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:

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’s, 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.

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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