Final Soft

TYBBI Loans provided by National and International Banks MD College
CHAPTER 1
1
Introduction
A bank is a financial institution that accepts deposits from the public and
creates credit. Lending activities can be performed either directly or
indirectly through capital markets. Due to their importance in the financial
stability of a country, banks are highly regulated in most countries. Most
nations have institutionalized a system known as fractional reserve banking
under which banks hold liquid assets equal to only a portion of their current
liabilities. In addition to other regulations intended to ensure liquidity,
banks are generally subject to minimum capital requirements based on an
international set of capital standards, known as the Basel Accords.
Banking in its modern sense evolved in the 14th century in the prosperous
cities of Renaissance Italy but in many ways, was a continuation of ideas
and concepts of credit and lending that had their roots in the ancient world.
In the history of banking, a number of banking dynasties notably, the
Medicis, the Fuggers, the Welsers, the Barenbergs and the Rothschilds
have played a central role over many centuries. The oldest existing retail
bank is Banca Monte dei Paschi di Siena, while the oldest existing merchant
bank is Barenberg Bank.
Modern banking practices, including fractional reserve banking and the issue
of banknotes, emerged in the 17th an8th centuries. Merchants started to store
their gold with the goldsmiths of London, who possessed private vaults, and
charged a fee for that service. In exchange for each deposit of precious metal,
the goldsmiths issued receipts certifying the quantity and purity of the metal
they held as a bailee; these receipts could not be assigned, only the original
depositor could collect the stored goods. money deposited as a loan to the
goldsmith. The goldsmith paid interest on these deposits. Since the
promissory notes were payable on demand, and the advances (loans) to the
goldsmith's customers were repayable over a longer time, this was an early
form of fractional reserve banking. The promissory notes developed into an
assignable instrument which could circulate as a safe and convenient form
of money backed by the goldsmith's promise to pay, allowing goldsmiths to
advance loans with little risk of default. Thus, the goldsmiths of London
became the forerunners of banking by creating new money based on credit.
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The Bank of England was the first to begin the permanent issue of
banknotes, in 1695.The Royal Bank of Scotland established the first
overdraft facility in 1728. By the beginning of the 19th century a bankers'
clearing house was established in London to allow multiple banks to clear
transactions.
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Types of Loans
Loan types vary because each loan has a specific intended use. They can
vary by length of time, by how interest rates are calculated, by when
payments are due and by many other variables.
Student Loans
Student loans are offered to college students and their families to help cover
the cost of higher education. There are two main types: federal student loans
and private student loans. Federally funded loans are better, as they
typically come with lower interest rates and more borrower-friendly
repayment terms.
Mortgages
Mortgages are loans distributed by banks to allow consumers to buy homes

they cant pay for upfront. A mortgage is tied to your home, meaning you
risk foreclosure if you fall behind on payments. Mortgages have among the
lowest interest rates of all loans.
Auto Loans
Like mortgages, auto loans are tied to your property. They can help you
afford a vehicle, but you risk losing the car if you miss payments. This type
of loan may be distributed by a bank or by the car dealership directly but
you should understand that while loans from the dealership may be more
convenient, they often carry higher interest rates and ultimately cost more
overall.
Personal Loans
Personal loans can be used for any personal expenses and dont have a
designated purpose. This makes them an attractive option for people with
outstanding debts, such as credit card debt, who want to reduce their interest
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rates by transferring balances. Like other loans, personal loan terms depend
on your credit history.
Loans for Veterans
The Department of Veterans Affairs (VA) has lending programs available to

veterans and their families. With a VA-backed home loan, money does not
come directly from the administration. Instead, the VA acts as a co-signer
and effectively vouches for you, helping you earn higher loan amounts with
lower interest rates.
Small Business Loans
Small business loans are granted to entrepreneurs and aspiring entrepreneurs

to help them start or expand a business. The best source of small business
loans is the U.S. Small Business Administration (SBA), which offers a
variety of Payday loans are short-term, high-interest loans designed to
bridge the gap from one pay check to the next, used predominantly by
repeat borrowers living pay check to pay check. The government strongly
discourages consumers from taking out payday loans because of their high
costs and interest rates.
Borrowing from Retirement & Life Insurance
Those with retirement funds or life insurance plans may be eligible to

borrow from their accounts. This option has the benefit that you are
borrowing from yourself, making repayment much easier and less stressful.
However, in some cases, failing to repay such a loan can result in severe tax
consequences.
Consolidated Loans
A consolidated loan is meant to simplify your finances. Simply put, a

consolidate loan pays off all or several of your outstanding debts,
particularly credit card debt. It means fewer monthly payments and lower
interest rates. Consolidated loans are typically in the form of second
mortgages or personal loans.
5
Borrowing from Friends and Family
Borrowing money from friends and relatives is an informal type of loan.

This isnt always a good option, as it may strain a relationship. To protect
both parties, its a good idea to sign a basic promissory note.
Cash Advances
cash advance is a short-term loan against your credit card. Instead of using
the credit card to make a purchase or pay for a service, you bring it to a
bank or ATM and receive cash to be used for whatever purpose you need.
Cash advances also are available by writing a check to payday lenders.
Home Equity Loans
If you have equity in your home the house is worth more than you owe
on it
you can use that equity to help pay for big projects. Home equity loans are
good for renovating the house, consolidating credit card debt, paying off
student loans and many other worthwhile projects.
Home equity loans and home equity lines of credit (HELOCs) use the
borrowers home as a source of collateral so interest rates are considerably
lower than credit cards. The major difference between the two is that a
home equity loan has a fixed interest rate and regular monthly payments are
expected, while a HELOC has variable rates and offers a flexible payment
schedule. Home equity loans and HELOCs are used for things like home
renovations, credit card debt consolidation, major medical bills, education
expenses and retirement income supplements. They must be repaid in full if
the home is sold
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Definition
The definition of a bank varies from country to country.
Under English common law, a banker is defined as a person who carries on

the business of banking, which is specified as:
conducting current accounts for his
customers, paying cheque drawn on him/her
and collecting cheque for his/her customers.
In most common law jurisdictions, there is a Bills of Exchange Act that

codifies the law in relation to negotiable instruments, including cheques,
and this Act contains a statutory definition of the term banker: banker
includes a body of persons, whether incorporated or not, who carry on the
business of banking' (Section 2, Interpretation). Although this definition
seems circular, it is actually functional, because it ensures that the legal
basis for bank transactions such as cheque does not depend on how the bank
is structured or regulated.
The business of banking is in many English common law countries not

defined by statute but by common law, the definition above. In other
English common law jurisdictions, there are statutory definitions of the
business of banking or banking business. When looking at these definitions
it is important to keep in mind that they are defining the business of banking
for the purposes of the legislation, and not necessarily in general. In
particular, most of the definitions are from legislation that has the purpose
of regulating and supervising banks rather than regulating the actual
business of banking. However, in many cases the statutory definition
closely mirrors the common law one. Examples of statutory definitions:
"banking business" means the business of receiving money on current or
deposit account, paying and collecting cheques drawn by or paid in by
customers, the making of advances to customers, and includes such
other. business as the Authority may prescribe for the purposes of this
Act; (Banking Act (Singapore), Section 2, Interpretation).
"banking business" means the business of either or both of the following:
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1. receiving from the public money on current, deposit, savings or other

similar account repayable on demand or within less than [3 months] ... or
with a period of call or notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers.
Since the advent of EFTPOS (Electronic Funds Transfer at Point of

Sale), direct credit, direct debit and internet banking, the cheque has lost
its primacy in most banking systems as a payment instrument. This has
led legal theorists to suggest that the cheque based definition should be
broadened to include financial institutions that conduct current accounts
for customers and enable customers to pay and be paid by third parties,
even if
They do not pay and collect cheques
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Commercial Banks: Primary and Secondary Functions of

Commercial Banks!
Primary Function:
1. Accepting Deposits:
It is the most important function of commercial banks.

They accept deposits in several forms according to requirements of different
sections of the society.
The main kinds of deposits are:
(i) Current Account Deposits or Demand Deposits:
These deposits refer to those deposits which are repayable by the banks on
demand:
1. Such deposits are generally maintained by businessmen with the intention of

making transactions with such deposits.
The main kinds of deposits are:

(i) Current Account Deposits or Demand Deposits:
These deposits refer to those deposits which are repayable by the banks on
demand:
1. Such deposits are generally maintained by businessmen with the intention of

making transactions with such deposits.
2.They can be drawn upon by a cheque without any restriction.
3. Banks do not pay any interest on these accounts. Rather, banks impose
service charges for running these accounts.
(ii) Fixed Deposits or Time Deposits:
Fixed deposits refer to those deposits, in which the amount is deposited with the
bank for a fixed period.
1. Such deposits do not enjoy cheque-able facility.

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2. These deposits carry a high rate of interest.
(iii) Saving Deposits:
These deposits combine features of both current account deposits and fixed
deposits:
1. The depositors are given cheque facility to withdraw money from their
account. But, some restrictions are imposed on number and amount of
withdrawals, to discourage frequent use of saving deposits.
2.They carry a rate of interest which is less than interest rate on fixed deposits.
It must be noted that Current Account deposits and saving deposits are
chequeable deposits, whereas, fixed deposit is a non-chequeable deposit.
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2. Secondary Functions:
1. Overdraft Facility:
It refers to a facility in which a customer can overdraw his current account

up to an agreed limit. This facility is generally given to respectable and
reliable customers for a short period. Customers must pay interest to the
bank on the amount overdrawn by them.
2. Discounting Bills of Exchange:
It refers to a facility in which holder of a bill of exchange can get the bill
discounted with bank before the maturity. After deducting the commission,
bank pays the balance to the holder. On maturity, bank gets its payment
from the party which had accepted the bill.
3. Agency Functions:
Commercial banks also perform certain agency functions for their customers. For
these services, banks charge some commission from their clients.
Some of the agency functions are:
(i) Transfer of Funds:
Banks provide the facility of economical and easy remittance of funds from
place-to-place with the help of instruments like demand drafts, mail
transfers, etc
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Loans:
The deposits received by banks are not allowed to remain idle. So, after
keeping certain cash reserves, the balance is given to needy borrowers and
interest is charged from them, which is the main source of income for these
banks.
Different types of loans and advances made by Commercial banks are:
(i) Cash Credit:
Cash credit refers to a loan given to the borrower against his current assets
like shares, stocks, bonds, etc. A credit limit is sanctioned and the amount is
credited in his account. The borrower may withdraw any amount within his
credit limit and interest is charged on the amount withdrawn.
(ii) Demand Loans:
Demand loans refer to those loans which can be recalled on demand by the
bank at any time. The entire sum of demand loan is credited to the account
and interest is payable on the entire sum.
(iii) Short-term Loans:
They are given as personal loans against some collateral security. The
money is credited to the account of borrower and the borrower can
withdraw money from his account and interest is payable on the entire sum
of loan grante
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(ii) Collection and Payment of Various Items:
Commercial banks collect cheques, bills, interest, dividends, subscriptions,

rents and other periodical receipts on behalf of their customers and make
payments of taxes, insurance premium, etc. on standing instructions of their
clients.
(iii) Purchase and Sale of Foreign Exchange:
Some commercial banks are authorized by the central bank to deal in

foreign exchange. They buy and sell foreign exchange on behalf of their
customers and help in promoting international trade.
(iv) Purchase and Sale of Securities:
Commercial banks buy and sell stocks and shares of private companies as
well as government securities on behalf of their customers.
(v) Income Tax Consultancy:
They also give advice to their customers on matters relating to income tax
and even prepare their income tax returns.
(vi) Trustee and Executor:
Commercial banks preserve the wills of their customers as trustees and

execute them after their death as executors.
(vii) Letters of Reference:
They give information about the economic position of their customers to

traders and provide the similar information about other traders to their
customers.
4. General Utility
Functions:
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Commercial banks render some general utility services like:
(i) Locker Facility:
Commercial banks provide facility of safety vaults or lockers to keep

valuable articles of customers in safe custody.
(ii) Travelers Cheques:
Commercial banks issue travelers cheques to their customers to avoid risk

of taking cash during their journey.
(iii) Letter of Credit:
They also issue letters of credit to their customers to certify their

creditworthiness.
(iv) Underwriting Securities:
Commercial banks also undertake the task of underwriting securities. As

public has full faith in the creditworthiness of banks, public do not hesitate
in buying the securities underwritten by banks.
(v) Collection of Statistics:
Banks collect and publish statistics relating to trade, commerce and

industry. Hence, they advise customers on financial matters. Commercial
banks receive deposits from the public and use these deposits to give loans.
However, loans offered are many times more than the deposits received by
banks. This function of banks is known as Money Creation
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Loans
Afford More of What You Want with the Smart Use of Bank Loans.
Whether you need personal, business or farm credit, you will receive
personal, professional attention and affordable bank loans from First
International Bank & Trust. Well walk you through the types of bank loans
available and the charges youll pay, and well help you choose the best one
for you.
Personal Loans
Great Personal Loan Ratesand Great Service
First International Bank & Trust has a wide variety of personal loans with
competitive rates. Our smart professionals walk you through the credit
process loans.
Auto Loans
Vacation Loans
First Plus Line of Credit
Recreational Vehicles
15
CHAPTER 2
16
Foreign Currency Loans

There are different products that banks in India offer wherein
corporates can borrow in Foreign Currency. Banks provide low cost
funds to corporates by way of Foreign Currency Lending as Term
Loans, Working Capital Loans as well as Export Credit in Foreign
Currency. The foreign currency loans in India are also granted against
the foreign currency funds the bank has in Foreign Currency Non-
Resident (Bank) Account, popularly known as FCNR (B) loans.
An Indian company, whether private or public, can also borrow

foreign currency loans from banks outside of India. This facility is
called External Commercial Borrowings (ECB). Commercial banks
that have large non-resident deposit funds are deploying such funds
by way of foreign currency loans to their corporate clients for their
working capital and term loan requirements. The SME sector has
been increasingly taking benefit of such facilities extended by the
banks.
Lately, Indian corporates have begun relying on ECB because these

foreign funds denominated in foreign currencies and pegged to
prevailing interest rate abroad makes it more pertinent for them to
cover their exposure against the exchange rate movements.
FCTL
Foreign Currency Term Loans (FCTL) can be disbursed in four
currencies viz. US$, Sterling, Euro and Japanese Yen with a maturity
period of 6 months to 7 years. It can be repaid by bullet payment or in
stipulated instalments or by conversion of rupee term loans, as per the
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terms of the original sanction.
Different corporates borrow funds for different purposes such as:

- For working capital requirements in Indian Rupees
- For the pre-shipment advances/ post shipment advances to the
exporters
- Import of raw materials
- Import of capital goods
- Purchase of indigenous machinery
- Repayment of the existing Rupee Term Loan
- Repayment of existing ECB's
Following is the eligibility criteria to be able to get the FCTL

facility:
o Exporters for working capital needs
o Importers for meeting import obligations or capital goods
o Existing borrowers for foreclosure of the medium-term FC Loans
o Loan to JV/WOS entities of Indian companies
o High value corporate clients with a good track record, to meet
working capital requirements in substitution of WCDL
o Borrowers requiring conversion of rupee term/cash credit
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Benefits
The key benefit of FCTL loans is the low interest rate which is bench
marked to the relevant LIBOR rates. Additionally, interest rates are
linked to the credit rating of the borrower. Though there are many
reasons why a firm raises foreign currency debt, the most common
purpose is a gateway to hedging of foreign exchange exposure.
Borrowing in foreign currencies may cost less than borrowing in the
domestic currency and speculative reasons may make foreign
currency debt an attractive alternative.
With regards to FCTL, it is equally important to understand the term

LIBOR and its relationship to FCTL.
LIBOR is actually a set of several benchmarks that reflect an
indicative average interest rate at which large local banks can borrow
from each other. LIBOR stands for London Interbank Offer Rate.
For example, if a Bank has approved a loan for 10 crores and the
approval rate is 600 basis points plus 6 month LIBOR, the interest
rate will be 7.26% as the 6 month LIBOR rate is 1.26%
RBI has now advised that in order to ensure that long term export
advances are used for the intended purpose, while eligible Indian
companies may continue to avail of the facilities available to them
under the guidelines mentioned in the above paragraphs, any
repayment/refinancing of rupee loans with foreign currency
borrowings/export advances, where permitted, will be subject to the
following conditions:
(i) If the foreign currency borrowings/export advances, where
permitted under the guidelines issued under FEMA, are obtained
from lenders who are not part of the Indian banking system, without
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any support from the Indian banking system in the form of

Guarantees/Standby Letters of Credit/Letters of Comfort etc., the
same may be utilized to refinance/repay loans availed from the Indian
banking system.
Indian banking system has been clarified to include all banks in India
and overseas branch/subsidiary/joint venture of Indian banks.
(ii) If the foreign currency borrowings/export advances are obtained
from lenders who are part of Indian banking system (where
permitted); or with support (where permitted) from the Indian
banking system in the form of Guarantees/Standby Letters of
Credit/Letters of Comfort, etc.
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First Reserve Line of Credit This line of credit is attached to your checking
account to protect you from overdrafts.
Its available on all checking accounts to qualified applicants and there is no

interest charged until the date of advance.
Types of Consumer Credit & Loans
Loan contracts come in all kinds of forms and with varied terms, ranging from
simple promissory notes between friends and family members to more complex
loans like mortgage, auto, payday and student loans.
Banks, credit unions and other people lend money for significant, but necessary
items like a car, student loan or home. Other loans, like small business loans
and those from the Department of Veterans Affairs, are only available to select
groups of people.
Regardless of type, every loan and its conditions for repayment is governed
by state and federal guidelines to protect consumers from unsavory practices
like excessive interest rates. In addition, loan length and default terms should
be clearly detailed to avoid confusion or potential legal action.
In case of default, terms of collection of the outstanding debt should clearly

specify the costs involved in collecting upon the debt. This also applies to
parties of promissory notes as well.
If you need money for an essential item or to help make your life more
manageable, its a good thing to familiarize yourself with the kinds of credit
and loans that might be available to you and the sorts of terms you can expect.
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Types of Credit: Open-End & Closed-End Credit Options
The two basic categories of consumer credit are open-end and closed-end
credit. Open-end credit, better known as revolving credit, can be used
repeatedly for purchases that will be paid back monthly, though paying the
full amount due every month is not required. The most common form of
revolving credit are credit cards, but home equity loans and home equity
lines of credit (HELOC) also fall in this category.
Credit cards are used for daily expenses, such as food, clothing,
transportation and small home repairs. Interest charges are applied when the
monthly balance is not paid in full. The interest rates on credit cards average
15 percent, but can be as low as zero percent (temporary, introductory
offers) and as high as 30 percent or more, depending on the consumers
payment history and credit score.
Closed-end credit is used to finance a specific purpose for a specific period.

They also are called instalment loans because consumers are required to
follow a regular payment schedule (usually monthly) that includes interest
charges, until the principal is paid off.
The interest rate for installment loans varies by lender and is tied closely to
the consumers credit score. The lending institution can seize the
consumers property as compensation if the consumer defaults on the loan.
Examples of closed-end credit include:
Mortgages
Car loan
Appliance loans
Payday Loans
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Types of Loans
Loan types vary because each loan has a specific intended use. They can
vary by length of time, by how interest rates are calculated, by when
payments are due and by many other variables.
Student Loans
Student loans are offered to college students and their families to help cover
the cost of higher education. There are two main types: federal student loans
and private student loans. Federally funded loans are better, as they
typically come with lower interest rates and more borrower-friendly
repayment terms.
Mortgages
Mortgages are loans distributed by banks to allow consumers to buy homes

they cant pay for upfront. A mortgage is tied to your home, meaning you
risk foreclosure if you fall behind on payments. Mortgages have among the
lowest interest rates of all loans.
Auto Loans
Like mortgages, auto loans are tied to your property. They can help you
afford a vehicle, but you risk losing the car if you miss payments. This type
of loan may be distributed by a bank or by the car dealership directly but
you should understand that while loans from the dealership may be more
convenient, they often carry higher interest rates and ultimately cost more
overall.
Personal Loans
Personal loans can be used for any personal expenses and dont have a
designated purpose. This makes them an attractive option for people with
outstanding debts, such as credit card debt, who want to reduce their interest
rates by transferring balances. Like other loans, personal loan terms depend
on your credit history.
Loans for Veterans
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The Department of Veterans Affairs (VA) has lending programs available to

veterans and their families. With a VA-backed home loan, money does not
come directly from the administration. Instead, the VA acts as a co-signer
and effectively vouches for you, helping you earn higher loan amounts with
lower interest rates.
Small Business Loans
Small business loans are granted to entrepreneurs and aspiring entrepreneurs

to help them start or expand a business. The best source of small business
loans is the U.S. Small Business Administration (SBA), which offers a
variety of loans.
Payday Loans
Payday loans are short-term, high-interest loans designed to bridge the gap
from one pay check to the next, used predominantly by repeat borrowers
living pay check to pay check. The government strongly discourages
consumers from taking out payday loans because of their high costs and
interest rates.
Borrowing from Retirement & Life Insurance
Those with retirement funds or life insurance plans may be eligible to

borrow from their accounts. This option has the benefit that you are
borrowing from yourself, making repayment much easier and less stressful.
However, in some cases, failing to repay such a loan can result in severe tax
consequences.
Consolidated Loans
A consolidated loan is meant to simplify your finances. Simply put, a

consolidate loan pays off all or several of your outstanding debts,
particularly credit card debt. It means fewer monthly payments and lower
interest rates. Consolidated loans are typically in the form of second
mortgages or personal loans.
24
Borrowing from Friends and Family
Borrowing money from friends and relatives is an informal type of loan.

This isnt always a good option, as it may strain a relationship. To protect
both parties, its a good idea to sign a basic promissory note.
Cash Advances
cash advance is a short-term loan against your credit card. Instead of using
the credit card to make a purchase or pay for a service, you bring it to a
bank or ATM and receive cash to be used for whatever purpose you need.
Cash advances also are available by writing a check to payday lenders.
Home Equity Loans
If you have equity in your home the house is worth more than you owe
on it
you can use that equity to help pay for big projects. Home equity loans are
good for renovating the house, consolidating credit card debt, paying off
student loans and many other worthwhile projects.
Home equity loans and home equity lines of credit (HELOCs) use the
borrowers home as a source of collateral so interest rates are considerably
lower than credit cards. The major difference between the two is that a
home equity loan has a fixed interest rate and regular monthly payments are
expected, while a HELOC has variable rates and offers a flexible payment
schedule. Home equity loans and HELOCs are used for things like home
renovations, credit card debt consolidation, major m\edical bills, education
expenses and retirement income supplements. They must be repaid in full if
the home is s
25
CHAPTER 3
26
Procedure to obtain different loan

1. Line-of-credit loans.
The most useful type of loan for small-business owners is the line-of-credit
loan. In fact, its probably the one permanent loan arrangement every
business owner should have with their banker since it protects the business
from emergencies and stalled cash flow. Line-of-credit loans are intended
for purchases of inventory and payment of operating costs for working
capital and business cycle needs. They're not intended for purchases of
equipment or real estate.
A line-of-credit loan is a short-term loan that extends the cash available in
your businesss checking account to the upper limit of the loan contract.
Every bank has its own method of funding, but, essentially, an amount is
transferred to the businesss checking account to cover checks. The business
pays interest on the actual amount advanced, from the time it's advanced
until it's paid back.
Line-of-credit loans usually carry the lowest interest rate a bank offers since
they're seen as fairly low-risk. Some banks even include a clause that gives
them the right to cancel the loan if they think your business is in jeopardy.
Interest payments are made monthly, and the principal is paid off at your
convenience, though it's wise to make payments on the principal often.
Most line-of-credit loans are written for periods of one year and may be
renewed almost automatically for an annual fee. Some banks require that
your credit line be fully paid off for seven to 30 days each contract year.
This period is probably the best time to negotiate. Even if you dont need a
line-of-credit loan now, talk to your banker about how to get one. To
negotiate a credit line, your banker will want to see current financial
statements, the latest tax returns, and a projected cash-flow statement.
2. Instalment loans.
These loans are paid back with equal monthly payments covering both
principal and interest. Installment loans may be written to meet all types of
business needs. You receive the full amount when the contract is signed,
and interest is calculated from that date to the final day of the loan. If you
repay an instalment loan before its final date, there will be no penalty and an
appropriate adjustment of interest.
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The term of an installment loan will always be correlated to its use. A

business cycle loan may be written as a four-month installment loan from,
say, September 1 until December 31 and would carry the low interest rate
since the risk to the lender is under one year. Business cycle loans may be
written from one to seven years, while real estate and renovation loans may
be written for up to 21 years. An installment loan is occasionally written
with quarterly, half-yearly, or annual payments when monthly payments are
inappropriate.
3. Balloon loans.
Though these loans are usually written under another name, you can
identify them by the fact that the full amount is received when the contract
is signed, but only the interest is paid off during the life of the loan, with a
balloon payment of the principal due on the final day.
Occasionally, a lender will offer a loan in which both interest and principal
are paid with a single balloon payment. Balloon loans are usually
reserved for situations when a business has to wait until a specific date
before receiving payment from a client for its product or services. In all
other ways, they're the same as installment loans.
4. Interim loans.
When considering interim loans, bankers are concerned with who will be
paying off the loan and whether that commitment is reliable. Interim loans
are used to make periodic payments to the contractors building new
facilities when a mortgage on the building will be used to pay off the
interim loan.
5. Secured and unsecured loans.
Loans can come in one of two forms: secured or unsecured. When your
lender knows you well and is convinced your business is sound and the loan
will be repaid on time, they may be willing to write an unsecured loan. Such
a loan, in any of the aforementioned forms, has no collateral pledged as a
secondary payment source should you default on the loan. The lender
provides you with an unsecured loan because it considers you a low risk. As
a new business, you're highly unlikely to qualify for an unsecured loan; it
generally requires a track record of profitability and success.
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A secured loan, on the other hand, requires collateral but generally has a
lower interest rate than an unsecured loan. When a loan is written for more
than 12 months, is used to purchase equipment, or does not seem risk-free,
the lender will ask that the loan be secured by collateral. The collateral
used, whether real estate or inventory, is expected to outlast the loan and is
usually related to the purpose of the loan.
Since lenders expect to use the collateral to pay off the loan if the borrower
defaults, they'll value it appropriately. A $20,000 piece of new equipment
will probably secure a loan of up to $15,000; receivables are valued for
loans up to 75 percent of the amount due; and inventory is usually valued at
up to 50 percent of its sale price.
6. Letter of credit.
Typically used in international trade, this document allows entrepreneurs to

guarantee payment to suppliers in other countries. The document
substitutes the banks credit for the entrepreneurs up to a set amount for a
specified period.
7. Other loans.
Banks all over the country write loans, especially installment and balloon
loans, under a myriad of names. They include:
Term loans, both short- and long-term, according to the number of years
they're written for
Second mortgages where real estate is used to secure a loan; usually long-
term, theyre also known as equity loans
Inventory loans and equipment loans for the purchase of, and secured by,
either equipment or inventory
Accounts receivable loans secured by your outstanding accounts Personal
loans where your signature and personal collateral
guarantee the loan, which you, in turn, lend to your business
Guaranteed loans in which a third partyan investor, spouse, or the
SBAguarantees repayment
Commercial loans in which the bank offers its standard loan for small
businesses
29
Process of Letter of Credit
1. Buyer and seller agree to conduct business. The seller wants a letter of
credit Buyer applies to his bank for a letter of credit in favour of the seller.
2. Buyer's bank approves the credit risk of the buyer, issues and forwards
the credit to its correspondent bank (advising or confirming). The
correspondent bank is usually located in the same geographical location as
the seller (beneficiary).
4. Advising bank will authenticate the credit and forward the original credit
to the seller (beneficiary).
5. Seller (beneficiary) ships the goods, then verifies and develops the
documentary requirements to support the letter of credit. Documentary
requirements may vary greatly depending on the perceived risk involved in
dealing with a company.
6.Seller presents the required documents to the advising or confirming bank

to be processed for payment.
7.Advisig or confirming bank examines the documents for compliance with

the terms and conditions of the letter of credit.
8. Advising or confirming bank will forward the documents to the issuing

bank.
9. Issuing bank will examine the documents for compliance. If they are in
order, the issuing bank will debit the buyer's account.
10. Issuing bank then forwards the documents to the buyer.
30
National Banks Recovery System
Procedure of loan recovery:

The main responsibility of bank manager and loan officer is to recovery the
outstanding loan in Rajshahi Krishi Unnayan Bank. Two-recovery
procedures are-
a) Usual procedure.
b) Legal procedure.
a) Usual procedure: The usual loan recovery procedure is divided into
several steps. They are as follows:
1. Issue of demand notice: Demand notice is issue before on month being due
of outstanding loan or installment. It is sent to the borrower.
2. Legal notice: It the borrower does not repay their respective loans and
interest after maturity being received the demeaned notice under registered
with acknowledgement by post to the borrowers the bank should send lower
notice to him.
3. Special notice: Beside the above to notice a special notice signature by

DC, TNO is sent to the respective borrower to keep mental pressure on him
for repaying the loan.
4. Field recovery: Loan officer recover the recovered loan through I.O.
receipt by visiting the spot and source of the borrower.
5. Personal Communication: If the borrower fails to repay his loan

installment, the loan officer communicates with the respected persons of that
area to give mental pressure to the borrower so that he repays his respective
loan.
6. Loan Recovery Camp: Rajshahi Krishi Unnayan Bank made camp in

various areas for the recovery of his loan, in this issue; the manager and other
31
officer were present in the camp and communicated with borrowers. They
gave them moral persuasion and tried to encourage them, so that they could
repay their loan.
7. Loan recovery with the help of interest exemption the loan amount which
becomes more than double in principle and interest and which is not possible
to recover with the help of legal action then those loan can be recovered by
exempting interest. By this way bad loan can be recovered.
b) Legal procedure: When legal action for recovering loan becomes failed a
case in filed against the borrowers. The case is generally filed in the
following ways:
i. Unwilling to repay loan although he is financially solvent.

1. Every effort of loan recovery becomes failure.
Rules of Recovery:
Rajshahi Krishi Unnayan Bank loan recoveries from loan in installment

system are as follows:
i) Weekly
ii) Fortnightly
iii) Monthly.
Causes of defaulter:
The loan cannot loan payment in due time in various causes:
i) Natural calamity destroys the crops, for this reason the loan unable to pay
loan in due time.
ii) Rajshahi Krishi Unnayan Bank cannot take proper step against the loan
for influential man.
iii) The loan cannot use the loan in proper.
iv) The loan do not pay loan in more time.
v) Lack of loan supervision.

32
Recovery system of International banks
International asset recovery is any effort by governments to repatriate the

proceeds of corruption hidden in foreign jurisdictions. Such assets may
include monies in bank accounts, real estate, vehicles, arts and artifacts, and
precious metals. As defined under the United Nations Convention against
Corruption, asset recovery refers to recovering the proceeds of corruption,
rather than broader terms such as asset confiscation or asset forfeiture which
refer to recovering the proceeds or instrumentalities of crime in general.
Often used to emphasize the "multi-jurisdictional" or cross-border aspects

of a corruption investigation, international asset recovery includes numerous
processes such as the tracing, freezing, confiscation, and repatriation of
proceeds stored in foreign jurisdictions, thus "making it one of the most
complex projects in the field of law. Even considering the difficulties
present, Africa specialist Daniel Scher counters that international asset
recovery's "potential rewards in developing countries make it a highly
attractive undertaking".
Despite domestic legislation in some countries allowing for the confiscation

and forfeiture of proceeds of corruption, it is improvements in finance,
transportation, and communications technologies in the 20th century that
have made it easier for corrupt leaders and other "politically exposed
persons" to conceal massive amounts of stolen wealth in offshore financial
centres.
By taking advantage of differences in legal systems, the high costs in

coordinating investigations, lack of international cooperation, and bank
secrecy in some recipient countries, corrupt officials have been able to
preserve much of their loot overseas.
33
International asset recovery
is any effort by governments to repatriate the proceeds of corruption hidden

in foreign jurisdictions? Such assets may include monies in bank accounts,
real estate, vehicles, arts and artefacts, and precious metals. As defined
under the United Nations Convention against Corruption, asset recovery
refers to recovering the proceeds of corruption, rather than broader terms
such as asset confiscation or asset forfeiture which refer to recovering the
proceeds or instrumentalities of crime in general.
Often used to emphasize the "multi-jurisdictional" or cross-border aspects

of a corruption investigation, international asset recovery includes numerous
processes such as the tracing, freezing, confiscation, and repatriation of
proceeds stored in foreign jurisdictions, thus "making it one of the most
complex projects in the field of law. Even considering the difficulties
present, Africa specialist Daniel Scher counters that international asset
recovery's "potential rewards in developing countries make it a highly
attractive undertaking".
Despite domestic legislation in some countries allowing for the

confiscation and forfeiture of proceeds of corruption, it is improvements in
finance, transportation, and communications technologies in the 20th
century that have made it easier for corrupt leaders and other "politically
exposed persons" to conceal massive amounts of stolen wealth in offshore
financial centers.
By taking advantage of differences in legal systems, the high costs in

coordinating investigations, lack of international cooperation, and bank
secrecy in some recipient countries, corrupt officials have been able to
preserve much of their loot overseas
34
CHAPTER 4
35
NPA Management
Predictive Analytics has been effectively used in some cases to score

customers, based on behavioural and demographic /psychographic
parameters. These scores are a accurate indicator of expected repayment
behaviour and determine credit eligibility. This can be used effectively to
decide whether an asset product is to be cross-sold to a customer or to
determine the terms. Credit Information Bureau India Limiteds (CIBIL)
scores, attempt to provide this kind of data even at an inter-bank level. Once
assets are sold, pre-emptive analytics come into play. Early warning signals
are created that flag off assets that are delinquent or tending towards
delinquency. This provides a head start to Banks that then work with
customers, to ensure they dont become full blown NPAs. In this manner,
pre-emptive and predictive analytics play a key role in the NPA
management strategy of a bank. Analysts and experts today consider NPAs
to be one of the key indicators determining the health of the balance sheet
along with other measures like CASA ratio and NIM. The regulatory
guidelines, on the topic, classify assets into 4 broad categories standard,
substandard, doubtful and loss assets with progressively increasing
provisioning levels. There are also specific norms governing collateral
apportionment, treatment of restructured assets and complex credit facilities
like syndicated loans.
NPA Classification Standard Banks face many challenges on the path to

achieve NPA automation and monitoring goals set by RBI. First and
foremost, is the presence of multiple source systems, housing data
pertaining to different asset products/ facilities availed by the same
customer. While, some of these systems may be equipped to automatically,
perform NPA calculations, others are not. RBI guidelines advice Banks to
take a customer view rather than a facility view, which implies that data
from multiple systems needs to be integrated to provide a unified NPA view
at customer level. This is in tandem, with the cross-default clause, that
features in many loan agreements and monitors repayment behavior.
Default on one facility will have consequences on all the other facilities
granted to the customer by the same Bank.
36
Secondly, the process of NPA computation needs to be automated to be able

to handle different product types and the huge data volumes. Additional
layers of complexity are also introduced by the presence of an underlying
asset (collateral) whose value needs to be appropriately apportioned before
calculating provisioning levels. Automation promotes consistency and a
relatively error-free calculation while potentially reducing resource
requirements for the activity. Finally, once the key metrics pertaining to
NPAs are calculated, they also need to be incorporated, in the relevant
financial statements. Additionally, a lot of analyses can also be performed at
this stage to understand process issues, discrepancies, which led to NPAs in
the first place. The insights obtained at this stage, would provide critical
inputs, to the preemptive asset quality management strategies followed by
Banks and go a long way in managing the challenge of balancing growth
with quality. Overall, a key feature, any Bank will look for while
automating NPA management is the flexibility to handle new product
launches, new source systems and external changes like modifications in
regulatory guidelines
Finally, once the key metrics pertaining to NPAs are calculated, they also
need to be incorporated, in the relevant financial statements. Additionally, a
lot of analyses can also be performed at this stage to understand process
issues, discrepancies, which led to NPAs in the first place. The insights
obtained at this stage, would provide critical inputs, to the pre-emptive asset
quality management strategies followed by Banks and go a long way in
managing the challenge of balancing growth with quality. Overall, a key
feature, any Bank will look for while automating NPA management is the
flexibility to handle new product launches, new source systems and external
changes like modifications in regulatory guidelines. An asset management
cycle is depicted in the following diagram. Preparation: This stage
encompasses obtaining data from multiple source systems to ensure a single
view of each customer. The challenge is also to handle and process a variety
of special cases like securitized assets and syndicated loans. Early warning
signals can also be configured at this stage based on which reports will be
generated which list out cases that fall into the potential NPA category. This
is detailed in an earlier section of this paper as a typical preemptive step to
ensure assets do not become NPAs. Processing: NPAs are first classified
into the appropriate buckets after considering a variety of factors like
vintage, product type, availability of collateral. Calculating provisioning
37
levels requires collateral data also to be integrated. Also, restructured loans

have more stringent provisioning criteria which need to be taken into
consideration. There could also be some facilities which are exempt from
NPA computation. Though NPA calculation and provisioning is automated,
Banks will still probably need to cross check the calculations. In some
cases, discretionary calls may also be taken to reclassify. At this stage, it is
crucial ensure changes are auditable and this requires having in place a
review mechanism. An accounting interface would also be needed, to
seamlessly integrate the figures thus calculated, into the balance sheet,
income statement and other relevant financial statements. Presentation:
NPA and provisioning levels once calculated need to be reported. After
meeting the obligatory regulatory requirements, Banks will also typically
like to study the NPA data along multiple dimensions like product type,
branch, geography and industry/sector and do a root cause analyses, to
identify weak links in the asset lifecycle.
Loan protection insurance, or loan payment protection insurance, is a form

of payment protection insurance. This type of insurance can help you
protect your monthly loan payments if you become unemployed or suffer an
accident or sickness.
Loan protection insurance will typically be used to protect a home loan, car
loan or even sometimes personal loans.
Under a loan insurance cover, the lumpsum amount reduces as the

outstanding loan decreases as per the loan schedule.
38
What are the benefits of loan insurance?
Loan insurance means during tough times, you'll have an insurance cover to
take care of the EMIs or of the outstanding loan amount. This is especially
useful:
In case of death or disability due to an accident or

sickness; In case of loss of job
This effectively reduces the burden on your family in case of any

unfortunate event that occurs with you. They would be saved from the
financial trauma of paying off the loans.
In cases of a joint loan application, a joint loan insurance plan can be taken
which will effectively cover you and your partner.
Both will have the reassurance that if either of you should be faced with
redundancy, illness, have an accident or even die, your repayments will be
made for you.
39
ARTICLES
Order to banks to speed up loan recovery within our

powers: RBI
RBI says its 13 June directive to banks to speed up their bad-loan

recovery was well within its powers, and that its classification of
sticky assets could not be challenged
New Delhi: The Reserve Bank of India (RBI) on Thursday said its 13 June
directive to banks to speed up their bad-loan recovery was well within its
powers, and that its classification of sticky assets could not be challenged.
RBI lawyer Darius Khabata said this in the Gujarat high court during a
hearing on Essar Steel Ltd.s petition challenging the directive.
The company, in its petition before the court, said it had initiated an effort
with creditors to restructure its debt and was on the path of recovery when
the central bank came up with the directive.
RBI directed banks to refer a dozen defaulters including Essar Steel to the
National Company Law Tribunal (NCLT) for speedy resolution under the
Insolvency and Bankruptcy Code (IBC). The debtors made up a quarter of
the Rs10 trillion of stressed assets clogging up the Indian banking system.
Justice S.G. Shah, before whom the case is being heard, observed that
neither the petitioner nor the respondents had so far submitted the original
directive of the RBI or the supporting documents that were used as the basis
while issuing the 13 June directive.
RBIs criterion was that the total banking exposure of a company should be
at least Rs5,000 crore and 60% of this should have turned non-performing
by March 2016.
Essar Steels counsel Mihir Thakore, challenging this criteria, said the
company should have been included in another category of 488 defaulters
that were given six months to restructure bad debt or else be referred to the
NCLT.
40
Thakore said in his submission that RBIs directive had violated Article 14
of the Indian Constitution, which provides for equality before the law and
equal protection.
Apart from RBI, State Bank of India and Standard Chartered Bank are also
respondents in the petition that has been filed by Essar Steel.
RBIs Khambata as well as SBIs lawyers accused Essar Steel of

suppressing facts before the court.
Essar Steel owed lenders some Rs45,000 crore in total of which Rs31,671
crore had turned into an NPA as of 31 March 2016.
Khambata said SBI had written to Essar Steel in February 2016, declaring
its account an NPA. He claimed there was enough evidence to show Essar
Steel was informed of insolvency proceedings to be initiated against it and
had even agreed to go to the NCLT.
Even if we classify Essar Steel in the second category which they are
seeking, there is no way the RBI can stop State Bank of India or Standard
Chartered to approach NCLT, said Khambata.
He said the IBC overrides any previous contradictory notification, which in

this case was the ongoing corporate debt restructuring process.
Also, there is enough on records to show that Essars debt restructuring

plan was not successful, Khambata added. He said if Essar had a revival
plan, it could present it before the NCLT, which is a judicial body, where it
would get a fair chance for representation. SBIs counsel told the court that
under the IBC, any operational creditor who has lent Rs1 lakh or more can
approach the NCLT.
Essar Steels counsel Thakore argued that negotiations had been under way
with SBI, which leads a consortium of banks formed under Joint Lenders
Forum (JLF), for debt restructuring when on 15 June, the RBI directed SBI
to initiate bankruptcy proceedings against the company.
Thakore said there was no evidence to show the lenders forum had rejected
the companys restructuring plans.
Standard Chartereds counsel Kamal Trivedi told the court that Essar Steels
Mauritius-based subsidiary had borrowed about Rs3,400 crore from the
bank, for which the company was a guarantor.
41
He said Essar Steel had in a communication dated 4 January informed

Standard Chartered that it would repay the debt after 25 years by paying 1%
interest. We would not wait for 25 years for their offer of 1% interest. We
informed Essar Steel on 24 January that we would approach NCLT,
Trivedi told the court.
First Published: Fri, Jul 14 2017. 01 30 AM IST
42
Indias Top Largest Nationalised Banks of 2017
ICICI Bank. Type: Private Sector Bank. ...

Punjab National Bank. Type: Public. ...
Axis Bank. Type: Private. ...
Canara Bank. Type: Public. ...
Bank of Baroda. Type: Public. ...
Union Bank. Type: Public company. ...
IDBI Bank. Type: Government-owned bank
Bank of India. Type: Public.
IDBI Bank
Bank of India
Indias Top Largest International Banks of 2017
Citi Bank
Standard Chartered Bank
HSBC India
Deutsche Bank
Royal Bank of Scotland
DBS Bank
Barclays Bank
Bank of America
Bank of Bahrain and Kuwait
Doha Bank
43
Conclusion
Smart Management of the asset lifecycle can enable Banks to not just be
compliant, but over the long term, also help adjust their credit policy,
product portfolio and lending processes in a bid to reduce bad loans. From a
regulatory perspective, NPA data helps in building an accurate picture of
asset quality which in turn becomes a useful input in macroeconomic policy
making
44
RECOMMENDATIONS & SUGGESTIONS
Relatively large capital outlays are required for the construction and maintenance of
warehouses, the operation of haulage trucks and refrigeration equipment, and the
construction or purchase of processing plants and equipment. Most traders lack the
required financial resources for such investments and therefore need to have access to
suitable credit facilities. Banks require collateral for loans that most traders cannot
provide. To encourage lending for these purposes, it would be useful to establish credit
guarantee funds (probably from counterpart funds generated from food aid) to secure, at
least in part, the loans granted.
45
BIBLIOGRAPHY
www.nbfewikipedia.com
www.rbiorg.com
www.timesofindia.com
www.google.com
www.economicstime.com
45

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Borrowing money from friends and relatives is an informal type of loan.

Home Equity Loans

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The business of banking is in many English common law countries not

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Since the advent of EFTPOS (Electronic Funds Transfer at Point of

Commercial Banks: Primary and Secondary Functions of

It is the most important function of commercial banks.

The main kinds of deposits are:

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Different types of loans and advances made by Commercial banks are:

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(ii) Demand Loans:

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(ii) Collection and Payment of Various Items:

Commercial banks collect cheques, bills, interest, dividends, subscriptions,

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(v) Income Tax Consultancy:

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(vii) Letters of Reference:

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Commercial banks provide facility of safety vaults or lockers to keep

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Commercial banks issue travelers cheques to their customers to avoid risk

(iii) Letter of Credit:

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(v) Collection of Statistics:

Banks collect and publish statistics relating to trade, commerce and

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