FUND BASED AND NON-

FUND BASED OPERATIONS

OF A BANK
FUND BASED
OPERATIONS:

Loans and Advances

Export Credt

Pro!ect and "or#n$ capta%

&nance
Loans and Advances:

Principles of sound Lending:-

'( Prncp%e o) L*+dt,
-( Prncp%e o) Sa)et, and Sec+rt,:-
.
Capact, o) t.e /orro0er to repa,
.
"%%n$ness o) t.e /orro0er to repa,
1( Prncp%e o) Pro&ta/%t,:-
.
Lendn$ operatons s.o+%d /e s+2cent%, pro&ta/%e to
cover cost o) )+nds3 cost o) nterest and rs# cost3 and
%eave /a%ance )or provsonn$ 3 a%%ocaton to capta% and
reserves )or expanson3 $ro0t. and )or 4antann$ ts
co4pettve va/%t,(
5( Prncp%e o) P+rpose
.
Loan s.o+%d /e sanctoned )or prod+ctve p+rpose and not
spec+%atve p+rposes(
6( Prncp%e o) Dvers&caton o) Rs#
Prncp%es o) so+nd
Lendn$
7( Prncp%e o) Soca%
Respons/%t,:-
.
An overd+e e4p.ass s.o+%d not
/e p+t on s8e o) t.e /orro0er
and sec+rt, t.at .e s o9ern$(
.
T.e tec.nca% co4petenc, and
econo4c va/%t, o) t.e pro!ect
s.o+%d a%so /e consdered(
.
T.e prort, sector $+de%nes
s.o+%d a%so /e )o%%o0ed(
Ter4 Loans:

T.e p+rpose o) t.e ter4 %oan s c%ear%,

de&ned( As a res+%t t /eco4es easer )or
t.e /an#er to 4ontor and contro% t.e +se o)
/an# credt as co4pared to advances /,
0a, o) cas. credt or overdra)t(

F+nds are provded at one $o )or a sn$%e

transacton(

Repa,4ent s +s+a%%, 4ade n nsta%%4ents3

t.o+$. so4et4es t can /e repad on
de4and(

Interest to /e pad on entre a4o+nt

0.et.er t s +t%8ed )+%%, or not(
T,pes o) Ter4 Loans:

Loans can /e c%ass&ed on t.e /ass o) perod

sanctoned or on t.e /ass o) t.e p+rpose o) t.e
%oan(

The loans on the basis of period can be

categorized as follows:-
'( S.ort Ter4 Loans
-( :ed+4 or Lon$ Ter4
1( Brd$e Loans
.
The loans on the basis of purpose are :-
'( Co4poste Loans
-( Cons+4pton Loans
Sec+rtes and T,pes o) C.ar$es:-

C%ass&caton o) Sec+rt,:-

Persona% Sec+rtes;Intan$/%e
sec+rtes

Tan$/%e Sec+rtes

Pr4ar, Sec+rtes

Co%%atera% Sec+rtes
:odes o) Creatn$
C.ar$es:-
Type of Charge Nature of
Security
Len <oods and
sec+rtes
P%ed$e or
=,pot.ecaton
:ova/%e Propertes
Ass$n4ent Boo# De/ts
:ort$a$e I44ova/%e
Propert,
:odes o) Creatn$
C.ar$es:

Len:-

Len 4eans r$.t o) t.e credtor to retan t.e $oods

and sec+rtes o0ned /, t.e de/tor +nt% t.e de/t d+e
)ro4 .4 s repad(

T.e credtor on%, $ets t.e r$.t to retan t.e $oods

and not t.e r$.t to se%%(

Len can /e et.er partc+%ar or $enera%

T.e r$.t o) partc+%ar %en can /e exercsed /, a

person 0.o .as spent .s t4e3 4one, or %a/o+r on
t.e $oods(

T.e r$.t o) $enera% %en con)ers a /%an#et r$.t on t.e

/an#er and s app%ca/%e n respect o) a%% a4o+nts
0.c. are d+e )ro4 t.e de/tor(

A /an#er en!o,s a r$.t o) $enera% %en(

:odes o) Creatn$
C.ar$es:

Pledge:-

In p%ed$e $oods can /e retaned )or

an, s+/se*+ent advances /+t not )or
an, exstn$ de/t 0.c. s not
covered /, t.e p%ed$e(

In case o) non pa,4ent t.e /an#er

.as r$.t to se%%(

Ban#er>s r$.t o) p%ed$e preva%s over

an, ot.er d+es nc%+dn$ $overn4ent
d+es except 0or#er>s 0a$es(
:odes o) Creatn$
c.ar$es:

Hypothecation:-

=,pot.ecaton s an extended dea

o) p%ed$e 0.ere/, t.e credtor
per4ts t.e de/tor to retan
possesson o) $oods3 et.er on
/e.a%) o) or n tr+st )or .4se%)(

It s convenent devce n t.e

crc+4stances n 0.c. t.e trans)er
o) possesson s et.er nconvenent
or 4practca/%e(
:odes o) Creatn$
C.ar$es:

Assignent:-

It 4eans trans)er o) contract+a% r$.ts and %a/%tes to a t.rd

part,(

T.e /orro0er can ass$n an, o) .s r$.ts3 propertes or de/ts

to t.e /an#er as sec+rt, )or a %oan(

Us+a%%, t.e /orro0er 4a, ass$n /oo# de/ts3 4one, d+e )ro4
$overn4ent or %)e ns+rance po%ces(

A%t.o+$. t.e notce o) ass$n4ent 3 s not re*+red +nder %a03

t s n t.e nterest o) t.e ass$nee to $ve notce to t.e de/tor(

Ass$n4ent 4a, /e %e$a% or e*+ta/%e( A %e$a% ass$n4ent s

e9ected t.ro+$. an nstr+4ent n 0rtn$ s$ned /, t.e
ass$nor( T.e ass$nor a%so n)or4s t.e de/tor n 0rtn$ a/o+t
t.e ass$n4ent3 t.e ass$nee>s na4e and address( T.e
ass$nee a%so serves a notce on t.e de/tor o) t.e ass$nor
and see#s con&r4aton o) ass$ned /a%ance(

I) t.e a/ove )or4a%tes are not done3 t s e*+ta/%e 4ort$a$e(

:odes o) Creatn$
C.ar$es:-

!ortgage:-

".en a c+sto4er sec+res an advance on t.e

sec+rt, o) spec&c 44ova/%e propert,3 t.e c.ar$e
created t.ereon s ca%%ed a 4ort$a$e(

A 4ort$a$e 4a, /e et.er Le$a% or E*+ta/%e(

Le$a% 4ort$a$e s a9ected /, trans)er o) %e$a% tt%e

to t.e 4ort$a$e propert, /, t.e 4ort$a$or n )avo+r
o) t.e 4ort$a$ee 0.c. nvo%ves expenses n t.e
)or4 o) sta4p d+t, and re$straton c.ar$es(

In E*+ta/%e 4ort$a$e on%, doc+4ents o) tt%e are

trans)erred n )avo+r o) t.e 4ort$a$ee and not t.e
%e$a% tt%e( In t.s case re$straton s not necessar,
and so no need o) sta4p d+t, and re$straton
c.ar$es(
F+nd Based Operatons: Pro!ect
Fnance

Ever, pro!ect nvo%ves certan &nanca% o+t%a, 0.c.

can /e re)erred to as pro!ect &nance(

I) pro!ect re*+res .+$e a4o+nt o) capta%3 t.en

+s+a%%, a consort+4 o) /an#s s )or4ed 0.c.
co%%ectve%, &nance t.e pro!ect(

T.e &nance s re*+red )or varo+s np+ts o) t.e

pro!ect3 e($( %and3 /+%dn$3 %a/o+r 3 4ac.ner, etc(

Fnanca% p%annn$ s /ased on t.e &nanca% apprasa%

o) t.e pro!ect (e( ascertan4ent o) tota% %on$ ter4
and s.ort ter4 &nancn$ re*+re4ents3 c.oosn$ t.e
so+rces o) &nance at 4ost reasona/%e cost and 4ost
approprate t4e(
E($( Part o) capta% co4es )ro4 e*+t, partcpaton
and part )ro4 %ender or %essors(
Pro!ect Apprasa%:

Technical Appraisal:-
'( Pro!ect dea3 4an+)act+rn$ process3 p%ant and 4ac.ner, re*+re4ent
-( Tec.no%o$, s.o+%d not /e o/so%ete or too advanced(
1( ".et.er nd$eno+s%, ava%a/%e or needs to /e 4ported
5( Ava%a/%t, o) *+a%&ed personne%(
.
"inancial Appraisal:-
'( Assess4ent o) tota% &nanca% re*+re4ents and ts co4poston
-( T.e so+rces o) )+nds needs to /e dent&ed
1( Cost o) )+nds and pro!ect rate o) ret+rns needs to /e est4ated(
.
!ar#et Appraisal:-
'( Exstn$ and est4ated de4and )or prod+ct
-( Co4petton
1( Export potenta%
.
!anageent Appraisal:-
'( Inte$rt, o) 4ana$e4ent
-( Ed+caton( Tec.nca% *+a%&caton3 experence o) t.e 4ana$ers(
.
$n%ironent Appraisal:-
'( D+e to tec.no%o$, or 0aste an, da4a$e can /e res+%ted to t.e envron4ent
-( ".et.er 0aste s rec,c%a/%e3 eco ?)rend%, tec.no%o$, can /e +sed(
F+nd Based Operatons-"or#n$
Capta%:

"or#n$ capta% s t.e a4o+nt o)

)+nds re*+red /, an enterprse
to &nance ts da, to da, /+sness
operatons(

In s.ort 0or#n$ capta% s excess

o) c+rrent assets over c+rrent
%a/%tes(

Operatn$ c,c%e s t.e perod

/et0een t.e 4atera% ordern$
sta$e to converson o) sa%es n to
cas.(
T,pes o) "or#n$ Capta%:

Per4anent "or#n$ Capta%

F%+ct+atn$ "or#n$ Capta%

<ross "or#n$ Capta%

Net "or#n$ Capta%

"or#n$ Capta% Ratos:

"or#n$ Capta% to sa%es rato

Inventor, t+rnover rato

C+rrent rato

@+c# Rato
Proced+re )or Assess4ent o)
"or#n$ Capta% Re*+re4ents:-

T+rnover :et.od

Tradtona% :et.od

Cas. B+d$et :et.od

F+nd Based Operatons-Export
Credt

&is#s in $'port "inance:-

'( T.e operatn$ c,c%e /eco4es %on$er d+e to t.e %on$ t4e
ta#en )or transt o) $oods3 .ence t.e need )or /%%
dsco+ntn$ /eco4es 4ore 4portant(
-( T.e $eo$rap.c dstance nvo%ved 4a#e t d2c+%t to
scr+tn8e t.e nte$rt, o) /+,er or s+pp%er c%ose%,(
1( D9erent c+rrences pose rs#s o) exc.an$e rate
A+ct+atons(
5( An +nderstandn$ o) t.e d9erent %e$a% s,ste4s3 t4e
8ones s re*+red(
6( Apart )ro4 t.s 4a!or rs# s co+ntr, rs# (e( a pro/%e4
can arse /eca+se o) o+t/rea# o) 0ar3 a revo%+ton3 cv%
0ar etc(
7( A%so c.an$e n $overn4ent po%c, re$ardn$ 4port and
export or t.e +se o) trade ro+tes can a%so pose pro/%e4s(
Pre-S.p4ent or Pac#n$ Credt:

It s essenta%%, 0or#n$ capta% 4ade ava%a/%e )or

&nancn$;p+rc.asn$;processn$;4an+)act+rn$;transportn$;0are.o+sn$
o) $oods 4eant )or export(

<+de%nes )or <rant o) Pre-s.p4ent or Pac#n$ Credt:

'( T.e va/%t, o) proposa%3 t.e nte$rt, o) t.e /orro0er and t.e capact,
o) t.e exporter to exec+te t.e order(
-( T.e export contract;p+rc.ase order;%etter o) credt s.o+%d /e va%d
3operatve and contan a%% essenta% deta%s(
1( T.e *+ant+4 o) &nance .as to /e need-/ased and 0or#ed o+t a$anst
spec&c order;orders(
5( T.e exporter s.o+%d .ave co4p%ed 0t. t.e exc.an$e contro%
re$+%atons3 e($( ? exporter 4+st .ave va%d 4porter-exporter code
n+4/er a%%ocated /, Drector <enera% o) Fore$n Trade3 :nstr, o)
co44erce(
6( Exporter s.o+%d not /e n ca+ton %st o) RBI or t.e se%ected approva% %st
o) EC<C(
7( Pac#n$ credt advances are $enera%%, $ranted on sec+red /ass on%,(
B( Separate acco+nts s.o+%d /e opened )or eac. pac#n$ credt except
0.en r+nnn$ acco+nt )ac%t, s a%%o0ed(
Pre-S.p4ent or Pac#n$ Credt:

Rate o) Interest:-In case o) r+pee

&nance3 at a rate o) nterest not
exceedn$ -(6 %ess t.an PLR and n case
o) Fore$n c+rrenc, &nance at a rate o)
nterest not exceedn$ 6C /ass ponts
DC(6EF over LIBOR(

Perod o) Fnance:- It s $ranted to an

exporter nor4a%%, )or 'GC da,s( In case
t.e /an# approves t can /e extended
)or anot.er HC da,s 0t. t.e pror
approva% o) RBI(
Post-S.p4ent Fnance:

Post-s.p4ent &nance )ac%t, s $ranted to

/rd$e t.e $ap /et0een t.e s.p4ent o)
$oods and t.e rea%8aton o) proceeds(

T.e export va%+e s.o+%d /e repatrated to

Inda 0t.n sx 4ont.s )ro4 t.e date o)
export n nor4a% crc+4stances and 0t.n
'6 4ont.s n case o) $oods exported to a
0are.o+se esta/%s.ed o+tsde Inda( In
certan cases %#e 0.en t.e $oods are
exported )ro4 a speca% econo4c 8one t.e
a4o+nt can /e rea%8ed 0t.n '- 4ont.s(
Preca+tons to /e ta#en /, t.e /an#
n case o) post s.p4ent &nance

T.e export doc+4ents s.o+%d /e s+/4tted

0t.n -' da,s )ro4 t.e date o) export +n%ess a
pror approva% o) reserve /an# .as /een
o/taned(

Iaro+s doc+4ents %#e nvoce3 pac#n$ %st3

ns+rance cert&cate3 /%% o) %adn$ s.o+%d not /e
nconsstent 0t. eac. ot.er(

T.e ns+rance po%c, and /%% o) %adn$ s.o+%d /e

ade*+ate and proper%, s$ned3 dated and
sta4ped(

T.ere s.o+%d /e no dscrepanc, n t.e 0e$.t

4entoned n t.e nvoce and t.e 0e$.t %sted
n ot.er doc+4ents(
Export I4port Ban# O)
IndaDEJI: Ban#F

EJI: /an# 0as set +p on Kan+ar,

'3 'HG-(

T.e o/!ectves o) t.s /an# are3

$rantn$ %oans and advances n
Inda so%e%, or !ont%, 0t.
co44erca% /an#s and ot.er
&nanca% /odes to persons
exportn$ or 4portn$ or
ntendn$ to export )ro4 Inda3
$oods and servces nc%+dn$
export o) t+rn#e, pro!ects3 !ont
vent+res and cv% constr+cton
servces(
F+ncton o) EJI: Ban#

Fnancn$ o) exports and 4ports o) $oods and servces

not on%, n Inda /+t a%so n t.rd co+ntres(

Provson o) &nanca% assstance )or exports ;4ports o)

4ac.ner, and e*+p4ent on %ease /ass(

Invest4ent &nance )or e*+t, partcpaton n !ont

vent+res a/road(

<rantn$ %nes o) credt to $overn4ents3 &nanca%

nstt+tons and ot.er or$an8atons n )ore$n co+ntres
to 4port )ro4 Inda3 $oods nc%+dn$ t+rn#e, pro!ects3
servces nc%+dn$ cons+%tanc, servces(

Iss+n$ /d /onds or $+arantees and ot.er s4%ar

)ac%tes n Inda or a/road so%e%, or !ont%, 0t.
co44erca% /an#s on /e.a%) o) persons exportn$ or
ntendn$ to export )ro4 Inda(
Export Credt <+arantee
Corporaton O) Inda DEC<CF

Exporters are s+/!ect to n+4/er o) po%tca% and

co44erca% rs#(

T.e de$ree o) rs# nvo%ved n export /+sness s

s+pposed to /e .$.er t.an t.at n do4estc
/+sness(

T.e EC<C provdes a ran$e o) credt rs#

ns+rance covers to exporters a$anst %oss n
export o) $oods and servces(

It a%so provdes overseas nvest4ent ns+rance

to Indan co4panes nvestn$ n !ont vent+res
a/road n t.e )or4 o) e*+t, or %oan(

Ins+rance protecton a$anst pa,4ent rs# s

a%so provded(
Non-F+nd Based
Operatons

(uarantees:-

S.ort Ter4

De)erred Pa,4ent
)* Short Ter (uarantees:-
.
Per)or4ance $+arantee:-
'( It ass+res t.e /ene&car, t.at t.e c+sto4er 0%% per)or4 a contract n accordance 0t.
t.e ter4s(
-( It s .$. rs# $+arantee as per)or4ance over a perod o) t4e %#e%, to /e a9ected /,
cost over r+ns and +ncertantes to 4ar#et condton(
.
Fnanca% <+arantee:-
'( It s re%ated to t.e pa,4ent o) certan s+4 o) 4one, advanced /, t.e /ene&car, to t.e
c+sto4er3 (e( $+arantees covern$ advance pa,4ents 4ade +nder contract(
-( It s a$an .$. rs# $+arantee as t 4a, res+%t n ndrect )+ndn$ o) +nder%,n$ contract(
.
:sce%%aneo+s <+arantees:-
.
<+arantees are ss+ed )or varo+s ot.er p+rposes %#e:
'( <+arantee n %e+ o) deposts
-( To provdent )+nd co44ssoner n respect o) pa,4ent o) provdent )+nd /, e4p%o,ees(
1( To s.ppn$ co4panes )or de%ver, o) $oods n respect o) 0.c. /%%s o) %adn$ .ave /een
%ost or 4sp%aced(
5( To overseas /+,ers n )or4 o) /d /onds and per)or4ance $+arantee(
De)erred Pa,4ent <+arantees
DDP<F

".en a /+,er ne$otates )or t.e p+rc.ase o)

capta% $oods on de)erred pa,4ent ter4s3 t.e
s+pp%er nor4a%%, stp+%ates n t.e sa%e and
p+rc.ase contract t.at et.er /%%s or dra)ts
covern$ pa,4ent o) t.e contracted prce D%ess
advance pa,4ent ) an,F n nsta%4ents and
nterest c.ar$es 0%% /e accepted ;co-accepted /,
t.e /+,er>s /an#er or t.e /+,er>s /an#er 0%% ss+e
a de)erred pa,4ent $+arantee o) 4a#n$ pa,4ent
o) contracted prce n nsta%4ents a%on$0t.
nterest /, t.e /+,er on t.e d+e dates(

It s a spec&c $+arantee nso)ar as t.e /an#>s

%a/%t, s restrcted to t.e contracted prce 0t.
nterest c.ar$es as spec&ed(
Letter O) Credt DLCF

A LC s a doc+4ent ss+ed /, a /an#

ass+rn$ pa,4ent to se%%er o) $oods or
servces provded certan doc+4ents .ave
/een provded to /an#(

A LC serves as a $+arantee to t.e se%%er t.at

t 0%% /e pad re$ard%ess o) 0.et.er t.e
/+,er +%t4ate%, )a%s to pa,(

It )or4s an nte$ra% part o) nternatona%

trade(

T.ere are t0o 4a!or t,pes o) LCs( S$.t LC

and Date or t4e LC(