general guidelines on advances

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