What are the different types/forms of Credit ?/What do you mean by funded & non-funded Credit?/Discuss different types of funded credit?/What are the stages of credit processing?

      1. What are the different types/forms of Credit ?/What do you mean by funded & non-funded Credit?/Discuss different types of funded credit?/What are the stages of credit processing?

      Ans. Commercial banks make advances in different forms. All types of credit facilities can be broadly classified in to two groups:

      1. Funded Credit b. Non- funded Credit.
      1. What do you mean by funded & non-funded Credit?

        Ans. Funded Credit: Any types of credit facility which involve direct outflow of bank’s fund on account of borrower is termed as funded credit facility. Funded facility may be classified into four major types:

    1. i). Loans

    2. ii). Cash Credit

    3. iii). Overdraft

    4. iv). Bill purchased & discounted.  

    5. Non-funded Credit: Any types of credit facility against which Bank’s direct fund are not primarily involve is termed as non-funded credit facility. Though these types of facilities are non- funded in nature but at times it may turn into funded facilities. As such these types of facilities are also termed as “contingent liability”.  The major facilities are :

    6. i). Letter of Credit (L/C)

    7. ii). Bid Bond

    8. iii). Performance Bond

    9. iv). Advance Payment Guarantee

    10. v). Foreign counter Guarantee.

      1. For the purpose of classification loans and advances divided into different types, please discuss?

        a). Continuous Loan: Loans and advances which do not have any set schedule for drawing or repayment on disbursement but usually have a fixed limit and a terminal date (expiry date) for full adjustment/repayment are called continuous loan. Such as Overdraft, Cash Credit, Packing Credit, LIM, LTR etc. (CL form -2 is used for reporting this type of loans).  

      b). Demand Loan: Loans and advances which are repayable on bank’s claim (through issuance of formal notice) to the borrower is called demand loan. Such as PAD, FBP, IBP, Forced loan etc.  (CL form – 3 used for reporting this types of loans).  

    11. c). Fixed Term Loan: Loans and advances which have a set repayment schedule of some installments within a fixed term period are called Fixed Term Loan. Fixed Term Loan can be divided into two categories:  

    12. i). Term Loan payable within 5 years: The term loan which are payable within a period of 5 years as per the contractually fixed repayment schedule. Any term loan other than STAC/MC allowed for a period of 5 years should be of this types. (CL form – 4 used for reporting this types of loans).  

    13. ii). Term Loan payable in more than 5 years term: The Term loan which are repayable in a period more than 5 years as per the contractually fixed repayment schedule. Term of this type of loan will be more than 5 years. (CL form – 5 used for reporting this types of loans). 28.06.09 reviewed        

      1. Discuss different types of funded credit?

          Ans. Overdraft: This is the operative credit facility extended to the client as working capital financing for trading and manufacturing business and also for finance against work order. Specific limit covering the sanctioned loan amount is given on clients current account & they are allowed to draw and maintain regular transaction up to this limit. Specific repayment dates are given within which client has to adjust their overdrawn amount. The overdraft facility is basically secured by hypothecation of stocks, assignments of bill receivables and collaterally secured by mortgage of properties.  

    14. Time Loan: Time loan is allowed with a fixed maturity date (up to one year) indicating due date of repayment in full or in equal installments. Time Loan is disbursed in one or two installments and the same has to be adjusted within one year by equal installments as per specific repayment schedule.  

    15. Term Loan: Generally Term Loan is allowed to large well established business enterprises for financing capital expenditure, such as for acquisition of machineries to set up a industry, balancing and modernization of existing plant/machineries for over a period of one year completion  

    16. Trust Receipt: This facility is connected with import facility and is provided to very selective only. The tenure of this facility is 15 – 180 days. Sometime as per earlier arrangement of under compelling situation we allow our valued clients to retire the L/C documents without adjusting the demand loan or outstanding BLC.   Bill Discounting: This type of loan is provided to the client by discounting bill of exchange favoring the client. When usance bills are submitted by the client a margin (covering also the interest on the loan) amount is deducted from the face value of the bill and the rest is provided to the client. At maturity of the bill the same to be presented to the drawer for full proceeds of the bill through which the loan is adjusted.  

    17. Other funded facilities:   

    18. i). Against import Bills (BLC)

    19. ii). Against Import Merchandise (LIM)

    20. iii). Against Export bill purchased/discounts (FBP)

    21. iv). Against work order.

    22. v). Against other securities.

    23. vi). Against Inland bills purchased/discounted (IBP).

      1. What are the stages of credit processing?
      1. Credit Investigation.
      2. Appraisal & Assessment
      3. Loan Structuring
      4. Sanctioning, Documentation & Disbursement
      5. Recovery, Follow-up & supervision.

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