LOANS AND ADVANCES

What is a loan?
A bank loan is a monetary loan received from a commercial lender. The loan may have a specific purpose and it will have a predetermined duration, and the loan will have an interest rate that is either fixed or adjustable. Generating loans and charging interest on those loans is the very purpose of a modern bank. Most bank loans are made on collateral in one way or another, and therefore protect the bank from loss in the case of loan default. Loans are usually

given in a lump sum and are repayable after the term, or in instalment. The lender also charges interest on loan which has to be paid by the borrower along with the principal amount. Moreover, to cover the needs of different customers the bank offers different types of loans and overdraft. Types of Loans given at BMCB: 1. Housing loan (personal loan)

2. Project finance 3. Term loan 4. Cash credit 5. Overdrafts against FDR

1. Loan against Fixed deposit (LFD):

 This loan is the loan against fixed deposit which is given to all the members of the BMCB bank who has done their FD in the same bank.  When the loan is granted to the third party other than the FD holder, the application form along with third party form-signed by deposit holder & third party would be submitted to the bank.  After taking the loan against FD, the FD will be kept with the bank as a mortgage. Then the receipt of fixed deposit will be kept with the bank as lien.  Bank gives 90% of the principal amount of FD as a loan amount and keeps 10% as the margin of the bank.

 Interest chargeable by bank is one percent more of the FD interest rate, for example interest rate on FD is 7% then the interest rate charged by the bank would be 8%.

DEMAND/ TERM LOAN AGAINST PROPERTY

Term loans are given for a fixed period in lump sum and are repayable in a definite period of time either in lump sum or in installment. It can be short term, medium term or long term depending upon the purpose. Short term loans are for 12 months, Medium term loan ranges from 15 months to 5 years. Long term loans are above 5 years. The period of loan is fixed on the basis of security, flow of income and need of the borrower. The term loans are given for the purpose of acquiring new assets, in case of any industry it is given for improvement in existing assets, construction, purchase of durable consumer goods etc.

DOCUMENTS TO BE OBTAINED AFTER SANCTION

1. Term loan (land and building) Agreement. 2. Deed of hypothecation of plant and machinery to secure term loan 3. Demand promissory note 4. Continuing security letter. 5. Letter of lien and set off. 6. Agreement of guarantee. 7. Memorandum of deposit of title deed

HOUSING LOAN
BMCB offers housing loan for purchase of housing accommodation like bungalows, flats, row house, tenements etc. loan is also provided for construction of new flat, bungalow, row house, etc loans are also given for repairing purpose.

DOCUMENTS TO BE OBTAINED AFTER SANCTION: 1. Term loan (land and building) Agreement. 2. Demand promissory note. 3. Continuation Security letter. 4. Letter of lien and set off. 5. Agreement of guarantee. 6. Memorandum of deposit of title deed.
Following two documents are prepared by advocate nominated by bank.
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Title clearance report of the banks approved advocate. Memorandum of deposit of title deeds with affidavit cum declaration, power of attorney etc from the property owner on applicable stamp paper.

CASH CREDIT
A cash credit is a short term working capital facility under which the bank establishes a credit limit and the customers are allowed to borrow money upto that sanctioned credit limit which is called the cash credit limit. Cash credit limits are sanctioned against the security of Stock and/or Book debt. Mostly overdraft and cash credit facility are similar. When it is secured then it is called cash credit (hypothecation) or cash credit (pledge). When there is no security of assets then it is called cash credit (clean)

Once the cash credit limit has been sanctioned by the bank, the customer can draw money from his cash credit account as and when he requires. He can also deposit the surplus cash/ funds into his cash credit account. There is no commitment charge; therefore, interest is payable on the amount actually utilized by the borrower. Following is the procedure of Cash Credit Facility 1. Submission of loan application form and along with it, following documents are required.
y y y y y y y y

Financial statements (audited if applicable). Copy of Income Tax Returns for last 3 years. Details of guarantors. Details of property offered as security. Valuation certificate of property if available. Title clearance certificate. In case of partnership firm, copy of partnership deed is required. In case of company, copy of memorandum of association and article of association is required.

2. Analysis of financial statements. 3. Inspection of business place and property offered. 4. Inspection report and appraisal note is prepared.

5. Application form along with other documents is send to board meeting for sanction. 6. Details of documents executed / obtained before disbursement.
y y y y y y

Loan sanction letter. Promissory note. Letter of continuity. Letter of lien and set off. Documents of hypothecation of book debt. Documents of hypothecation of stock.

y y y y y y

Guarantee bond. Memorandum of deposit of title deeds. Valuation report of property. Title clearance certificate. Insurance of property and stock. In case of company charge is registered with ROC in favor of bank.

OVERDRAFT AGAINST FDR

Overdraft is generally given against FDR. Under the overdraft facility, the borrower maintains a current account, and is allowed to withdraw funds in excess of balance from his current account which gives the account negative balance up to a specified limit during a stipulated period. Interest is charged on daily balances on the amount actually withdrawn subject to minimum charges. The borrower operates the account through cheques. If the balance exceeds the agreed terms, then fees may be charged and higher interest rate might apply. Overdraft is a running account and hence debits and credits are freely allowed. It is very flexible arrangement from the borrowers point of view since he can withdraw and repay the funds whenever he desires within the overall stipulations.

DOCUMENTS TO BE OBTAINED AFTFR SANCTION: 1. Letter of lien and set off. 2. Letter of guarantee. 3. Demand promissory note 4. Continuing security letter. 5. FDR duly discharged. 6. Letter of appropriation

PROJECT FINANCING AT BMCB:

Project finance is the financing of long term infrastructure and industrial projects. Project financing is more complicated than other financing methods. It is most commonly used in mining, transportation, telecommunication and public utility industries. Risk identification and allocation is a key component of project finance. A project may be subject to a number of technical, environmental, economic and political risks, particularly in developing countries and emerging market. The financing of these projects must also be distributed among multiple parties, so as to distribute the risk associated with the project while simultaneously ensuring profits for each party involved. Usually a project financing scheme involves a number of equity investors known as sponsors as well a syndicate of banks which provide loans to the operation. The loans are most commonly secured by the project itself and paid entirely from its cash flow. In project financing the interested party approaches the bank for promoting the project proposal and submits the project report along with an application form and other documents for appraisal and sanction of loan to the bank. Bank after appraising and sanctioning of the project and also disbursement of first installment of loan will provide a brief project profile-cum-claim subsidy along with a copy of sanction letter. When the project is nearly completion, bank along with its officials and the implementing agency does technical inspection of the party. for advance

Types of Overdrafts given at BMCB: Hypothecation (HYP): HYP is given on the goods of the business. In the case of advances against hypothecation the commodity/ stock offered as security remain in the custody of the borrower and only certain rights are transferred to the bank. The movable goods/stock should be easily saleable and should not be of the perishable nature.

The goods on which loan is given should be insured by the customer and that insurance papers are marked under the banks lien. The customer has to submit the stock report every monthly. The overdraft is given on the market price or cost price of the goods, whichever is low. Collateral security is required if the overdraft is more than Rs. 2 Lakhs. Bank gives 60% of the amount as overdraft on the value of the stock. The movable goods/stock should be easily saleable and should not be of the perishable nature charges on sanctioned amount and minimum Rs. 100 as for mortgage document. Two years balance sheet after income tax return filed has to be submitted. If performance of any month will decrease than the bank has right to change the limit of OD.

2. Book Debts (BKD): Book Debt is the overdraft given on the debts of the company. Sometimes the sales are made on credit or services are provided on credit basis. Book debts may be in the form of bills purchase/discounted or other book debts. Debts older than 90 days will not be considered for BKD. Bank provides 50% as an overdraft in BKD of the debts. The customer has to submit monthly debtors report to the bank.

3. Overdraft against Fixed Deposit (FDO): Bank gives the O.D. on the FD which the customer holds. FDO is same as LFD, the documents and procedure of FDO is same as LFD. 90% of the FD amount is given as an O.D. to the customer. The FD will be kept with the bank as a lien.

The documents filed by the customer for applying loan or O.D. along with the application form are as follows: 1) Demand Promissory Note (DP Note):  Stamping of Rs. 1 is required on this Note  Customer confesses that he/ she has taken loan from bank, he/ she gives promises through this letter

2) Letter of lien & Set-off:  Customer agree with bank that they may hold all securities belonging to customer  Bankers may be entitled by law, to set-off or transfer any sum standing to the credit in or towards satisfaction of any liability to the bank  Stamping of Rs. 100 is required on this document 3) Agreement for Hypothecation:  In case of loan/ advances on hypothecation of Stock / book debt or any assets / property mortgaged, agreement of hypothecation is taken  Stamping of 0.25% of loans amount is executed for this document 4) Letter of guarantee:  On the 100 Rs. Stamped paper, sign of guarantor is executed 5) Form DD :  Unstamped declaration form is taken from customer specifying that they havent taken loan/ advances from any Shakari mandali or they are not the member of any such mandlies. 6) Letter of continuing security :  This letter is taken form only OD holder, on the stamp paper with stamping of Rs. 20  OD requires renewal every year so continuing letter is taken 7) Bearer DD Letter:  On this document customer agree upon particular amount of loan, he/she confesses agreement for that amount 8) Sanction Letter:  This letter is given by bank to customer showing sanction & one letter is kept with bank also 9) Charge from ROC:  For Limited & Private Limited Companies charge from ROC (Registration Of Companies) is compulsory which is executed by advocate at ROC  By executing ROC registration, bank gets Search Report from advocate or at ROC. Under Search Report, each & every details regarding loan taken by companies is available 10) Under taking between borrower & Bank:  For creating mortgage prior permission from Kandla Port Trust is required to be obtained (If the land located in area which i.e. under sub-head of SRC Limited then

such application are routed through SRC Ltd.) for getting permission of under-taking to be entered between KPT & Property owner 11) Title Clearance certificate/ Nil Encumbrance Certificate (In respect of Original property) :  Title Clearance is given by an approved advocate of the Bank who also gives Search Report 12) Deposit of Title Deed:  The mortgagor hereby confirms and records that he has already deposited documents of title relating to his plot/property noted hereunder in Schedule-I with the Bank with intent to create an equitable mortgage in favour` of the mortgage over the plot/property to which the documents relating to and described hereunder in Schedule-II for the purpose of securing repayment of the bank all amounts owing to the Bank under advance made.

With the above forms filled, the document required by the customer to submitted are:  Enclosures with the Loan form : (1) Quotation(s) with catalogue(s). (2) Income evidence. a) Salary certificate/ Pay slip. b) Set of Balance-sheet, P/L a/c, etc. (3) Income Tax Return Challan. (4) Copy of immovable property. (5) Copy of Driving Licence. (6) Copy of Ration Card/ PAN Card. (7) Share Certificates. (8) Passport size photograph(s), not old then 6 months. (9) Guarantors Sheet(s).

 Enclosures with the Overdraft form : (1) Copies of Registration Certificate of Firm & Partnership Deed. (2) Audited B/s. of last 3 years.

(3) Income Tax assessment order of last year with the copy of Income Tax Return of Individual Partner. (4) In case of Ltd. or Pvt. Ltd. company, Memorandum of articles or association & registration certificates. (5) Certificate of immovable properties of individuals, partners or directors. (6) Stock Statement/ List of Debtors/List of Machineries. (7) Copies of SSI Certificate. (8) Particulars of firms business place (Licence etc). (9) Share Certificates & Passport size photograph(s).