Loans n advances

8/10/2019 Loans n advances

1/20

By

Sunil Pedavally B.Tech,MBA


2/20

Introduction

Principles of Sound Lending

Evaluating a borrower

Secured Loans & Unsecured Loans Types of Credit Facilities

Types of Interest Rates

Activity

How to calculate an EMI?


3/20

Income Tax Returns

Form 16 / 16A

CIBIL Report

EMI & How to calculate Tangible/Non Tangible Assets

Working Capital


4/20

A loan is when one party (called the lender,which is usually a bank or financialinstitution) agrees to give another party(called the borrower) a sum of money that is

to be paid back after a certain period of time.

An advanceis a credit facility that is provided

to the individual/corporation by the financialinstitution, bank, employer, friend, relativeetc.


5/20

A loan is treated as a debt where a lender suchas a bank will formally lend funds to aborrower, whereas an advance is a creditfacility, which is usually less formal than a loan.

Loans are for a longer period of time, and needto be repaid with interest while advances aretaken for shorter time periods, and interest isnot charged on the amount borrowed.


6/20

What are the parameters/principles does abank look for lending?


7/20

Safety Liquidity

Profitability

Purpose of the loan Sources of Repayment

Diversification of Risks


8/20

How do Banks Evaluate a Borrower?


9/20

5 Cs of the borrower = Character, Capacity, Capital,Collateral, Conditions

Sources of information available to assess the borrower Loan application

Market reports

Operation in the account

Report from other Bankers

Financial statements, IT returns etc.

Personal interview

Unit inspection prior to sanction


10/20

Section 5(i) (n) of the Banking Regulation act, 1949, definesSL as Secured loan or advance means a loan or advancemade on the security of assets, the market value of which isnot at any time less than the amount of loan or advance

Primary Security/Collateral Security

Cannons of a Good banking security Clear Title of the borrower Liquidity Stability is value

Easy Transferability Realization of advance Margin


11/20

Section 5(i) (n) of the Banking Regulation act,1949, defines unsecured loan as unsecuredloanor advance means a loan or advance not sosecured


12/20

Credit facilities broadly may be classified as under:

(a) Fund Based Credit Facilities: Fund based credit facilitiesinvolve outflow of funds meaning thereby the money of thebanker is lent to the customer. They can be generally offollowing types:(i) Cash credits/overdrafts(ii) Demand Loans/Term loans(iii) Bill finance

b) Non-Fund Based Credit Facilities: In this type of credit

facility the banks funds are not lent to the customer and theyinclude:(a) Bank Guarantees(b) Letter of Credit


13/20

A Cash Credit is an arrangement by which a banker allows his

customer to borrow money up to a certain limit against the values

of his stocks & book debts from day to day. This is the mostfavourite mode of borrowing by large commercial & industrial

concerns in India, on account of the advantage that a customer

need not borrow at once, the whole amount he is likely to require,

but can draw such amounts as & when required. He can put back

any surplus amount which he may find with him for the time

being.


14/20

When a customer requires temporary accommodation, he maybe allowed to overdraw his current account, usually againstcollateral securities. This arrangement like the cash credit is

advantageous as he is required to pay interest on the amountactually used by him.

The main difference between cash credit & overdraft is thelatter is supposed to be a form of bank credit to be made use of

occasionally & the former is used for long terms bycommercial & industrial concerns doing regular business.


15/20

Where a loan is granted for a period exceeding one year

& is repayable according to a schedule of repayment, as

against on demand & at a time is known as termloan.

Where the period exceeds one year but not, 5 to 7

years, it is known as mediumterm loan.

A loan with longer repayment schedule is known as

longterm loan.


16/20

Fixed Rate

Floating / Variable Rate

Flat Rate

Diminishing Rate


17/20

Priority sector lending should constitute 40%aggregate bank credit

Out of the priority sector advances, at least 40%should be provided to agriculture.

Direct advances to the weaker sections inagriculture & allied activities in rural sector shouldform at least 40% of the total direct lending toagriculture.

The advances to rural artisans, village craftsmen &cottage industries should be at least 12.5% of thetotal advances to the small scale industries.


18/20

EMI value can be calculated in Excel using PMT function,which has the following syntax:=PMT RATE,NPER,PV,FV,TYPE)

For instance, if you want to find EMI value for a loanamount of 100,000 which is payable in say 5 years (i.e., 60

monthly installments) with an interest rate of say 12% p.a.,the EMI can be calculated by placing the following formulain a cell in Excel spreadsheet:=PMT 0.01,60,100000,0,0);

It must be noted here that the rate to used in the formula

should be monthly rate i.e. 12%/12=1% or 0.01 in theabove example. You may also note that the last twoparameters in the function (FV and TYPE) are optional andif ignored they are assumed to be 0; You may refer toExcel help on this function for further explanation on this.


19/20

For the mathematically curious minded, hereis the exact EMI formula that can be used forcalculating EMI amount for any given valuesof Principal, Interest Rate and Loan Period:

EMI = (P * R/12) * [ (1+R/12)^N] / [(1+R/12)^N-1], where

P = Principal (loan amount);R = Annual Interest Rate;N = No. of Monthly Installments


20/20

Loans n advances

Documents

Transcript of Loans n advances