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ppt on loans and advances
The document discusses various types of loans and advances provided by banks, as well as the principles of sound lending. It describes how banks earn profits by providing loans and advances to individuals, businesses, and industrialists. Some key points covered include: - Banks provide secured and unsecured advances, with secured advances having a primary security/collateral pledged by the borrower, such as machinery. - The main types of advances are loans, cash credits, overdrafts, and bills discounted. Loans can be short-term or long-term based on purpose. - Banks employ various methods to charge security for loans, including lien, pledge, mortgage, assignment, and hypothecation of movable property.
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ppt on loans and advances
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- 2. Loans and advances Business – profit motive Banking – business So banking needs – profit Earns income/ profit by loans and advances
- 3. Loans and advances Gives loans to businessman, Traders, Individuals, industrialists – on security / personal security Risk of default So cautious and sound lending policy
- 4. Loans and advances Principlesof sound lending Safety Liquidity profitability
- 5. Principles of soundlending Safety Liquidity Profitability Security Purpose of loan Sources of repayment Diversification of risk Productivity of loan
- 6. Secured and unsecured advances Personal security- unsecured Security of some tangible goods- secured
- 7. Unsecured advances Sec 5of Banking Regulation Act “unsecured loan or advance means a loan or advance not secured”. So it is Given to customers with integrity Sound financial backing High reputation Capacity to manage business Guarantee
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- 10. Secured advances Sec5 of Banking Regulation Act “secured loan or advance means a loan or advance made on a security of assets the market value of which is not at any time less than the amount of loan or advance”. Primary security Deposited by borrower Ex. Machinery bought on loan Collateral security All others collateral Secondary or additional
- 11. Forms of advance Fourtypes Loans Cash credit system overdraft Bills purchased and discounted
- 12. Loans Lump sumadvanced for certain period For a rate of interest % Repaid in installements Demand loan or term loan dd loan - short period ex. Working capital Term loans – medium / long term ex. Capital expenditure
- 13. Cash credit Arrangement toborrow up to a certain limit Withdraw when needed Interest only for amount withdrawn Against pledge or hypothecation No use then only commitment charge
- 14. Overdraft Business manonly – current a/c Withdraw over and above the balance up to a agreed limit Temporary arrangement Interest charged for amount drawn
- 15. Bills discounted and purchased Discount bills Deduct interest and credit the remaining Interest in advance A clean advance Credit worthiness Purchase bills accompaning documents to title of goods ex. Bill of lading, RR Purchase and grant loans in form of o/d but actually it is holding as a security
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- 17. Modes of chargingsecurity If customer fails to pay then banker can fall back on the security So create a charge It is available as a cover for an advance Should be legal, perfect, complete
- 18. Methods of chargingsecurity Lien Pledge Mortgage Assignment Hypothecation
- 19. Lien Right toretain the properties belonging to the dr until the debt due to him is repaid Only to retain not to sell Banker’s lien – general lien Also implied pledge So can sell after due notice
- 20. Pledge Indian Contract Act “Bailmentof goods as security for payment of a debt or performance of a promise” Occurs when goods are delivered Returned only on repayment Serve as security Ex. Goods, stock, shares, debentures, movable property
- 21. Essentials of pledge Delivery of goods may be physical or symbolic Transfer of ownership Right in case of failure to repay
- 22. Advantages of pledge Easy to dispose as in possession No double charge No manipulation In event of damage or loss can recover from insurance
- 23. Pledge Rights To retain For particular debt Can claim expense In default can file a suit, sue, sell Remedy for 3rd party Damage for Non disclosure Loss for Defective title Duties Care of goods Use as per agreement Deliver on repayment Along with profit Responsible for loss
- 24. Mortgage Method of creatingcharge on immovable property like L&B Only for immovable property Some rights only To secure loan Specific one Actual possession with mortgager In case of default mortgagee can sell and recover
- 25. Forms of mortgage Simple mortgage Mortgage by conditional sale Usufructuary mortgage English mortgage Mortgage by deposit of title deeds Anomolous mortgage
- 26. Other type ofmortgage Legal mortgage Legal title t/f to mortgagee by deed On repayment re t/f expensive Equitable mortgage Mere delivery of document Memorandum only
- 27. Rights of Mortgager Rightof redemption Accession to property Right to t/f to 3rd party Right to inspect and production of documents Mortgagee Right to sue To sale For foreclosure Accession possession
- 28. Assignment Transfer of anyexisting or future right , property, debt by one person to another Who assigns - assignor To whom – assignee Usually done on book debts, insurance claims, money due.
- 29. Types of assignment Legalassignment t/f of actionable claim In writing by assignor Intimating the assignee name Assignee gives a notice to confirm balance Can sue Equitable assignment If not legal then EA
- 30. Hypothecation Mortgage ofmovable property charge over goods, raw materials, goods in progress Hart defines it as “A charge against property for an amount where neither ownership nor possession is passed to creditor”
- 31. Characterstics Movable goods Possession and ownership with borrower Charge by hypo deed Submit statements regularly Right to inspect Also called as “open loan” Convenient method
- 32. Precautions Get stockstatement regularly Inspect stock and accounts Undertaking – not hypothecated Letter of hypothecation Insure goods Board “ hypothecated”
- 33. Layaway sale -emerging Pay and earmark Possession later No bank lending
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