Principles of Lending

Presented
by
Dr.S.C.Bihari
THE A OF LENDING
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Activity
Ensuring Safety
Providing Liquidity
Generating Profits
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THE B BB B OF LENDING
Borrower
Character
Capacity
Capital
Conditions
Collateral
Compliance
THE C OF LENDING
Constitution
Legal Status
KYC Compliance
Necessary Records
Borrowing Powers
Supporting Papers
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THE D OF LENDING
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Documentation
Bind Borrowers Legally
Enforce the charge.
Primary evidence in all
disputes.
Defend claims in courts of law.
THE E OF LENDING
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Eligibility Norms
Off the Caution List of RBI
Off the Specific Approval List of
ECGC
Activity legally permitted
No Dues with Other Lenders
THE F OF LENDING
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Financial feasibility
Cost of production, and
profitability,
Cash flow, estimated sources of
funds
Yield should be commensurate
with the risk
THE G OF LENDING
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Growth potential
1. Proof showing the turnover
achieved in the past 3 years
2. Income tax returns the last 3
years
3. Sales Tax Returns for the last 3
years
THE H OF LENDING
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HOME OF
BORROWER/BUSINESS
Residence proof
Address proof
Place of Business
Authorization-Municipal/Legal
Rent Agreement
THE I OF LENDING
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Insurance
For full value of security
Comprehensive Risks
Bank as financer added
THE J OF LENDING
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Job Position
Engagement in any job
No Objection from employer
Feasibility of Tie up with salary
THE K OF LENDING
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Knowledge of
Business
Enterprise
Working
Regulation
Information System etc.
THE L OF LENDING
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License/Permit
Driving license for Transport
Vehicle
Permit for Plying Fleet
Municipal Permit for Business
Necessary permission for Industry
Ecological Clearance
THE M OF LENDING
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MONITORING
Financial Supervision
Financial Follow-up and Reports
Physical Follow-up
VERIFICATION OF ASSETS
Inventory Based-Quality of Goods,
Maintenance of Books
Operations Based-Level of Activity,
Labour Situation
THE N OF LENDING
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Norms of Exposure
Exposure norms as prescribed by RBI
-Maximum exposure for an individual <
15% of Banks capital(Tier-1&Tier-
2)and 40% to group
-For infrastructure projects the
exposure limits to individuals is 20%
of Banks capital and for group it is
50% of capital
THE O OF LENDING
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OPERATIONAL EFFICIENCY
Cost of funds and cost of
operation should be low
Economic feasibility - ensuring
capacity, demand and supply
position, cost of production, sale
prospects and price level
THE P OF LENDING
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PERSON
PURPOSE
PROSPECTS
PROFITABILITY
THE Q OF LENDING
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Quality
Of Management
Of Products
Of Services
Of Suppliers
Of Distributors
Of Employees etc,
THE R OF LENDING
REPAYMENT PERIOD
Proper Repayment Period
With Moratorium Period
Should Commensurate With
Income Generating Capacity Of
The Borrower
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THE S OF LENDING
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SECURITY:
MARKETABILITY
ASCERTAINABILITY
STABILTY
TRANSFERABILITY/TITLE
THE T OF LENDING
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TECHNICAL FEASIBILITY
Raw materials supplies,
Transport bottlenecks,
Power and water supply,
Availability of machineries
Other civic facilities
THE U OF LENDING
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UNDERSTANDING THE MARKET
PRODUCT
PRICE
PLACE
PROMOTION
PEOPLE
PROCESS
PHYSICAL EVIDENCE
THE V OF LENDING
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Verification/Valuation of
Assets/Securities:
The valuation report should be current
and should be obtained from approved
valuers.
The valuation report involves
verification of the existence of the
property by outside agencies.
THE W OF LENDING
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Working Capital Financing
based on
Nature of business
Market and demand
Technology
Manufacturing policy
Credit policy
Supplies credit
Operating efficiency
Inflation
THE X OF LENDING
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XRAY OF FUNCTIONING
There is a need for Review of
performance/functioning of the
borrower from time to time
This calls for periodic Review of the
loan account Annually/ Half-yearly/
Quarterly and even on Monthly/
Fortnightly/ Weekly basis in case of
Large Advances
THE Y OF LENDING
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Yearly Review of Account
Borrowers are required to submit
various reports/statements and other
information required by the Bank.
But yearly statements like Balance
Sheets, Profit & Loss Statements are
essential to be submitted for the
purpose of Yearly Review and Renewal
or otherwise with
Reduction/Enhancement/Cancellation
of limit
THE Z OF LENDING
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Zeal of the Borrower to
Succeed
All the A to Y for Lending may
be a waste paper exercise
unless the borrower(s) have a
zeal to succeed in the
enterprise.