Bank Credit

Management
Dr. A. Muralidhar Prasad
M.Com, MBA, M.Phil, CAIIB, PGDADR , Ph.D

Associate Professor
and

Chairman, CIS at SSIM

SSIM :: KOMPALLY

Agenda
Overview of Lending Activity
Principles and Objectives of Credit Management
Credit Policy in Banks

Primary and Secondary Functions

College of Agricultural Banking, RBI, PUNE

Lending Classification

College of Agricultural Banking, RBI, PUNE

Requirements for Lending

Sources of Funds

Credit Policy

Systems and Procedures

College of Agricultural Banking, RBI, PUNE

Credit Creation

College of Agricultural Banking, RBI, PUNE

Credit Creation

Aggregate Deposits from the Banking System ( 10th Jan-2014 )

Rs. In Billions

77567.21
Aggregate Banking Credit (10th Jan- 2014)
Rs. In Billions

59698.28

College of Agricultural Banking, RBI, PUNE

Credit Creation
The All-India credit-deposit (C-D) ratio of all SCBs
stood at 77.8 per cent in September 2013.
Among the States/Union Territories, the highest
C-D ratio was observed in Tamil Nadu (125.2 per
cent) followed by Chandigarh (121.1 per cent)
and Andhra Pradesh (111.3 per cent).
At the bank group level, C-D ratios of Foreign
Banks (89.0 per cent), New Private Sector Banks
(84.5 per cent), and SBI and its Associates (78.9
per cent) were higher than the all-India average
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0QSCBS23011
4_F.pdf
College of Agricultural Banking, RBI, PUNE

Credit Management
Credit refers to
Short Term Loans & Advances
Medium / Long Term Loans
Off-Balance Sheet Transactions

Management refers to
Pre-sanction appraisal
Documentation
Disbursement
Post-lending supervision and control

College of Agricultural Banking, RBI, PUNE

Credit Management
Credit Management includes
Capital adequacy norms
Risk Management including ALM
Exposure Norms
Pricing policy and credit risk rating
IRAC norms
Appraisal, credit-decision making and loan review
mechanism

Approach for safety of loans

Safety of loans is directly related
to the basis on which decision to lend is taken
Type and quantum of credit to be provided
Terms and conditions of the loan

Two-pronged approach
Pre-Sanction appraisal
To determine the bankability of each loan proposal

Post-Sanction control
To ensure proper documentation, follow-up and supervision

Qualities of a Good Borrower

College of Agricultural Banking, RBI, PUNE

Principles of Good Lending

College of Agricultural Banking, RBI, PUNE

What is an Ideal Advance

According to L.C.Mather

Granted to a Reliable Customer

For an Approved Purpose
To which the customer has adequate
experience
Safe in the knowledge that the money will be
used to the advantage, and
Repayment will be made within a reasonable
period
From trading / business receipts or other
known maturities

The lending banker : a review of the principles of bank lending, unsecured advances and balance
sheets and the banker
Mather, L. C. (Leonard Charles)
College of Agricultural Banking, RBI, PUNE

Credit Cycle

College of Agricultural Banking, RBI, PUNE

TYPES OF ADVANCES

CLASSIFICATION BASED ON THE

NEEDS OF BORROWERS
FUND BASED FACILITIES

NON FUND BASED FACILITIES

FUND BASED FACILITIES

LOANS
CASH CREDITS
OVERDRAFTS
BILL FINANCE

LOANS
DEMAND LOANS

TERM LOANS

DEMAND LOANS
To meet Short term financial needs
Usually disbursed in lump sum by way of
vouchers
Cheque book is not be issued
Repayable within a period of less than 36
months
Repayable in lump sum or in Installments
Repayment will permanently reduce the
liability of the Borrower

TERM LOANS

To meet long term financial needs

Usually disbursed in one or more stages
Disbursed by vouchers, No cheque book
Repayable in Installments, not in lumpsum
Repayable in 36 months and above
Initial Holiday/Gestation period
Repayment will permanently reduce the
liability of the borrower

CASH CREDITS
An operative limit is sanctioned against the
security of Inventory/stock in trade
Sanctioned for a period of one or two years
It is not sanctioned for personal purposes
The security is stored outside the bank
premises
Borrower can draw funds by way of a
cheque upto to the limit & subject to the
availability of Drawing Power
Amount credited into the account can be
withdrawn again by the borrower

CASH CREDITS

The Cash Credit account may run in credit balance

Cash credits are of two types
- OPEN CASH CREDIT (O.C.C)
(Possession of security with borrower
-Hypothecation)
- KEY CASH CREDIT (K.C.C)
(Possession of security with the Bank- Pledge)

OVERDRAFTS
SECURED OVERDRAFTS
CLEAN OVERDRAFTS
TEMPORARY OVERDRAFTS

SECURED OVERDRAFTS
(SOD)
Sanctioned against the security of Bank
deposits, Real estate, Shares and securities etc
Sanctioned for a period of 1 or 2 years
Facility is allowed as an operative account like
Cash Credit account
Drawings allowed upto the limit subject to the
Drawing Power

CLEAN OVER DRAFTS (COD)

Sanctioned to the borrowers based on their credit
worthiness
It is an Unsecured Advance
Limit is sanctioned and drawings are allowed within
that limit
Operative account like SOD/OCC
No Drawing Power
Sanctioned for a period of 1 or 2 years

TEMPORARY OVERDRAFTS
(TOD)
It is a Clean Advance allowed in current accounts
Allowed for a maximum period of 7 days
No TOD in SB accounts

BILL FINANCE
Allowed to meet the financial requirements during
the time lag between sale of goods and receipt of
proceeds
It is a Post sale finance
These advances are self liquidating in nature
Augments Fees based income

TYPES OF BILLS & FACILITIES

ALLOWED

Negotiable Instruments
-Demand Bills
-Usance Bills
Others
-Supply Bills

DEMAND BILLS
Clean Bills Purchase (CBP)
(Cheques, DDs, Pay Orders,Dividend warrants,
Refund Orders etc,.)
Documentary Bills Purchase (DBP)
(Demand bills backed by invoices and Documents of
title to goods)

USANCE BILLS
Clean Usance Bills Discounting (CUBD)
(Usance bills of exchange and promissory notes)
Documentary Usance Bills Discounting (DUBD)
(Usance bills backed by Invoices and Documents of
title to goods)

SUPPLY BILLS
Supply Bills Purchase (SBP)
(Invoices arising out of execution of supply / works
contracts accompanied by Receipted challans /
Inspection Notes / Certificates as per the terms of
contract)

NON FUND BASED FACILITIES

Bank Undertakes to pay a definite sum of money in
case of contingency subject to certain terms and
conditions
Do not involve deployment of funds at the time of
allowing these facilities
Augments fees based income
At any time they may devolve on the Bank making
them as funded advances

VARIOUS TYPES OF NON FUND

BASED FACILITIES

LETTERS OF CREDIT
GUARANTEES

DEFERRED PAYMENT GUARANTEES

Thank you