14520427 lending policies of indian banks

8/9/2019 14520427 Lending Policies of Indian Banks

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Commercial Banking

Lending Policies

of

Banks and FIs


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Lending by Banks Commercial Banking 3

Business Planning &

Performance Review System

Growth plans and Business Levels

Sector-wise sub-plans for next year

Achievement of Targets like Priority Sector(SSI and Agri), Export Finance, etc

Bottom Up and Top Down Approaches

Weekly, Monthly MIS and Review Reports

Quarterly Analysis and Mid-course actions


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RBI as a regulator

Announces Credit Policy in April every year

Reviews Quarterly June, October and December

Monitors through various reports Helps GOI to formulate Budget and Policies

Advises Banks to follow its Guidelines

Controls money supply, credit, forex, etc

Prescribes certain exposure limits / rates of intt

Priority Sector Agriculture, SSI, Exporters etc


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General Principles of Banks

1. Identification of Borrower

2. Purpose of the Loan

3. Quantum of Loan4. Period of Loan

5. Source of Repayment

6. Collateral Security Offered7. Appraisal / Sanction / Acceptance of Terms

8. Documentation / Disbursement / Inspection


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General Principles

01. Identification of BorrowerTrack Record/Experience/

Educational or ProfessionalQualifications

Type of Business Organisation

Past performance3 Cs - Character, Capacity and

Credit Worthiness


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General Principles ...

02. Purpose of the LoanIs it for productive purpose ?

Is it a legitimate activity ?

Is it new venture or existing ?

If existing - is it for expansion ordiversification ?


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03. Quantum of Loan Is it need based ?

It should be timely

It should be with borrowers stake/margin (Varying between 5 to 25%)

It should neither be over financednor under-financed


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04. Period of Loan

Is it for short or long term ? Is it adequate by time ?

Is it a renewal/ revival/

enhancement ?What are the chances of

contingencies ?


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05 Source of Repayment ? Out of business/salary income ?

Is it self-liquidating ie., a working capitalaccount ? Cash Credit Hypothecation orPledge (lock-n-key) facility?

Out of sale of asset(s) financed or disposal

of collateral security?Any other source of income like guarantor?

Is it a bridge loan ?


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06.What is the Security offered ?

Primary - stock, assets, etc(Hypothecation, Pledge, etc )

Secondary -3rd party guarantee or

charge on immoveable property ? (Type ofMortgage overAssets)


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General Principles ... 07. Appraisal of Proposal / Sanction

08. Convey Terms & conditions in writing

09. Documentation

Proper Documents Proper Stamps

Complete in all respects

Executed by all authorised signatories / Seal

Charge recorded with ROC within 30 days 10.Disbursement, Inspection, Insurance &

follow up asset verification, stockstatements, recovery, renewal .........


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Types of LendingA. Fund based (Current & Fixed Assets)

1. Overdrafts

2. Cash Credits

3. Bills Finance Demand or Usance Bills

4. Demand Loans

5.Term Loans

6. Other Loans - Car Loans, Consumer Durables,

Educational Loans, Housing Loans, ProfessionalsPersonal Loans, Credit Cards and so on


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Types of lendings ...

B. Non-Fund based (Fee based) Issue of Guarantees

Issue of Letters of Credit Deferred Payments Guarantees

C. Others Lease Finance

Hire Purchase Finance


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01. Overdrafts

Temporary facility

Allowed against Current or CC A/c -

5-10% above available limit

Simple Application& formalities

Highrate ofInterest

CleanorSecured againststocks,shares,and otherassets


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02. Cash Credit A/c

For Working Capital purpose

Limit generally for 1 year

To submit periodic Stock statements Depends on Operating Cycle,

Turnover, Cash Budget or ProjectedBalance Sheet

Simple Documentation - DP Note andHypothecation/Pledge Agreements


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03.Bills Purchased

Bills of Exchange drawn for Credit

Demand Bills or Usance Bills D/A or D/P basis

Limit for Negotiation or Discount

Close monitoring required


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04. Demand Loans

Repayable on Demand - secured loan

Against pledge of

Gold, Fixed Deposit, Stocks etc

.

Generally in installments - mly, qly, hly etc

Gradually liquidated over a period

DP Note and other documents obtained


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05.Term Loans For acquiring Fixed Assets

Ascertain Project Report and Cost

Tech. Feasibility & Economic Viability Income to be generated with Project

Economic Life of the Asset

Cash Flows from the Project Charge on Assets, low Rate of Intt


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Types of Bank Borrowers

1. Individuals Retail Banking

2. Sole Proprietor

3. Partnership firms4. Trust Accounts

5. HUFs, Clubs, Societies

6. Private Limited Companies7. Public Limited Companies

8. Public Sector Undertakings, MNCs


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Types of Borrowers

01. Individuals - Minors/Majors/Status

SalarySlips/NOC/NoDuesCertificate

ProofofResidence/TelorElectricityBills

Agreements/ Signatures/Witnesses/Security

02. Sole Proprietor CertifiedBusinessAccounts/ Income Tax orSalesTax AssessmentOrdersetc


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Types of Borrowers ...

03. Partnership FirmsOralor Written Deed?

Registeredor UnregisteredFirm?

Joint andSeveralresponsibility ofPartners

CertifiedAccounts

Income Tax andSales Taxassessments


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04.Trust A/cs

TrustDeed- whetherregistered?

Capacitytoraise loans?

Purpose ofLoan?

Signatorytothe Documents?

LegalOpiniononTransaction?

Resolutionhasbeenpassed?

CreationofCharge onAssets?


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05. HUFs, Clubs, Societies,

Assns etc

Kartaofthe Family& Co-parceners

Clubs,SocietiesandAssociations

Office bearers

Rules, Articles,

Authorisedpersons

LocalBodies: PanchayatorMunicipality


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06.Pvt Ltd Cos & PSUs

Same setoftermsandconditionsasPublicLimitedCompanies.

Incase ofPSUs, Guarantee maybeissuedbythe State orCentralGovernments!

Insome cases, MarginMoneyand/or

State / CentralGovernmentSubsidy! Inlarge accounts- Consortium ?


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07. Public Limited Cos

CertofIncorporationbyROC: Cos.Act

MemorandumofAssociation : Objectives

ArticlesofAssociation : WorkingofCo. CertforCommencementofBusiness

ListofDirectors,Share Holdingpattern

PowersofDirectors,CommonSealetc Resolutionbythe BoardforLoan

SignatorytoDocuments,Charge onAssets


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Securities for Bank Advances

Creation of various types of charges


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FORMS OF SECURITY FOR

LOANS

1. BANKERS LIEN

2. PLEDGE

3. HYPOTHECATION

4. MORTGAGE


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1. BANKERS LIEN

A RIGHT TO RETAIN PROPERTIES

BELONGING TO THE DEBTOR

UNTIL DUES ARE PAID FULLY


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2. PLEDGE

IT IS BAILMENT OF GOODS

PURPOSE OF SECURITY

FOR PAYMENT OF A DEBT ORPERFORMANCE OF A PROMISE


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PLEDGE contd..

Exceptions

1. AGENT CAN ALSO CREATE A VALID PLEDGE

2. SELLER IN POSSESSION MAY CREATE

3. BUYER IN POSSESSION BEFORE PAYMENT

4. PLEDGER WITH LIMITED INTEREST

5. ONE OF THE JOINT OWNERS IN POSSESSION6. ANY PERSON WHO IS IN VALID POSSESSION


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PLEDGE .contd..

BANKERS RIGHTS AS PLEDGEE

1. CAN FILE A SUIT FOR RECOVERY OF DUES

2. CAN FILE A SUIT FOR SALE OF GOODSPLEDGED

3. CAN SELL THE GOODS AFTER DUE NOTICE


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PLEDGE .contd..

BANKERS OBLIGATIONS1. NOT ENTITLED TO ENJOY ANY ACCRETIONS

2. G

OVT AUTHORITIES MAY NOT SUPERSEDETHE PLEDGEES RIGHTS FOR RECOVERY OFDUES

3. REASONABLE NOTICE TO BE GIVEN BEFORESALE

4. TO RE-DELIVER THE GOODS ON RECEIPT OFDUES

5. PROPER REGISTRATION WITH REGISTRAR


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3. HYPOTHECATION

ITS A MORTGAGE OF MOVEABLE ASSETS

A TEMPORARY TRANSFER OF PROPERTY

NO TRANSFER OF POSSESSION BY THEHYPOTHECATOR TO HYPOTHECATEE

PROPER RECORD OF CHARGE CREATION TO BEDONE WITH REGISTRAR OF COMPANIES

HYPOTHECATOR FREE TO USE THE ASSETS


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MORTGAGE - PARTIES

MORTGAGOR - THE BORROWER

MORTGAGEE - THE LENDER/BANKER

REGISTRAR OF ASSURANCES (FOR ASSET)

REGISTRAR OF COMPANIES (FOR CHARGES)


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MORTGAGE ..contd..

A TRANSFER OF INTEREST IN IMMOVEABLEASSETS LIKE LAND, BUILDING, PLANT, M/c.,

IMMOVEABLE PROPERTY TO BE SPECIFIC

CONSIDERATION MAY BE MONEY ADVANCED/TO BE ADVANCED OR PERFORMING A PROMISE


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TYPES OF MORTGAGES..

1. SIMPLE MORTGAGE

2. MORTGAGE BY CONDITIONAL SALE

3. USUFRUCTUARY MORTGAGE4. ENGLISH MORTGAGE :

(REGISTERED )

5. EQUITABLE MORTGAGE : BYDEPOSIT OF TITLE DEEDS

6. ANOMALOUS MORTGAGE


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SIMPLE MORTGAGE

NO DELIVERY OF POSSESSION OFASSETS

MORTGAGOR BINDS PERSONALLY FORDUES

AGREES TO LENDERS RIGHT TO

DISPOSE OFF THE MORTGAGEDPROPERTY FOR LIQUIDATING THE DUES


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MORTGAGE BY

CONDITIONAL SALE

MORTGAGOR SELLS THE PROPERTY TOLENDER

CONDITIONS THAT ON DEFAULT, SALE SHALLBECOME ABSOLUTE

ON PAYMENTS MADE, SALE SHALL BE VOID

ALSO, ON RECEIPT OF PAYMENT, BUYER SHALL

TRANSFER BACK THE PROPERTY TO THESELLER


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USUFRUCTUARY MORTGAGE

POSSESSION IS DELIVERED TO MORTGAGEE

MORTGAGOR IS ENTITLED TO RE-POSSESS ON

PAYMENT OF DUES OR DEBT IS DISCHARGEDBY RENTS AND PROFITS RECEIVED BY MGGEE

MGGEE IS ENTITLED TO ENJOY THEPROPERTY TILL DEBT IS DISCHARGED

MORTGAGEE CANNOT SUE MORTGAGOR FORFORECLOSURE OR FOR SALE.


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ENGLISH MORTGAGE -

(REGISTERED)

ITS A TRANSFER OF PROPERTY TOMORTGAGEE

FOR A DEBT OR PROMISE TO BE PERFORMED

MGGEE SHALL RE-TRANSFER THE PROPERTYUPON PAYMENT OF DUES OR DISCHARGE OFPROMISE


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ENGLISH MORTGAGE contd..

MORTGAGE DEED TO BE REGISTERED WITHTHE REGISTRAR OF ASSURANCES

INVOLVES HEAVY STAMP DUTY FOR THE DEED PRIOR ENCUMBERANCES TO BE ASCERTAINED

LEGAL FORMALITIES TO BE COMPLIED WITH

R.O.C. TO BE INFORMED WITHIN 30 DAYSTHRO FORM Nos. 8 AND 13 (AS PERCOMPANIES ACT)


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EQUITABLE MORTGAGE

TRANSFER OF IMMOVEABLE PROPERTY

FOR A CONSIDERATION - DEBT OR PROMISE

BY DEPOSIT OF TITLE DEEDS ONLY WITH AN INTENT TO CREATE CHARGE ON

ASSETS

SIMPLE - NO REGISTRATION WITH REGISTRAR

OF ASSURANCES LEGAL STEPS TO BE PROPERLY OBSERVED

R.O.C. TO BE ADVISED AS IN ENGLISH MGGE


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ANOMALOUS MORTGAGE

NOT ANY OF THE ABOVE 5 TYPES OFMORTGAGES

A COMBINATION OF 2 OR MORE OF THEABOVE


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SECURITIES FOR ADVANCES -

Other issues

Records to be maintained properly

Stock Inspections to be done regularly

Indication Boards to be insisted upon

Insurance of Assets to be regular

Renewal /Enhancement of limits to be doneperiodically

Revival Letters to be obtained Acknowledgement of Debts

Proper End-use and follow up to be done