Professional Documents
Culture Documents
3/9/2019
CREDIT DEPARTMENT
PROCESS OF LOAN
• WALK IN CLIENT /REFERENCE CLIENT/NEEDED CLIENT ENTRANTS IN THE
BANK.
• DISCUSS ABOUT THE LOAN PROPOSAL.
3/9/2019
Authorized valuator for inside valley
Singh Consult
Annu Engineering
Nepa- Tech
3/9/2019
REQUIRED DOCUMENTS FOR VALUATIONS
ORIGINAL LAL PURJA/COPY OF OWNERSHIP
FOUR WALL BOUNDRY/(CHAR KILLA)
TRACE/ NAPI NAKSA
TAX CLEARANCE COPY/ TIRO TIREKO RASID
COPY OF CITIZENSHIP
HALSABIK
ADHABADHIK
RAJINAMA COPY
Ownership TRANSFER DEED
3/9/2019
Eligible Criteria for the Loan Regarding the
Valuation Report
LOAN AMOUNT IS ELIGIABLE ONLY THE VALUED COVERED BY
Fair Market VAULE . MAXIMUM FINANCING 60% OF Fair market
VALUE(For Individual)
3/9/2019
Credit Facility Request (CFR) Preparation
3/9/2019
CIB TARRIF MODULUS THROUGH ONLINE QUERY
For Without Report (No transaction Report) : Rs. 250 per search
3/9/2019
Valuation charge prescribed by the bank
3/9/2019
Documentation parts
Documents are segregate into three parts
2. Standard Documents
3/9/2019
General Documents
That comprises the following documents:
Application/Request Letter
Copy of citizenship
Photos
Salary sheet/Draw down request
other income source
Account Opening procedure
Identity if the client is the employer of any organization.
3/9/2019
Standard Documents
That Compromises the following Documents:
Credit Facility Request(CFR) (MEMO)
Sanction Letter/offer letter
Promissory notes
Letter of Continuity
Letter of Set Off
Insurance
Wealth statement
General Counter Guarantee
Lease Rent agreement/Rental Agreement
3/9/2019
Valuation Report dated……….
Letter of indemnity
Shareholding Pattern
Drawdown request
3/9/2019
Renewal Request
Parapashu Charge
Registration of Firm
PAN/VAT/IRD Receipts
Partnership Deed
Corporate Guarantee
3/9/2019
Legal related Documents
That Compromises the following Documents:
Lal purga
Napi/Naksa/Trace
Four wall Boundary
Tax Receipts
Halsabik
Consents from Legal Heirs
Loan deed
Mortgage Deed
Board resolution
Special AGM Board
Minutes Personal
Guarantee
3/9/2019
Nature of Loan Proposal and Facility
Newly approved loan
Renewal loan
Additional Loan
Enhancement of loan
Limit Reduction
Limit Settlement
Partial Settlement
Limit held
Limit freeze
3/9/2019
Credit Inquiry and Information
• BANK MUST MAKE THE INQUERY FOR THE LOAN AMOUNT EXCEEDING 1
MILLION FROM CIB (CREDIT INFORMATION BUEREAU)
3/9/2019
Purpose of CIB Taken
A. HELP FROM OUT FROM CLUTCHES OF BAD BORROWER
B. GET RID OF ALL CREDIT DELIQUNACIES
C. CONFIDENT OF YOUR LENDING DECISION
D. CONFIDENET AND MAKE BETTER LENDING DECISION
E. NO ASSUMPTION AND SPECULATION
3/9/2019
Limit approval authority
UPTO 2 MILLION - CREDIT Committee
2 M TO 7.5M - AGM
7.5 M to 30M - CEO
30M to 50 m - Risk Management committee
ABOVE 50 M - BOARD
3/9/2019
Promissory Notes and Letter of Continuity
and legal Documents
THE CLIENT PROMISE TO PAY THE AMOUNT (PRINCIPAL,
INTEREST, INTEREST ON INTEREST, PENAL) WITH STIPULATED
INTEREST RATE AND DATE WHEN DEMANDED BY THE BANK.
THIS IS MADE THROUGH THUMB IMPRESSION ANS SIGNATURE
AFFIX.
Mgmt fee
Valuation fee (debit client a/c credit valuators a/c)
Service charges if mentioned any where
Cib charges (debit client a/c credit cib charge payable a/c)
Insurance (debit client a/c credit insurance co. A/c)
Documentations fee
Renewal charge
Mortgage charge
Security release charge
3/9/2019
Input of the NRB Codes and
bank code
SECTOR WISE (V) 9.3
SECURITY WISE (F) 9.4
PRODUCT WISR (K) 9.3 KA
Basel code b
Industrial code I
Security grade L and M
3/9/2019
Penal Interest Calculation Modulus
Interest on Interest
Mode of Calculated additional interest rate
Matured interest_____ 2%
Formula : Matured interest*(Normal Int + Additional interest)/365 * No. of due days
Penal Interest
Mode of Calculated additional interest rate
Matured principle_____ 2
Formula : Matured Principal*(Additional interest)/365 * No. of due days
In Pumori IV AIR includes overdue interest and penal interest
3/9/2019
AIR Overdue Int On Int Penal Amt
Overdue Int
(Interest Loan (Fine on (Fine on
Balance (Matured/Due Total
for the (Matured Overdue Overdue
Interest)
Time) Principle) Interest) Principle)
3/9/2019
Matured Overdraft Interest Calculation
If the client default to pay the interest of overdraft loan, additional 2%
of interest will be charged as form of Charges/penal /fine annually.
Formula: Matured Interest* (Normal Interest rate +Penal Interest
rate)/365* no. of dues days.
3/9/2019
Difference between Overdraft Loan and
other Normal Loan
The Main Difference Between Normal Loan and OD Loan is Normal loan account have to be separately open
as on Loan product categories. i. e if Hire Purchase loan is going to sanction, separate HP loan a/c should
open. Loan a/c is being Established. This Types of loan is One Off Basis.
In case of Overdraft Loan existing Current a/c or new current a/c is treated as nominee a/c where the
prescribed limit is maintain and the client can deposit and withdraw so many time as he/she/they need
within Stipulated Time. Overdraft is Revolving types of loan . Once the loan is settled this can be reinstate
by the same amount.
Mode of Interest Payment varies from facility to Facility.
Renewal and Settlement case.
Prepayment Case.
Accruals and Amortization Case
Penal Calculations.
3/9/2019
Types of Interest
Deposit Lending
Cost Income
Normal interest is the interest rate which is derived by the market charged in the
loan (Lending) amount in a agreed Ratio. Higher the Spread Rate of Interest(Lending
Rate- Deposit), higher the rate Higher the profit is possible.
3/9/2019
Mode of charge creation
Mortgage –for land and Building (Trf of ownership)
Pledge- locked the inventory in godown (Key hold by bank and the client each)
Hypothecation (insurance) - for Inventory (quarterly Inspection)
Lien- for Fixed Receipt, shares, other instrument (NSB, DB, Provident fund
etc)
Assignment- For account receivable, Debtors
Personal Guarantee
Institutional Guarantee
3/9/2019
Types of Lending
Funded and Non funded.
Funded (Wholesale and Retail Lending)- Through Mediator or directly
Approved fund directly goes to the client nominee account and the loan account is
established.
Cash outflow of the bank
Liabilities shifted to client itself for the principle, interest and penal.
Payment schedule are fixed
Bank earn Interest and the commission through this account
Margin is maintain through the drawing power of the property.
After the settlement of the loan mortgage property is released
Non Funded
Guaranteed amount maintain with guarantee account
There is no cash outflow of the bank. Bank just assure the undertaking to the client
beneficiary.
Margin is maintain in the margin account (i.e 5% , 10%)
Liabilities shifted to bank if the client fails to perform the guarantee covenant.
3/9/2019
Bank just earn the commission only
No other payment schedule
After the Completion of the contract guarantee will be
release
3/9/2019
Types of the client
Individual
Joint Client
Proprietorship
Partnership
Pvt Ltd
Ltd
Co-operative
Clubs
Foreign Institution
Guthi/Ngo and Ingo's
3/9/2019
Types of Loan (wholesale and Retail lending)
Overdraft Loan (For Working Capital Assessment, To maintain the stock, etc,
Revolving Nature)
Term Loan (For Capital Investment on Fixed assets)
Time Loan (One off Basis, for short term period i.e upto 1 years, Non Revolving nature)
Hire Purchase Loan (To invest in Vehicles/ Transportation)
Home Equity Loan/No Jhanjhat Loan (Security against land and Building, to meet
personal purpose Bank Product)
Mortgage Loan ( Security against land only, to meet personal purpose bank Product)
Home Loan (To purchase/construction/renovation of the house)
Margin Loan (To invest in capital Market, shares, secondary market)
Education Loan ( To invest in education sector)
Deprived sector / Priority Sector Loan ( To invest in deprived sector in order to
uplifted the living standard of poor, scatters peoples, backwards women , tribe ,
handicapped people as directed by the NRB)
Wholesale Lending is such lending where banks grant its loan through the
intermediately to the client and verse verse.
3/9/2019
Financial Analysis
• Balance Sheet Analysis
• Profit and loss analysis/Income Statement
• Trading account analysis
• Ratio Analysis
• Cash flow Analysis
• Capital Budgeting Analysis
• Leverage Analysis
• Cost-volume profit analysis
3/9/2019
Credit Administration Job Description
Monthly NRB Reporting
Quarterly NRB Reporting
Online credit Query
Online CIB Reporting (Quarterly)
Prepare offer letter
Documentation parts
Manage for the final disbursement
Past due follow up, different types of letter sent, 35 days legal notice publication etc
Loan registry, settlement, limit reduction, enhancement, restructuring and
rescheduling)
Quarter End Preparation
Vehicle Registration of client preparation (Release and registration)
Margin lending related job (Share lien, confirmation regarding the borrowers, know
your customer, Promoters shares confirmation, weekly review of the share price,
margin call follow up and adjustment)
Interest revision letter preparation and adjustment and make the new schedule)
Blacklisting procedure
3/9/2019
Loan write off Process
Valuatators agreement process
Orientation class for the new staff related to credit and credit admin.
Letter sent to malpot in connection to napi naksha, trace, four wall boundary.
File and Filling
Insurance Handling
Co-ordinate with Internal audit, External Audit and NRB audit.
Co-ordinate with RO and RM for the client
Prepare credit report weekly, bi -weekly and Monthly as demanded by the
concern party.
Prepare credit report as demanded by the NRB and other institutions
Co-ordinate with new branch regarding credit material
Finalize the Bank Guarantee issuance
Co-ordinate with legal department for the necessary legal action
NPA Management
3/9/2019
Control Mechanism For the Margin Loan
Weekly review of share prices and the trend of the market. Loan limit also be
revised accordingly.
Margin will be called if the market value of the of the shares fall below to Rs. ……
of average of average of last 180 days of ordinary shares and closing value of
promoters shares. Or the value quote for the initial valuation falls below 10%
Margin call letter sent to the borrower immediately.
Make the endeavor for deposit the margin amount.
Borrower gives the consent to the bank to sell the pledge shares in the capital
Market in case of default.
Transaction for trading of the pledged shares is to be stopped at the stock
exchange.
Confirmation regarding promoters shares held and pledge.(As per the NRB circular
if the said borrower is a promoter and holds more than 1% of promoters shares only
50% of remaining shares will be consider for the eligible shares valuations.
This is in the court procedure until the court make its verdict.
Confirmation regarding Lien /pledge on shares. (As per the NRB directives
confirmation in writing by share issuing company whether the said client,
shareholder(s), borrower(s), guarantor(s), or any member of the entity under their
control are director, chief executive, auditor, secretary, or involved in management
of finance of account departments of the issuing company and these and their
family members and any one entity(s) has left the company within a year from the
date of this matter.
Share Consent of the borrower
Letter of consent/ Consent/ Authority Letter to transfer the ownership of the
shares in the name of the bank.
Know your customer form annexure 12
Lien over the shares
3/9/2019
Promoters Shares Valuation Procedure
3/9/2019
Ordinary Shares Valuation Procedure
Average Closing Price of Last 180 days of Present price OR Today whichever is lower
*50%
* 50% is not the mandatory ratio. This could be upto 100% if the bank feels relief
3/9/2019
Hire Purchase Loan Documents needed
1. Quotation/Invoice Price
2. Undertaking to concern parties
3. Transfer of the assets in favor of Bank
4. Copy of Bill Book, Insurance Ownership Transfer (Comprehensive Insurance )
5. Separate Hire Purchase deed
6. Documentations
7. Issue the Managers Cheque if the vendor have-not any account or whatsoever.
8. Annual renewal of the Bluebook and Submit the same to the bank.
9. Manjurinima from the borrower
3/9/2019
Provision related to ML
Banks and financial institutions may advance such loan only to the amount of its
core capital in maximum. Moreover, while advancing such loan, Banks or
financial institutions may advance loan only up to 25 percent of its core capital in
case of shares of one listed companies
i.e Margin Lending Exposure = 25% of Its Core Capital
For ……..Banks share = 10% of Its Core Capital
DP= 5 times of Book value or average of Present closing price which ever lower
* 60%
3/9/2019
Criteria to Extend Margin Lending Loan
(a) The banks and financial institutions having not maintained capital fund ratio
according to Directives of this Bank and BFI is declared as Troubled bank by NRB
(b) The institutions having negative net worth;
(c) The institutions delisted by the Nepal Stock Exchange Market Limited,
(d) The institutions not having conducted the final auditing even after
completion of one year of a fiscal year.
3/9/2019
Repayment Schedule Customization
1. EMI/EQI- Amortization based
2. Interest payment-Monthly & Principle PMT- Quarterly- Normal Based
3. Interest payment-Quarterly & Principle PMT Half yearly -Normal Based
4. Interest payment-Quarterly & Principle PMT Yearly – Normal Based
* This is based upon the payment basis i.e Accured basis and Amortization basis.
Accured basis are those where the client has to pay only the interest. Principle should
not be deduct. Principle should be annual review or settlement one-off basis.
3/9/2019
Rescheduling Case to case
In case of Interest revision from time to time (Increase or Decrease)
Partial Settlement/ Prepayment of the loan of the principle (Either Principle deduct of
downsize the expiry)
If the management has to decide to reschedule of restructure the loan becoming the
problematic for the bank.
Restructuring" means the process of changing the nature or terms and conditions of
altering the restrictions on or changing the time limit of the credit facilities.
Due to change in the rate of interest having regard to the market situation, the
duration of the loan and installment amount has been changed. In this context, if the
rate of interest is increased and thereby by the duration and installment amount is
increased, the installment amount determined at the time of sanctioning the loan is not
allowed to be decreased. Similarly, if the rate of interest is decreased and thereby
the duration and number of installment are decreased, the installment amount
determined at the time of sanctioning the loan is not allowed to be decreased
3/9/2019
Past due follow up Process
Sent the First past due Letter
Sent the Second time Past due letter
Sent the third time Past due Letter
Sent the 35 days legal notice
Give the borrower publication copy
Sent the 15 days legal notice
Sent the 7 days legal notice
Public the legal notice in the national daily (1 time and 2 time as per the nature)
Auction Process and Auction notice in national daily
Representative from CDO, IRD, VDC or ward, bank legal department, Valuator.
If there is no bidding for the auction Bank itself can take the property (NBA)
NBA (this has to be dispose within 7 years. Provision is classify)
Sue in the court (DRT) (Court Process if Necessary)
Write off the Loan
Blacklisting Process
3/9/2019
Conditions for Inclusion in the Blacklist
If the payment of the principal or any installment thereof or the interest is overdue
by 12 months (where the customer is enjoying facilities of various credits/facilities,
then overdue in payment of any of the loans).
If misuse of the loan/facility is proved,
If misuse of the goods placed in collateral security is proved;
If the borrower disappears
If the borrower is declared to be bankrupt according to existing law.
If the licensed institution has filed a lawsuit against the borrower in a court of law.
If involved in deceiving through use of counterfeit documents and instruments like
cheque, draft, foreign currency, Credit/Debit card, bills. Similarly, convicted by a
court to have committed such offence;
If any individual, firm, company or corporate body is proved to have been involved in
offences relating to financial matters.
A situation in which any individual, firm, company, an institution failed to repay the loan
amount from a licensed institution without the time limit stipulated in the deed of loan
and the bank and financial institution has taken action pursuant to Section 57 of the
Banks and Financial Institutions Act, 2006.
In the event where the licensed institution has to write off a loan;
If a cheque is issued in a situation where it would not be cashed or there is no
sufficient balance in the account;
3/9/2019
Parties to be included in Blacklist
(a) The borrower individual, firm, company or corporate body utilizing thecredit
facility;
(b) Proprietor of a proprietorship firm;
(c) Partners of a partnership firm;
(d) The individual, firm, company or corporate body that has provided guarantee for
extension of such credit facility to any individual, firm, company or corporate body;
Provided that, prior to including the guarantor in the black list, the licensed institution
shall serve the guarantor a notice of 35 days for settlement of the guaranteed
amount. The guarantor shall be included in the black list if the transaction is not
regularized within such notified period.
(e) Directors of a company, corporate body;
(f) Following persons of Public or Private Companies-
(1) Directors,
(2) Shareholders holding 15 percent or more share ownership, Provided that, this shall
not prohibit the bank and financial institution to place on blacklist the shareholders of
private and public companies holding less than 15 percent shares if such shareholders
have financial interest in the company through any means.
(3) Person, firm, company or corporate body having the right to nominate Director.
3/9/2019
(g) Where the blacklisted individual or organization owns individually or institutionally
15 percent or more shares in any other firm/company/corporate body, the Director
and Chief Executive of such firm, company, corporate body. Provided that, this shall
not be deemed to have hindered the bank and financial institution to place on blacklist
the individual, firm, company falling under the same group that holds less than 15
percent shares but collectively hold share investment of more than 15 percent.
(h) Where the representative of a blacklisted individual or institution is Director in
any non-government firm/company/corporate body, institution; such firm/ company/
corporate body. Provided that in case of fulfillment of all of the following conditions,
such non-government firm/ company /corporate body, in which the representative of a
blacklisted individual or institution is Director, need not be required to be placed in
the blacklist.
(1) The share of a Director in the non-government firm/ company/corporate body in
which the representative of the blacklisted individual or institution is the Director,
has to be less than 15 percent;
(2) The non-government firm/company /corporate body in which the representative of
the blacklisted individual or institution is a Director, has been regular in paying
principal and/or interest to the licensed institution on time or before due dates; and
(3) The individual representing as a Director of the blacklisted individual or institution
has resigned from the directorship or such individual is removed from the post of the
Director.
3/9/2019
(i) The individual, firm, company or corporate body falling under one group having inter-
relationship according to the Directives of this Bank.
(j) Individual, firm, company or corporate body providing guarantee to the customer.
Provided that in the case of guarantee or partial guarantee, where the guarantor has
settled the guaranteed amount, this provision shall not be applicable for other
outstanding due of the borrower.
(k) In case of death of the borrower, the licensed institution may, by assigning the
liability to the individuals who receives the assets of the deceased, provide suitable
time period to the individuals assuming such liability. Where assumption of liability is
denied or failed to pay or regularize the loan within the time period thus provided,
such individuals shall also be included in the blacklist.
(l) In case a borrower has not been included in the blacklist even after the loan is
overdue by a period of more than two years, explanation thereof shall be submitted to
this Bank within one month of completion of each fiscal year.
3/9/2019
Loan Account Type
AC Type Loan type
37 Time loan
4E Term Loan
38 Home Equity loan
4C Mortgage loan
34 Home Loan
35 Vehicle Loan
33 Hire Purchase Loan
50 Consumer Loan
4F Bridge Gap
30 Staff Social Loan
7W Staff OD
90 Bank Guarantee a/c
3/9/2019
NMB Loan type
3/9/2019
Debit Posting of the Client
Debit the Client Account (Current, Saving or other specify account)
Credit the respect account i.e
Insurance company (Current account/Saving or other specify account)
Valuators account
Loan Management fee a/c 953003002
CIB Charge Payable account 915101002
Service Charge account 953003001
i.e
Client Account Dr.
To Respect Party a/c Cr.
3/9/2019
Accounting Entry of Loan (Procedure)
A. Loan disbursement
Loan account Dr.
Cash/Bank/Cashier cheque or Customer account Cr
B. To collect loan fee and charge
Cash/Bank/Customer account Dr.
Loan Management fee a/c Cr.
Service Charge a/c Cr.
C. Accured Interest
Interest Receivable- Loan Dr.
Interest Suspense-Loan Cr.
D. Loan Repayment
When received from the borrower
Cash/Bank/Customer account Dr.
Interest Receivable- Loan Cr.
Loan Cr.
Interest Suspense Dr.
Interest Income Cr.
3/9/2019
If Late Payment fee is assessed (Charged)
Cash/Bank/Customer account Dr.
Penal interest/Misc Cr.
3/9/2019
Loan Concentration
Single Borrower limit (Funded and Non Funded)- 25% of Core Capital (Last Quarter)
Sector Wise Loan (Up to 100% of Core Capital i.e need to be duly monitor) if exceed
Board has to approved.
Loan will be grants upto 100% of core capital on one sector and the 25% of core capital
to the single entity. i.e if the capital merchant shares are pledge only 25% of core
capital for this institution shares to be pledged but the loan for ( Margin loan ) is 100%
of core Capital.
3/9/2019
Ratio Analysis
A ratio is a mathematical relation between one quantity and another. Suppose you have 200 apples
and 100 oranges. The ratio of apples to oranges is 200 / 100, which we can more conveniently
express as 2:1 or 2. A financial ratio is a comparison between one bit of financial information and
another. Consider the ratio of current assets to current liabilities, which we refer to as the current
ratio. This ratio is a comparison between assets that can be readily turned into cash -- current assets
and the obligations that are due in the near future -- current liabilities. A current ratio of 2:1 or 2
means that we have twice as much in current assets as we need to satisfy obligations due in the near
future.
Ratios can be classified according to the way they are constructed and their general characteristics.
By construction, ratios can be classified as a coverage ratio, a return ratio, a turnover ratio, or a
component percentage:
Liquidity Ratios
Liquidity reflects the ability of a company to meet its short-term obligations using
assets that are most readily converted into cash. Assets that may be converted into
cash in a short period of time are referred to as liquid assets; they are listed in
financial statements as current assets. Current assets are often referred to as
working capital because these assets represent the resources needed for the day-to-
day operations of the company's long-term, capital investments. Current assets are
used to satisfy short-term obligations, or current liabilities. The amount by which
current assets exceed current liabilities is referred to as the net working capital.
3/9/2019
The role of the operating cycle
How much liquidity a company needs depends on its operating cycle. The operating cycle
is the duration between the time cash is invested in goods and services to the time that
investment produces cash. For example, a company that produces and sells goods has an
operating cycle comprising four phases:
(1) purchase raw material and produce goods, investing in inventory
(2) sell goods, generating sales, which may or may not be for cash
(3) extend credit, creating accounts receivables, and
(4) collect accounts receivables, generating cash.
The operating cycle is the length of time it takes to convert an investment of cash in
inventory back into cash (through collections of sales). The net operating cycle is the
length of time it takes to convert an investment of cash in inventory and back into cash
considering that some purchases are made on credit.
The number of days a company ties up funds in inventory is determine by:
(1) the total amount of money represented in inventory, and
(2) the average day's cost of goods sold.
The current investment in inventory -- that is, the money "tied up" in inventory -- is the
ending balance of inventory on the balance sheet. The average day's cost of goods sold is
the cost of goods sold on an average day in the year, which can be estimated by dividing
the cost of goods sold Found on the income statement by the number of days in the
year. We compute the number of days of inventory by calculating the ratio of the amount
of inventory on hand (in dollars) to the average day's Cost of Goods Sold (in dollars per
day):
3/9/2019
Number of days inventory = Inventory = Inventory
Average day' s cost of goods sold Cost of goods sold / 365
3/9/2019
The current ratio is the ratio of current assets to current liabilities; Indicates a
company's ability to satisfy its current liabilities with its current assets:
Current ratio = Current assets
Current liabilities
The quick ratio is the ratio of quick assets (generally current assets less inventory) to
current liabilities; Indicates a company's ability to satisfy current liabilities with its
most
liquid assets
Quick ratio = Current assets - Inventory
Current liabilities
The net working capital to sales ratio is the ratio of net working capital (current assets
minus current liabilities) to sales; Indicates a company's liquid assets (after meeting
short−term obligations) relative to its need for liquidity (represented by sales)
Net working capital to sales ratio = Current assets - Current liabilities
Sales
The gross profit margin is the ratio of gross income or profit to sales. This ratio
indicates how much of every dollar of sales is left after costs of goods sold:
3/9/2019
The operating profit margin is the ratio of operating profit (a.k.a. EBIT, operating
income, income before interest and taxes) to sales. This is a ratio that indicates how
much of each dollar of sales is left over after operating expenses:
The net profit margin is the ratio of net income (a.k.a. net profit) to sales, and indicates
how much of each dollar of sales is left over after all expenses:
3/9/2019
Activity ratios
Activity ratios are measures of how well assets are used. Activity ratios which are, for
the most part, turnover ratios -- can be used to evaluate the benefits produced by
specific assets, such as inventory or accounts receivable. Or they can be use to
evaluate the benefits produced by all a company's assets collectively. These measures
help us gauge how effectively the company is at putting its investment to work. A
company will invest in assets – e.g., inventory or plant and equipment – and then use
these assets to generate revenues. The greater the turnover, the more effectively
the company is at producing a benefit from its investment in assets.
1. Inventory turnover is the ratio of cost of goods sold to inventory. This ratio indicates
how many times inventory is created and sold during the period:
3/9/2019
3. Total asset turnover is the ratio of sales to total assets. This ratio indicates the
extent that the investment in total assets results in sales.
4. Fixed asset turnover is the ratio of sales to fixed assets. This ratio indicates the
ability of the company’s management to put the fixed assets to work to generate sales:
3/9/2019
Number of days inventory = Inventory
Average day's cost of goods sold
The number of days inventory is how long the inventory stays with the company, whereas
the inventory turnover is the number of times that the inventory comes and leaves – the
complete cycle – within a period. So if the number of days inventory is 30 days, this means
that the turnover within the year is 365 / 30 = 12.167 times. In other words,
3/9/2019
Financial leverage ratios
A company can finance its assets either with equity or debt. Financing through debt involves risk
because debt legally obligates the company to pay interest and to repay the principal as promised.
Equity financing does not obligate the company to pay anything -- dividends are paid at the
discretion of the board of directors. There is always some risk, which we refer to as business risk,
inherent in any operating segment of a business. But how a company chooses to finance its
operations -- the particular mix of debt and equity -- may add financial risk on top of business risk
Financial risk is the extent that debt financing is used relative to equity.
Financial leverage ratios are used to assess how much financial risk the company has taken on. There
are two types of financial leverage ratios: component percentages and coverage ratios. Component
percentages compare a company's debt with either its total capital (debt plus equity) or its equity
capital. Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest,
principal repayment, or lease payments.
Component-percentage financial leverage ratios
The component-percentage financial leverage ratios convey how reliant a company is on debt
financing. These ratios compare the amount of debt to either the total capital of the company or to
the equity capital.
The total debt to assets ratio indicates the proportion of assets that are financed with
debt (both short−term and long−term debt):
3/9/2019
Remember from your study of accounting that total assets are equal to the sum of total
debt and equity. This is the familiar accounting identity: assets = liabilities + equity.
The long−term debt to assets ratio indicates the proportion of the company's assets
that are financed with long−term debt.
The debt to equity ratio (a.k.a. debt-equity ratio) indicates the relative uses of debt and
equity as sources of capital to finance the company's assets, evaluated using book values
Of the capital sources:
3/9/2019
Note that the debt-equity ratio is related to the debt-to-total assets ratio because they
are both measures of the company’s capital structure. The capital structure is the mix of
debt and equity that the company uses to finance its assets. Let’s use short-hand notation
to demonstrate this relationship. Let D Represent total debt and E represent equity.
Therefore, total assets are equal to D+E.
If a company has a debt-equity ratio of 0.25, this means that is debt- to-asset ratio is
0.2. We calculate it by using the ratio relationships and Algebra.
D/E = 0.25
D = 0.25 E
Substituting 0.25 E for D in the debt-to-assets ratio D/(D+E):
D/(D+E) = 0.25 E / (0.25 E + E) = 0.25 E / 1.25 E = 0.2
3/9/2019
Coverage financial leverage ratios
In addition to the leverage ratios that use information about how debt is related to either
assets or equity, there are a number of financial leverage ratios that capture the ability of the
company to satisfy its debt obligations. There are many ratios that accomplish this, but the two
most common ratios are the times interest coverage ratio and the fixed charge coverage ratio.
The times-interest-coverage ratio, also referred to as the interest coverage ratio, compares
The earnings available to meet the interest obligation with the interest obligation:
Coverage ratios are often used in debt covenants to help protect the creditors.
3/9/2019
Shareholder ratios
The ratios we have explained to this point deal with the performance and financial condition of the
company. These ratios provide information for managers (who are interested in evaluating the
performance of the company) and for creditors (who are interested in the company's ability to pay its
obligations). We will now take a look at ratios that focus on the interests of the owners -- shareholder
ratios. These ratios translate the overall results of operations so that they can be compared in terms
of a share of stock:
Earnings per share (EPS) is the amount of income earned during a period per share of common
stock.
As we learned earlier in the study of Financial Statement Information, two numbers of earnings per
share are currently disclosed in financial reports: basic and diluted. These numbers differ with respect
to the definition of available net income and the number of shares outstanding. Basic earnings per
share are computed using reported earnings and the average number of shares outstanding.
Diluted earnings per share are computed assuming that all potentially dilutive securities are
issued. That means we look at a “worst case” scenario in terms of the dilution of earnings from
factors such as executive stock options, convertible bonds, convertible preferred stock, and warrants
3/9/2019
As an example, consider Yahoo!'s earnings per share reported in their 2004 annual report:
The price−earnings ratio (P/E or PE ratio) is the ratio of the price per share of common stock to
the earnings per share of common stock:
Though earnings per share are reported in the income statement, the market price per share of stock
is not reported in the financial statements and must be obtained from financial news sources. The
3/9/2019
P/E ratio is sometimes used as a proxy for investors' assessment of the company's ability to
Generate cash flows in the future. Historically, P/E ratios for U.S. companies tend to fall in
the 10-25 range, but in recent periods (e.g., 2000-2001) P/E ratios have reached much higher.
Examples of P/E ratios (P/E ratios at the end of 2004):
3/9/2019
Dividends per share (DPS) is the dollar amount of cash dividends paid during a period, per share
of common stock:
The dividend payout ratio is the ratio of cash dividends paid to earnings for a period:
Dividend payout ratio =Dividends
Earnings
The complement to the dividend payout ratio is the retention ratio or the plowback ratio:
3/9/2019
Balance sheet Item
Current Assets
1. Cash in hand
2. Cash at bank
3. Sundry debtors
4. Bills Receivable
5. Account Receivables
6. Stock (Inventory)
7. Marketable Securities
8. Short Term Loan
9. Pre Paid Expenses
10 Accured Income
11. Advances
Current Liabilities
1. Bills Payable
2. Sundry Creditors
3. Bank Overdraft
4. Short-term Loan
5. Cash Credit
6. Reserve for doubtful debt
7. Outstanding Expenses
8. Proposed Dividend
9. Provision for Tax.
3/9/2019
Non Current Assets
Fixed Assets
1. Land and Building
2. Plant and Machinery
3. Furniture and Fixture
4. Equipment
5. Investment- Loan Term
6. Goodwill
7. Trade Mark
8. Patent Right
9. Profit and loss Debit balance
10. Preliminary Expenses
11. Other Deferred Expenses
12. Discount on Issue of shares
13. Discount on Issue of Debenture
3/9/2019
5. Share Premium Account
6. Share Forfeited Account
7. Capital Reserve
8. Profit and Loss Account
9. Provision for Depreciation
10. Capital Redemption Reserve
11. General Reserve
12. Dividend Equalization Fund
13. Provision for Taxation
14. Proposed Dividend
3/9/2019
Working Capital Assessment
Particulars 2067/68
12 months
Uses:
Bills Receivable
Sundry Debtors
Inventory
Advances Payment ,if any other
A. Total
Sources
Bills Payable
Creditors
Other Bank Loan
Outstanding expenses
B. Total
Working Capital Cap ( A – B )
Add: Provision for Contingencies
Total Working Capital
Bank Financing
% of Financing by ACE
3/9/2019
Cash Flow Assessment
Cash Flow Statement Particulars Projected
Sources of Fund 2067/68
Net profit before Interest & Taxes
+ Non cash exp. (depreciation, write off)
+ Non operating expenses (loss on sale of assets)
- Non operating income (profit on sale of assets)
(Funds from operation)
Cash from operation
Uses of Funds
Interest
Bank Charges
Dividend
EMI of Other Loan
Purchase of Machinery/Assets
Tax
Total financial charges
Closing cash balance after financial charges
3/9/2019
Risk Weighted Assets (RWA)
A. On Balance Sheet Item
Item Risk Weight
Cash Balance, Gold (Tradable), Balance with NRB
Investment in Nepal government securities, Investment in
DB/NRB Bonds, Fully secured loan against OWN FDR and 0
Government securities, Accrued interest on Government securities,
Amount deposited in government account for the considerable purpose
Total A
3/9/2019
B. Off Balance Sheet Item
Bills Collection 0
Total B.
3/9/2019
Short Fall in Capital Adequacy
Forbid declaring and distributions dividends
Forbid establishment new branches
Hold the refinance facility of NRB
Forbid extending loans
Forbid accepting deposits by opening new accounts
NRB can take any action under NRB act 2012 section 32.
3/9/2019
Core Capital Item (Capital Adequacy)
Paid Up Capital
Proposed Bonus shares
Share Premium
Non- Redeemable Preference share
General Reserve
Cumulative P/L account
Current years profit shown in balance sheet
Capital Refund reserve fund
Capital Adjustment fund
Calls in advance
Other free reserve
Deductable Item
Goodwill
investment in shares & Securities in excess of prescribe Limit
Investment on financial interest company
Facetious Assets
Investment in L& B for the purpose of own use not complying NRB
Directives
Loan for construction for residential building of own use not
Complying NRB Directives.
Underwritting shares not disposed within Prescribed time limit.
Loan and Facilities provided to person/Groups prohibited under
existing Laws.
3/9/2019
Supplementary Item
Loans and provision (For Good Loan )
Assets Revaluation Reserve (Not excess than 2%)
Hybrid Capital Instrument
Unsecured Subordinate Term Debt
Exchange Equalization Reserve
Assets Revaluation Reserve
Investment Adjustment Reserve
3/9/2019
Major Indices (Specimen)
1. Net Profit/Total Income %
2. Earning Per Share NRs
3. Market Price Per Share NRs.
4. PE Ratio Ratio
5. Stock Dividend per Share %
6. Cash Dividend per Share %
7. Interest Income/ Loan & Advance %
8. Staff Expense/ Total Operating Expenses %
9. Interest Expenses on Deposit & Borrowing %
10. Exchange Gain & Loss/ Total Income %
11. Staff Bonus/ Total Employee Expenses %
12. Net Profit/ Loan Advances %
13. Net Profit/ Total Assets Ratio
14. Credit-Deposit Ratio %
15.Total Operating Expenses/ Total Assets %
16. Capital Adequacy Ratio on Total Capital Fund %
A. Core Capital %
B. Supplementary Capital %
C. Total Capital Fund %
17. Cash Reserve Ratio Ratio
18. Non Performing Assets/ Total Loan %
19. Weighted Average Interest Rate Spread -
20. Networth Per Share NRs
21 Total Outstanding Shares No
22.Total no. of Staffs No
23. Others -
3/9/2019
Key Financial Highlights as on 2009/2010 (Specimen)
Financial Indicators ACE Industry Average
Core Capital to RWA (% 18.03 21.67
Capital Fund to RWA (%) 18.83 22.60
RWA to TA (%) 60.20 73.68
Financial Resource Mobilization to 6.18 4.91
Last Quarter’s Core Capital (times)
Deprived Sector Loan to Loans & Advances of 2.52 3.05
2 Quarters Earlier(%)
Max. Loan in a Single Sector to Core Capital (%) 91.83 135.82
Max. Loan to a Single Borrower to 17.48 150.55
Last Quarter’s Core Capital (%)
Credit to Deposit Ratio (%) 82.71 84.85
Credit to Financial Resources Mobilization Ratio (%) 63.15 80.45
Credit to Deposits & Core Capital (%) 67.69 69.85
Non Performing Loan to Total Loan (%) 0.03 1.67
Total Loan Loss Provision to Total Loan (%) 1.01 2.92
Liquid Assets to Total Deposits (%) 67.92 36.62
Investment in Shares/Debentures to Core Capital (%) 10.95 4.49
Non Banking Assets to Total Assets (%) - -
Provision for NBA to NBA (%) - -
Return on Assets (ROA) (%) 1.15 2.01
Return on Equity (ROE) (%) 10.62 14.57
3/9/2019
Balance sheet Analysis
Liabilities
Share Capital : (Paid Up Capital, Promoters and Ordinary in forms of Initial
Investment right share issue and Bonus shares (Capital Structure
Owners Equity 51% and General Public 49%)
Authorized Capital
Issued Capital
Paid Up capital
Proposed for Bonus share
Calls in Advance
Share Capital details
Domestic Ownership
Nepal Government
Foreign Stakes
Category “A” Licensed Institute
Other Licensed Institutions
Other Institutions
Public
Other
Foreign Ownership
3/9/2019
Reserve and Surplus ; General Reserve Fund, Capital Adjustment fund, Capital
Redemption Reserve, Capital Adhustment Reserve fund, Other Reserve fund (
Contingent reserve, Institutional development reserve, Dividend Equalization fund,
Special reserve fund, Assets revaluation reserve, differed tax reserve, other free
fund, investment adjustment reserve), Accumulate profit and loss and Exchange
fluctuation reserve .
Debenture and Bond : Issued Long term debenture/Bond if any.
(%.............NRS………Issued on………..with maturity (Total redemption reserve NRs…)
Borrowing : Local Borrowing and Foreign Borrowing
Inter Bank /Financial Institutional Borrowing
Nepal Government
NRB (Repo or Refinancing or any)
Repo Obligation
Other Institution
Other
Foreign Banks and others
3/9/2019
Deposit Liabilities : Non Interest Bearing
1. Currency Deposit
Local Currency : Nepal Government
“A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
Others
Foreign Currency : Nepal Government
“A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
Others
Individuals
2. Margin Deposit : Employee guarantee
Guarantee margin
Letter of credit margin
3. Other
Local Currency Financial Institutions
Other Organized Institutions
Individuals
3/9/2019
Interest Bearing Accounts
A. Saving Account
Local Currency : Organized Institutions
Individuals
Others
Foreign Currency : Organized Institutions
Individuals
Others
B. Fixed
Local Currency : Organized Institutions
Individuals
Others
Foreign Currency : Organized Institutions
Individuals
Others Deposit
C. Call Deposit
Local Currency “A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
Others
Individuals
3/9/2019
Foreign Currency “A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
Others
Individuals
D. Certificate of Deposit Organized Institution
Others
Individuals
Income Tax Liability NET : Certain % of tax from the net income
Other Liabilities ; Pension/gratuity funds, employee Provident fund,
Employee Welfare Fund, Provision for staff bonus, Interest payable on deposit, interest payable on
borrowing, unearned discount and commission, sundry creditors, branch adjustment account,
deferred taxes, unpaid dividend, other.
3/9/2019
Balance Sheet Analysis
Assets
1. Cash
Local Currency Including Coins
Foreign Currency ; Indian, US, Euro, Australian Dollar, Canadian Dollar, Singapore
Dollar, Japanese Yen Etc
2. Balance With NRB: Current Account and Other Account
3. Balance with Banks/Financial Institutions
Local Licensed Institutions
a. Current account
b. Other account
Foreign Banks
a. Current Account
b. Other Account
4. Money at call and Short Notice ; 7 days maturity period and 48 hours short notice to
get back that money invested
5. Investment : Investment made by the Company
a. Treasure Bills
b. Saving Bonds
C Other Bonds
D. NRB Bonds
E. Foreign banks
3/9/2019
F. Local Licensed Institutions
G. Foreign banks
I Corporate Shares
J Corporate Bonds and debenture
K Other investment
Land Development
Less Provision
Net Investment
Investment in shares, Debenture and Bonds (Shares , Debenture Investment)
Held for trading Investment (Shares Investment on Different Institutions)
Held for maturity Investments (Development Bond and Treasury Bills
Available for sale Investment
6. Loans advances and Bills Purchased
1. Performing Loans
a. Pass
B. Restructures loan
2. Non Performing Loan
a. Sub-Standard
B. Doubt Full
C. Bad Loan
Total Loan
3/9/2019
Loan Loss Provision
1. Pass Loan (1%)
2. Watch list 5%
2. Restructures Loan (12.5%)
3. Sub Standard (25%)
4. Doubt Full (50%)
5 Bad Loss (100%)
3/9/2019
7. Fixed assets : Land and Building, Vehicles, Computer and Machinery, office Equipment and
others
Procedure
1. At Cost
A. Previous Year Balance
B. + Additional during this year
C. +Revaluation/Write back during this year
D. - Sold
E. -This Year Write off
Total Gross Value
2. Depreciation
a. Previous Year Balance
b. Depreciation during this year
c. Revaluation/Write back during this year
d. Total depreciation on sold/Written off Assets
Total Depreciation A+B-C
3/9/2019
8. Non Banking Assets:
9. Other Assets : Gold Stock, Income receivable on Investment Less interest
suspense account, Receivable commission, sundry debtors, Staff loans and advances, prepayments,
cash in transit, Other transit Item (Including Cheque), draft paid without notice, expenses not write
off, branches adjustment account, deferred taxes (Assets), Other assets (Accured interest on
Loans, Drafts paid without notice, Branch Adjustment accounts, Local/Foreign agency accounts
3/9/2019
Margin Call Provision
Margin call will be made when the quoted shares prices falls below the 10% .
Margin Call letter issue within the 7 days of margin call suffer.
Margin will be maintain within 35 days of the margin letter issue.
3/9/2019
Loan Against FDR
Loan up to grants 90% of the face value of the FD. (According to CPG). Drawing power is
95% of the face Value. 90%
Interest will be charged FR rate +2% additional Charge
FD certificate will be surrendered by the client and the same will be lien
Interest will be paid quarterly and interest will be charged quarterly.
Within the maturity of the FD, either the client has to settled the loan or to liquidate the
FD.
Letter off Set up is necessary (agreement) by the client.
In case of FD issue by the other Bank, according to the NRB regulation, there is no
change of acceptance for the loan purpose.
3/9/2019
Government Securities
Bond/Debenture and Treasury Bills
Loan Against Bond and Debenture
1. Loan against HMG/ NRB Bonds shall not exceed 95% of the face value of the bond.
2. Face value is shown in the top of the certificate
3. There is the clause in the certificate that this can be pledge and takes the loan.
4. Fully secured against pledge of debenture /bonds and certificate shall be lodged.
5. Interest rate is coupon rate. +3% (Need to be finalized)
3/9/2019
Bridge Gap Loan
in corporate finance, interim financing covering the time lag between redemption of a
bond or commercial paper issue, and replacement by a new one. Bridge loans, commonly
replacing short-term debt with longer term financing, are an integral part of corporate
restructurings, mergers, and leveraged buy-outs. Banks and insurance companies supply
funds to pay off old debts before proceeds are raised from new debt or issuance of
stock. Also known as gap financing or swing loan.
3/9/2019
Project Appraisal
Different Aspects of Project Appraisal
1. Technical Aspects
2. Marketing Aspects
3. Management and Organization Aspects
a. Character
b. Capacity
c. Capital
D. Collateral
E. Conditions
F. Compliance
4. Legal Aspects
5. Financial Aspects
3/9/2019
Banking Risks
Concentration Risks
Liquidity Risks
Exchange rate Risk
Operation Risk
Environment Risk
Security risk
Management risk
Interest Rate risk
Counterparty Risks
Competitor Risk
3/9/2019
Borrower Information
C6
Character
Capacity
Capital
Collateral
Compliance
Condition
Status report
3/9/2019
Principle of Lending
Seven Principle of Good Lending
Safety
Liquidity
Purpose
Profitability
Spread
Security
National Interest, Suitability
Technical Competence
Economic Viability
Marketability
Management Ability
Quantum of Finance
Quality of Credit
Two ways Out
Integrity of the borrower
Paradox of Spread
The business cycle is inevitable
Quick Answer
Local Banks should be participant in the lending to local borrower
First thought for the bank
Understanding the business
Common scenes and good Judgment
3/9/2019
Safe Guarding of Problem Loan
Preventive Measure
1. Good Corporate Governance
2. Capital Adequacy
3. Formulate and Implement CPG
4. Prudent Loan classification and Provision
5. Concentration of Risk
6. Proper System of Collection of Interest and Principle
7. Discourage to invest against risky assets
8. Rehabilitation of sick Industries
9. Reschedule and Restructure Loans
10. CRA
Remedial Measures
1. Blacklisting (35 days legal notice publication)
2. Resort to other legal Remedies
3. DRT
4. Take over the credit
5. Compel the PG
6. AMC
3/9/2019
Provision for Loan Against First Class Securities
Pass 1%
Substandard 1%
Doubtful 1%
Loss 1%
Rescheduling and Restructuring of Loans (if regulized for 2 years convert to 1% 25%
interest have to settled)
Pass 12.5%
Substandard 25%+12.5
Doubtful 50%+12.5
Loss 100%
3/9/2019
Recovery Measures
1. Loan Call Back Notice
2. Dispose Primary Security of the borrower
3. Auction The Collateral Security
4. Loan Write off
5. Take over the management
6. Create Special NPA Cells
7. Formulate and Adopt Special Recovery Policies
8. Formulate National Credit Restructuring CELL (NCRC) to restructure loans
3/9/2019
Loan Classification and Provision (rule base)
Normal Loan
Pass 1% (No overdue or overdue up to 3 months)
Substandard 25%(overdue More than 3 months and Upto 6 Months)
Doubtful 50%(overdue More than 6 months and Upto 1 years)
Loss 100% (overdue More than 1 Year)
Pass 1%
Substandard 25%
Doubtful 50%
Loss 100%
3/9/2019
In case of Rescheduling or restructure of Insured of guarantee prioity sector credit
Pass 3.125%
Substandard 0%
Doubtful 0%
Loss 0%
In Case of Sick Industries with evidence of approval by HMG for the restructure and
rescheduling( Minimum 12% of interest repaid)
Pass 25%
Substandard 0%
Doubtful 0%
Loss 0%
If fails to paid 12% of the Interest
Pass 1%
Substandard 25%
Doubtful 50%
Loss 100%
For this separate loan loss provision account should be maintain
3/9/2019
Features of NPA
Loan ceases to earn income or is about to stop earning
The maturity date of the loan is expired.
Full Payment of the principle and interest is anticipated no Longer
Payment of Installment of principle and the Interest is due by 90 days or more
Loans is classified to sub- Standard, Doubtful or Loss Category
Increase of NPA demands more Provision affecting profit Level adversely.
Bank With high level of NPA is Considered weak and loose credibility Internationally.
3/9/2019
The borrower frequently requests for overdrawn his account.
Borrowers starts discounting post dated cheques with Money Lenders.
Factory visit shown reduced operational activities.
Unfavorable market report of the borrower is received.
Borrower regularly deposits cash only on the day clearing cheques are presented
Unexpected request for mid- term renewal for enhancement or new Loan
Sudden rise in trade payable and repaid or slow inventory turnover.
Frequent labor strikes or development of a hostile relation with the laborer.
Borrower becomes a victim of natural disaster of disaster invited by the people
Borrower cancels insurance Policy indicating cash Shortages.
3/9/2019
Provision for NBA
25% for the year of Acquisition , Then
First Year 50%
Second Year 75%
third Year 100%
It Should be sold within 7 years from the date of Procurements
3/9/2019
Loan classification Based on Security
Secured Risk Loan
loan is secured by 100% cash Margin
instrument equivalent to cash as FD, Foreign Currency deposits, saving deposits, provident fund
account held in the own account.
Sovereign Risk Loan
National Saving Bonds, Development Bond TB issued by NRB, government guarantee.
Bank Risk Loan
Fund is held in some other Bank, FD other bank, Loan against guarantee, Stand By LC issued by local
or foreign Bank, Loan against funds places at call with local or foreign bank.
3/9/2019
NRB Codes
9.3 Sector Wise
3/9/2019
Non-Alcoholic 4.3.2
Handicraft 4.4
Textile Products and Readymade Garments 4.5
Paper and allied products 4.6
Printing & Publishing 4.7
Medicine 4.8
Refined Oil and Coal Products 4.9
Rosin and Turpentine 4.10
Rubber Tire 4.11
Leather 4.12
Plastics 4.13
Cement 4.14
Stone, Clay and Glass Products 4.15
Other Construction Material 4.16
Metal- basic Iron and Steel Foundries 4.17
Metal- Other Plant /Workshop 4.18
Miscellaneous Manufacturing 4.19
3/9/2019
Fabricated Metal Products 7.1 Metal Products, Machinery & Electronics Equipment &
Asssem. (7)
Machine Tools 7.2
Machinery- Agriculture 7.3
Machinery- Construction, Oil field, Mining etc. 7.4
Machinery- Office and Computing 7.5
Machinery- All Others 7.6
Electric Equipment 7.7
Household Appliances and Other Durables 7.8
Communication Equipment 7.9
Electronic Components 7.10
Medical Equipment 7.11
Generators 7.12
Turbines 7.13
Motor vehicle, Parts and Accessories 8.1 Transport Storage & Communication (8)
Jet Boats /Water Transports 8.2
Aircraft and Aircraft Parts 8.3
Transport Related Other Products 8.4
Railways and Passengers Transport Vehicles 8.5
Truck Services and godown Arrangement 8.6
Others All Services 8.7
Wholesale Trade- Durable Goods 9.1 Wholesalers & Retailer (9)
Wholesale Trade- Non-Durable Goods 9.2
Automotive Dealer /Franchises 9.3
Other Retail Establishments 9.4
Import Trade 9.5
Export Trade 9.6
3/9/2019
"A" Class licensed Institutions 10.1 Finance, Insurance & Real estate (10)
"B" Class licensed Institutions 10.2
"C" Class licensed Institutions 10.3
"D" Class licensed Institutions 10.4
Saving Lending Cooperatives 10.5
Pension Fund and Life Insurance 10.6
Other Financial Institutions 10.7
Non-Financial Government Institutions 10.8
Private Non Financial Institutions 10.9
Other Investment Intuitions 10.10
Real State 10.11
Tourism Services (Trekking, Mountaineering, Resort 11.1 Hotel & Restaurant (11)
Hotel (Including Other Services) 11.2
Entertainment, Recreation, Motion Pictures 11.3
Advertisement Services 12.1 Other Services (12)
Automotive Services 12.2
All Other Service Companies 12.3
Hospitals, Clinics etc. 12.4
Educational Services 12.5
Gold and Silver Loan 13.1 Consumer Loan (13)
Fixed Deposit Receipt 13.2
Securities Instruments 13.3
Credit Card Loan 13.4
Hire Purchase (Personal Consumer loan) 13.5
Local Government 14 Local Government (14)
Other Loan 15 Others (15)
3/9/2019
Security wise 9.4
Gold & Silver 1 Gold & Silver (1)
Government Securites 2 Govt. Guarantee (2)
Non-Governmental Securities 3 Non-Govt Securites (3)
FDR Own 4.1 Fixed Deposit Receipt (4)
FDR Other Licensed Institutions 4.2
Real Estate (Land And Building) 5.1.1 Collateral of properties (5)
Machinery and Equipment 5.1.2
Furniture and Fixture 5.1.3
Vehicles 5.1.4
Other Fixed Assets 5.1.5
Rice and Paddy 5.2.1.1
Jute 5.2.1.2
Other Agricultural Products 5.2.1.3
Raw Materials 5.2.2.1
Semi-finished Products 5.2.2.2
Finished Product 5.2.2.3
Salt, Sugar, Ghee, Edible Oil 5.2.2.4
Cloths 5.2.2.5
Other Goods 5.2.2.6
Domestic Bill 6.1 Against Security of Bills (6)
Import Bills and Letter od Credits 6.2.1
Export Bills 6.2.2
Against Security of Export Bills 6.2.3
Other Foreign Bills 6.2.4
3/9/2019
Collective Guarantee 7.1 Against Guarantee (7)
Institutional Guarantee 7.2
Personal Guarantee 7.3
Collective Guarantee 7.4
International Rated Foreign Bank's Guarantee 7.5
Other Guarantee 7.6
Credit/Debit Card 8. Credit/Debit Card (8)
Others 9. Other (9)
3/9/2019
Product Wise 9.3 Ka
TERM Industrial Organization 1.1 Term Loan (1)
TERM Business Organization 1.2
TERM Service Organization 1.3
TERM Others 1.4
OD Industrial Organizaton 2.1 Overdraft (2)
OD Business Organization 2.2
OD Service Organization 2.3
OD Others 2.4
TRUST Industrial Organizaton 3.1 Trust Receipt (3)
TRUST Business Organization 3.2
TRUST Service Organization 3.3
TRUST Others 3.4
TIME Industrial Organization 4.1 Time Loan (4)
TIME Business Organization 4.2
TIME Service Organization 4.3
TIME Others 4.4
Home Loan 5 Home Loan (5)
Home Loan Others (above 100 lakhs) 6.1
Real Estate Loan (6) Business Complex & Residential Apartment Loan 6.2
Income Generating Business Complex Loan 6.3
Land Acquisition & Plotting Loan 6.4.A
Personal Mortgage Loan Flexi Loan >=50 Lakhs 6.4.B
Others 6.4.C
MARGIN Loan 7 Margin Loan (7)
3/9/2019
HIRE Business Purpose 8.1 Hire Purchase Loan (8)
HIRE Individual Purpose 8.2
Deprived Loan 9 Deprived Loan (9)
Bills Purchase 10 Bills Purchase (10)
OTHER Credit Card 11.1 Other Products (11)
OTHER Education Loan 11.2
OTHER Small Loan 11.3
OTHER Loan Against FD 11.4
OTHER Loan Against NSB 11.5
OTHER Consumable Loan 11.6
3/9/2019
Saving Deposit/Loan Int rate & Schemes Specimen
Deposit Interest Rate
Saving Deposits
Ace Special SA 10.25
ACE Ahbibhawak Bachar Khata 9.25
Ace Saving Deposit 8.25
Fixed Deposit
3 Months 8.50
6 Months 10
1-5 year 11.5
More than 5 years Negotiable
Bulk Deposit 12-13
3/9/2019
Loans and Advances Int Rate
Overdraft 14-17
Term Loan 14-16
Housing Loan 15-18
Real Estate Loan 16-18
Mortgage Loan 15-18
Personal Loan 15-18
Hire Purchase Loan
Personal 15-17
Commercial 16-17
3/9/2019
Overdraft Overdrawn Case
In case of overdraft loan is overdrawn , within 30 days overdrawn amount should be
maintain ( Settled) with overdraft account.
In case of the overdrawn cheque is present this should be bounce my the concern
department.
3/9/2019
Reasons for the cheque Bounce/dishonor
Countermanding (Drawer bank not to honor a particular Cheque)
Upon receipt of Notice of a death of a customer
Upon Receipt of Notice of Insolvency
Upon Receipt of Notice of Insanity
Upon Receipt of Notice of Garnishee Order
Upon Receipt of Notice of Assignment
Defective Title
Miscellaneous Grounds
Dishonor a cheque if it is a Conditional one
If it is a stale Cheque
A post dated cheque
A mutilated cheque
Drawn on a paper other than the printed form
Drawn on some other Branch
Presentation is made during non Banking Hours
Signature is forged
Not sufficient fund
Endorsement is irregular
Cross cheque is presented at the Counter and if amount in words and figures differ.
3/9/2019
Ante Dating and Stale Cheques and Post Dated
Cheque Bearing a date before the date of Issue is said to be ante dated. According to
banking Customer if a cheque is not presented within 6 months if its issuance date, it
is Considerable Stale. (valid date is expired) out of date cheque
A Cheque that bears a date yet to come is a post dated Cheque. It is not considered a
valid cheque till the date of Maturity. Is is also called Bill of Exchange till the date
written on it. (issue date is prior than today)
A Banker could not pay a post dated cheque before the maturity and if pays, he will
have to bear any loss that result from his action.
3/9/2019
Nostro/ Vostro/lore Account
Account with other bank is called Nostro Account
Other Bank Account with own Bank is called Vostro Account.
Account Maintain with NRB by Own and Other Bank is called Lore Account.
3/9/2019
Charged in registration Mortgaged Rajasho
Amount Prescribed By the IRD Registration Charge
0-100,000 Rs. 500
100,001-500,000 Rs. 700
500,001-1,000,000 Rs. 1,200
1,000,001-2,000,000 Rs. 1,800
2,000,001-5,000,000 Rs. 3,000
5000,001-10,000,000 Rs. 10,000
10,000,001-20,000,000 Rs. 15,000
Above 20,000,001 Rs. 30,000
3/9/2019
Different Between Rokka/Dristi Bandak and Dhito Bandak
Rokka Refers only the rokka over the said property through Paper.
Rokka Consists only Rs 9,99,999 Rupee for one property .
Without or with the presence of the client rokka will be done.
Borrower has not any right to sold that rokka property until and Unless the bank
release any documents for that.
3/9/2019
Loan Documentations
Promissory Notes
This is a documents containing a promise signed by the borrower to pay the amount of loan when
demanded by the bank along with interest at a specified rate.
Offer Letter
It is a letter issued to the customer mentioning all types of credit facilities offered along with
terms and condition with interest rates , charges, margin and Commission.
Assignments of A/R
Assignments means transfer of an existing or future right on property of a debt by the
borrower to the banker through which the banks gets right authority and the right to recover
title and Interest from the borrower’s debtor. This documents also denotes the borrower’s
acceptance not to sell, transfer title or right of such bills and accounts receivable to any other
parties.
Power of Attorney
The borrower appoint the bank as the attorney for the specified facility and assigns the bank
the right to collect fund due to borrower by way of its debtors through this documents.
Letter of Continuity
Through this documents, the borrower declares that the property given as security will
continue to secure the advance, which may create or fluctuate by way of debit of account from
time to time.
3/9/2019
The Initial Loan amount may increase or decrease in the future, but the property
offered as security keeps securing the loan.
Supplementary Agreements
The Securities pledge to the bank are specified in this account and in forms the
integral parts of the letter of Hypothecations.
3/9/2019
A personal guarantee is taken as a secondary security. It is in fact a contract to perform the
promise or discharge the liability of a third person, in case of his default. Guarantee can be
categorized into Specific guarantee where only a single transaction is covered and continuing
guarantee which covers a series of transaction. A Continuing guarantee secures the loan
though the amount may fluctuate from time to time.
Cross Guarantee
A Cross guarantee is taken as a security. It is a contract to perform the promise or
discharge the liability of a sister concern in case of the firm’s default. Normally when there
is a group lending and there is the possibility of the facility being interchanged by the sister
concern, then in such situation it would be advisable to take cross guarantee of the sister
concerns.
Letter of Indemnity
An Indemnity letter is a promise made by one party to save the other from any losses due to
his own conduct or by the conduct of someone else.
Wealth Statement
Wealth Statement is a document mentioning the entire property details of the personal
Guarantors.
3/9/2019
Letter of Set off
Through this documents the borrower assigns the right to the bank to liquidate and
settled its due from the proceed of pledged instrument or such held amount, in case
the borrower does not pay his/her obligation on the due date.
Loan deed
This is non registered security documents executed by the borrower giving evidence
of its acceptance of the bank loan sanctioned. It Establish the borrower’s acceptance
to pay interest charges, and commission against the facility it shall avail from the
bank. The details of the facilities including the loan amount, rate of the interest,
charges to be paid, and the time for the repayment. The details of the additional
collateral secured to the bank are also cleared mention in this documents.
Mortgage Deed
The Instrument by which the transfer of an interest/ownership in specific immovable
property for the security of money advanced is called Mortgage deed. This is the
registered documents and executed at land revenue office in favor of the bank.
3/9/2019
Standard Documents
Standard Documents are pre-printed forms, which are obtained by the banks from all
its borrowing customer and filling the details on the blank.
Board Resolution
Every Private or Public limited company must be first authorized by its board
establishing borrowing relationship with the bank and through this paper appoints
officials who are authorized to negotiate with the bank and operate the loan account.
there are some specific for in the board resolution i.e
No of meeting held
Place the meeting was conducted
Name of the Bank for taking the loan and amount
Authorized person the account conduct.
Attendance %
Special AGM
When the company is taking the loan higher then its paid up capital, at that time this
decision should be authenticated by its Special General meeting. Please note that the
attendance % should be as prescribed in the AOA/MOA
3/9/2019
Business Falling Under Priority Credit
Agriculture and afro Based Business
Cereal and cash crops, vegetable and fruit cultivation, floriculture and herbs
Productions
Live stock, birds, fishery and insect keeping
Irrigation and irrigation Equipment
Agriculture tools and Machinery
Forest Development, pasturing and other related activities
Land Development and Protection
Cottage and Small Industries
All traditional and modern technology industries defined as cottage and small
Industries under the Industrial Enterprise Act.
Agriculture and forest based Industries.
Assembling industries with at least 20% value addition
Hydro- Electricity, wind and solar power and or bio-gas industries.
Information technology related computer software and hardware Industries.
Industries that help to keep clean Environment through minimizing
environmental pollution
Mineral Industries
Except those production items prohibited by the law, all other cottage and small
Industries mentioned in Industrial Enterprise Act.
3/9/2019
Service Center
housing and Consumption credit provided to deprived sector
Child care center and other business relating to health service
trading business in animal feed, clinical and medicines.
Trading center, technical school, providing skill and employment oriented
training as well as training fees payable by trainees fro skill training.
Business related to computer, photocopy, transport and communication service
All service business relating to tourism
Service business, which helps increase agriculture and industrial Production
trading business relating to daily consumable items, educational materials, and
health related medicine and material, distributions of drinking water, cleaning
service, legal and technical consoling service and self employment oriented
other service Business.
3/9/2019
Credit Limit
NRB has directed to extend credit under priority sector credit programme and
Deprived sector. The present existing provision is as follows.
For Priority Loan - 10% for Class A Including 3% on deprived
sector Loan (Class B is free to extend
credit on Priority Sector Loan)
For Deprived sector Loan - 3% for Class A and 2.5% for class B
3/9/2019
Deprived Sector Credit Defined
Deprived Sector includes low income and particularly socially backwards women, tribes,
lower caste, blind, hearing impaired and physically handicapped person and squatters
family.
All the credits extended for the operation of self- Employment oriented micro
Enterprises for the upliftment of economic and the social status of deprived sector up
to the limit prescribed by NRB is termed as Deprived Sector Credit.
3/9/2019
Difference between consortium Loan Loose Consortium and Syndication
When more than one bank joins hands together to meet the demand of a single
borrower, it is called consortium Loan. In other loans consortium financing is loans and
facilities provided to any customer, firm, company or project by two or more licensed
institutions on the basis of mutual understanding and agreement. Once the consortium
group is formed, no new members are admitted without approval of the group.
In consortium financing, all the agreement are done by the lead bank on behalf of all
the participant Bank. The borrower can’t make independent agreement with the various
participating members banks. The interest rates, service charges, commission remains
uniform with all participating member. The principle and interest recovered from the
borrower by the lead institution, is distributed proportionately amongst the
participating members.
In loan syndication, more of the greatest advantage is that each participating bank can
have separate negotiation in terms if interest rate, payment schedule with the
borrower.
3/9/2019
Loan Write off
When any loan or a portion or its is considered uncollectable, it should be charged off
immediately. The concern RO with the details of reason and justification must process
loan charges off. The concerned Credit Manager must forward the charge off request
letter for recommendation to the head office for board approval. A separate board
presentation will be prepared from HO and submit it to the board for the due
approval. After the board approval, the same should be notified to the concern
branches or HO. All charges off requires approval of the BOD.
Write off means to remove the loss loan from its balance sheet. This frees the banker
from the interference of non- performing loans in its daily operational activities to
concentrate more on its core business.
Reasons for the Write off
There is some possibility in the future for the recovery
The amount recovered from the legal action is less than the due amount
The amount expenses by the bank to recover the due is greater than the amount is to
be recovered.
3/9/2019
Sources of Bank Liquidity
Primary Deposit: Banks accept deposit from customer in cash, cheques and
remittances from various banks. This increase the bank’s cash in hand or deposit with
other banks, which is an increase in the bank liquidity
Capital; By issuance of shares, liquidity is supplied to the bank.
Loans : Borrowing made by the banks from the money market, corresponding banks and
from center bank under refinance facility increase bank’s liquidity
Miscellaneous Sources:
Cheques sent on collection
Fund transfer from other banks
Received on guarantee and LC issued etc
Sales of asset also brings inflow of cash.
3/9/2019
Drafts
A Draft is an order like a cheque but draw by a bank instead of an account holder to
its some other branch or head office or to its corresponding bank’s branch to pay a
certain sum of money to the person named in the instrument.
Draft is provided to anyone
The drawer and the drawee of a draft can be the same bank
Draft is always drawn only payable to order
Bank can’t put a stop payment except at the request of the applicant
Draft can’t be dishonored
Draft is normally used top effect payment in two different locations
3/9/2019
Manager’s/Banker’s Cheque
A cheque drawn by a banker upon himself is a banker’s cheque, which is also called MC.
Such cheques are issued on behalf of its customer’s and non customer for facilitating
local payments only. All the MC and BC are payable at the issuing branch only.
3/9/2019
Documents Checklist
For Individual
Loan Application Firm
Name of the a Borrower
Approved Limit
Present Outstanding
Snaps of the borrower and the other PG (Three generation is needed)
Family Member of the borrower
Name of the Land Owner, property Location and the value of the property)
Witness from the other legal heirs
Original la Purja
Four Wall Boundary
Napi, Naksha and Trace
Property tax Clearance Certificate Tax Receipt
If Third Party Collateral ( Not Accepted)
Loan Deed (Signed and thumb print by the authorized person of the borrower /self)
Internal loan deed (First party/Third party as applicable)
Legal Heir Documents (letter from Local ward office certifying legal heirs (Nata Pramanit) and no
objection certificate of legal heirs. Also Consent from the Legal Heirs)
Property Title Deed along with copy of source of property transfer
Mortgage Deed
Property Sharing Deed (Ansha Banda)
Mortgage amount
Promissory Notes
Letter of Continuity
3/9/2019
In case of Property Exchange (variation Memo) other supplementary agreement
Copy of Citizenship including borrower and the other Guarantors
Fresh CIB with no overdue of without report)
In case of 6 months 31 days not across , make sure for the Considerable Value
(Rajinama Value only consider)
In case of the property belongs to Guthi, 1/3 of the Fair Market Value is considered
or not
Consent Letter from the Guthi for to take the loan.
Full amount covered the loan (Pass amount in Malpot) in distress value or Loan amount
In Mortgage deed witness from the borrower legal heirs /Co- Legal heirs
Rajinama Copy
In case of Institution Guarantee , take board resolution and authorization for the
same
Insurance Policy if Building is mentioned
Lease Rent agreement/Rental Agreement
3/9/2019
For Institutions (Above same)
Additional Documents Needed
Firm Registration
PAN/VAT or IRD registration
For the Partnership firm both partner have to sighed in all the documents
Partnership deed/Joint Venture agreement
Board Minute (in prescribed format duly singed/ stamped), Partnership Resolution, and
Authorization Letter for signing Loan document. (According to the AOA/MOA % of present
of the director for the minutes and Special AGM should be Justify)
If there is cross collateral for the sister concern Cross Guarantee is needed and the board
minutes have to also govern for the same.
Renewed/ valid Registration Document (For Proprietor and Partnership firm)
AOA/MOA
Copy of citizenship of all Directors/Promoters and Guarantors
Audited Financial Statements (last 3 years)
Valuation/ re-valuation report with cadastral map and blue print. Approval sheet of valuation.
No objection Certificate in case of third Party Collateral
Fresh share holding Pattern authenticated from the office of the Company registered
Multiple Banking Declaration
Renewal request
Special AGM is needed is the loan amount is exceed than the paid up capital of the firm
Guarantee Acknowledgement (Make sure for the three Generation of the Guarantors)
Company seal in the all related documents
CFR
Offer letter
3/9/2019
Verification with the documents
Property (Owner, Plot No , area , Location)
Verification of the Land with Naksha, Four Wall Boundary, Ward Safaris and the
Collateral Site Visit Report)
Value of the Property with Valuation report)
Loan deed, Mortgage deed and offer Letter with the Borrowers Three generation
Information and the registration of the firm and PAN No)
Verification of the Personal Guarantors and the Witness
Verification of the Official Stamp of the Company)
Verification of the document Documentations
Verification of the Board minutes with the Shareholding Pattern Authenticated by the
office of the company Registered.
Certified Verification of the Legal heirs
Verification of the Personal guarantors and the Dhito Jamani Diney
Verification of the limit and the Outstanding with the System
Verification of the Insurance policy and the Insured amount.
Verification of the Mortgaged deed with Loan deed and the registration transfer
Verification whether the loan is approved by the concern Authority or not.
Verification if the director holds more than 15% of shares and his credit Information
3/9/2019
Bank Guarantee
A Guarantee is an undertaking on behalf of the third party to make payment or fulfill the
contractual obligation in case of his default. In other words, a guarantee can be defined as an
undertaking by a surety (Guarantor/ Bank) on behalf of debtor (Applicant/agent/Contractor)
to the creditors( beneficiary) for payment upto a certain amount within a stipulated period
for beach of contract or non- fulfillment of obligation by the debtor.
Parties In Guarantee
There are three party involved in a guarantee namely surety or the guarantor who is the
person or entity, providing guarantee.
Another Party is the applicant or the debtor, the person who is obliged to fulfill the contract
and on whose behalf the guarantee is being provided.
The Third is the creditor to whom the contract is to be fulfilled and the guarantee is being
provided.
Types of the Guarantee
Bid Bond (Tender Bond)
Performance Bond
Advance Payment Bond
Retention Money guarantee
Maintenance Bond
Counter Guarantee
3/9/2019
Specimen of loan file verification
Original shares certificate Available
No of Shares Certificate 1
Identity No 12
Share Certificate No 212170
Total No Of Shares 92,866
Lien Over the Shares Available
(2067/12/14)
Promoters Confirmation (Holding more than 1%) Not Available
Borrowers Confirmation according to Ba. Bi 29/64/65 Not Available
Letter of Consent from the borrower Not Available
Buying and Selling Form (Transfer) Available (for
122,879 kittas of
shares) *
Signature Verify Available
Know Your Customer (NRB Annex 12) available
Legal Document Available
Offer Letter Available
Letter of Continuity Available
Promissory Notes Available
PG Available from his Spouse
Rita Malla and Dambar Bahadur Malla Himself
Note *
The client has previously lien over as on 2067/03/24 the shares kittas of 122,879 with a
serial no of 8545514 to 8668392. In the mean time as on 2067/12/14) the client has partially
release of 30,013 kittas of shares. Along this in the same date the bank also request the
letter to release 28,000 kittas of shares. But there is no other evidence for the release The
New share no of shares to pledge is 92,866 kittas of shares with a same serial number where
as no Buying and selling form for the same is taken.
3/9/2019
Loan deed (4,000,000) Available
Mortgage Deed (4,000,000) Available
Personal Guarantee deed (4,000,000) Available
Borrowers Proprietor Spouse (Bina Maharjan)
And Rajesh Maharjan (Proprietor of the firm)
Four Wall Boundary Available
East - way (6 meter wide gravel road)
West - Nagar development Land
North - 1021
South - way (4 meter wide gravel road
Trace/Blue Print/Naksa as on 2067/2/18 Available
Road Access yes
High-tension line if any No
Original Lal Purja Mr. Rajesh Maharjan Available
Rokka/ Mortgage copy with Ra. No (4,000,000) and date Available
As on 2067/03/16 Expired, 7708 ka (Rokka no)
Rajinama copy date as on 2065-12-20 Available
Letter of Continuity available
Promissory Notes Available
Offer letter available
Tax receipt (3/16/2067) Available
Witness (Not Available of Spouse on Mortgage Deed) Available
Company Stamp Available
Insurance (Stock) as on 30/06/2010 to 29/06/2011 Expired
Letter of Charge over stock and goods Available
Assignment of Bills and receivable Available
Manjurinama form the borrower Spouse Not Available
Remarks : There is no official stamp in mortgage deed though the loan is given to the
R.A Electrical and electronics center and the Land Owner is the Proprietor of the R.A
Electrical and electronic Center.
3/9/2019
Observation of the Files
Name of the Client : Bima Maharjan
Type of Loan : Education Loan
Address : ward no 15, Satdobato
Activities : House Wife
Limit : Rs. 3,000,000
O/s : Rs. 1,999,000
Interest Rate : 16%
Expiry : 24 Installments (16/09/2012)
Purpose : To finance the Education Cost of the Applicant Son, Ujjal
Maharjan in Medical Sciences at medical College Bharatpur.
Security Assessment
Plot No : 1047
Location : Ward No.15, Satdobato
Area : 0-4-0-0
Owner : Bima Maharjan
Type : Land and Building
Commercial Value : Rs. 8,614 K
Fair market value : Rs. 6,614 K
Distress value ; Rs. 4,648K
Income Sources
Loanee Husband working at Reliance Finance at California since July 2007 Draws $ 5,300 monthly.
Loanee Brother in Law working at ABM Engineering, California Draws $ 6,000 Monthly
Loanee turnover/Conduction /Performance
According to the Current statement Installment Servicing Timely and the good account Performance.
3/9/2019
Cost of Goods Sold
Cost of goods sold is usually the largest expense on the income statement of a company selling products or
goods. Cost of
Goods Sold is a general ledger account under the perpetual inventory system.
Under the periodic inventory system there will not be an account entitled Cost of Goods Sold. Instead, the cost
of goods
sold is computed as follows: cost of beginning inventory + cost of goods purchased (net of any returns or
allowances) +
freight-in - cost of ending inventory. This account or this calculation matches the cost of the goods sold with
the sales.
A retailer's inventory is its merchandise that has not yet been sold. The cost of the inventory is reported on the
balance sheet as a current asset. When merchandise is sold, the cost of the items sold is reported on the income
statement as the cost of goods sold. The formula for the retailer's cost of goods sold is the cost of its net
purchases minus the increase in inventory, or its cost of net purchases plus the decrease in inventory. This
formula assures the matching of costs with revenues.
A manufacturer reports three inventory amounts: raw materials (at cost), work-in-process (at cost), and unsold
finished goods (at cost). The cost of these three inventories is reported on the balance sheet as a current
asset. The cost of the finished goods that were sold in the current period is reported on the income statement
as the cost of goods sold. The formula for a manufacturer's cost of goods sold is the cost of goods
manufactured minus the increase in the finished goods inventory, or the cost of goods manufactured plus the
decrease in finished goods inventory. Again, this formula assists in the matching of costs with revenues.
Costs for inventory include all costs that were necessary to get the items into inventory and ready for sale. For
a retailer, the cost of a product is the vendor's invoice amount plus any freight-in on goods purchased FOB
shipping point. A manufacturer's cost of finished goods and work-in-process will be the cost of direct material,
direct labor, and manufacturing overhead.
When costs of items are increasing, one must decide which costs will be reported as inventory and which costs
will be reported as the cost of goods sold. Under the first-in, first-out (FIFO) cost flow assumption, the older
(lower) costs will be leaving inventory first and the most recent costs will remain in inventory. The last-in, first-
out (LIFO) cost flow assumption has the recent higher costs flowing out of inventory first (and will become the
cost of goods sold). The older lower costs will remain in inventory (unless the quantity is drastically reduced).
The LIFO cost flow can be different from the physical movement of goods. In other words, a company can
diligently rotate its stock by moving the oldest goods to customers and yet flow the most recent costs to the
cost of goods sold on its income statement.
3/9/2019
Formula
Prime Cost = Direct Materials Cost + Direct Labor Cost
Total Factory Cost or Manufacturing Cost = Direct Materials + Direct Labor Cost +
Factory Overhead
Conversion Cost = Direct Labor Cost + Factory Overhead Cost
Cost of Goods Manufactured (COGM) = Total Factory Cost + Opening Work in
Process Inventory - Ending Work in Process Inventory
Or
Cost of Goods manufactured = Direct materials cost + Direct labor cost + Factory
overhead cost + Opening work in process inventory - Ending work in process
inventory
Cost of goods sold (COGS) = Cost of goods manufactured + Opening finished goods
inventory - Ending finished goods inventory
Or
Cost of goods sold = Direct materials cost + Direct labor cost + Factory overhead
cost + Opening work in process inventory - Ending work in process inventory +
Opening finished goods inventory - Ending finished goods inventory
Number of units manufactured = Units sold + Ending Finished Goods units - Opening
finished goods units
Per unit cost of goods manufactured = Cost of goods manufactured / Units
manufactured
Materials used or consumed = Opening inventory or materials + Net purchases of
materials - Ending inventory of materials
3/9/2019
Income Statement formula
Gross profit = Net sales - Cost of goods sold
Operating profit = Gross profit - Operating expenses
Operating or commercial expenses = Selling or marketing expenses + General or
administrative expenses
Per unit gross profit = Gross profit / No. of units sold
Per unit net profit = Net profit / No. of units sold
Percentage of GP to sales = (Gross profit / Net sales) × 100
Percentage of net profit to sales = (Net profit / Net sales) × 100
3/9/2019
Format of Profit and loss statement
To Gross Loss By gross profit
To Salaries By interest received
To Rent By Dividend Discount
To Rent and Rates By Commission Received
To Discount Allowed By other Receipts
To Commission Allowed By ETC
To Insurance By Net Loss (Transferred to capital
account to the trader
To Bank Charges
To Legal Charges
To Repairs
To Advertising
To Trade Expenses
To Office Expenses
To Bad Debts
To Traveling Expenses
To Etc., Etc.
To Net Profit (transferred to capital account of the trader)
3/9/2019
Trading and Profit and Loss Account/Income Statement
For the year ended 31st December, 199-----
Income From Sales:
Sales ------
Less: Sales return ------
Sales discount ------ ------
Net Sales ------
Cost of Goods Sold
Merchandise is stock on 1st January ------
Purchases ------
Less: Purchases returns ------ ------
Net purchases ------
Cost of goods available for sale ------
Less merchandise in stock on 31st December ------
Cost of goods sold ------
A GROSS PROFIT ------
Operating Expenses:
3/9/2019
Selling Expenses:
Sales salaries ------
Advertising expenses ------
Insurance expense – selling ------
Store supplies expenses ------
Sundry selling expenses ------
B.Total selling expenses ------
General Expenses:
Office salaries ------
Taxes ------
Insurance expenses general ------
Office supplies expenses ------
Sundry general expenses ------
C. Total general expenses ------
B+C Total operating expenses ------
D=A-( B+C) Net profit from operations -----
-
Other Income:
E. Rent income ------
3/9/2019
Other Expenses:
F. Interest expenses ------
3/9/2019
P/L account of Financial Institution
1. Interest Income
2. Interest Expenses
Net Interest Income
3. Commission and Discount
4. Other Operating Income
5. Exchange Fluctuation Profit
Total Operating Income
6. Staff Expenses
7. Other Operating Expenses
8. Exchange Fluctuation Loss
Operating Profit Before Provision for Possible Losses
9. Provision for Possible Losses
Operating Profit
10. Non-Operating Income/ Loss
11. Loan Loss Provision Written Back
Profit from Regular Operations
12. Profit/ Loss from extra-ordinary activities
Net Profit after considering all activities
13. Provision for Staff Bonus
14. Income Tax Provision
- Current Year
- Upto Previous Year
- Deferred Tax
3/9/2019
P/L appropriate account
Income
1. Accumulated Profit up to last year
2.This year’s Profit
3. Exchange Fluctuation Reserve
Total
Expenses
1. Accumulated Loss up to last year
2.This year’s Loss
3. General Reserve Fund
4. Contingent Reserve
5. Institutional Development Fund
6. Dividend Equalization Fund
7. Employees Related Funds
8. Proposed Dividend
9. Proposed Issue of Bonus Shares
10. Special Reserve Fund
11. Exchange Fluctuation Reserve
12. Capital Adjustment Fund
13. Debenture Redemption Fund
14. Investment Adjustment Fund
15. Accumulated Profit/ Loss
3/9/2019
Cash Flow Statement
(a) Cash Flow from Operating Activities
1. Cash Receipts
1.1 Interest Income
1.2 Commission and Discount Income
1.3 Exchange Gain
1.4 Recovery of Loan Written Off
1.5 Other Income
2. Cash Payments
2.1 Interest Expenses
2.2 Staff Expenses (Including Bonus)
2.3 Office Overhead Expenses (Excluding Depreciation and Amortization)
2.4 Income Tax Paid
2.5 Other Expenses
Cash Flow Before Changes in Working Capital
(Increase)/Decrease of Current Assets
1. (Increase)/Decrease in Money at Call and Short Notice
2. (Increase)/Decrease in Short-term Investment
3. (Increase)/Decrease in Loan and Bills Purchase
4. (Increase)/Decrease in Other Assets
Increase/(Decrease) of Current Liabilities
1. Increase/(Decrease) in Deposits
2. Increase/(Decrease) in Certificate of Deposits
3. Increase/(Decrease) in Short-Term Borrowings
4. Increase/(Decrease) in Other Liabilities
(b) Cash Flow from Investing Activities
1. (Increase)/Decrease in Long-term Investment
2. (Increase)/Decrease in Fixed Assets
3. Interest from Long-term Investment
4. Dividend Income
5. Others
3/9/2019
(c) Cash Flow from Financial Activities
1. Increase/(Decrease) in Long-term Borrowings ( Bond, Debentures etc.)
2. Increase/(Decrease) in Share Capital
3. Increase/(Decrease) in Other Liabilities
4. Increase/(Decrease) in Refinance/Facilities received from NRB
(d) Income/Loss from change in exchange rate in cash and bank balances
(e) Current Year’s Cash Flow from All Activities (a+b+c)
(f) Opening Balance of Cash and Bank Balances
(g) Closing Balance of Cash and Bank Balances
3/9/2019
Share Capital and ownership
1. General Reserve Fund ****
2. Capital Adjustment Fund ****
3. Capital Redemption Reserve ****
4. Capital Adjustment Reserve Fund ****
5. Other Reserve Fund ****
a. Contingent Reserve ****
b. Institution Development Reserve ****
c. Dividend Equalization Fund ****
d. Special Reserve Fund ****
e. Asset Revaluation Reserve ****
f. Deferred Tax Reserve ****
g. Other Free Fund ****
h. Investment Adjustment Fund ****
6. Accumulated Profit/Loss ****
7.Exchange Fluctuation Reserve ****
3/9/2019
Rescheduling on case to case
When Partial Settlement of the loan
With Interest Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When Partial Settlement of the loan
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When additional disbursement of the loan
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When additional Disbursement of the loan
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
3/9/2019
When Interest revision
On Due date on installment date
With Interest not Post (AIR)
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When Interest revision
On Due date on Mid Way
With Interest Post (AIR)
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When interest revision on mid way
On Due date on Installment date
With Interest Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When Interest revision on mid way
On Due date on Mid date
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
3/9/2019
7 Categories
of Financial Ratios
A. Profitability Ratios
B. Return Ratios
C. Liquidity Ratios
D. Asset Utilization Ratios
E. Gearing
F. Investor Ratios
G. Debt Utilization Ratios
Profitability ratios measure the firm's use of its assets and control of its
expenses to generate an acceptable rate of return.
The ratios are:
1. Gross Profit Margin
2. Operating Profit Margin
3. Net Profit Margin
4. Other Profit ratios
3/9/2019
1. Gross Profit Margin = Gross Profit / Net Sales
Gross profit = Net sales –Cost of Sales
The gross profit margin ratio tells us the profit a business makes on its
cost of sales (Cost of goods sold). It tells us how much gross profit per
$1.00 of sales the business is earning.
2. Operating Profit Margin = Operating Profit / Net Sales
Operating Profit (profit before interest and tax)
= Gross profit –Operating expenses
The operating profit margin ratio tells us the amount of operating profit
per $1 of turnover a business has earned. That is after taking account
of the cost of sales, the administration costs, the selling and
distributions costs and all other costs, the operating profit is the profit
that is left, out of which they will pay interest, tax, dividends and so on.
3/9/2019
3. Net Profit Margin = Net Profit / Net Sales
Net Profit: Earnings after Interest and Tax
Net Profit = Operating Profit –Interest –Tax
It tells us how much Net profit per $ 1.00 of sales the business is earning
4. Other Ratios:
PBT ratio = Profit Before Tax / Net sales
Administration cost % = Administration costs / Net sales
Interest cost % = Interest costs / Net sales
Overhead costs % = Total overhead costs / Net Sales
Return Ratios
Return ratios measure the firm's ability to generate earnings from its
investments
•The ratios are:
1. Return on Assets (ROA) [investments]
2. Return on Equity (ROE) [common shareholders]
3/9/2019
Return Ratios:
1. Return On Asset (ROA)
-ROA = Net Income / Total Asset
-Measures the firm’s overall efficiency in the use of capital
3/9/2019
1. Current Ratio (Working Capital Ratio)
= Current Asset / Current Liabilities
2. Quick Ratio (The Acid Test Ratio)
= (Current Asset –Inventory) / Current Liabilities
3. Debt Service Coverage Ratio
= Net Operating Income / Total Debt Service
(In corporate finance, it is the amount of cash flow available to meet annual interest
and principal payments on debt, including sinking fund payments.)
3/9/2019
1. Total Asset Turnover = Sales / Total Assets
-Compares the sales with the assets that the business has used to generate that
sales.
-In its simplest terms, we are just saying for every $1 of assets, the sales is $x
Advanced Asset turnover ratios:
-Fixed Asset Turnover = Sales / Fixed Assets
-Current Asset Turnover = Sales / Current Assets
-Working Capital Turnover = Sales / Working Capital
3/9/2019
E. Gearing
Gearing is concerned with the relationship between the long terms liabilities that
a business has and its capital employed. The idea is that this relationship ought to
be in balance, with the shareholders' funds being significantly larger than the
long term liabilities.
The basic equation for this section is:
1. Gearing Ratio =
Long Term Liabilities / Shareholders’ Equity
F. Investor Ratios
Investor ratios are ratios used by investors to assess the performance of a
business to help determine if investment is warranted.
The ratios are:
1. Earnings per Share
2. Dividends per Share
3. Dividend Yield
4. Dividend Cover
5. Price/Earnings (P/E) Ratio
3/9/2019
Basic Equations:
1. Earnings per share =Earnings available to equity shareholders / Average number
of issued equity shares
2. Dividends per share =Dividends paid to equity shareholders / Average number of
issued equity shares
3. Dividend yield =Latest annual dividends / current market share price
4. Dividend cover =Net earnings available to equity shareholders / Dividends paid to
equity shareholders
5. Price/Earnings (P/E) ratio =Current market share price / Earnings per share
1. Earnings per share: use to calculate average amount of profits earned per
ordinary share issued.
EPS shows what shareholders earned by way of profit for a period
2. Dividends per share: shows how much the shareholders were actually paid by way
of dividends.
3. Dividend yield: allows investors to compare the latest dividend they received with
the current market value of the share as an indictor of the return they are
earning on their shares.
4. Dividend cover: tells us how easily a business can pay its dividend from profits
3/9/2019
5. Price/Earnings (P/E) ratio:
The P/E ratio is a vital ratio for investors. Basically, it gives us an indication of the
confidence that
investors have in the future prosperity of the business. A P/E ratio of 1 shows very little
confidence
in that business whereas a P/E ratio of 20 expresses a great deal of optimism about the
future of a
business.
Interest coverage ratio: tells us the safety margin of the business, in terms of
being able to meet its interest obligations. That is, a high interest cover ratio
means that the business is easily able to meet its interest obligations from
profits.
3/9/2019
G. Debt Utilization Ratios
Debt utilization ratios measure the prudence of the debt management policies of the
firm, and show how well a company is managing or using debt
1. Debt to total assets = Total debt / Total assets
Debt to equity =Total Debt/Shareholder’s Equity
3/9/2019
Industry Average Ratio
Compare with Industry Average Financial Ratios:
-The industry average financial ratios are designed to serve as financial performance
benchmarks against which individual firms and industries can be compared. It allows
firms to precisely position themselves within their peer group
Sources to Find Industry Average Financial Ratios:
1) Bankers who can tell you what ratio values are used by the bank
2) Local Board of Trade / Local Chamber of commerce
3) Industry Association
4) Statistics Canada ($24.95 per sector)
3/9/2019
Solvency Ratio
Solvency Ratio = after tax net profit+ depreciation
Long term liability +short term liability
3/9/2019
Front-End Ratio : Monthly Expenses
Monthly income
3/9/2019
Security against Consortium Financing
3/9/2019
Profitability Ratio
Gross Profit Margin
Sales $3,074,000
Cost of Goods Sold $2,088,000
The gross profit margin is: 32.1%
3/9/2019
Primary and secondary collateral
If the bank has the first charge on the collateral is the primary collateral viz
Promoters shares
If the promoters of the bank of financial institutions wishes to sell or pledge the shares
held in his or her name after 5 years from the date of commencement of financial
transactions by the bank or financial institutions he, or she sell of pledge such shares ,
subject to the condition prescribed by NRB
3/9/2019
Stress testing components
1. Credit shocks
2. Market shocks (Interest rate shocks, Exchange rate shocks and
Equity Price shocks
3. Liquidity shocks
3/9/2019
Base Rate Calculation components
Particulars
Cost of Fund +
CRR Cost
SLR Cost +
Operating Cost +
Return on Assets +
=
Base Rate
3/9/2019
Mode of Transport in LC
1. Airway Bills- Air Shipment
2. Railway Receipt-Rail Shipment
3. Road Consignment Note/Truck receipt – Road shipment
4. Bills of Lading- sea shipment
3/9/2019
Basel II
Approach Three Pillar
Minimum Capital Requirement, Supervisor Review Process, Disclosure.
SSA (simplified Standardized Approach
Risk Classification
1. Credit Risk
2. Market Risk
3. Operational Risk
3/9/2019
Review Process
3/9/2019
Credit Risk
• Credit Risk is the Major Risk that banks are exposed in during the
normal course of lending and underwriting.
• Credit risk is the possible losses from the non – payment of interest and
or principle by the borrower’s/debtors as per the agreed terms of
credit sanction.
• In order to ensure sound CRMS,CRMC in NMB shared to four distinct
function
• Credit Relationship Management
• Credit Risk Management
• Credit Administration
• Loan recovery
• Credit related issued are review by internal Control and Compliance or CRMC.
3/9/2019
Credit Risk Forms
• Direct Lending
• G’tee or LC - Funds may not be fourth coming from the constitutes
upon crystallization of the liability.
• Treasury Operation
• Securities/Trading Business
• Cross-Boarder Exposure
Measures
NMB is equipped with primary and secondary server working automatically if any
function fails.
It has also maintain oversight where real time data is transferred alternative site
where data is transferred within 5 minutes of each transaction taken place.
3/9/2019
Operational Risk Measures
Well defined operational risk manuals and guidelines covering each types of
activities, traning the people, check and balance of authority delegation,
comprehensive internal audit and follow up on audit remarks and business continuity
plan for possible external digester.
Operational issues are review by OPMC
3/9/2019
Market Risk
Market risk is defined as the risk of losses in on balance sheet position arising
from adverse movements in market price.
It is the possible losses resulting from the change in interest rate, change in
foreign exchange rate or price of commodity or investment.
Market risks are arisen from rapidly changing external factors, so it is highly
sensitive in banking.
It is review by ALMC.
3/9/2019
Risk Weight Exposure
Risk weighted exposure is the maximum amount of risk attached to a portfolio or a
transaction or underlying assets. It is the sum of risk weight for credit risk, market
risk, operational risk and any supervisory adjustments on such risk weigh.
3/9/2019
What is ECA Rating ?
ECA stands for export credit agency, an agency of OECD. The ECA generates
consensus country risk score for any country in the world, which is useful to identify
the country business environment and risk of cross border business with the
particular country. Under the simplified standardized approach this country risk
score is considered as basis for risk weight in new capital standard. In order to
identify the exact country risk score banks are required to download updated
version of country risk score available in the websites
(http:/www.oecd.org)
.
3/9/2019
Out of the 11 categories, which products are provided special
priority for minimum risk weight?
Under NCAF some of the credit products shall have incentives compare to others.
Among the various loan products, the claim secured by residential mortgage shall
receive special incentives, as it has to be risk weighted only at 60%. Other products
are retail products with specified eligibility criteria that will be risk weighted at
75%.
Among the various types of security used in banking industry, the residential
property is considered to be comparatively safe due to the sentimental attachment
of borrower towards the residential property. At the same time the home loan
product are more covered by reliable fixed source of income to repay the loan. In
this way the claims secured by residential mortgage is risk weighted at a lower rate.
In order to honor its low risk feature following conditions are laid down in the
framework
3/9/2019
Out of the 11 categories, which products are provided special
priority for minimum risk weight?
Separate product paper approved by BOD and notified to Nepal Rastra Bank,
The property occupied (or rented) by Borrower.
The loan having adequate margin of security.
Security valued in strict criteria.
3/9/2019
What are the minimum criteria for Claims on Regulatory Retail portfolio?
Following criteria should be fulfilled for this category.
Separate product paper approved by BOD and notified to Nepal Rastra Bank
Orientation criteria:
The loan should be granted to an individual or the small business enterprises. If a
loan is provided to a member of group borrower or the member of corporate or to a
big corporate, such loan shall not fulfill these orientation criteria. SME loan, cottage
industry loan, personal loan not mentioned in negative list etc could be the example
of orientation criteria.
Product criteria
Identified products such as,
Revolving credit lines of credit
Term loans and leases
Small business facilities and commitments
Deprived sector loan up to threshold.
Granularity criteria
No aggregate exposure to one counterpart can exceed 0.5% of the overall
regulatory retail portfolio
3/9/2019
What are the minimum criteria for Claims on Regulatory Retail portfolio?
Low Value individual criteria
The aggregated exposure to one counterpart (defined by NRB directives) can not
exceeded an absolute threshold of upto Rs. 10 million.
Notes:
The total exposure of individual party including all other bank and FIs, should be
monitored thorough self declaration of borrower. It
can be observed by CIC report
whether it is applicable.
3/9/2019
What types of personal loans are not eligible for Regulatory Retail portfolio?
Margin type lending which is basically collateralized by the stock and securities
whether listed or not.
Credit card receivables and Other personal loan exceeding prescribed threshold
(Rs 10 Million) limit
3/9/2019
What types of security and collaterals are eligible to claim CRM ?
3/9/2019
What does this supervisory haircuts mean?
3/9/2019
01 Cash Balance 02 Balance With Nepal Rastra Bank 03 Gold 04 Investment in
Nepalese Government Securities 05 All Claims on Government of Nepal 06
Investment in Nepal Rastra Bank securities 07 All claims on Nepal Rastra Bank 08
Claims on Foreign Government and Central Bank 09 Claims on Foreign Government
and Central Bank 10 Claims on Foreign Government and Central Bank 11 Claims on
Foreign Government and Central Bank 12 Claims on Foreign Government and Central
Bank 13 Claims On BIS, IMF, ECB, EC and on Multilateral D 14 Claims on Other
Multilateral Development Banks 15 Claims on Public Sector Entity (ECA 0-1) 16
Claims on Public Sector Entity (ECA 2) 17 Claims on Public Sector Entity (ECA 3-6)
18 Claims on Public Sector Entity (ECA 7) 19 Claims on domestic banks that meet
capital adequacy 20 Claims on domestic banks that do not meet capital 21 Claims on
foreign bank (ECA Rating 0-1) 22 Claims on foreign bank (ECA Rating 2) 23 Claims
on foreign bank (ECA Rating 3-6) 24 Claims on foreign bank (ECA Rating 7) 25
Claims on foreign bank incorporated in SAARC regi 26 Claims on Domestic Corporates
27 Claims on Foreign Corporate (ECA 0-1) 28 Claims on Foreign Corporates (ECA 2)
29 Claims on Foreign Corporates (ECA 3-6) 30 Claims on Foreign Corporates (ECA 7)
31 Regulatory Retail Portfolio (Not Overdue) 32 Claims fulfilling all criterion of
regulator 33 Claims secured by residential properties 34 Claims not fully secured by
residential properties 35 Claims secured by residential properties (Overdue 36
Claims secured by Commercial real estate 37 Past due claims (except for claim
secured by residential 38 High Risk claims 39 Investments in equity and other
capital instrument 40 Investments in equity and other capital instrument.
3/9/2019
cib inquiry criteria for Sole Proprietorship, Partnership and
Individual/Joint Individuals and Pvt Ltd
1. The borrower individual/s, firm, company or corporate body utilizing the credit
facility.
2. The individual, firm, company or corporate body that has provided guarantee for
extension of such credit facility to any individual, firm, company or corporate
body;
3. Proprietor of a proprietorship firm
4. Partners of a partnership firm;
5. Directors of a company, corporate body;
6. The borrower firm, company or corporate body utilizing the credit facility.
7. All Directors.
8. Shareholders holding 15 percent or more share ownership.
9. Person, firm, company or corporate body having the right to nominate director.
10. The individual, firm, company or corporate body falling under one group having
inter-relationship according to the Directives of this Bank.
11. Individual, firm, company or corporate body providing guarantee (both personal
and corporate) to the customer.
3/9/2019
Process and Documentation for Physical share pledge
Physical shares
Signature verify form/Buying and selling form
Manjurinima Provided by share owner
Bank letter to RTS/Issuing company
Pledge letter received from RTA/Issuing company
Control Mechanism
Weekly share Monitoring and trend analysis
Margin call and deficit adjustment within stipulated time
Sell the pledge share if margin call is not maintained and blacklist the borrower
3/9/2019
Demat share Pledge process
3/9/2019
ANTI MONEY LAUNDERING - INTRODUCTION
3/9/2019
REASONS FOR NEEDS OF AML
1. To protect from discredit, to end financial catastrophe, bank should not have
any kind of, either consciously or unintentionally, association with the criminals
or to facilitate them in handling the proceeds of crime.
2. To protect from the criminals as involvement with the criminals will put the bank
at risk of being itself the target of fraud.
3. To build a good image of the banks accepts customers whose source of wealth
and funds can be reasonably established to be legitimate and who do not pose an
operational or reputation risk.
Possible ML channels/Technique
1. Possible ML via electronic Banking Services- Structuring transaction, A/c
connected
2. Possible ML via Customer Accounts- Payable trade a/c, loan back agreement,
credit and debit cards, Forex Money Changer, Business related transaction,
Lawyer, INGO, and Professionals.
3. Possible ML via Secured and Unsecured Loans
4. Possible ML via Cash Transaction
5. Possible ML via Invested related Transaction
6. Possible ML via international Banking and financial transaction
3/9/2019
Identification/ Reorganization of suspicious transaction
Suspicious should be aroused from example by transaction that do not make good
commercial scene.
Activities that appear inconsistent with the customers declared expected
activities
Activities that may be indicative of drug trafficking, terrorism.
The structuring of transaction to obscure audit trails, evade identification or
obstruct record keeping.
In case of suspicious
Refusing to receive the transfer and return it
Freezing the transferred amount or not carrying out- beneficiary instruction
Closing down the customer's a/c to which the transfer is made.
3/9/2019
Process for Money Laundering
Placement (Structuring, Smuff, Connected account, Family Member account
open, loan transaction)
Immersion or seeking physical disposal of bulk case proceeds derived from illegal
activities.
Deposits of large amount of cash in numerous small amount
Setting up a cash business as a cover for banking large amount of money.
Investing in Shares and other investment products.
Mingling of illegal cash with deposit from legitimate business e.g. car and antiques
dealers
Layering (Account transfer, bank transfer, movement, complex system, create)
Soaping/scrubbing. The separations of illicit proceed from their source by
creating complex layering of financial transaction. These disguise the audit trail
and provide anonymity.
A Company passes money through its account under cover of bogus invoices, merely to
generate additional transaction.
A Customer raises a loan on the security of a deposit (from illegal business) in another
bank to help break the connection with illegal funds.
A Customer incurs large credit cards debt from an account
3/9/2019
Integration (Withdrawal, and invest in various assets, activities) repartiation or
spin dry
Reinjection proceeds into economy so that that reentered in financial system as
normal business. Provide an opportunity legitimate explanation to criminally
desired wealth.
Suspicious transactions
Large cash deposit in same a/c
Substantial increase in turnover in a journal a/c
Reluctance to provide normal information.
Receipt and payment of large cash with no obvious purpose
Sudden increase in cash deposit with no justification
Large cash withdrawals in active a/c or a/c with unexpected large credit from
abroad.
Providing misleading information
Gives rise to a reasonable ground of suspicious that it may involve the proceeds
of crime
Appears is made in circumstances of unusual or unjustified complexity.
3/9/2019
Money Laundering Risk
Reputation risk
Legal Risk
Operational Risk
Concentration Risk
3/9/2019
Technique
Deposit structuring
Connected Account
Payable trade A/c
Loan Back Arrangement
Forex Money Changer
Credit/Debit Cards
Company Trading and Business activities
Corresponding Banking
Lawyer, accounting and INGO
3/9/2019
Home Loan Product Paper
A housing Loan is a credit to a customer for purchase or renovation of Purchase or
renovation (residential Type) immovable property he /she owns or aims to acquire secured by
residential mortgage or by tripartite agreement.
Loan amount 0.5 million to 30 Million
Loan to value ratio Maximum of 80% of cost of property estimate cost of
construction or 60 % of financing for pruchase of
apartment/duplex or 66.66% of fair Market Value
Period 12 month to 300 month
Security Land and Building/Apartment
Processing fee 0.25% to 1%
Portfolio control 25% of funded exposure
First Drawdown Shall not exceed 60% of FMV or distress value
Total repayment obligation 75% of NDI
AGE Min 25 and Maximum 65
3/9/2019
Personal Product Paper
Personal loan means a structured funded credit facility extended for the purpose of fiancing
an individual personal needs
Loan amount 0.5 million to 5 Million
Loan to value ratio Maximum of 100% of distress value in case of real estate loan
and 95% in case lien over cash or near cash backed assets
Period 8 years from date of first disbursement
Security Land and Building
Processing fee 0. 5% to 1%, prepayment 2%
Portfolio control 20% of funded exposure
Disbursement Maximum of three trench
Total repayment obligation 75% of NDI
AGE Min 18 and Maximum 65
3/9/2019
Professional loan Product Paper
Is Collateral free short term fiancne to meet the general emergency financial need of the
people to purchase of equipment , education expenses, furnishing and furbishing of house and
other needs
Loan amount 200,000 to 1,00,000 (General and 1,500,000 professional)
Target Segment Development orgn, Diplomatic mission, INGOs., NGO, UN
Agency
Salaried staff Development orgn, Diplomatic mission, INGOs., NGO, UN
Agency
Professional CA, Doctors, Engineers, Dentists, pilots
3/9/2019
Educational loan Product Paper
Means a structured funded credit facility extended for the purpose of facilitation a
student to enroll into higher studies with or without sponsor
Loan amount 0.5 million to 5 Million
Loan to value ratio Maximum of 90% of the cost of the course including travel and
living expenses
Period 8 years from date of first disbursement
Security Land and Building
Processing fee 0. 25% to 1%, prepayment 2%
Portfolio control 25% of funded exposure
Disbursement Maximum of three trench
Total repayment obligation 75% of NDI
AGE Min 18 and Maximum 40
3/9/2019
Auto loan Product Paper
Means buying of vehicles/heavy equipment against a hire purchase.
Loan amount 0.5 million to 5 Million (for private use) (90%)
Loan amount 0.3 million to 2 Million (for commercial use)(70%)-90% cost of
chassis
Loan to value ratio Maximum of 90% of the cost of vehicle
Period 6 years and 5 years for used vehicle
Security Land and Building
Processing fee 0. 25% to 1%, prepayment 2%
Portfolio control 25% of funded exposure
Disbursement Maximum of three trench
Total repayment obligation 75% of NDI
AGE Min 20 and Maximum 65
Used Vehicle 5 years from date of manufactured- Max 70% of the purchase
price. For above 5 years 60 % of Purchase price
3/9/2019
Land purchase loan Product Paper
A loan for Land purchase is a credit to a customer for the purchase of plot of Land
Loan amount 0.5 million to 5 Million
Loan to value ratio Maximum of 100% of distress value in case of real estate loan
and 95% in case lien over cash or near cash backed assets
Period 12 Month to 180 Month
Security Land
Processing fee 1%, prepayment 2%
Portfolio control 5% of funded exposure
Disbursement In Single trench
Total repayment obligation 75% of NDI
AGE
3/9/2019
DEFINATION OF RATIO
Current Ratio ;
Firms ability to meet short term obligation using short term debt
Assets Management ratio/ Efficiency Ratio
Use of assets in generation sales
Leverage Ratio
Relation between debt and equity
Profitability ratio
Assess the firm ability to earn profit on sales, assets and equity.
Valuation ratio
Valuation of Stock
Capital Budgeting
CB is the process to analyze and ranking proposes project to determine which one of this is
deserving of an investment.
Cash Flow : is the net amount of cash and Cash equivalent moving into and out of a business.
Internal Rate of Retun : Internal rate of return is a discount rate that makes the net present
value (NPV) of all cash flows from a particular project equal to zero
3/9/2019
DIFFERENCE BETWEEN MONETARY AND FISCAL POLICY
Monetary policy consists of the actions of a central bank, currency board or other regulatory
committee that determine the size and rate of growth of the money supply, which in turn
affects interest rates. Monetary policy is maintained through actions such as modifying the
interest rate, buying or selling government bonds, and changing the amount of money banks
are required to keep in the vault (bank reserves).
Fiscal policy is government policy its spending level and tax rate to monitor and influence a
national economy.
Through fiscal policy, regulators attempt to improve unemployment rates, control inflation,
stabilize business cycles and influence interest rates in an effort to control the economy.
3/9/2019
PROVISION IN BAFIA AND COMPANY ACT 2063
3/9/2019
Components of Financial System
1. Financial Markets
2 Financial Intermediaries
3 Financial Instruments
3/9/2019
HIGH RISK CLAIM ITEMS
1. 150% Of risk weighted shall be applied for venture Capital and private equity
Investments
2 Exposures on personal loans in excess of threshold of regulatory retail portfolio and
lending against securities (bonds and debenture) shall attract a risk weight of 150%.
Similarly, exposures on credit cards also warrant a risk weight of 150%
3 Investments in the equity and other capital instrument of institutions, which are not
listed in the stock exchange and have not been deducted from Tier 1 Capital, shall be
risk weighted at 150% net of provision.
4. Investments in the equity and other capital instrument of Institutions, which are
listed in the stock exchange and have not been deducted from tier 1 capital shall be
risk weighted at 100% net of provision. Investment in mutual funds shall also be risk
weighted at 100%
5. The claims which are not fully secured or are only backed up by personal guarantee
shall attract 150% risk weight
6. Where loan can’t be segregated/or identified as regulatory retail portfolio or
qualifying residential mortgage loan or under other categories, it shall be risk
weighted at 150%
3/9/2019
Claims secured by Residential Properties
1. Lending to individuals meant for acquiring or developing residential property which are fully
secured by mortgages on residential property, that is or will be occupied by the borrower or
that is rented, will be risk weighted at 60%. However, banks should ensure the existence of
adequate margin of security over the amount of loan based on strict valuation rules.
2. Where the loan is not fully secured, such claims have to risk weighted at 150%
3. When claims secured by residential properties are or have been past due at any point of
time during the last two years, they shall be risk weighted at 100%, net of specific provision.
3/9/2019
Claims on Corporate and Securities firm
1. The risk weight for claims on domestic corporate, including claims on insurance companies
and securities firm will be 100%. The domestic corporate includes all firms and companies
incorporated in Nepal as per prevailing Acts and regulations.
2. The Claims on foreign corporate shall be risk weighted as per the ECA country risk score
subject to the floor of 20% as follows.
3/9/2019
Claims secured by Residential properties
1. Lending to individuals meant for acquiring or developing residential property which are fully
secured by mortgage on residential property, that is or will be occupied by the borrower or
that is rented, will be risk- weighted at 60%. However, banks should ensure the existence of
adequate margin of security over the amount of loan based on strict valuation rules.
2. Where the loan is not fully secured, such claims have to risk weighted at 150%
3. When claims secured by residential properties are or have been past due at any point of
time during the last two years, they shall be risk- weighted at 100% net of specific
provisions.
3/9/2019
Small and Cottage Industries
1. These industries use local materials to produce varieties of things for our daily use
The main cottage industries that are found in Nepal are as follows:
1. Industries based on Agricultural product
2. Industries based on Vegetation
3. Industries based on Minerals
4. Industries based on Animal products
3/9/2019
Definition of Liquidity ratio and leverage coverage ratio.
1. To meet short term liquidity crisis bank has to maintain at least >100% of highly liquid assets that can be
easily convert in cash.
2. The liquidity coverage ratio is an important part of the Basel Accords, as they define how much liquid
assets have to be held by financial institutions. Because banks are required to hold a certain level of highly
liquid assets, they are less able to lend out short-term debt.
1. Leverage Ratio
Leverage Ratio intentionally does not distinguish between safer or riskier assets; meaning that for
SLR a bank must hold the same minimum amount of capital against low risk assets (e.g. US Treasuries)
as higher risk assets. Highly Leverage banks have lower loss- absorption capacity and less resilient to
shocks. The non risk base leverage ratio including all off balance item which will serve as backstop to
risk base capital requirement
3/9/2019
Defination of Interest rate corridor (ICR)
1. The range between the interest rate moves in the money market. The mechanism
which guides the short term interest rate
2. Can be determine through
a. Standing Liquidity facility rate- Highest point/Ceiling/upper band
b. Repo or Policy Rate- Middle Point
c. Reverse repo or 2 weeks term deposit rate
a. SLFR : NRB injects liquidity into banking sector whenever there is shortage of
fund. The rate has been fixed at 7% and its forms the upper band or ceiling
mops of the corridor.
b. Repo/Policy rate : NRB used this rate to inject liquidity into the markets for the
period of 2 weeks. This rate floats in the middle of the corridor. It is fixed by
adding 200 basis points or 2% point, to the weighted average inter bank rate of
commercial bank or two working days ago.
c. Term rate : This rate is used to absorb excess liquidity from the banking sector,
This rate forms the lower bound or floor mops of the corridor. It is fixed by
deducting 10 basis point or 0.10% point from the weighted average inter bank
rate of commercial bank or two working days ago.
3/9/2019
Defination of Interest rate corridor (ICR)
When the corridor was first introduce the ceiling rate was stood
1. SLFR 7%
2. Repot2.4%
3. Term 0.3
3/9/2019
Basel III (component and Pillar
1. Components
a. Capital Ratio and Target
2. Risk weighted Assets
3. Liquidity Standards (Liquidity coverage ratio and Net Stable Funding Ratio
1. Pillar 1
1. Capital - Defination-Standards-Conservation buffer cycle-counter cycle buffer
2. Risk Coverage- Counterparties credit Risk-Bank exposure to central
counterparties-Trading Books and Securitization (Securitization is the process of
taking an illiquid asset, or group of assets, and through financial engineering,
transforming them into a security. A typical example of securitization is a
mortgage-backed security (MBS), which is a type of asset-backed security that is
secured by a collection of mortgages
3. Containing leverage
Pillar 2
1. Risk Management and Supervision.
Pillar 3
1. Market Discipline
3/9/2019
Risk Weighted assets.
3/9/2019
Definition of LC
1. Maximum validity of LC is 180 days. (in this time all the procedure of LC are completed,
documentation and goods are arrived and except NEA, NTC and other big institute and
equipment).
2. In sigh LC client has to paid the amount after the received of documents promptly. Then go
to the port for release of goods. This is like you go to the shop, pay the total amount of
goods and take the goods.
3. Usage LC. In this LC borrower is given sight period like 90 days or 120 days. This means
when the documents arrives to the bank, client take the doc from bank and release the doc
and sold the sold and pay the bank in stipulated time. This is like, You take the good in your
credit period given make payment the period you are provided.
4. DAP: All the process are same but there is no use of LC
5. LC is defined undertaking of issuing bank to honor or negotiate upon a comply presentation
of documents.
6. LC is a undertaking of payment given by the importer’s bank to exporter for a specific sum
provided the exporter ships out the goods and presented a required compliant documents by
a predetermine deadline.
3/9/2019
Irrevocable letter of credit sample in Swift Format
17 October 2012 Wednesday
11:14:31
------------------ Instance Type and Transmission ----------------------
Original received from SWIFT
Priority/Delivery : Normal
Message Output Reference : 1225 121016XXXXXXXXX5657939061
Correspondent Input Reference : 1225 121016XXXXXXXXX1178375172
Receiver : TRADEBANKXXX
TRADE BANK
(ALL TURKEY OFFICES)
ISTANBUL TR
----------------------- Message Text ----------------------------------
27: Sequence of Total
1/1
40A: Form of Documentary Credit
IRREVOCABLE
20: Documentary Credit Number
2012AML201203366
31C: Date of Issue
121016
40E: Applicable Rules
UCPURR LATEST VERSION
31D: Date and Place of Expiry
130106-TURKEY
50: Applicant
BAHRAIN MANUFACTURING COMPANY W.L.L
P.O. BOX 30000,
KINGDOM OF BAHRAIN
59: Beneficiary - Name & Address
INTERNATIONAL IMPORT COMPANY LTD, STI.
(FULL BENEFS. NAME AND ADDRESS UNDER FIELD 47A ITEM NO.6)
3/9/2019
Irrevocable letter of credit sample in Swift Format
32B: Currency Code, Amount
Currency : USD (US DOLLAR)
Amount : #310.000,00#
39B: Maximum Credit Amount
NOT EXCEEDING
41A: Available With...By... - BIC
TRADEBANKXXX
BY PAYMENT
43P: Partial Shipments
NOT ALLOWED
43T: Transshipment
ALLOWED
44E: Port of Loading/Airport of Departure
ANY TURKISH PORT
44F: Port of Discharge/Airport of Destination
KHALIFA BIN SALMAN PORT
44C: Latest Date of Shipment
121215
45A: Description of Goods &/or Services
CRUSHING PLANT. AS PER PROFORMA INVOICE NO.:P-111-7 R02 DATED 03/07/2012
CFR, BAHRAIN.
46A: Documents Required
1. SIGNED COMMERCIAL INVOICE IN 1 ORIGINAL + 2 COPIES INDICATING DELIVERY TERMS.
2. FULL SET OF CLEAN ON BOARD BILL OF LADING ISSUED OR ENDORSED TO THE ORDER OF ARAB BANK PLC, NOTIFY
APPLICANT SHOWING FREIGHT PREPAID AND SHOWING FULL NAME AND ADDRESS OF THE SHIPPING COMPANY AGENT
OR HIS REPRESENTATIVE IN BAHRAIN.
3. A CERTIFICATE ISSUED BY THE VESSEL OWNERS/CAPTAIN/ CARRIER OR BY ONE OF THEIR AGENTS STATING THAT
THE CARRYING VESSEL IS SUBJECT TO THE INTERNATIONAL SAFETY MANAGEMENT CODE (ISM) AND INTERNATIONAL
SHIPPING AND PORT SECURITY SAFETY CODE (ISPS).
4. CERTIFICATE OF ORIGIN STATING THAT GOODS ARE OF TURKISH ORIGIN ISSUED BY A CHAMBER OF COMMERCE
SHOWING NAME AND ADDRESS OF MANUFACTURERS.
5. PACKING LIST IN 1 ORIGINAL + 2 COPIES.
3/9/2019
Irrevocable letter of credit sample in Swift Format
47A: Additional Conditions
(1) HONOUR/NEGOTIATION OF DOCUMENTS UNDER RESERVE OR AGAINST INDEMNITY OR GUARANTEE IS
PROHIBITED.
(2) DISCREPANCY FEE FOR USD 75.- (OR EQUIVALENT IN L/C CURRENCY)PLUS ALL RELATIVE SWIFT/TLX CHARGES WILL
BE DEDUCTED FROM DOCUMENTS VALUE FOR EACH PRESENTATION OF DISCREPANT DOCUMENTS UNDER THIS CREDIT,
NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY.
(3) ALL REQUIRED DOCUMENTS INCLUDING TRANSPORT DOCUMENTS MUST BE DATED BUT NOT DATED PRIOR TO THE
ISSUANCE DATE OF THIS CREDIT.
(4) ALL REQUIRED DOCUMENTS INCLUDING DRAFTS - IF ANY – MUST INDICATE OUR CREDIT NUMBER.
(5) FULL BENEFICIARYS NAME AND ADDRESS: INTERNATIONAL IMPORT COMPANY LTD, STI. BOGAZICI SOKAK.NO:12
KAVAKLIDERE ANKARA ANKARA, TURKEY,
(6) ALL PARTIES TO THIS TRANSACTION ARE ADVISED THAT WHERE THE U.S. EU, UN, AND OTHER GOVERNMENT
AND/OR REGULATORY AUTHORITIES IMPOSE SPECIFIC SANCTIONS AGAINST CERTAIN COUNTRIES, ENTITIES AND
INDIVIDUALS, BANKS MAY BE UNABLE TO PROCESS A TRANSACTION THAT INVOLVES A BREACH OF SUCH SANCTIONS,
AND AUTHORITIES MAY REQUIRE DISCLOSURE OF INFORMATION. ARAB BANK IS NOT LIABLE IF IT, OR ANY OTHER
PERSON, FAILS OR DELAYS TO PERFORM THE TRANSACTION, OR DISCLOSES INFORMATION AS A RESULT OF ACTUAL OR
APPARENT BREACH OF SUCH SANCTIONS.
KINDLY ACKNOWLEDGE RECEIPT AND ADVISE US BY SWIFT THE DATE OF THIS CREDIT HAS BEEN ADVISED TO AND RECEIVED BY
BENEFICIARY.
3/9/2019
Irrevocable letter of credit sample in Swift Format
71B: Charges
ALL CHARGES AND COMMISSIONS OUTSIDE BAHRAIN INCLUDING COURIER, CONFIRMATION AND
REIMBURSEMENT CHARGES SHOULD BE PAID BY BENEFICIARY.
YOU ARE KINDLY REQUESTED TO FORWARD ORIGINAL SET OF DOCUMENTS AND DUPLICATES DIRECTLY TO US
IN TWO CONSECUTIVE SETS BY SPECIAL COURIER TO OUR ADDRESS : TRADE FINANCE LETTER OF CREDIT
PROCESSING CENTER, DUBAI, U.A.E. FOR THE VALUE OF DOCUMENTS WHICH STRICTLY COMPLY WITH CREDIT
TERMS, PLS REIMBURSE ON OUR BAHRAIN BRANCHES CENTER, USD A/C WITH JPMORGAN CXXSE BANK N.A.,
NEW YORK UNDER ATHENTICATED SWIFT ADVICE TO US .
3/9/2019
Definition of LC
3/9/2019
Documents under Letter of Credit
1. Bills of exchange
2. Insurance policy
3. Commercial Invoice
4. Certificate of origin
5. Packing List
6. Weight Certificate
7. Inspection certificate
8. Transport Documents
1. Bills of lading (Transport document)
2. Road Consignment Notes
3. Airway Bill
4. Railway Receipt
3/9/2019
Inco Terms (International Commercial Terms)
Rules for any mode or modes of Transport
EXW Ex Works
FAC Free Carries
CPT Carriage paid to
CIP Carriage and Insurance paid
DAT Delivered at Frontier
DAP Delivered Ex Ship
DDP Delivered Duty Paid
3/9/2019
Inco Terms (International Commercial Terms)
3/9/2019
Export Financing
1. Pre- Export Loan (Packing Credit Loan)
Is the loan allowed to the exporter to finance the purchase and /Or manufacturing of the
goods to be shipped by the client as well as other work related cost that may incur for
exporting the goods before shipment of the goods.
2. Post shipment loan
Is the loan allowed to the exporter to meet his/her working capital requirement after shipment is
done before realization of payment
3/9/2019
Process for Negotiation of Export doc
3/9/2019
Process for Documents Retirement
3/9/2019
Difference between LC and Bank Guarantee and Mortgage backed
Securities
1. Positive and negative type of contract
2. Dealing with documents and performance
3. Import/export/services and performance, maintenance and retention.
3/9/2019
Definition of Undertaking and Securitization
1. Undertaking is written promises of intention, that outlines the terms and condition between two
parties who are usually entering into a work related agreement.
2. Securitization is the process of taking an illiquid assets, through financial engineering, transforming
them into security.
3/9/2019
लिखत पारितका प्रकृया
सामान्य हकमा २ प्रतितिखि िथा गुठीकाे हकमा िीन प्रति तिखि ियार गरी दहायका कागजाि सतहि कायाा ियमा पश गने क)
तकत्ताकाट गनुा नपने पाररि गने तिखिको साथ जग्गाधनी प्रमाण पुजाा , नागररकिाको प्रमाणपत्र, चािु आ.ब.को मािपोि बुझाएको
रतसद, करचुक्ता प्रमाण, सम्बन्धिि गा.ति.स. न.पा. को घरबाटोको तसफाररस, अन्य आिश्यक प्रमाण । ख) तकत्ताकाट गनुापने
पाररि गने तिखिको साथ जग्गाधनी प्रमाण पुजाा , नागररकिाको प्रमाण पत्र, चािु आ.ब.को मािपोि बुझाएको रतसद, करचुक्ता
प्रमाण, सम्बन्धिि गा.ति.स. , न.पा. को घरबाटोको तसफाररस, अन्य आिश्यक प्रमाण । २. मोठ, रोक्का तिडाउन, ३. सनाखि
गराउन, ४. टोकन िगाउन, ५. तकत्ताकाट िए नापी कायाा ियमा पठाउन, ६. मूल्ाां कन तिडाउन, ७. रतजष्टशन दस्तुर असुि गने ,
८. िहरररि पश िएको तिखि चक जाां च गरी पाररिको िातग अतधकृि समक्ष पश गने , ९. अतधकृिि रीिपु गको तिखि पाररि
गररतदन, १०. रतजष्टशन फाां टमा पाररि तिखि रतजष्टशन – दिाा गरी रतजष्ट्शन नम्बर तदई एक प्रति तिखि िामिी फाट र एक प्रति
मोठ फाटमा बुझाइ तदन, ११. पाररि तिखि अनुसार मोठ फाां टबाट श्रस्ता पुजाा ियार गरी जग्गाधनी दिाा प्रमाण पुजाा सम्बन्धिि
व्यन्धक्त िथा सांस्थािाई उपिब्ध गराउन .
3/9/2019
Definition of Interest Rate corridor
Interest rate corridor, or IRC, is a mechanism that guides short-term market rates and
helps keep all interest rates within certain band, reducing interest rate volatility. This
means introduction of IRC will provide clear signals to bankers, policymakers, borrowers
and depositors on how short-term interest rates will move in the market, enabling them
to make decisions accordingly.
Monetary targets
Inflation – 7.5 per cent
Money supply growth – 17 per cent
Growth in lending to private sector – 20 per cent
Stylished Interest rate Corridor (The interest rate corridor uses three different
rates
Ceiling :lending rate or standing liquidity facility rate
Repurchase (repo) or policy rate (Money market Rate)
Floor: Term Deposit rate
3/9/2019
Definition of Interest corridor
1. Standing liquidity facility (SLF) rate.
Using this rate, NRB injects liquidity into the banking sector whenever there is a
shortage of funds. This rate has been fixed at 7 percent, and it forms the upper bound,
or ceiling, of the corridor.
2. Repo or policy, rate
NRB uses this rate to inject liquidity into the market for a period of two weeks. This
rate floats in the middle of the corridor. It is fixed by adding 200 basis points, or 2
percentage points, to the weighted average interbank rate of commercial banks of two
working days ago.
3. Term deposit rate
This rate is used to absorb excess liquidity from the banking sector. This rate
forms the lower bound, or floor, of the corridor. It is fixed by deducting 10 basis
points, or 0.10 percentage point, from the weighted average interbank rate of
commercial banks of two working days ago.
When the corridor was first introduced, the ceiling rate stood at 7 percent, the repo
rate, which floats in the middle of the corridor, stood at 2.4 percent, while the floor
rate stood at 0.3 percent. This meant the interest spread in the corridor stood at 6.7
percent, which was pretty wide.
3/9/2019
Company Act Main Provision 2063
1. Section 105 (About Loan taken and)
2. Section 176 (About Corporate Guarantee Provide)
3. Section 152 (About Sole Company)
3/9/2019
Education Loan Provision
Against Fixed Deposit
Against FAC
Against bank balance (Not related to bank)
Process
Application/Applicant/Co-applicant
Offer Letter of University including all eligible cost
Loan Process- CAP approval-Mortgage/Lien
Documentation and offer letter provided
Payment against COE received (Confirmation of Enrollment)
Swift Transfer.
10% deduction in case of return/not accepted
All reserve in College
Shall not have any condition for payment from bank side. Because offer
letter and COE may differ.
3/9/2019
Documents required for Hydropower Financing
1. Syndicated Loan agreement
2. Pari-passu Mortgage deed
3. Assignment of Power generating license and PPA
4. Deed for Security on current assets, stock and inventories
5. Pledge deed of Plant and machinery
6. Assignment of Bills and receivable/Product License
7. Share Pledge deed
8. License From government authorizes for …….KW (clearly mention)
9. PPA
10. Approval IEE (Initial Environment Examination)- From Local authority and From
Ministry Level in case of Mega Project) EIA
11. Agreement with merchant banker acceptable to lead bank for IPO- This in the case of
before sanctioning of revolving loan for cash flow management)
12. Letter from NEA to make payment directly to lead bank
13. Purchase or Lease agreement.
14. Assignment of product license if any/Capacity enhancement
15. COD (Commercial Operation Date)
16. EPCF modality (Engineering, Procurement, Construction and Financing)
3/9/2019
Documents required for Cement Udhyog
Syndicate Loan agreement
Pledge of Plant and machinery
Assignment of Lease right- Bank deed and lease agreement, mines license
including area quote, and put rokka in department of mines and geology.
IEE report- from local authority to set up business and ministry of environment
in case of mega project to be endorses
Property transfer deed. Initially not value. Valuation is as per SLA. It may
process after 40% completion of project.
3/9/2019
Difference between IEE and EIA
1. IEE (Initial Environmental Evaluation)
2. EIA (Environmental Impact Assessment)
3/9/2019
Types of Rates
Policy Rates
1. CRR
2. Bank Rate
3. Refinance Rate (
Special Refinance
General Refinance
Export Credit in Nepalese Currency
Export Credit in Foreign Currency
RCD-REVALUATION DEFERRAL
Industry Category Maximum FDI Name of the Relevant Acts & Policies Remarks
Permissible competent
authority
(Regulator)
Financial Services/Banks and (20 to 85)% Nepal Rastra Bank Nepal Rastra Bank Act Approval of Nepal Rastra Bank
Finance Companies and Branch required thereafter, registration of
Office of a Foreign Bank Foreign Investment and the company is to be done and
Technology Transfer Act application filed for license to operate
(FITTA) a bank, or financial institution
Foreign Exchange
Regulation Act (FERA)
Airline Industry (49 to 95)% Civil Aviation The Aviation Policy 2063 FDI is permissible in domestic
Authority of Nepal (2006) airlines, international airlines, flying
schools and repair and maintenance
Civil Aviation Act, 2053, work
Civil Aviation Rules, 2052
(1996)
FDI in Nepal
Telecommunications 80% Nepal Telecommunication Act Approval of Nepal Telecommunication
Telecommunication Authority is required to operate
Authority, Ministry services and obtain license prior to
of Information and operation
Communication
Roads, Ropeways, Cable car 100% Transport - -
Management
Office
Media & Advertising – TV, Radio 100% Ministry of The Nepal Broadcasting The MOCI and NTA provides license
and Newsprint Information and Regulation, 2052 (1995) for establishing media and
Communication broadcasting business in Nepal
National Broadcasting Act
2049 (1993)
Pharmaceutical & Chemical 100% Department of Industrial Enterprises Act Approval from the Department of
Industries Health Services Drug Act Drug Administration for setting up
the industry, manufacturing and
selling the drug is required
Textile and Garment 100% Department of Industrial Enterprises Act No specific requirements
Industry
Consultancy and Management 51% No Specific Foreign Investment and Accountancy, Engineering, Legal &
Services Technology Transfer Act Management Services not allowed
(FITTA)
FDI in Nepal
Mining 100% Department of Mines Department of mines and License from the Department of Mines has to
Geology (Department) Act be obtained for mining activities in Nepal
Hydro-Power Generation 100% Department of Electricity Act Approval from the DOED is required prior to
Electricity operation of the industry
Development
Electricity Rules
Power Trade - Department of Electricity Act Export of power to India is permitted for
Electricity companies generating electricity
Development
Electricity Rules
Transmission Lines 100% Department of Electricity Act -
Electricity
Development
Electricity Rules
Hotels, Resorts & Restaurant 100% Ministry of Tourism Tourism Policy, Tourism Act Approval from the Department of Tourism
required for operating restaurant, hotels,
resorts
IT & IT enabled (BPO, KPO) 100% Department of Science IT Act No specific requirements
and Technology
Vocational, Educational Training and 100% No specific Foreign Investment and Only Skill Training and Language allowed
Coaching Technology Transfer Act
Hospitals & other Medical Services 100% Ministry of Health & Nepal Health Professional Act, Approval from the Ministry of Health is
Population required for establishing hospitals and
providing medical services
Solid Waste Disposal & 100% Ministry of Environment, Science and Environment Protection Act -
Management Technology
Film Industry 100% Cinema Board of Nepal Motion picture (Production, Film produced in the language if the nation
Exhibition and Distribution) Act not allowed (FITTA, 1992)
2026 (1969) and Rules
Cargo Industry 100% No specific - Domestic Cargo not permitted under FDI
Medical Education 100% Ministry of Education MoHP’s Directive on Establishment, Affiliation to a University has to be entered
Operation, Standards and into and approval from the Ministry of
Infrastructure of Private and Non- Education required
governmental Health Institution,
2061
Engineering Education 100% Ministry of Education Technical Education Policy of Approval is granted under the Technical
Management Education 100% Ministry of Education Education Policy of Ministry of Education
Insurance & Re- Insurance Board Insurance Act and related directives Approval from the Insurance Board has to be
insurance obtained prior to commencement of business
in Nepal
Construction 100% No Specific Local Self Governance Act Approval from the Department of Road,
Transport and Physical Planning required
Thermal & Alternative/ 100% Ministry of Energy Electricity Act Allowed only in Energy Generation
Renewable energy
Foreign Company (Loan approval Process in Nepalese Fis)
Can foreign company take the loan from Nepalese Banks.?
In regard to foreign company, a company that has been incorporated outside Nepal cannot take loan
from the Nepalese Bank. However in context of a company that has been incorporated in Nepal by a
foreigner in the form of branch, subsidiary or joint venture Company, with a local party and will be
referred as ‘foreign investment company’
If yes? What are the Process?
As per Above, the process for a foreign investment company to take loan from Nepalese Bank are
as follows:
Decision of the Board of Director of the company to take loan from the licensed banking institution,
the property that will be kept as security and authorize representative to act in behalf of company.
If the loan amount exceed the company’s paid up capital and free reserve, special resolution to take
loan from the licensed banking institution for the period exceeding 6 month should be passed by 75
percent of the shareholder.
The authorized person then shall act and negotiate with banking institution in accordance to the
decision of the company.
Number of members It needs at least 1 member for its It needs at least 7 members for its formation. The maximum
formation. The maximum number can be number is not limited.
50.
Invitation for capital It cannot invite the public to buy its It is free to invite the public to buy its shares
shares
Commencement of business It can commence the business It can commence the business after receiving the certificate
immediately after the incorporation of commencement of business.
Issue of prospectus It does not need to issue prospectus It must issue prospectus
Statutory meeting It does not need to hold statutory meeting It must hold statutory meeting and file statutory report
and file statutory report.
Transfer of shares The transferability of share is not allowed The transferability of share is allowed and hence its
and hence its ownership cannot be ownership can be transferred
transferred
Use of word It must use the word Pvt. Ltd. at the end It must use the word Ltd. at the end of its name
of its name.
Company Act 2063 Features
Capital Adequacy Framework based on Basel III: An Overview
1. gS;f kf;
2. c:yfoL O{hfht kq ( Plinth level)
3. :yfoL O{hfht kq (For Superstructure Level)
4. cf+lzs lgdf{)f ;DkGg (Upto ground Floor, eligibility for minimum rebitat)
5. lgdf{)f ;DkGg kq (As per Naksaa Pass)
6. gS;f ;?jf gfd;f/L (In case of house sold)
Home Loan can be disbursed Upto 90% of total construction cost of Building (Including
Progress report) or 50% of FMV of Land + total construction cost of Building (Including
Progress report) Whichever is Lower.
Basel Coding
Basel Code Balance Sheet Exposure Risk Weight %
5 All Claims on Government of Nepal 0
17 Claims on Public Sector Entity (ECA 3-6) 100
19 Claims on domestic banks that meet capital adequacy requirements 20
26 Claims on Domestic Corporates 100
31 Regulatory Retail Portfolio (Not Overdue) 75
33 Claims secured by residential properties 60
34 Claims not fully secured by residential properties 150
35 Claims secured by residential properties (Overdue) 100
36 Claims secured by Commercial real estate 100
37 Past due claims (except for claim secured by residential properties) 150
1. Bank letter to NRB for interest capitalization (mention the NRB directive no 4/074
sub section 2 (7)
2. Loan agreement
3. Summary of the project.
4. Board Decision for Interest capitalization
5. Disbursement report (approved-disbursement)
1.
Computation of NLA (Net Liquid Assets)
Objectives
1. With a common goal of financial stability and common standards of banking
regulations (Domestic regulation by central bank of own country and globally
regulator by BIS)
2. Common standard
3. Procedure development
4. Financial stability
Background economics problem in the 1930 and Basel Accord
Great depression -25% unemployment in US and 44% in German
Collapse of International trade
Rise of fascism in Europe
WWII start
u'7L /}tfgL÷kf]tf u'7L ;DaGwL Aoa:yf tyf lwtf]
:jLsfo{ gug]{ ca:yfx?
@)^$÷!)÷!) eGbf kl5 u'7Ldf s'g} klg hUufx? /}tfgL ePsf 5}gg -
;jf{]Rr cbfntfdf larf/lwg ca:yfdf 5g\_ . To:tf hUufx? olb /}tfgL btf{
ePdf klg lwtf]sf] ?kdf lng x'g] 5}g .
kz'klt u'7L cGtu{tsf] kf]tf u'7Ldf btf{ /x]sf] hUuf lwtf]sf ?kdf :jLsf/
ug{ ldNb}g .
gfafnssf] hUuf, df]lxofgL nfu]sf] hUufx?, u'7Ldf /}tfg gePsf]
hUufx?, g]kfn ;/sf/n] cltu|x0f u/s]f hUufx? .
Lost vehicle settlement process through insurance
Doc Required
Claim form from insurance
Bank consent letter for claim process
FIR
Blue book rokka in Yatayat office. (Bank letter, Original blue book, traffic/police report)
Baggi Khanna report after 35 days of FIR
Public notice in 2 national daily newspaper
Final Report from Surveyor
Driver Bayan (Opinion)
Photos of vehicle lost place
Road Tax Paid receipt
Muchulkaa from police
Tax invoice of Vehicle
e'sDk k|efljt 3/ kl/jf/nfO{ cfjf;Lo 3/ k'glg{df0fdf k|bfg ul/g] shf{
;DjGwdf
MT 700 Swift Message Field Specifications
UCPDC 600
The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set of rules agreed by the International Chamber of Commerce, which
apply to finance institutions which issue Letters of Credit – financial instruments helping companies finance trade. Many banks and lenders are
subject to this regulation, which aims to standardize international trade, reduce the risks of trading goods and services, and govern trade.
An international regulations in carrying out import/export transactions through documentary credit which is applicable to all the banks in the world.
It is a uniform practice applied to buyer, seller, issuing bank and negotiating bank. It is also a mandatory to all the concerned of documentary credit
and staff of banks and financial institutions those working in trade finance, letter of credit and as relationship managers. All of them must be well
versed in every terms and conditions of UCPDC 600.
UCPDC 600 and its framework (Articles 1-5), Structure of and obligations under documentary credits (Articles 6-10), standard for examination of
documents; discrepant documents, waiver and notice; and other items (Articles 11-18), Transport and Insurance (Articles 19-28) and Transferable
credits and remaining issues (Articles 29-39).
UCP 600 is prepared by International Chamber of Commerce’s (ICC) Commission on Banking Technique and Practice. Its full name is 2007 Revision of
Uniform Customs and Practice for Documentary Credits, UCP 600, and (ICC Publication No. 600). The ICC Commission on Banking Technique and Practice
approved UCP 600 on 25 October 2006. The rules have been effective since 1 July 2007.
CP 500 was the rules that had been in implementation before UCP 600. There are several significant differences exist between UCP 600 and UCP
500. Some of these differences are as follows;
The number of articles reduced from 49 to 39 in UCP 600;
In order to reach a standard meaning of terms used in the rules and prevent unnecessary repetitions two new articles have been added to the UCP
600. These newly added articles are Article 2 “Definitions” and Article 3 “Interpretations”. These articles bring more clarity and precision in the
rules;
A definitive description of negotiation as “purchase” of drafts of documents;
New provisions, which allow for the discounting of deferred payment credits;
The replacement of the phrase “reasonable time” for acceptance or refusal of documents by a maximum period of five banking days.
UCPDC 600
History of UCP
First uniform rules published by ICC in 1933. Revised versions were issued in 1951, 1962, 1974, 1983 and 1993.
1933 – Uniform Customs and Practice for Commercial Documentary Credits
1951 Revision - Uniform Customs and Practice for Commercial Documentary Credits
1962 Revision - Uniform Customs and Practice for Documentary Credits
1974 Revision – Uniform Customs and Practice for Documentary Credits
1983 Revision – Uniform Customs and Practice for Documentary Credits
1993 Revision – Uniform Customs and Practice for Documentary Credits
Currently majority of letters of credit issued everyday is subject to latest version of the UCP. This widely acceptance is
the key sign that shows the importance of the UCP, which are the most successful private rules for trade ever developed.
EUCP
Almost all of the presentations are being made in paper or traditional format still in today's letters of credit environment.
However, as telecommunication technology is expanding its borders, it is highly expected that in the very near future
traditional processes will be substituted with the electronic paperless transactions. In order to establish set of rules that
governs electronic presentations the ICC Banking Commission established a Working Group consisting of experts in the
UCP, electronic trade, legal issues and related industries, such as transport, to prepare the appropriate rules for electronic
and mixed presentations. Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic
Presentation or “EUCP" is the result of the efforts of this committee.
The EUCP is not a revision of the UCP. The UCP will continue to provide the industry with rules for paper letters of credit
for many years. The eUCP is a supplement to the UCP that, when used in conjunction with the UCP, will provide the
necessary rules for the presentation of the electronic equivalents of paper documents under letters of credit.
Summary of the UCP 600
1. Definition of key terms which are prevalent in international trade (e.g. honoring [of payments], applicants,
banking days, presentation)
2. How international trade documents (Letters of Credit) can be signed and acknowledged by all parties
3. The difference between documents, goods and services (and which parties deal with these)
4. Which parts of a Letter of Credit are negotiable and non-negotiable
5. How credit works, and how payment is made
6. How banks can communicate the confirmation of goods (tele transmission)
7. Transportation of the goods, modes of transport, and who bears responsibility
8. How to deal with discrepancies, waivers and giving notice
9. The provision of original documents or electronic copies
10. Bills of Lading
11. Insurance and covering the cost of goods
12. Loss of shipping documents in transit
A LC transaction generally happens as follows
1. An importer agrees to buy goods off an exporter – a purchase order (PO) is issued
2. The importer will approach an issuing bank (trade financier) who will issue an LC if it fulfils their
criteria (e.g. they are creditworthy)
3. The exporter will work with a confirming bank who will request the LC documents to be shipped
from the issuing bank of the importer
4. The confirming bank will then check the LC and if the terms are correct, the exporter can then
ship the goods
5. The exporter then sends the relevant shipping documents to the confirming bank, who will then
process the payment
6. Once the confirming bank has examined the shipping documents in strict compliance against the LC
terms from the issuing bank, they will forward these documents on to the issuing bank
7. The importer pays the issuing bank
8. The issuing bank then releases the shipping documents so that the importer can claim the goods
that were shipped
9. The issuing bank then transfers money to the confirming bank who will then transfer this money to
the exporter
Types of Letter of credit
RULES FOR SEA AND INLAND FAS FREE ALONGSIDE SHIP (... named port of shipment)
WATERWAY TRANSPORT FOB FREE ON BOARD (... named port of shipment)
CFR COST AND FREIGHT (... named port of destination)
CIF COST, INSURANCE AND FREIGHT (... named port of destination)
Method of Payment in International Trade for export and Import
Group E
EXW EX WORKS (... named place)
Group F
Group C
Group D