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   Loans & Advances BASIC Bank Ltd. T he main objective of a business organization is to get more profit. If the businessrotates successfully the profit is gained in a satisfactory mode. As we know very wellthat bank is nothing but a financial intermediary and it takes deposit from surpluseconomic units and deploy the fund to deficit economic units through creditdeployment, so the more recoverable credit is deployed the more profit is gained. Infact this credit deployment process is being run under Loans & Advances department.he Loans & Advances department is very important part of the branch operation thatalso provides administrative support for the lending activities of the branch. he Loans& Advances department provides an effective perfect check and balance on funds lendto clients and that the transaction is within approved limit for borrower and amount. In!A I# !ank Limited, $%' !ranch, a big amount of loans and advances aresanctioned every year. (n )ovember *+, ++* otal Advance provided by $%'!ranch was k.-/.0 Lac. 3.2Credit Policy of BASIC Bank Limited he credit policy of any banking institution is a combination of certain accepted timetested standards, and some other dynamic factors determined by the realities of varying and changing situations in the market place. #redit policy lays down the basic principles and broad parameters of the lendingoperations. he key is to a sound, healthy and profitable credit operation, however, liesin the 1uality of judgment and sense of proportion of the officers making lendingdecisions, and their knowledge of the borrowers and the market place. 3.3 Basic Principles of Loans and Advances !asic principles of loans and advances are as follows2-.Aggregate loans and advances shall not e3ceed ten times the !ank4s net worthor 567 of customers4 deposits whichever is lower 8e3cluding loans andadvances covered by specific counter2finance arrangements9..:ithin the aggregate limit of loans and advances as mentioned in 8-9 above,6+7 of lending will be to small industry sector in accordance with prescribednorms of the ;overnment and the #entral !ank in terms of the !ank4sobjectives with 6+7 to the commercial sector. *.)o term loans will be approved for the commercial sector. %3ceptions will berare and will re1uire approval of the %3ecutive #ommittee. 73   Loans & Advances BASIC Bank Ltd. /.All lending will be ade1uately secured with acceptable security and marginre1uirements as laid down by the <ead (ffice #redit #ommittee.6.he !ank shall not incur any uncovered foreign e3change risk 8currencye3posure9 in the lending of funds.5.he !ank shall not incur any risk of e3posure in respect of unmatched rates of interest on funding of loans and advances beyond -67 of outstanding loansand advances.=.%nd2use of working capital facilities will be closely monitored to ensure lendinguser for the purpose for which they were advanced.0.#ountry risk in loans and advances will be accurately identified and shall bewithin the country limits if any approved for the !ank. he same treatment willbe given to country risk arising out of contingent liabilities relating to Letters of #redit and Letters of ;uarantee..Loans and advances shall be normally funded from customers4 deposits of apermanent nature, and not out of short term temporary funds or borrowingsfrom other banks or through short term money market operations.-+.he aggregate outstanding loans and advances 8e3cluding loans and advancescovered by specific counter2finance arrangements9 shall be dispersedaccording to the following guidelines 8subject to item  above whereby 6+7 of lending being to small industry section9>8a9 hort term commercial lending 8to include self li1uidating and other short termfinance to retail and wholesale business clients to finance their usual domesticand international trade?shipping of goods9. his category to include workingcapital to hotel and tourism.8b9@acilities to hipping and ransport 8facilities for the purchase andconstruction of ships?vessels and other modes of transport both by land andair9.--. preads over cost of funds on loans and advances and commissions and fees onother transactions should be commensurate with the rating of the borrower, 1ualityof risk and the prevailing market conditions.-.#redit evaluation will include>a9revalent credit practices in the market place.b9#redit worthiness, background and track record of the borrower.c9@inancial standing of the borrower supported by financial statementsand other documented evidence.d9Legal jurisdiction and implications of applicable laws. 74   Loans & Advances BASIC Bank Ltd. e9%ffect of any applicable regulations and laws.f9urpose of the loan?facility.g9enure of the loan?facility.h9iability of the business proposition.i9#ash flow projections. j9Buality and ade1uacy of security, if available.k9Cisk taking capacity of the borrower.l9%ntrepreneurship and managerial capabilities of the borrower.m9Celiability of the sources of repayment.n9olume of risk in relation to the risk taking capacity of the !ank or company concerned.o9 rofitability of the proposal to the !ank or company concerned.-*.)o credit shall be e3tended to a #ustomer %ntity that e3ceeds in total commitmentmore than -+7 of the !ank4s capital and free reserves. -/.%3ception will re1uire approval of the !oard of $irectors. 3.4Loans and Advances offered by BASIC Bank it! Little laboration#A. $verdraft %$& '# It is a continuous advance facility. !y this agreement, the banker allows his customer to overdraft his current account up to his credit limits sanctionedby the bank. he interest is charged on the amount, which he withdraws, not on thesanctioned amount. ($ is of two types practiced in !A I# !ank Dirpur branch. heseare as follows2 (. Sec)red $verdraft %S$& '# !ranch sanctions ($ against differentsecurities like @$C, anchaypatras and :ork (rders. 2. Temporary $verdraft %T$& '# It is given to the valued customers only. Itis not that much secured. Esually it forwards without any security or sometimese3ercise lien against the instrument, deposited in the bank. It is given by thebranch manager discretionary power. hough it is given, but it never desirable. T!e processes of e*tendin+ S$& are as follos , i9he party must have a current A?# with the branchii9If the ownership of the firm is proprietorship, then a trade license must besubmitted and in case of a limited company, all the documents re1uired to 75   Loans & Advances BASIC Bank Ltd. open a current A?#, should be submitted. he financial statements of theconcerned firm should also be submitted. iii9he party must maintain a good transaction with the branch and have agood turnover rate. iv9he party will apply to the officer in charge of credit department of thebranch for ($ arrangement v9he concerned officer of the branch will give him a #redit Application @ormand the party will have to fill up this form. In this form he discloses all theinformation about his concern, purpose of the loan, description of security,etc.vi9he concerned officer will prepare a F#redit Line roposal4, where hewrites about the business concern, details of proprietors?directors of theconcern, management structure, the e3isting credit facilities, theparticulars about the facilities that asked for G such as margin limit, date of e3piry, details of security, and any other relevant information. hen theproposal is sent to the <ead (ffice, ;eneral Advances $ivision for approval.vii9he responsible $epartment of the ;eneral Advances $ivision willappraise the proposal and if it seems to a viable then the loan will besanctioned.viii9After the loan is sanctioned, the branch will issue two copies of a sanctionadvice, where all the terms and conditions set by the bank is mentioned.he borrower is advised to write, Haccepted on the srcinal copy if he issatisfied with the terms and conditions of the bank and retain the duplicateone as record. able2*.-> howing loans and advances offered by !A I# as on )ovember *+, ++ 76
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