Dear Candidates,
Purpose :To prepare for written exam of SBI JUNIOR ASSOCIATES (CLERK)/ PO/IBPS PO/CLERK/RRB PO/ASSISTANT.
Must spend one hour for this section.
Out of this one hour :
Spend 15 min : visit following very useful website,:
http://bankinterview.in/
on home page you will link for 600 important questions on banking/financial aspects. click that
Learn following :Q: What is Demand loan.
A:Loan with or without a fixed maturity date, but which can be recalled anytime (often on a 24-hour notice) by the lender and must be paid in full on the date of demand. Also, the borrower can pay off a demand loan at any time without incurring pre payment penalties. In india normally this is granted against securities like bank deposits,lic policy,nsc, gold jewellery etc.
Q:What is Term Loan.
A:A loan from a bank for a specific amount that has a specified repayment Period(term) and a floating or fixed interest rate. Term loans may have repayment period between one and 30years.
Q:What is Overdraft.
A:An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn".
Q:What is cash credit limit.
A: In Cash Credit facility an amount of loan is given to the borrower for his working capital needs.A customer can draw upto a limit that depends upon Drawing Power calculated based on value of security.
Q: What is Pre Shipment credit (Packing Credit).
A:Pre-shipment / Packing Credit also known as ‘Packing credit’ is a loan/ advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment. Packing credit can also be extended as working capital assistance to meet expenses such as wages, utility payments, travel expenses etc; to companies engaged in export or services. Packing credit is sanctioned/granted on the basis of letter of credit or a confirmed and irrevocable order for the export of goods / services from India or any other evidence of an order for export from India.
Q: What is Post Shipment credit.
A:'Post-shipment Credit' means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realisation of export proceeds as per the period of realization prescribed by Reserve Bank of India (RBI) and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time. As per extant guidelines of RBI, the period prescribed for realisation of export proceeds is 12 months from the date of shipment.
Purpose :To prepare for written exam of SBI JUNIOR ASSOCIATES (CLERK)/ PO/IBPS PO/CLERK/RRB PO/ASSISTANT.
Must spend one hour for this section.
Out of this one hour :
Spend 15 min : visit following very useful website,:
http://bankinterview.in/
on home page you will link for 600 important questions on banking/financial aspects. click that
last year in all banking exam most questions came out of these questions only.
you must cram min 15 Questions out of these 600 QA today.
Spend 30 min :
read any current affair magazine
Spend 15 min:
A:Loan with or without a fixed maturity date, but which can be recalled anytime (often on a 24-hour notice) by the lender and must be paid in full on the date of demand. Also, the borrower can pay off a demand loan at any time without incurring pre payment penalties. In india normally this is granted against securities like bank deposits,lic policy,nsc, gold jewellery etc.
Q:What is Term Loan.
A:A loan from a bank for a specific amount that has a specified repayment Period(term) and a floating or fixed interest rate. Term loans may have repayment period between one and 30years.
Q:What is Overdraft.
A:An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn".
Q:What is cash credit limit.
A: In Cash Credit facility an amount of loan is given to the borrower for his working capital needs.A customer can draw upto a limit that depends upon Drawing Power calculated based on value of security.
Q: What is Pre Shipment credit (Packing Credit).
A:Pre-shipment / Packing Credit also known as ‘Packing credit’ is a loan/ advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment. Packing credit can also be extended as working capital assistance to meet expenses such as wages, utility payments, travel expenses etc; to companies engaged in export or services. Packing credit is sanctioned/granted on the basis of letter of credit or a confirmed and irrevocable order for the export of goods / services from India or any other evidence of an order for export from India.
Q: What is Post Shipment credit.
A:'Post-shipment Credit' means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realisation of export proceeds as per the period of realization prescribed by Reserve Bank of India (RBI) and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time. As per extant guidelines of RBI, the period prescribed for realisation of export proceeds is 12 months from the date of shipment.
Credit Management Areas in Banks
CREDIT APPRAISAL IN BANKING SECTOR
WHAT IS CREDIT APPRAISAL?
Credit appraisal means an investigation/assessment done by the bank prior before providing any loans & advances/project finance. This involves following viability checks:
commercial,
financial &
technical
Commercial Viability: The ability of a business, product, or service to compete effectively and to make a profit.
Financial Viability: The ability to generate sufficient income to meet operating payments, debt commitments and, where applicable, to allow for growth, while maintaining service levels. In banks, this is measured in terms of DSCR & Debt Equity Ratio for term loans and Current Ratio for WC Loans.
Technical Viability: This report analyses the locational advantage of project, production process and technology to be employed, availability of market to sell its products, availability & suitability of raw material, cost of equipment and its availability. Further it analyses availability of other facilities such as fuel, water, electricity, transportation etc. and whether these are available at reasonable prices. It also discusses availability of skilled, unskilled and supervisory staff besides managerial staff.
In case of individual loans, the credit worthiness of applicant is foremost factor. The factors such as:
» Age
» Income
» Number of dependents
» Nature of employment
» Continuity of employment
» Repayment capacity
» Previous loans, etc. are taken into account while appraising the credit worthiness of a person.
Proper KYC in terms of RBI guidelines about identification of the persons is also carried out.
Banks give lot of importance to 3 ‘C’ while considering credit proposals viz.,
» Character
» Capacity
» Collateral.
BROAD CLASSIFICATION OF LOANS IN BANKS
Loans can be classified as fund based & non-fund based:
» FUND BASED
Working Capital Loans such as Cash Credit Limits or Overdraft Limits.
Term Loans for acquiring fixed assets.
» NON-FUND BASED
Letter of Credit: A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.
Bank Guarantee: A Bank guarantee is a promise from a bank that the liabilities of a debtor will be met in the event that you fail to fulfil your contractual obligations.
CREDIT APPRAISAL PROCESS IN BANKS (STEP-WISE) [PRE SANCTION]
Receipt of application from applicant on bank’s prescribed form
Receipt of supporting documents such as 3 years’ balance sheet, projected balance sheet, KYC documents, MOA, AOA in case of companies or Partnership Deed in case of a partnership firm & photocopies of title deeds of properties to be mortgaged etc.
Spot verification visit by bank officers or its authorised vendors
To check RBI defaulters list, wilful defaulters list, CIBIL data, ECGC caution list, etc. to check past record of the borrower
Obtaining non-encumbrance certificate from bank’s approved advocate
Valuation report of the properties from empanelled valuer/engineers
Preparation of financial data based on CMA and carry out risk rating as per bank prevailing model
Proposal preparation: this contains detailed information about borrower, its rating analysis of financial data, computation of PBF, terms and conditions of sanction and past conduct of account. This is prepared by one officer lower than sanctioning authority and such officer is called recommending authority. If there are more than one such officer then all of them have to sign.
Sanction/approval of limits/loan by competent sanctioning authority. In banks, various officers as per their rank are vested with loaning powers.
Documentation: This involves execution of appropriate agreements by borrower/guarantor.
Disbursement of term loan is done in phased manner as per progress of project. In case of WCL, limit is fixed in an operative account such as cash credit or overdraft and operations are allowed as per available drawing power. The drawing power is computed based on value of security available at a given point of time.
CREDIT FOLLOW UP PROCESS IN BANKS [POST SANCTION]
Post sanction follow up involves 3 major areas named as Follow Up, Supervision and Monitoring.
Follow Up: After disbursement of loan, bank has to keep a track on loan accounts to ensure timely repayment of loan by borrowers. For this purpose, they follow up by issuing reminders through various modes such as telephonic, written or visit
• Ensure terms and conditions of sanction is intimated to borrower
• Borrower advised to ensure compliance of the same
• Ensure receipt of acceptance of terms and conditions and kept on record
• Ensure all terms and conditions are fulfilled before disbursement.
Supervision:
•To ensure compliance with the terms and conditions of sanction
• To ensure that assumptions for credit sanction was correct
• To ensure end use of funds
• To ensure adequacy of credit on an ongoing basis depending on the needs of the borrowers
• To monitor the health of the unit and detect signs of weakness in the financial position of the borrower
Monitoring: This requires receipt of various statements from borrower that needs to be scrutinised diligently by the bank.
Disbursement:
In case of Term Loan
Loan to be disbursed as per the schedule approved by the bank
Disbursement of installments related to actual progress in implementation of the project – Site visits periodically
Progress in project implementation should be as per schedule – For any delay seek borrowers view on steps taken for rectification
Monitor costs being incurred, borrower’s contribution, reasons for cost overruns
In case of Cash Credit ƒ
If sanctioned along with Term Loan - Must be disbursed only when the unit commences commercial production
Drawing power is calculated based on value of security. DP = VOS - Margin
Periodical Inspection
Enables bank to keep check on the stocks charged to the bank
Obtain first hand information about the functioning of the unit
Hypothecation Account ‰
Verify adequacy of stocks ƒ
Physical verification of stocks – do a test check ƒ
Valuation of stocks – to be done on cost price or market price basis whichever is lower ƒ
Quality of stocks charged – Stock should not be old, obsolete, rejected goods etc. Ensure its saleability ƒ
Segregation of stocks – Stocks not hypothecated to the bank must be kept separately ƒ
Checking of Record – Books, register maintained by borrower must be verified to check the actual movement of goods and system of stock reconciliation with physical quantity ƒ
Match with the stock statement of the borrower ‰
For limits sanction against book debts, appropriate documentary evidence supporting sale of goods must be verified ‰
Bank’s name board to be prominently displayed indicating the goods hypothecated
Pledge Account ‰
Ensure that godown is well maintained ‰
Goods are stored properly ‰
Entries in the godown register maintained appropriately ‰
If required conduct stock audit
Operations of the unit ‰
Inspection of unit to be carried out periodically ƒ
To ascertain first hand on the working conditions, activity and progress ƒ Availability of raw materials, spares, power supply any other issues that may affect the unit
Maintenance of Inspection Register ‰
Bank must maintain register to record comments on findings of inspection ‰
Inspecting officer’s signature required ‰
Irregularities / deviation to be brought to the notice of the borrower ‰ To be followed up vigorously
Operations in the account ‰
Non payment of interest and installments on due dates to be followed up with the borrower ‰
Bank should have a system of issuing reminders in advance about the repayment obligation ‰
Cash credit account ƒ
Frequent overdrawals not to be encouraged ƒ
Frequent requests for overdrawals should be looked into ƒ
In case of shortage of working capital consider enhancement ‰
Credits in account to be checked to see sales reported are routed through the account ‰
Look for transactions with sister concerns ‰
Book debt statements to be scrutinized to ensure that credit sales are realised within the stipulated period ‰
For old debts check from the borrowers steps taken to recover the dues‰
Bills purchased / discounted, payment on due date to be closely monitored
Insurance ‰
Bank to ensure that securities offered have adequate and proper insurance cover on continuous basis ‰
Cover to be obtained for full value of security ‰
Value of security should be more than the limit sanctioned and deterioration in its quality checked
Information System ‰
Seek information at regular intervals for Progress in implementation of the project financed ƒ
Quantum of production / sales ƒ Levels of current assets and current liabilities ƒ Stock position ƒ Debtors position ƒ Creditors position ƒ
Funds flow and cash flow ‰
Information may be sought on regular basis
Above statements called for from borrower enables bank to monitor the levels achieved vis-à-vis projected figures of the unit. Stock statement reveals the quantity of paid and unpaid stock, their price and movement. Statement on book debt reveals age-wise breakup of debtors and creditors. Timely and qualitative information must be obtained.
System of annual review/renewal of account. ‰
To scrutinise: Balance Sheet, P & L Account, Tax Returns of borrower ƒ
Undesirable features to be discussed with the borrower ‰
Credit report of the borrower to be updated on a regular basis ‰
Mechanism to initiate corrective action
To recalculate permissible bank finance based on projected figures as well as actuals.
For written exam/ interview guidance , you may contact:
ANIL AGGARWAL SIR ( P.O. 1982 BATCH)
EX CHIEF MANGER ,PUNJAB NATIONAL BANK.
Mobile: +91 9811340788
E-mail ID: anilakshita@yahoo.co.in
Office: Flat #49, Trilok Apartments, Patparganj, I.P. Extension, Delhi-110092.
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Website: http://bankinterview.in/
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