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ADVANCES - TYPES OF ADVANCES

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					                              INDEX

POLICY SECTIONS   SECTION                                  SECTION
                  NUMBERS        PROCEDURE SECTIONS        NUMBERS
 LOAN POLICY-
 DOCUMENT A
  (EXISTING)                ADVANCES - TYPES OF ADVANCES
                                                            710.1
                                  TYPES OF ADVANCES
           DEPARTMENTAL PROCEDURES MANUAL        SECTION:P.710.1                 PAGE 01
SIB
                           Types of Advances                                     September 11
No.    SS CLK AM MGR                    PROCEDURE NARRATIVE
                      Advances can be broadly classified into two. Viz., Fund based facilities
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                      and Non-fund based facilities.
                      Fund based facilities can be either Term loans for acquiring fixed
 02                   assets, both for individuals and business and Short term credit for
                      working capital needs of a business and individuals.
                      Term Loans
                      Term loan may be defined as a loan repayable in not less than 36months.
03.a                  If the repayment period is below 36 months but more than 12 months, it is
                      called a medium term loan. Loans and facilities with a repayment period
                      of 12 months and below are called a short term loan.
                      Term loan is a single transaction limit where the loan amount is disbursed
                      either in a lump sum or in stages and the same is repaid in installments
                      along with interest. Unlike in an operative account, the facility of
03.b
                      reinstating the limit to the extent of repayment is not available in a term
                      loan. This is due to the fact that the loan is availed for a specific
                      purpose/project.
                      As per the credit policy of the Bank, maximum repayment period that will
                      be allowed for term loans will be 7 years, excluding holiday period.
                      However, for housing loans, long term agricultural loans and
                      infrastructural loans repayment period can exceed 7 years, subject to the
03.c
                      same not exceeding 20 years for home loans and infrastructural loans and
                      15 years for agricultural loans. In the case of loans to be restructured,
                      CGM and above may consider a maximum repayment period of 10 years
                      from the date of original disbursement.
                      Short Term Loans and Working Capital Limits:
                      The short term finances are mainly extended for working capital
04.a                  requirement which are employed as current assets of the business. Banks
                      may also extend short term personal loans to individuals both as cleans
                      loans and secured loans.
                      Working capital finance for trade and industry is extended by banks by
                      way of inventory limits in the form of overdraft, cash credit, WCTL etc.
04.b
                      Post sales limits are extended by way of discounting of bills / cheques,
                      advances against book debts etc.
                      Banks have traditionally been freely financing towards working capital,
                      whereas, the long term finance was generally extended by term lending
                      institutions like State/Central financial corporations and development
                      financial institutions like Industrial Development Bank of India (IDBI),
                      Industrial Credit and Investment Corporation of India (ICICI), Industrial
                      Finance Corporation of India (IFCI). However, post LPG (Liberalisation,
04.c
                      Privatisation and Globalisation), the roles of Development financial
                      institutions were also taken over by commercial banks as they have started
                      extending long term finance for all projects, including infrastructure
                      projects. In fact, some of the erstwhile Development financial institutions
                      like IDBI and ICICI obtained Banking license and have become
                      Commercial Banks.



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           DEPARTMENTAL PROCEDURES MANUAL        SECTION:P.710.1                    PAGE    02
SIB
                           Types of Advances                                        September 11
No.    SS CLK AM MGR                    PROCEDURE NARRATIVE

                      Types of advances
05
                      Based on the security available, advances can be fully secured, partly
                      secured and clean or unsecured.
                      Some of the important types of credit facilities that the bank extends are
                      discussed below:
                      Overdrafts (Secured/unsecured)
                      Overdraft is a facility whereby the current account is allowed to be
06
                      overdrawn up to the sanctioned limit. The borrower may remit funds into
                      the account reducing the debit balance or he may draw on the account up
                      to the limit. It is sanctioned to individuals, traders and industrial concerns.
                      Overdraft may be unsecured (Clean), partly secured or fully secured
                      against pledge, mortgage or hypothecation of securities acceptable to the
                      bank

                      Cash Credits:
07.a                  A cash credit is a drawing account against credit granted by the bank and
                      is operated in exactly the same manner as a current account on which an
                      overdraft has been sanctioned.
                      The distinction between an overdraft and a cash credit advance is that in
                      the case of a Cash credit, the security will be inventory or receivables and
                      the Drawing Power (DP) for the account will be regulated / refixed at the
                      prefixed intervals as per the value of the available security at that point. In
                      the case of the Overdraft, generally, the security will be assets other than
                      inventory or receivables, such as deposits, surrender value of Insurance
07.b                  Policy, Gold ornaments or even landed property. Full sanctioned limit
                      will be available during the validity of the sanction and Drawing power
                      regulation is not envisaged for an Overdraft limit, as the original security
                      will be generally available in the case of OD whereas in the case of the
                      Cash credit, the primary security always being inventory and receivables
                      will undergo change both in value and nature as per the
                      purchase/sale/collection done by the unit. “OD – Contractor” is an
                      exception to this definition.
                      Loans: (Secured/unsecured)
                      These are advances for fixed amounts and no further debits may be raised
08.a
                      in the account subsequent to the initial debit except by way of interest,
                      insurance premia, and other charges.

                      Loans can be fully secured (FSL) against gold, commodities, Government
08.b                  Securities, LIC Policies, shares and other securities acceptable to the
                      bank. Bank may also grant unsecured or partly secured loans.


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           DEPARTMENTAL PROCEDURES MANUAL        SECTION:P.710.1                  PAGE       03
SIB
                           Types of Advances                                      September 11
No.    SS CLK AM MGR                    PROCEDURE NARRATIVE
                      The remittances made towards the loan accounts will be appropriated in
                      the loan account in the chronological order of demands for charges,
                      interest or principal, by the system. This practice is followed to avoid the
08.c                  situation of the account technically becoming an NPA, for non-satisfaction
                      of a demand towards a small charge for more than 90 days, as per the NPA
                      classification and provisioning norms, despite remittances in the account.
                      Bills Purchased and Discounted / Cheques Purchased

                      This type of advance can be classified into three distinct groups:

                      a) Bills purchased (B.P.)
09.a
                      These may be in the nature of on demand Clean or Documentary bills
                      being bills payable on Demand drawn on outstation centers for which
                      immediate credit is afforded to party’s account less our discount and
                      handling charges.
                      b) Usance Bills Discounted(UBD)/Drawee Bills Discounted (DBD)

                      Usance Clean or Documentary bills are bills payable on due date after
09.b
                      expiry of the usance period drawn on drawees/payees against which
                      immediate credit is given to the party’s account less interest for the usance
                      period, handling charges, postage, etc.
                      c) Cheques Purchased (C.P) (In our Bank this is popularly called as
                      DC- Discounted Cheques)

                      Outstation Cheques/Drafts drawn on Branches of our Bank or other banks
                      are purchased and immediate credit is afforded to party’s account less our
09.c                  discount/commission. Due to the advent of ‘speed clearing’ in which the
                      outstation cheques and other instruments drawn on any CBS enabled bank
                      branch is payable at any clearing house in the country, which has
                      implemented the ‘Speed clearing’, the necessity for this type of facility
                      has reduced to a great extent.

                      Other Types of Advances:
                      Advances against Deposits of our bank, Advances against National
10.a                  Savings Certificates (NSC)/Kissan Vikas Pathras (KVP), LIC policies,
                      shares/Debentures are also there.




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