Institutional Refinancing

- PRIYANKA CHATTA
 Why Refinancing

 Total amount with banks = 100%.

 Reserves (SLR & CRR) = - 33.5%

 A bank can lend = 66.5%

But, this amount is not sufficient.

 Institutions

SIDBI NABARD NHB IDBI EXIM

 Functions of banks:
 Acceptance of deposits .
 Lending.
 Sectors
 Venture capital financing.
 Agricultural financing.
 Priority sector financing .
 Project financing.
 Debt financing.
 House financing.
 Working capital financing.
 Seed financing.
 Infrastructure financing.
 Export-import finance.
 FINANCING
 Overdraft.
 Demand loan.

 Cash credit advances.

 Inland letter of credit.

 Guarantee.
 Overdraft
An overdraft occurs when
withdrawals from a bank account
exceed the available balance which
gives the account a negative balance
- a person can be said to have gone
"overdrawn".
 Reasons for overdraft
 Intentional short-term loan.
 ATM overdraft.

 Failure to maintain an accurate account

register.
 Unexpected electronic withdrawals.

 Bank Error.
 Returned check deposit.
 Reasons for overdraft
 Bank fees .
 Victimization.
 Intraday overdraft.
 Merchant error
 Playing the Float.
 History
Introduced by “The Royal Bank
of Scotland” in 1728 to
merchant William Hog.
 Overdraft
 Agreed overdraft limit.
 How Interest is charged.

 Reserved limit.

 Subject to status.

 Instant online overdraft facility.

 Written application and promissory

note.
 It can discontinued
 Bank loan and Overdraft
 Current account.
 Loan only on overdrawn account.

 Can control amount within limits.

 Easy Cash flow planning in Loan.

 Interest is lower in case of loan.

 Fixed amount for fixed term and

repayment.
 Demand loan
A loan which is repayable
on demand without prior
notice, on a specific date.
 Features
 No fixed date of termination.
 Repaid anytime.
 Called for repayment.
 Interest charged.
 No prepayment penalty.
 Understanding.
 Default.
 Recession.
 Demand loan agreement
 Demand loan.
 Interest.

 Payable on demand.

 Monthly payments.

 Costs and expenses.

 Entire agreement.

 Assignment.
 Cash credit.
It is an arrangement or
contract by which a banker
allows the customer to borrow
money up to certain limit.
 Points to discuss
 Favored method of lending (70%).
 Cash credit limit.
 Against security (Collateral or personal)
or guarantee.
 Withdrawal as well as deposit.
 Interest charged.
 “Roll over” a period of time.
 Banks keep adequate cash balance.
 Commitment charge.
 Advantages
 Flexibility.
 Operative convenience.

Disadvantages.

6. Fixation of limits.
7. Bankers inability to verify end use.
8. Lack of proper management of
funds.
 Bank Guarantee
It is a contract to perform
the promise, or discharge
the liability of a third person
in case of default.
 Issued to:
 Govt. departments for fulfillment of
contract.
 Railway and airline for payment of
Freight.
 Shipping companies for delivery of
goods without production of BOL.
 Collector of Excise/customs for
payment excise/customs duty .
 Types

1. Performance Guarantee.
2. Financial Guarantee.
 Performance
Guarantee.

Those which secure

performance of contract not
involving loan transactions
or financial obligations.
 It includes:
 Construction.

 Plant / machinery up to agreed

level of capacity.
 Supply of raw material.

 Advance payment.
Financial Guarantee
The guarantees given to secure
loan transactions or financial
obligations whereby bank
undertakes to make payment to
beneficiary.
 It includes:
 Payment of determined
liabilities.
 Payment of disputed liabilities
 Precautions
 Appraisal and assessment of
guarantee.
 Reimburse the bank in case the
guarantee is invoked.
 In case of Performance Guarantee,
customer should be capable.
 Go through Terms and condition of
contract.
 Guarantee should be for specific
amount and for genuine business
or trade.