Bank Credit Bank Credit ManagementManagementBank Credit Bank Credit ManagementManagement
Dr. A. Muralidhar PrasadM.Com, MBA, M.Phil, CAIIB, PGDADR , Ph.D
Associate Professor and
Chairman, CIS at SSIMSSIM :: KOMPALLY
AgendaAgenda
• Overview of Lending Activity
• Principles and Objectives of Credit Management
• Credit Policy in Banks
Primary and Secondary FunctionsPrimary and Secondary Functions
College of Agricultural Banking, RBI, PUNE
Lending ClassificationLending Classification
College of Agricultural Banking, RBI, PUNE
Requirements for LendingRequirements for Lending
• Sources of Funds
• Credit Policy
• Systems and Procedures
College of Agricultural Banking, RBI, PUNE
Credit CreationCredit Creation
College of Agricultural Banking, RBI, PUNE
Credit CreationCredit Creation
College of Agricultural Banking, RBI, PUNE
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
Credit CreationCredit 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
College of Agricultural Banking, RBI, PUNE
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0QSCBS230114_F.pdf0QSCBS230114_F.pdf
Credit ManagementCredit Management
College of Agricultural Banking, RBI, PUNE
• 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
Credit ManagementCredit 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 loansApproach 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 BorrowerQualities of a Good Borrower
College of Agricultural Banking, RBI, PUNE
Principles of Good LendingPrinciples of Good Lending
College of Agricultural Banking, RBI, PUNE
What is an Ideal AdvanceWhat is an Ideal Advance• According to L.C.Mather
Granted to a Reliable CustomerFor an Approved PurposeTo which the customer has adequate
experienceSafe 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 CycleCredit Cycle
College of Agricultural Banking, RBI, PUNE
TYPES OF ADVANCESTYPES OF ADVANCES
CLASSIFICATION BASED ON THE CLASSIFICATION BASED ON THE NEEDS OF BORROWERSNEEDS OF BORROWERS
• FUND BASED FACILITIES
• NON FUND BASED FACILITIES
FUND BASED FACILITIESFUND BASED FACILITIES
• LOANS
• CASH CREDITS
• OVERDRAFTS
• BILL FINANCE
LOANSLOANS
• DEMAND LOANS
• TERM LOANS
DEMAND LOANSDEMAND 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 LOANSTERM 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 CREDITSCASH 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 CREDITSCASH 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)
OVERDRAFTSOVERDRAFTS
• SECURED OVERDRAFTS
• CLEAN OVERDRAFTS
• TEMPORARY OVERDRAFTS
SECURED OVERDRAFTSSECURED OVERDRAFTS(SOD)(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)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 TEMPORARY OVERDRAFTS (TOD)(TOD)
• It is a Clean Advance allowed in current accounts• Allowed for a maximum period of 7 days• No TOD in SB accounts
BILL FINANCEBILL 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 TYPES OF BILLS & FACILITIES ALLOWEDALLOWED
• Negotiable Instruments -Demand Bills -Usance Bills • Others -Supply Bills
DEMAND BILLSDEMAND 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 BILLSUSANCE 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 BILLSSUPPLY 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 FACILITIESNON 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 VARIOUS TYPES OF NON FUND BASED FACILITIESBASED FACILITIES
• LETTERS OF CREDIT
• GUARANTEES
• DEFERRED PAYMENT GUARANTEES
Thank youThank you