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Showing posts with label Lending Operation And Risk Management. Show all posts
Showing posts with label Lending Operation And Risk Management. Show all posts

24 March, 2022

What factors are to be taken into consideration by a bank while making a credit planning? Or, Discuss the important components those are to be taken in consideration in formulating the lending operational policy of a bank

An effective Credit planning should include the following considerations:

• Objectives of      the     credit function     

        Opening      procedures  and    obtaining information for new accounts

• Assessing & evaluating the proposals

• Terms and conditions

• Authority levels and responsibilities

• Invoicing procedures

 • Monitoring borrowing and paying behavior of customer

• Procedure relating to complaints and disputes

• Targets, benchmarks, and deadlines for the credit function

• Defining & collecting of dues, over dues and bad debts

The credit planning should be considered by internal and external factors and should be reviewed on an ongoing process. These are: • Customer‘s buying patterns, needs and requests

• Type of industry

 • Competitors ‘offers 

• Type      of products   or   services   provided   to   customers 

    Production   and warehouse management

• Distribution systems

 • Credit terms from trade suppliers and the bank‘s overdraft limits

• Costs of third parties involved, such as factoring, debt collection agencies, etc.

Answer Two ----The components that should consider when formulating a lending policy that should influence to extend credit are discussed below:

A.      Terms of Sale the conditions under which a firm sells its goods & services-

1. The period for which credit is granted: The factors that influence the credit period are- a) Predictability

b) Consumer Demand

c) Cost, profitability and standardization

d) Credit risk

e) Size of the account

f) Completion

 2. The type of credit instrument

3. Credit Function

a) Running a credit department

b) Chose to contract all or part of credit to a factor

c) Manage internal credit operations are insured against default

B. Credit analysis Refers to the process of deciding, it usually involves two steps:

1. Relevant information

a) Financial statements

b) Credit agency

c) Banks credit

d) Market good will

2. Credit Worthiness

a) Character

b) Capacity

 c) Capital

d) Collateral

 3. Credit scoring:

The process of quantifying the probability of default when granting consumer credit

C.      Collection Policy Collection policy is the final factor in credit policy. Collection policy involves monitory receivables to spot trouble and obtaining payment on past due accounts.


What is Credit Planning, discus the importance of credit planning in the lending operation of a bank

 A credit planning is to set out procedures for defining and measuring the credit- risk exposure within the Group and to assess the risk of losses associated with credit extended to customers, financial investments and counterparty risks with respect to derivative instruments. The main aspects of a credit planning are- 1) the terms and conditions on credit, 2) customer qualification criteria, 3) procedure for making collections, and 4) steps to be taken in case of customer delinquency.

19 March, 2022

Define Term Loan

 Term loan refers to asset based loan payable in a fixed number of equal installments over the term of the loan, usually for 1 to 5 years. Term loans are generally provided as working capital for acquiring income producing assets like machinery, equipment, inventory that generate the cash flows for repayment of the loan. Banks have term-loan programs that can offer small businesses the cash they need to operate from month to month

18 February, 2022

Agricultural Finance: Definition, Nature and Scope

A field of work in which people aim to improve the access of the agriculture industry, including farmers and all related enterprises, to efficient, sustainable financial services.

 

 AGRICULTURAL FINANCE Meaning:

Agricultural finance generally means studying, examining and  analyzing  the financial  aspects  pertaining  to  farm  business,  which  is  the  core  sector  of Pakistan. The financial aspects include money matters relating to production of agricultural products and their disposal.

 

Definition of Agricultural finance:

Murray (1953) defined agricultural. Finance as an economic study of borrowing funds by farmers, the organization and operation of farm lending agencies and of societys interest in credit for agriculture.

Tandon and Dhondyal (1962) defined agricultural. Finance “as a branch of agricultural economics, which  deals  with  and  financial  resources related  to individual farm units.

 

Nature and Scope:

Agricultural finance can be dealt at both micro level and macro level. Macro- finance deals with different sources of raising funds for agriculture as a whole in the economy. It is also concerned with the lending procedure, rules, regulations, monitoring and  controlling of  different agricultural credit institutions. Hence macro-finance is related to financing of agriculture at aggregate level.

 

Micro-finance refers to financial management of the individual farm business units. And it is concerned with the study as to how the individual farmer considers various sources of credit, quantum of credit to be borrowed from each source and how he allocates the same among the alternative uses with in the farm. It is also concerned with the future use of funds. Therefore, macro-finance deals with the aspects relating to total credit needs of the agricultural sector, the terms and conditions under which the credit is available and the method of use of total credit for the development of agriculture, while micro-finance refers to the financial management of individual farm business.

Suppose against a loan proposal of your branch, the head office of the bank has sanctioned a loan of taka 1.00 (one) crore against a mixed farm (Agriculture, poultry, fishery and dairy farm). You were advised by head office to disburse the loan after due documentation. Please list down the names of the documents to be obtained from the borrower before disbursement of the loan

1. General Documents

-   Acceptance of sanction letter

2. Charge Documents

-   D.P. Note

-   Letter of Disbursement

-   Letter of Agreement / Arrangement

-   Letter of Undertaking

-   Letter of Installment

3. Hypothecation of Stock & Receivable

-   Letter of Hypothecation on stock of Goods & receivables

- Irrevocable General Power of Attorney (IGPA) to sell hypothecated stock & Receivable

-   Letter of Disclaimer 

4. Lien & Set-Off

-   Letter of Lien

-   Letter of Authority to debit the4 customer account

5. Insurance Policy

-   Valid Original Insurance Policy covering fire risks

-   Original receipt of premium

6. Undertaking

-   No liability with any other bank(s) excepting as declared in proposal

-   The customer shall deposit Sale proceeds in respective Account

7. Guarantee

-   Personal guarantee, spouse guarantee, third party personal guarantee

8. Other Documents

-   Letter of Indemnity to be obtained

-   Undated and post-dated cheques

-   Up to date & Clean CIB report

9. Legal, mortgage and security documents

- Legal Opinion, valuation certificate of branch and third party surveyor of the property

-   Non-Encumbrance Certificate

-   Memorandum of Deposit of Title Deed

-   Duplicate Carbon Receipt, Mutation Khatian

-   Up to date Rent/TAX Payment Receipt

-   Khatian-CS, SA, RS, BS, DP

-   Original title and bia Deeds

-   Mortgage Deed duly registered with District/ Sub-Registry Office

- Registered Irrecoverable General Power of Attorney (IGPA) authorizing to sale the Mortgage Property


What do you know about ALCO? Do you think each commercial bank should form ALCO?

 Asset-Liability Management Committee (ALCO) is a risk-management committee in a financial institution that generally comprises the senior-management levels of the institution. ALCO are to look after the financial market activities, manage liquidity and interest rate risk, understand the market position and competition etc.

 

34. Do you think each commercial bank should form ALCO?

Asset-Liability Management Committee (ALCO) is the core unit of a financial institution. So it is the basic need to form an ALCO to balancing the Asset-Liability Management.

The ALCO will set a standard limits on borrowing in the short-term markets and lending long-term instruments that controls over the financial risks and external events that may affect the bank's asset-liabilities position. It manages the risks to acceptable level by monitoring and sets the competitive prices between assets and liabilities to maintain the liquidity position of the company. Without an ALCO, a commercial bank may lose all positive financial opportunities and the bank must be faced by different types risk as like as financial crisis. So that it shout to be formed a ALCO for each commercial bank to manage the vulnerable financial position.