SEGMENTATION

COMMERCIAL AND INSTITUTIONAL

MICRO SMALL AND MEDIUM ENTERPRISES MANUFACTURING SECTOR INVESTMENT IN PLANT AND MACHINERY
MICRO - UPTO Rs. 25 LACS SMALL - ABOVE Rs. 25 LACS BUT BELOW MEDIUM - ABOVE Rs. 5.00Cr BUT BELOW Rs. 5.00 Cr Rs.10.00 Cr

SEGMENTATION

MICRO SMALL AND MEDIUM ENTERPRISES

SERVICES SECTOR INVESTMENT IN PLANT AND MACHINERY
MICRO - UPTO Rs. 10 LACS SMALL - ABOVE Rs. 10 LACS BUT BELOW Rs. 2.00 Cr MEDIUM - ABOVE Rs. 2.00Cr BUT BELOW Rs. 5.00 Cr

SEGMENTATION AGRICULTURE

AGRICULTURE AND ALLIED ACTIVITIES

PRODUCTION CREDIT INVESTMENT CREDIT 18% OF TOTAL ADVANCES FOR AGR SEGMENT 13.5% DIRECT AND 4.5% INDIRECT ADVANCES

SEGMENTATION

PERSONAL
SALARIED AND SELF EMPLOYED CONSUMER DURABLES
HOUSING LOANS UPTO Rs. 25.00 LACS EDUCATIONAL LOANS

SEGMENTATION

COMMERCIAL AND INSTITUTIONAL

MICRO SMALL AND MEDIUM ENTERPRISES

AGRICULTURE

PERSONAL

LOANS AND ADVANCES

What is the main difference between a loan and an advance? THE INTEREST COMPONENT

The loans are to be repaid in installments or in lump sum along with interest at an agreed rate

But the advance taken is repaid in the form of installments or in a lump sum as per agreed terms

STYLE OF CREDIT

FUND BASED NON FUND BASED

LOANS AND ADVANCES

FUND BASED
MEDIUM TERM LOANS

OVERDRAFT

DEMAND LOANS

CASH CREDIT

DEMAND LOANS
Generally
They are sanctioned for periods less than 3 years The entire amount is disbursed at a time These loans are self liquidating in nature They are repaid in monthly, quarterly, half-yearly or yearly installments as per agrees terms

DEMAND LOANS
Generally
They are sanctioned against Banks own Deposits, NSCs, LIC policies, Jewellery (Not Gold), ware house receipts, Salary etc.,

The major document while giving a demand loan is Demand Promissory Note
They are extended on an existing security The quantum of loan is based on the value of security less Margin

MEDIUM TERM LOANS

Generally
They are sanctioned for periods more than 3 years to 7 years They are sanctioned for acquiring or creation of Assets The repayments are to be made out of the income generated from the Assets financed DSCR Debt Service Coverage ratio forms the basis for appraisal of a Term loan

MEDIUM TERM LOANS

Generally They are sanctioned for purchase of Cars, Two Wheelers, Housing Loans, Plant and Machinery in business establishments, Allied activities in Agriculture viz., Tractors, Harvesters, Pump sets, Brick manufacturing units, Educational loans etc., The loan repayment period depends on the life of the asset and the income generating capacity of the asset financed

Term Loan Agreement forms a major part of Documentation of Medium Term loans

CASH CREDIT
Generally

This Facility is sanctioned against stocks. This facility is sanctioned to meet working capital requirements of a unit A limit is fixed as per the operating cycle of the unit and allowed to draw amounts up to the extent of limit to enable the unit to run its day to day operations The unit can deposit the sale proceeds into the account and again draw amounts from the account for purchase of raw materials for day to day operations. This facility is sanctioned for a period of one year.

CASH CREDIT OPERATING CYCLE

CASH

DEBTORS

RAW MATERIALS

FINISHED GOODS

STOCK IN PROCESS (SEMI FINISHED GOODS)

CASH CREDIT
A cheque book is issued to the account holder.
The limit is monitored by the maintenance of stocks in the unit (Net of Margin)

A stock statement on a monthly basis is to be submitted by the unit

Inspection of the unit is done by the Bank Officials as per the terms of sanction The account is renewed every year for continuation of limits

OVERDRAFT
Generally An Overdraft is sanctioned for on all securities for which a Demand loan is sanctioned (as discussed earlier)
A limit is fixed after calculating margin and a cheque book is issued The interest is applied only to the extent of limit utilised by the account holder on the daily debit balances

NON FUND BASED

LETTERS OF CREDIT (INLAND AND FOREIGN)

This is an arrangement whereby a Bank undertakes to pay a named beneficiary by a specified date, against presentment of the specified documents, the value of goods supplied to its customer

NON FUND BASED

There are three parties involved in LCs. Issuing Bank Customer (Buyer or opener of LC) Beneficiary (Seller)

In view of the issuing Banks commitment to honor the bills drawn under the LC, the Bank opens an LC only after appraising the creditworthiness of the openers

NON FUND BASED

BANK GUARANTEE
BGs are required in commercial transactions as a security for due fulfillment of a contract The obligors financial standing and credentials may be unknown to the beneficiary of a commercial contract The Bank issues the required guarantee on behalf of the obligor of his financial standing and ability to fulfill his part of contract

NON FUND BASED

BANK GUARANTEE - TYPES
Financial Guarantee These are purely secure the monetary obligations as per the terms of guarantee. Ex: Bid Bond, Security Deposit, Advance payment, guarantees given to courts etc., Performance Guarantee The Bank will assure a third party that the customer would honor the contract as per the conditions stipulated, failing which the Bank will compensate Deferred Payment Guarantee These are issued for purchase of Machinery / Equipment on deferred payment terms in favor of suppliers on various dates as promised by the purchaser

TYPES OF CHARGES
LIEN Sec. 171 of Indian Contract Act 1872 The Banker is empowered to retain all securities in respect of general balance due from its customer A Bankers lien tantamount to an implied PLEDGE and he gets right to sell the securities NEGATIVE LIEN The borrower gives a declaration that he will not create any charge over his assets to the bank. No retention of assets by the Bank

TYPES OF CHARGES
PLEDGE Sec. 172 of Indian Contract Act 1872 Bailment of Goods as security for payment of a debt or performance of a promise Sec. 148 of Indian Contract Act 1872 defines Bailment as Delivery of Goods from one person to another for some purpose upon the contract or Otherwise disposed of according to the instructions of the bailor

TYPES OF CHARGES
"Hypothecation" means a charge on any movable property, existing or future, created by a borrower in favor of a secured creditor (Bank)without delivery of possession of the movable property

as a security for financial assistance

and includes floating charge and crystallization of such charge into fixed charge

TYPES OF CHARGES
MORTGAGE Sec. 58 of Transfer of Property Act 1882

the transfer of an interest in a specific immovable property for the purpose of securing the payment of money, advanced or to be advanced by way of a loan, which may give rise to a pecuniary liability

TYPES OF CHARGES
FORMS OF MORTGAGES Simple Mortgage Mortgagee can sell the mortgaged property in case of default by mortgagor for payment of mortgage money by seeking the intervention of court Mortgage by Conditional Sale On default of payment of mortgage money, the mortgaged property shall be treated as sold to the transferee

TYPES OF CHARGES
FORMS OF MORTGAGES Usufructuary Mortgage Possession will be given to the mortgagee and receive the rents and profits accruing from the property and appropriate the same towards repayment of Principal or interest

English Mortgage The Mortgagee transfers the mortgaged property absolutely to the mortgagee on condition that the mortgagee retransfers upon payment of mortgage money. In case of default by the mortgagor the mortgagee can sell the property without the intervention of court

TYPES OF CHARGES
FORMS OF MORTGAGES
Mortgage by Deposit of Title Deeds The mortgagor delivers the documents of title to immovable property with an intent to create security. This is also called Equitable Mortgage. This is restricted only to some towns specified in the Act (as per specification of State Government)

Anomalous Mortgage A mortgage which is not a mortgage of the above types but a combination of any of the mortgages