Download VTU (Visvesvaraya Technological University) MBA 3rd Semester (Third Semester) 16MBAFM301-Principles and Practices of Banking PPB Notes Module 5 Important Lecture Notes (MBA Study Material Notes)
MODULE 6
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BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
? Mortgage
? A mortgage loan, also referred to as a mortgage, is used by
purchasers of real property to raise capital to buy real estate; or by
existing property owners to raise funds for any purpose while putting
a lien on the property being mortgaged. The loan is "secured" on the
borrower's property. This means that a legal mechanism is put in
place which allows the lender to take possession and sell the
secured property ("foreclosure" or "repossession") to pay off the
loan in the event that the borrower defaults on the loan or otherwise
fails to abide by its terms. The word mortgage is derived from a "law
French" term used by English lawyers in the Middle Ages meaning
"death pledge", and refers to the pledge ending (dying) when either
the obligation is fulfilled or the property is taken through foreclosure.
Mortgage can also be described as "a borrower giving consideration
in the form of a collateral for a benefit (loan).
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
? Mortgage
? A mortgage loan, also referred to as a mortgage, is used by
purchasers of real property to raise capital to buy real estate; or by
existing property owners to raise funds for any purpose while putting
a lien on the property being mortgaged. The loan is "secured" on the
borrower's property. This means that a legal mechanism is put in
place which allows the lender to take possession and sell the
secured property ("foreclosure" or "repossession") to pay off the
loan in the event that the borrower defaults on the loan or otherwise
fails to abide by its terms. The word mortgage is derived from a "law
French" term used by English lawyers in the Middle Ages meaning
"death pledge", and refers to the pledge ending (dying) when either
the obligation is fulfilled or the property is taken through foreclosure.
Mortgage can also be described as "a borrower giving consideration
in the form of a collateral for a benefit (loan).
? Standard or conforming mortgages
? Many countries have a notion of standard
or conforming mortgages that define a
perceived acceptable level of risk, which
may be formal or informal, and may be
reinforced by laws, government
intervention, or market practice.
? For example, a standard mortgage may
be considered to be one with no more than
70-80% LTV and no more than one-third
of gross income going to mortgage debt.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
? Mortgage
? A mortgage loan, also referred to as a mortgage, is used by
purchasers of real property to raise capital to buy real estate; or by
existing property owners to raise funds for any purpose while putting
a lien on the property being mortgaged. The loan is "secured" on the
borrower's property. This means that a legal mechanism is put in
place which allows the lender to take possession and sell the
secured property ("foreclosure" or "repossession") to pay off the
loan in the event that the borrower defaults on the loan or otherwise
fails to abide by its terms. The word mortgage is derived from a "law
French" term used by English lawyers in the Middle Ages meaning
"death pledge", and refers to the pledge ending (dying) when either
the obligation is fulfilled or the property is taken through foreclosure.
Mortgage can also be described as "a borrower giving consideration
in the form of a collateral for a benefit (loan).
? Standard or conforming mortgages
? Many countries have a notion of standard
or conforming mortgages that define a
perceived acceptable level of risk, which
may be formal or informal, and may be
reinforced by laws, government
intervention, or market practice.
? For example, a standard mortgage may
be considered to be one with no more than
70-80% LTV and no more than one-third
of gross income going to mortgage debt.
? Foreign currency mortgage
? In some countries with currencies that tend
to depreciate, foreign currency mortgages
are common, enabling lenders to lend in a
stable foreign currency, whilst the
borrower takes on the currency risk that
the currency will depreciate and they will
therefore need to convert higher amounts
of the domestic currency to repay the loan
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
? Mortgage
? A mortgage loan, also referred to as a mortgage, is used by
purchasers of real property to raise capital to buy real estate; or by
existing property owners to raise funds for any purpose while putting
a lien on the property being mortgaged. The loan is "secured" on the
borrower's property. This means that a legal mechanism is put in
place which allows the lender to take possession and sell the
secured property ("foreclosure" or "repossession") to pay off the
loan in the event that the borrower defaults on the loan or otherwise
fails to abide by its terms. The word mortgage is derived from a "law
French" term used by English lawyers in the Middle Ages meaning
"death pledge", and refers to the pledge ending (dying) when either
the obligation is fulfilled or the property is taken through foreclosure.
Mortgage can also be described as "a borrower giving consideration
in the form of a collateral for a benefit (loan).
? Standard or conforming mortgages
? Many countries have a notion of standard
or conforming mortgages that define a
perceived acceptable level of risk, which
may be formal or informal, and may be
reinforced by laws, government
intervention, or market practice.
? For example, a standard mortgage may
be considered to be one with no more than
70-80% LTV and no more than one-third
of gross income going to mortgage debt.
? Foreign currency mortgage
? In some countries with currencies that tend
to depreciate, foreign currency mortgages
are common, enabling lenders to lend in a
stable foreign currency, whilst the
borrower takes on the currency risk that
the currency will depreciate and they will
therefore need to convert higher amounts
of the domestic currency to repay the loan
? Assignment
? ? Essentially, an assignment is the transfer of
ownership. An example of an assignment is
when a person sells his or her car, thereby
transferring the title to another.
? ? When assigned, the option writer has an
obligation to complete the requirements of the
option contract. If the option was a call (put)
option, then the writer would have to sell (buy)
the underlying security at the stated strike price.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
? Mortgage
? A mortgage loan, also referred to as a mortgage, is used by
purchasers of real property to raise capital to buy real estate; or by
existing property owners to raise funds for any purpose while putting
a lien on the property being mortgaged. The loan is "secured" on the
borrower's property. This means that a legal mechanism is put in
place which allows the lender to take possession and sell the
secured property ("foreclosure" or "repossession") to pay off the
loan in the event that the borrower defaults on the loan or otherwise
fails to abide by its terms. The word mortgage is derived from a "law
French" term used by English lawyers in the Middle Ages meaning
"death pledge", and refers to the pledge ending (dying) when either
the obligation is fulfilled or the property is taken through foreclosure.
Mortgage can also be described as "a borrower giving consideration
in the form of a collateral for a benefit (loan).
? Standard or conforming mortgages
? Many countries have a notion of standard
or conforming mortgages that define a
perceived acceptable level of risk, which
may be formal or informal, and may be
reinforced by laws, government
intervention, or market practice.
? For example, a standard mortgage may
be considered to be one with no more than
70-80% LTV and no more than one-third
of gross income going to mortgage debt.
? Foreign currency mortgage
? In some countries with currencies that tend
to depreciate, foreign currency mortgages
are common, enabling lenders to lend in a
stable foreign currency, whilst the
borrower takes on the currency risk that
the currency will depreciate and they will
therefore need to convert higher amounts
of the domestic currency to repay the loan
? Assignment
? ? Essentially, an assignment is the transfer of
ownership. An example of an assignment is
when a person sells his or her car, thereby
transferring the title to another.
? ? When assigned, the option writer has an
obligation to complete the requirements of the
option contract. If the option was a call (put)
option, then the writer would have to sell (buy)
the underlying security at the stated strike price.
? Example:
? One example of assignment is 'transfer by the holder of a
life insurance policy (the assignor) of the benefits or
proceeds of the policy to a lender (the assignee), as a
collateral for a loan'. In such case in the event of the
death of the assignor, the assignee is paid first and the
balance (if any) is paid to the policy's beneficiary.
However, insurance policies other than life insurance,
may not be used for this purpose.
FirstRanker.com - FirstRanker's Choice
BANKER AS LENDER
MODULE 6
OUTLINE:
? Banker as lender
? Types of loans
? Overdraft facilities
? Discounting of bills
? Financing book
? Debts and supply bills
? Charging of Security bills
? Pledge - Mortgage
? Assignment.
INTRODUCTION:
? Lending is one of the important function of
all banks.
General Principles of Sound Lending
? Safety
? Liquidity
? Profitability
? Security to be insisted upon
? Purpose of the loan
? Diversification of loans
? Assured Repayment
? Social Objectives
Forms of advances:
1) Loans
2) Cash Credit
3) Over draft
4) Discounting of Bills
5) Hire purchase advances
1)Loans
? Loans: lump sum amount is sanctioned to
the customer for a specified time and at a
specified rate of Interest. A separate loan
account is opened in the name of the
customer
? Short Term ? less than one year
? Medium term ? 1 to 5 years
? Long term ? above 5 years
2)CASH CREDIT
? Cash Credit : Under this system the customer is
permitted to borrow money upto a particular limit
against sufficient securities.
? A separate account is opened for this purpose.
Deposits and withdrawals are frequently affected
in this account.
? It is a very popular among large industrial
houses.
? It is sanctioned for one year and renewed there
after.
? Interest is charged only on the amount utilized.
3) OVERDRAFT
? Customer is allowed to overdraw his
current account up to a specified limit.
? Relatively it is not granted on a regular
basis like cash credit. Interest is charged
on the amount utilized
4) DISCOUNTING OF BILLS
? Banker lends against the Promissory note
or a bill of exchange.
? It is granted to only the well known
financial parties as it is a clean advance by
the banks without any securities. Banker
may also purchase the bill instead of
discounting.
5) HIRE PURCHASE ADVANCES
? Banks provide finances to companies
engaged in hire purchase business.
? They don?t finance to the final customer if
they do so they do it under the category of
personal loans.
TYPES OF LOANS
Home Loan
? Home Loans are taken by people for a variety
of home-related purposes such as construction
of home, home renovation, home extension,
buying of property or land, or payment of
stamp duties.
? Home loans comprise an adjustable or fixed
interest rate and payment terms. :
Some types of home loans are mentioned below :
? Home Purchase Loan
? Land Purchase Loan
? Home Construction Loan
? Home Extension Loan
? Home Renovation Loan
? Stamp Duty Loan
? NRI Home Loans
? Loan Against Property
Personal Loan
? This type of loan is given to individuals after accessing
their credentials based on their profession or business, or
any other sources of income.
? The loan can be utilised for any purpose, for example,
paying debt, marriage expenses or vacation expenditure.
? No collateral security is required for this type of loan.
The span of personal loan repayment varies from 12
months to 60 months depending upon the principal
amount and the EMIs.
? The interest rate ranges from 15 percent to 28 percent
varying from bank to bank.
? Approximately 2 percent of the total loan amount is
charged as the loan processing fee.
.
Business Loan
? This type of loan is provided to either existing
businesses or those venturing into new business.
? As banks provide loans on the basis of
individual's credentials, it is bit difficult to get a
loan for starting a business.
? It is very important for individuals (starting a
business) to have a clear cut business plan as it
is the most important requirement to convince
the banks that your business has the capability
of repayment.
Education Loan
? Required by and provided to students who want to
pursue higher education in resident country or abroad.
? Students should have an admission offer from an
institution before they apply for an education loan.
? The loan takes care of the fees of the institution
including examination and library fees; travel expenses
for abroad; cost of books and equipments required; any
insurance for the student, if applicable; and any
additional expenses such as tours, thesis, project work,
etc.
? The terms of education loans vary from bank to bank.
RBI guidelines for Education Loan
? The RBI has fixed certain norms on the total
amount of loan that can be disbursed; however,
banks can increase or decrease the limit
depending on the institution.
? For studying in India, Rs. 10 lakh is the average
and for studying abroad, the average is Rs. 20
lakh.
? For a loan amount up to Rs. 4 lakh, parents
should be the joint borrowers and above that
amount, a guarantee or some security in terms
of tangible assets is required, depending upon
the bank.
? Simple rate of interest is charged depending
upon the base rate of the bank.
Gold Loan
? Gold loan is imparted only on providing gold as security
to a bank or any other lending institution.
? It is considered as one of the safest methods as the loan
amount is provided on the basis of the security submitted.
? Amount ranging from Rs. 5k to 25 lakh can be taken as
loan against gold.
? Amount equivalent to 80 percent to 90 percent (varying
from bank to bank) of the total value of the gold is given
as loan to the borrower.
? Depending upon the bank, the tenure of gold loan varies
from one day to two years. The extension of tenure is
also allowed by few banks.
? The rate of interest usually ranges from 14 percent to 24
percent, depending upon the financial institution.
? The banks charge processing fees of up to
1.5 percent.
? There is no prepayment fee. You can
repay the gold loan any time during the
tenure.
? EMI policy also varies from bank to bank;
few banks prefer EMIs where interest and
principal are charged monthly, whereas
few only charge the interest on a monthly
basis and offer flexibility for the payment of
the interest amount.
Vehicle/ Car Loan
? Compared to other loans, it is easier and
simpler to take vehicle loans.
? Vehicle loans involve less paperwork and
around three to six working days are
required to get the clearance.
? The interest rates vary from bank to bank
based on their base rate.
? The repayment process involves monthly
EMIs and early repayment options
Overdraft facilities
? An overdraft occurs when money is withdrawn from
a bank account and the available balance goes
below zero.
? In this situation the account is said to be
"overdrawn".
? If there is a prior agreement with the account
provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate.
? If the negative balance exceeds the agreed terms,
then additional fees may be charged and higher
interest rates may apply.
Reasons for overdrafts
? Intentional short-term loan
? Failure to maintain an accurate account
register
? ATM overdraft
? Temporary Deposit Hold
? Unexpected electronic withdrawals
? Merchant error
? Bank fees
? Intentional short-term loan - The
account holders finds themselves
short of money and knowingly makes
an insufficient-funds debit.
? They accept the associated fees and
cover the overdraft with their next
deposit.
? Failure to maintain an accurate
account register - The account
holder doesn't accurately account
for activity on their account and
overspends through negligence.
? ATM overdraft - Banks or ATMs may allow
cash withdrawals despite insufficient
availability of funds. The account holder
may or may not be aware of this fact at the
time of the withdrawal. If the ATM is
unable to communicate with the
cardholder's bank, it may automatically
authorize a withdrawal based on limits
preset by the authorizing network.
? Temporary Deposit Hold - A deposit made
to the account can be placed on hold by
the bank. This may be due to Regulation
CC (which governs the placement of holds
on deposited checks) or due to individual
bank policies. The funds may not be
immediately available and lead to
overdraft fees.
? Unexpected electronic withdrawals - At some point in the
past the account holder may have authorized electronic
withdrawals by a business. This could occur in good faith of
both parties if the electronic withdrawal in question is made
legally possible by terms of the contract, such as the
initiation of a recurring service following a free trial period.
The debit could also have been made as a result of a wage
garnishment, an offset claim for a taxing agency or a credit
account or overdraft with another account with the same
bank, or a direct-deposit chargeback in order to recover an
overpayment.
? Merchant error - A merchant may
improperly debit a customer's account due
to human error. For example, a customer
may authorize a $5.00 purchase which
may post to the account for $500.00. The
customer has the option to recover these
funds through chargeback to the merchant.
? Chargeback to merchant - A merchant account could
receive a chargeback because of making an improper
credit or debit card charge to a customer or a customer
making an unauthorized credit or debit card charge to
someone else's account in order to "pay" for goods or
services from the merchant. It is possible for the
chargeback and associated fee to cause an overdraft or
leave insufficient funds to cover a subsequent withdrawal
or debit from the merchant's account that received the
chargeback.
? Authorization holds - When a customer
makes a purchase using their debit card
without using their PIN, the transaction is
treated as a credit transaction. The funds
are placed on hold in the customer's
account reducing the customer's available
balance.
? Bank fees - The bank charges a fee
unexpected to the account holder, creating
a negative balance or leaving insufficient
funds for a subsequent debit from the
same account.
Discounting of bills
? Bill of Exchange, is an instrument in writing
which is an unconditional order to pay a certain
amount of money to a specified person.
? The transaction is practically an advance against
the security of the bill and the discount
represents the interest on the advance from the
date of purchase of the bill until it is due for
payment. Under certain circumstances, the Bank
may discount a bill of exchange instead of
negotiating them.
? The seller who is the holder of a accepted
B/E has two options :
? 1. Hold on the B/E till maturity and then
take the payment from buyer.
? 2. Discount the B/E with discounting
agency.
? Discount:
? ? Seller can take the accepted B/E to a
discounting agency and obtain ready cash.
? ? The act of giving accepted B/E for ready
money is call discounting the B/E.
? ? The difference between ready money
paid and the face value of the bill is called
the discount.
Types of Bills
? 1. Demand Bill
? 2. Usance Bill
? 3. Documentary Bill
? 4. Clean Bill
Creation of a B/E
? Suppose a seller sells goods or merchandise to a buyer. In
most cases, the seller would like to be paid immediately
but the buyer would like to pay only after some time, that
is, the buyer would wish to purchase on credit. To solve
this problem, the seller draws a B/E of a given maturity on
the buyer. The seller has now assumed the role of a
creditor; and is called the drawer of the bill. The buyer,
who is the debtor, is called the drawee. The seller then
sends the bill to the buyer who acknowledges his
responsibility for the payment of the amount on the terms
mentioned on the bill by writing his acceptance on the bill.
The acceptor could be the buyer himself or any third party
willing to take on the credit risk of the buyer.
? Financing book dates and supply bills
? When a bank receives a deposit of checks from a payee,
it will credit the payee's account with the funds
represented by the checks. However, the bank has not
really received the cash yet, since it must still collect the
funds from the bank of the paying party. Until the bank
collects the funds, it is at risk of having a negative cash
flow situation if the payee uses the cash it has just
received.
? To avoid this risk, the bank posts the amount of the
deposit with a value date that is one or more days later
than the book date. This value date is the presumed date
of receipt of the cash by the bank. Once the value date is
reached, the payee has use of the funds. The value date
may be categorized by the bank as 1-day float, 2+-day
float, or some similar term.
? Charging of security bills
? ? Charging of security is done by banks to
safe guard their advances by taking
different kinds of securities reason being
to fall back on it in case of loan is
defaulted.
? Type of Charges
? ? Assignment ? it is a mode of providing
security to a banker for an advance
includes transfer of a right, property or
debt.
? Lien ? right of the banker to retain possessions of the goods and
securities owned by the debtor until debt due is paid
? ? Set-off ? Total or partial merging of a claim of one person against
another in a counterclaim by the latter against the former.
? ? Mortgage ? Transfer of interest in immovable property to secure
an advanced loan or an existing debt or performance of an
obligation.
? ? Pledge ? Bailment of goods for providing security for payment of
debt or performance of promise.
? ? Hypothecation ? Charge upon any movable property created by a
borrower in favor of a secured creditor without delivery of
possession of the movable property, also called as a mortgage of a
movable property.
? Pledge
? ? Bailment of goods as security for
payment of debt or performance of a
promise :PLEDGE
? ? Bailer: PAWNER
? ? Bailee: PAWNEE
? ? Example:
? ? A borrows Rs.100 from B & keeps his
watch as security : pledge
? Mortgage
? A mortgage loan, also referred to as a mortgage, is used by
purchasers of real property to raise capital to buy real estate; or by
existing property owners to raise funds for any purpose while putting
a lien on the property being mortgaged. The loan is "secured" on the
borrower's property. This means that a legal mechanism is put in
place which allows the lender to take possession and sell the
secured property ("foreclosure" or "repossession") to pay off the
loan in the event that the borrower defaults on the loan or otherwise
fails to abide by its terms. The word mortgage is derived from a "law
French" term used by English lawyers in the Middle Ages meaning
"death pledge", and refers to the pledge ending (dying) when either
the obligation is fulfilled or the property is taken through foreclosure.
Mortgage can also be described as "a borrower giving consideration
in the form of a collateral for a benefit (loan).
? Standard or conforming mortgages
? Many countries have a notion of standard
or conforming mortgages that define a
perceived acceptable level of risk, which
may be formal or informal, and may be
reinforced by laws, government
intervention, or market practice.
? For example, a standard mortgage may
be considered to be one with no more than
70-80% LTV and no more than one-third
of gross income going to mortgage debt.
? Foreign currency mortgage
? In some countries with currencies that tend
to depreciate, foreign currency mortgages
are common, enabling lenders to lend in a
stable foreign currency, whilst the
borrower takes on the currency risk that
the currency will depreciate and they will
therefore need to convert higher amounts
of the domestic currency to repay the loan
? Assignment
? ? Essentially, an assignment is the transfer of
ownership. An example of an assignment is
when a person sells his or her car, thereby
transferring the title to another.
? ? When assigned, the option writer has an
obligation to complete the requirements of the
option contract. If the option was a call (put)
option, then the writer would have to sell (buy)
the underlying security at the stated strike price.
? Example:
? One example of assignment is 'transfer by the holder of a
life insurance policy (the assignor) of the benefits or
proceeds of the policy to a lender (the assignee), as a
collateral for a loan'. In such case in the event of the
death of the assignor, the assignee is paid first and the
balance (if any) is paid to the policy's beneficiary.
However, insurance policies other than life insurance,
may not be used for this purpose.
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This post was last modified on 18 February 2020