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Final
Final
y BILL DISCOUNTING: Bill discounting is a lending activity where Bank takes the bill drawn by borrower on his(borrower's) customer and pay him or her immediately deducting some amount as discount/commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collect the total amount. If the bill is delayed, the borrower or his customer pay the Bank a pre-determined interest depending upon the terms of transaction.
Creation of B/E
Two parties are involved i.e. (A) seller sells goods or (B) merchandise to a buyer. Seller would like to be paid immediately but buyer would like to pay after sometime. Seller draws a B/E of a given maturity on the buyer. Seller (Creditor) becomes drawer of the bill and buyer (Debtor) becomes drawee of the bill. Seller sends the bill to buyer for his acceptance. Acceptor may be buyer himself or third party.
signature of two parties considered good for the amount of bill, so he can enforce his claim easily. banker knowing in advance the date of its maturity.
y Certainty of Payment A B/E is a self liquidating asset with the y Profitability The discount on bill is front ended, the yield is
much higher than in the other loans and advances, where interest paid quarterly or half yearly.
healthy parallel bill discounting market would have stabilized the violent fluctuations in the call money market as banks could buy and sell bills to even out their liquidity mismatches.
business as compared to their overall advances, and often none at all, especially for the public sector banks. y The number of banks using the instrument has grown from five, in the year 2000 to about 15, at present. The market players consist of generally private and foreign banks and a few nationalised banks.
ascertain. However, the consensus estimate of the banks surveyed in the year 2005, is that the total size of the deals entered into in a year is around Rs. 2,000 3,000 crore. y IBPC market has grown over the past 3-4 years. The growth rate would be in synchronisation with growth in advances of the participants and has been driven to meet the requirements of priority sector credit.
market for IBPCs, under the extant scheme, lacks depth and is seasonal in nature. Most of the deals happen in February and March. y Almost all the deals are at the tenor of 91 days, but a few have been done at the tenor of 180 days as well.
which was mostly used by banks - may be held for a minimum period of 91 days.
investments in IBPCs on risk-sharing basis as part of their priority sector lending, which are as follows:
a)
The objectives of IBPCs are to facilitate adjustment of liquidity in the market and not provision of bank credit to priority sector. b) There are few banks using the instrument and the amount involved is only Rs.2,000- Rs.3,000 crore, that that too far a limited period of 3 to 6 months. As such, permitting IBPCs may not result in a substantial flow of bank credit to priority sector. c) iii. Investment in specified bonds, which were earlier eligible for meeting priority sector obligations, is being phased out to ensure more direct lending to priority sectors.