regulatory reforms are driving banks to strategically review and
assess their businesses, and many are making substantial changes to their
business models shifting out of complex products and exiting businesses and
geographies to remain profitable. The liquidity and capital regulations have
pressured banks to increase pricing to reflect their costs of complying with the
new rules. This, in turn, has made corporate credit much more expensive, and
corporate financial executives are exploring bond markets and other alternative
sources of funding to avoid higher costs.
Despite these disruptive influences on corporate and banking
interconnections, the executives interviewed emphasized that the traditional
principles of what makes business relationships work mutual commitment,
dedication and trust are, in fact, more important than ever in today’s turbulent
environment. Corporate financial executives in the study described their
banking relationships as long-term and stable partnerships. They take their
relationship obligations with the banks very seriously and spend considerable
time making certain that work is dispersed equitably across their banks. In
return, they expect what one executive summarized as “dedication, consistency
and commitment” from their core banks.
While executives are pleased overall with their current core team of
banks, there are several performance categories that banks need to assess and
improve to continue to effectively manage relationships with their important
corporate clients. Service and product quality, transparency on key risk
parameters, and innovation and technology are important areas where banks fall
short of performance expectations. The banks that successfully address these
issues will have a distinct
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competitive advantage in today’s challenging market. The bottom line for the
very sophisticated financial executives interviewed is that managing
relationships through good economic times and bad boils down to the basics:
stay close to your customers, listen to what they want and need, and
consistently deliver quality services.
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CHAPTER 10
BIBLIOGRAPHY
www.wikipedia.org
https://www.rbi.org.in
timesofindia.indiatimes.com
Annual Report of the Reserve Bank of India for the Year 2008-09
Report on Trend and Progress of Banking in India 2008-09
Reserve Bank of India Master Circulars
Report on Currency and Finance 2006-08, "The Banking Sector in India:
Emerging
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