¢ a iu - (ome Sree Ta ea Banking Arrangement finance for the needs of panking arrangement. A ions of a bank to arrange ms of Ieis one of the prime functc their customers. There may be different fo brief detail of all of themis as under: Sole Banking Arrangement In Soe tanking arangement, financial needs such as housg ee Targe number of borrowers are fulfled by single personal loan per cabjct tothe resources avaiable with it and up to the mts imposed by the Reserve Bankofindia. Tris rangement the borower obtains credit from a single bank. This is simplest form of tie up and is ope jorrally-convenient for both the tender ee snd heborrower Mostef the banking te up in Inia is ofthis type because the amountofbank finance in an individual ease is usually smallnaabcex AaBbC: AaBbCe u WE weed = 5 eraoe 1 are met by more than one bank and terms and conditions, regarding the | rangement of financing is called When the credit requirements of a borrower ity on its own such 3 ‘onsortium arrangement. cach bank lends independer security, rate of interest, margin et ‘mtipe Banking Arrangements’ Is like | ute damngarongerent ! / have smooth operation under multiple banking arrangement, i In order to 1¢ from time to time information necessary thatthe financing banks must exchangs Jnrespect of borrower and his accounts. Features of Multiple Banking arrangement: Tr-Borrower approaches multiple banks to tie up his entire requirement of ‘working capital and other. as ae 12. Banks independently assess the working capital and other requirements of 7 theborrower. I } 3. Eachlendingbank takes separate loan documents and securities 4, Banks independently prepare documentation and monitor individualAaBbC: AaBbCc ” z AaBoccde i - (me) et x z 2 emactnie ES ray wre wot clon one reseeemes at ferme! fently prepare documentation an‘ i pts roe Sar nd customer. al Guidelines regarding Multiple Banking Arrangement: 2 Obtain regular certification by a professional, preferably 2 Company secretary, regarding compliance of various statutory prescriptions from the borrower. 3. At the time of granting fresh facilites, banks may obtain declaration from fom other 4, Make greater use of credit reports available from CIBIL_{Credit Information Bureau( India) ited.nasvceax AaBbC AaBbCe However, the main difficulties in multiple banking are that there is no coordination among banks regarding appraisal, documentation, other terms and advances. In such a situation borrowers got the upper hand by playing one bank against the other. Consortium Lending — I \When the projec is large for one bank to finance on its own, many banks pool their resourcesto cea a consorfum bankto cary outthat projet = In consortium lending/financing,-several. banks (or financial institutions} jointly finance the project ofa borrower. ie ie lonciog backs formlly tomeet the credit needs of abovoce AABbC: AaBBCC ae ee em ee ‘onsorium bankto camry outta o}ect «in consortium lending/financing, several Banks (or financial institutions) jointly finance the projectof a borrower «.Thelending banks formally join together, By way of an inter-28 agreement tomeetthe creditneeds of @ borro praisaf/ common docume © Inthis case, the supervision and follow-up exere institutions. consortium bank. The whole ‘© Here, the partidpating banks form a n 3 forming consortium, so the Joan amount is divided among riskgetaivided among th The bank which takes the higher risk (by giving the highest amount of loan) ‘acts as a leader and intermediary between the consortium and theacts as a pee and fecormediocy between the ‘consortion and the borrower. onsortium Lending: Important advantages o' 2. Itprovides for orderly/ Multiple Banking Arrangement V/s Consortium Lending system: In consortium lending/financing, several banks (or financial institutions) jointly finance the project of a borrower. g Syndication/ Credit Syndication: In general, it is known as Loan Syndication. s A syndicate loan refers to a loan in which multiple banks/financial institutions Ti =a = issyndication/ Credit Syndication: In general it is known 25 Loan ‘A syndicate loan refers to a loan in which multiple banks/financial institutions {Commonly called participants) provide the loan to a borrower under single Joan — agreement. This term is ‘generally reserved for loans involving international transactions, different currencies, and a necessary banking cooperation to guarantee payments. I ‘Aloan syndication is headed by 2 managing bdfik that is approached by the ee ae etmene Oe onikes (pemehere te banksand financial institutions. In return, the borrower and 1e generally paysthe Lean_syndication is the most common way for European and American corporations to seek fmancing from banks and other lenders. a The managing bank in loan syndication is not n ee n i ecessarily the majority Jen ora nk ay ote ariciag banks may ac 2 led or ssume ee ae ig bank depending on how thecreditLoan Syndication vs. Consortium: ‘A setup in which group of individuals or A set? fulfling a debt or financng 2 smgle borrower whers® the setup is ‘govemed by a legal contract that delegates responsibilities among its members, is known as Consortium” I entities decides-to pool resources is somewhat a similar process, the term is (generally reserved for loans that involve intemational transactions; different Currencies and a necessary banking cooperation to guarantee payments This tup is headed by @ managing bank that is approached by the borrower to whereas a Loan Syndication I Credit Delivery: Fulfling: the fund based feeds of a customer ts prime: responsibility of @ bank Bank fulfils this requirement in the two ways, Viz: fundtee payments -This Sereces and a necessary banking cooperation {9 Juve setup is headed by a managing roached by the borrower to ‘arrange credit. bank that is app! Credit Delivery: Fulfiling the fund based needs of a customer is the prime responsibility of a bank ‘Bank fulfls this requirement in the two ways, Viz; fund based and non-fund based facility. ¥ Inthe fund based feciity, Bank as a creditor fulfils the requirement of a customer Re by giving an agreed amount of money as per the’credit agreement. While in the non fund based facility, the lending bank does not commit any physical outflow of funds ‘but makes promises in favour of a third party (through its letter of credit) 10 provide monetary compensation on behalf oftheir clients pra eee year | to priority secors and accordingly make plan to yisburse loays b example, if a branch i a ame i ee 2. Credit acquisitions: Once the prioriti tc Ra Priorities have been sanctioning the loans to customers considering ie ee af coll it t( Pea Credit Delivery: Fu" * ie responsibilty of a bank. Bank folfils ‘ based and non-fund based facility. oni 0s a creditor flfis the requirement of a.customer ‘of money as per the credit agreement while in the ronfund besed facility, the lending bank does not commit any physical outflow of funds but makes promises in favour ofa fird Party (through its letter of credit) 10 provide monetary compensation on behalf oftheir cients requirements (Crecit delivery) bank considers this requirement 19 (0 V8 Inthe fund based facility, B by giving an agreed amount However before disbursement of credit the following points also 1. Credit thrust and priorities: As ptionties as laid down in the budget of the current lending to priority sectors and accordingly make plan to disburs _ example, if a branch of a bank is in rural area, thrust is normally on agg-s! Toansandsoen———__ 2a Credit acquisitions: ‘Once the prioritieshave_been—set, banks start ee sanctioning the loans to customers considering, credit history of the borrower, requirement of collateral security etc. 3, Statitory and Regulatory Restrictions on advances: Before sanctioning loans to customers, banks consider the statutory and regulatory per the governing /ruing party's emphast as, bankers lay shruston joans . Forany, made by the government in this regard. Some of the Se ne poverneneareias fone restrictions made by hares: A bank cannot grant any loans and ‘a. Advances against bank's own sI - the Banking ‘advances on the security ofits own shares.( Section 20(1) of Regulation Act, 1949) Z oe b eee ete ews Banks afé prohibited from entering into any commitment for granting any loans or advances to or on behalf of 1. any ofits directors, or 2. any firm in which any of its directors is interested as partner, manager, employee or guarantor, or 3. any company(public/private) in which any of the directors of the ——banking company is director, Managing agent, manager, emy or guarantor or in which he holds substantial interest, c. Restrictions on Holding Shares in Companies: Banks should not hold shares in any company except as pledge/ mortgagee, of an amount exceeding 30 percent of the paid-up share capital of that company or 30 percent of its own paid-up share capital and reserves, whichever is less. d. Restrictions on Credit to Companies for Buy-back of their Securities Banks shall not provide loans to companies for buy-back of their shares/ L ee) nnjt as pledge/ mortgagee, of an amount xceeding 30 percent of the paid-up share capital of that ‘company or 30 percent of its own paid-up share capital and reserve% whichever is less. 4 peeurations on Credit to Companies for Buy-back of their Securities Banks hall not provide loans to companies for buy-back of their securities. However, companies are permitted to purchase their own shares or other specified securities from their free reserves, or securities shares in any company excey premium account or proceeds of any shares ‘of other specified securities. e. Regulatory Restrictions: 1. Granting loans and advances to relatives of Directors: Without prior approval of the Board, no loans andf advances aggregating to Rs. 25 lakh and above should be granted to relatives of the bank's Chairman/Managing Director or other Directors or other bank's Directors. 2. Banks should not pay commission to staff members and officers for recovery of loans. Sank needs- ene ee should not exceed Rs. 10 lakh and Rs. 20 lakh if the securities are held in physical and demateri ai shares / © A minimum margin of 50% of the market value of equity convertible debentures held in physical form and 25% of the market value in case held in dematerialized form. Ssqg ono nSnEC CSS ONTa Ngo O COCO OO SSE ISOOCSOONSE penerensneasn Credit Appraisal: Credit appraisal means evaluation of the credit of the customers. In other words, credit appraisal is the process by which a lender evaluates the technical feasibility, economic viability, financial viability etc of the project including the creditworthiness of the prospective: borrower. Through credit appraisal, bank/ any lender assesses that whether the customer may repay the loan along with the interest due thereon in the stipulated time or not. of bank, a bank has its own methodology to determine the eteteeie apiece Iai. hance, oisaroee very careful in planning and presenting his financing modes/ projectbeforethe bank. | ue ce ati in case of«-A-minimum margin of 50% of the market value of equity shares / convertible debentures held in physical form and 25% of the market valuein case held in dematerialized form. Perttererentenennnnrannsnsnesnsnssoseenessasnsssa cocoon os aod Credit Appraisal: Credit appraisal means evaluation of the credit of the custamers. In other words, credit appraisal is the process by which a lender evaluates the technical feasibility, economic. viability, financial viability etc of the project including the creditworthiness of the prospective borrower. Through credit appraisal, bank/ any lender assesses that whether the customer may repay the loan along with the interest due thereon in the stipulated time or not. _of bank, a bank has its own methodology to determine the creditworthiness of the borrower-t-has its own norms and standards as set by the top authority of the bank. Hence, a borrower should be very careful in planning and presenting his financing modes/ projectbefore the bank. | i Incredit appraisal the first step is to verify the factualthe uotthiness of the borrower. It has its own norms and standards as set by the top authority of the bank. Hence, a borrower should be very careful 2. Validation of credit appraisal: 1. Incredit: > ‘Step is to verify the factual information with the documents | | by the loan applicant. For example, in case of company, verify regis ‘of the company with the certificate of of business. 2 Next step is take visit of all units (factory and office) of applicant and verify all statutory required approvals and license both on record and on display of the premises and it should be recorded that a visit was taken place on particular date and time and whatwas the observation of the visiting team. 3. Thirdly, justification of the credit proposals must be properly assessed. For example, in case of home loan for construction of a building, there must be approved map of building, client must be in a position to start the construction, and he must have adequate funds with him to complete the building. Ievaluated from the following various angles, such as: 1 Management Appraisal: A lot of attention has to be paid to this area. Bankers look into the following: who are the promoters of the company? Whatis their track record? Whether they have enough experience in the fine? 2. Technical Appraisal: Proposal is evaluated from technical aspect also. Bank wants to know what type of technology is being used. Is the venture technically feasible? What could be the possible economic life period of the Present technology? 3. Commercial Appraisal: Is the project for which loan is being sought commercially viable? What is the demand of the product in the market? in case of already manufactured product, is the product accepted in the market? How many substitute products are there? Is there sxope for further growth? 4. Financial Appraisal: Does the promoter have the capacity to raise finance through equity and debt? Will the business generate sufficient funds to service the debt and other stakeholders? Is the capital structure optimal? 5. Economic Appraisal: 's the project economically viable? What is the break even point? Will the business post positive net present value through its ‘economic life? What is the probable internal rate of return? EtcStructuring of Loan Documentation: There are various types of documents which have to be submitted for the purpose of getting loan from the bank. However, documents to be submitted depend upon the nature of bank loan. Basically, following types of documents are required in loan Processing: A.Documents required for loan against property: 1. For salaried individuals: It inckudes- a. Proof of residence- Any one of Ration card copy/Telephone bill/Electricity bill/voters card — * ee Amy one of Voters card/Aadhar card/Oriversfor the of , However, documents to be submitted depend upon the nature of bank loan. Basically, following types of documents are required in loan processing: Structuring of Loan Documentation: There are various types of documents which have to be submitted for the purpose of getting loan from A.Documents required for loan against property: 1. For salaried individuals: !t includes- a. Proof of residence- Any one of Ration card copy/Telephone bill/Electricity bili/voters card — ‘ne - Amy one of Voters card/Aadhar card/Orivers¢. Copy of Latest bank statement d. Latest six months’ salary slip e. Copies of all property documents. 2. For self employed individuals: it includes a. Proof of residence-As mentioned above b. Proof of identity— As mentioned above C. Certified Financial statement for the last two years d. Latest Bank statement €. Copies of all property documents B. Documents required for personal loan: a) Identity Proof- as mentioned above b) Address Proof- as mentioned above c) Bank Statement of previous three months d) Latest salary slip