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Loans & Trade Finance Process

  • The business of lending, which is main business of the banks, carry certain inherent risks and bank cannot take more than calculated risk whenever it wants to lend. Hence, lending activity has to necessarily adhere to certain principles.

a) Classification of Credit Facilities:

  1. Fund Based Credit Facilities: They can be generally of following types:
  • Cash Credits/Overdrafts
  • Demand Loans/Term loans
  • Bill Discounting
  1. Non-Fund Based Credit Facilities: They include Bank Guarantees and Letter of Credit. Customer Master Creation in Loan Disbursement System

Either customer or relationship manager across locations approaches for banking loan facilities.

  • Once the potential customer agrees for a certain facilities/products of the bank, the relationship manager request for the relevant documents i.e. KYC and other relevant documents of the customer depending upon the facility/product.
  • The documents received from the customers are handed over to the Credit team of bank for sanctioning of the facilities/limits of the customers.
  • Credit team verifies the document‚Äôs, assess the financial and credit worthiness of the borrowers and issues a sanction letter to the customer.

 

  • Once the customer agrees with the terms of the sanction letter disbursement team ask for PDCs.
  • The disbursement team verifies the PDC and creates customer account and master in the Loan Disbursement System and assigns the limits.
  • Once the limits are assigned to the customer, the customer can avail any of the facilities/products up to the assigned credit limits.

 

 

 

Fund based and Non Fund Based

 

Product

Income for banks

Accounting of Income

Cash Credit/ Overdraft

Interest          on         Cash            Credits/ Overdraft balances.

Interest accrued on a daily basis at the agreed rates.

Demand

draft/                 Term Loan’s

Interest on Demand draft/Term loan.

Interest accrued on a daily basis at the agreed rates.

Bill Discounting

Discounting Income.

Interest accrued on a daily basis at the agreed rates.

Bank Guarantee

Commission.

Commission accrued over the tenure of the bank guarantee.

Letter of Credit

Commission Income.

Commission accrued over the tenure of the bank guarantee.

Risk & Controls in the Loans and Advances Process

 

Risk

Key Controls

Masters defined  for  the  customer are not in accordance with the (re Disbursement Certificate.

Authorization          by       authorized                                  personnel                      only segregation of duties like maker, checker check.

Inaccurate interest / charge being calculated in the Loan disbursal system

Interest is automatically calculated by CBS as per defined rules.

Lower rate of interest/ Commission may be charged to customer.

Interest is automatically calculated by CBS as per defined rules.

 

 

Credit Line setup is unauthorized and not in line with the banks policy.

Credit committee checks that the Financial Ratios, the credit facility and amount offered is as per  banks policy.

Credit Line setup can be breached in Loan disbursement system/CBS.

Transaction not permitted if out- standing amount exceeds the credit limit assigned to customer.

Facilities/Loan’s             granted                                         maybe unauthorized/in- appropriate

Segregation of duties makers, checker check is implemented.

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