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8/2/2019 General Guidelines on Advances
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General GuidelinesGeneral Guidelinesonon
ADVANCESADVANCES
amdprasad, SSIM
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What is Banking?
Sec: 5(1)b : Banking is accepting,Sec: 5(1)b : Banking is accepting,
for the purpose of LENDING or investment ,for the purpose of LENDING or investment ,
of deposits of money from the publicof deposits of money from the public
repayable on demand or otherwise andrepayable on demand or otherwise and
withdrawable by cheque , drafts , order orwithdrawable by cheque , drafts , order or
otherwiseotherwise
Can we lend entire deposit amount?Can we lend entire deposit amount?
Except SLR , CRR etcExcept SLR , CRR etc
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A
DVA
NCES Why the Banks should lend ?
Banks accept deposits for the purpose of
lending and / or investment
To service Deposits and Earn surplus , bankers
should lend
Investments are Subject to high risk and RBIguidelines
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A
DVA
NCES What is the basic problem in lending?
Default (Credit) risk
Can banks avoid the risk?
Risk is inherent in credit, it cannot beavoided.
It can be managed,by following the soundlending principles, loan policy guidelines,RBI Guidelines etc..
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Functions of a Bank
Functions of a Bank
PRIMARY SECONDARY
Accepting
Deposits
Lending or
InvestmentRemittances Collection of
Bills
Issuance of
BG/LC/DPG
Cross Selling Safe Deposit
Vault
Safe Custody
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Classification of Lending
Lending
RegulationsSize ofAdvance
Normal LendingDirected
Lending
Wholesale
Lending
Retail Lending
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Requirements of a Bank Sources ofFunds
Good systems and procedures
Credit / Loan policy
Delegation of Powers
Trained / skilled manpower
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PRINCIPLES OF SAFE LENDING CHARACTER,CAPACITY,CAPITAL,COLLATERAL,
CONDITIONS, CREDIT RECORD
SAFETY
LIQUIDITY
SECURITY
PROFITABILITY SPREAD ( Diversification of Risk)
PURPOSE
EXTENT OFADVANCE
MARGIN DRAWING POWER
END USE
NATIONAL INTEREST
OTHERSA
SPECTS
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Credit Policy
RBI Credit policy
Banks Credit policy
National Policy
National Priorities
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Banks Credit Policy
Policies are the results of values and beliefs
Reflects corporate priorities in lending
Credit culture
Objectives of credit policies Volumes
Earnings
Asset quality
Frame work
Regulatory
Corporate Goals
Social Responsibilities
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Contents of a Credit PolicyNew business and takeovers
Credit risk parameters
Credit rating frame work
Loan review and monitoring
Pricing and concessions
Sanction terms and conditions
Delegation of powers
Recovery mechanism
Lending philosophy
Lending objectives
Lending strategies
Identification of thrust areas
Guidelines on specific sectors
Identification of sensitive sectors
Lending methodologies
Restrictions and prohibitions
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Ideal Advance
According to L.C.Mather an Ideal advance is
Granted to a reliable customer
For an approved purpose
Adequate experience of customer
Repayable with in a reasonable period from the
known source of receipts
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Credit Cycle
1. Credit Prospecting
2. Credit Investigation
3. Credit Proposal4. Credit approval
5. Credit disbursement
6. Credit Monitoring7. Credit Recovery
1
2
3
4
Credit
Cycle
567
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Parameters of Client Risk Rating Business track record
Industry profile
Supply chain management
Customer of the product (Market)
Financial strength
Management structure
Conduct of account
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QUALITIES OF SECURITY
APPROVED
IDENTITY
TITLE
MARKETABILITY
VALUE
QUALITY STABILITY
TRANSFERABILITY
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APPLICATION
Standard & Relevant application
Preliminary scrutiny
Enter in register of applications received
Issue acknowledgement
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STUDY OFAPPLICATION
Full name address phone numbers
Names of all partners/directors with address, phone
numbers
Full details of sister concerns
Present facilities
Security/guarantee
Property statements
Income tax / sales tax / wealth tax assessments
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FINANCIAL STATEMENTS
Balance Sheet
Profit &loss account
Funds flow
Auditors report,directors reports
Balance Sheets of sister concerns Balance sheet to be less than 6 months old
Ratios to be analysed
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INTERVIEW
Family background
Process of business
Experience
Machinery/equipment/Infrastructure Licenses/Permits/Registration
Details of premises
Marketing
Sources of Margin
Details of properties owned by applicant, coobligants
In case of Technical projects Professionals may beinvolved
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CREDIT INFORMATION
Application
Market Enquiries
News Papers & Journals
Search Report
Credit information scheme of RBI Defaulters list
Other Banks
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STUDY OF PROJECT
Project Report
Technical Appraisal
Commercial Appraisal
Managerial Appraisal
Financial
Appraisal
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SPOT INSPECTION
The details furnished by the applicant must be
cross checked
All securities shall be inspected
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APPRAISAL
Strong and weak points to be highlighted
Standard appraisal form to be used
Appraisal to be done by credit / specialist officer All the direct and indirect liabilities of the
applicant and coobligants to be mentioned
Credit need to be assessed properly
Proper security to be stipulated
Terms and conditions
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SANCTION
To be done by competent authority
Sanction letter shall contain
Name & Address of borrower (including fathers name)
Co-obligant details Date of sanction and due date
Purpose
Nature of facility and limit
Rate of interest & Margin
Repayment terms
Security primary & Collateral
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SANCTION
Other conditions like
Stock statements
Financial Statements
Insurance Progress report
Administrative charges
Mode of release
Interest Payment
Acknowledgement of Sanction
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DOCUMENTATION
Standard and printed documents to be obtained
Documents to be filled carefully
Documents to be signed by all the concerned
Witness to be obtained on forms wherever applicable
Documents to be stamped and defaced
Examination of documents
Safe custody Periodic verification
Limitation
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DIBURSEMENT
Direct payments to be made to suppliers
Receipts and bills to be obtained
End use must be ensured
Insurance
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Supervision & Follow-up
Ensure the end use of funds
Compliance to terms of sanction
To ensure availability of security charged
To pick up danger signals
To ensure the credit given is adequate To avoid over-dues and NPAs
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Supervision & Follow-up
Periodical visits to the unit
Physical inspection of security
Control over operation of the account
Review of stock statements
MSOD & QIS Market enquiries
Renewals
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Thank you