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Submitted To: Rahul Kumar(Asst. Professor) Submitted by:Sanjana Rastogi,
Jaypee University, Anoopshahr. Nikita, Rushali
To study the process involved in sanctioning Loans And
Advances to a customer
To study the concept of NPAs
To make suggestions on the basis of the analysis
Money is an essential
element for any business
because it fulfills the short
term and long term
requirement of funds.
It is not possible for the
owner to bring all the
money himself, so he/she
take Loans and Advances.
 The amount lent by the
lender to the borrower for
a specific purpose, for a
particular period of time.
 The purpose may be like
construction of the
building, capital
requirements etc.
 Loans carries an interest
rate on the debt advanced.
 In general, Loans are granted by the banks
and financial institutions.
 It is an obligation which needs to be repaid
back after the expiry of the stipulated period.
 Before advancing loans, the lending
institution checks the credit report of the
customer, to know about his credibility,
financial position and capacity to pay
 Advances are the source of
finance, which is provided by the
banks to the companies to meet
the short-term financial
requirement.
 It is a credit facility which should
be repaid within one year as per
the terms, conditions and norms
issued by RBI and also by the
schemes of the concerned banks.
ADVANCES
1) Primary
Security
2) Collateral
Security
3) Guarantees
Advances are granted against Securities:
 These are utilized by individuals, firms, companies
and industries.
 These are used for growth and diversification of
business activities.
 These are used for making payment of current
liabilities, wages and salaries of employees, and also
the tax liability of business.
 These are used for meeting short-term and long-
term financial needs of business enterprise.
1) On the basis of Security
a) Secured Loan
The loan which is backed by securities.
b) Unsecured Loan
The loan on which no asset is pledged as security.
2) On the basis of Repayment
a) Demand Loan
Loan which is repaid on demand of the lender.
b)Time Loan
Loan which is repaid in full at a future specified date.
c) Instalment Loan
Loans which are to be repaid in evenly distributed monthly instalments.
3) On the basis of Purpose
a) Home Loan
b) Car Loan
c) Education Loan
d) Commercial Loan
e) Industrial Loan
Short term Loans
Overdraft
Cash Credit
Bills Purchased
BASIS LOANS ADVANCES
Meaning Funds borrowed by
an entity from
another entity,
repayable after a
specific period
carrying interest rate.
Funds provided by
the banks to an entity
for a specific
purpose, to be
repayable after a
short duration.
What is it? Debt Credit facility
Term Long term Short term
Legal formalities More Less
Security May or may not be
secured.
Primary Security,
Collateral Security
and Guarantees.
SECURITIES
Personal
Tangible
Primary
Collateral
 Personal Securities
These are Intangible securities.The banker has a
personal right of action against the borrower.
 Tangible Securities
Forms of impersonal security such as land, buildings
and machinery.
 Primary Securities
Securities or assets created with the help of finance
made available by the bank.
 Collateral Security
Additional security given by borrower where the
primary security is not enough to recover the loan.
Filling up of loan application form.
Submission of form along with
documents.
Sanctioning of Loan
Executing the agreement
Arrangement of security for loan
NPA refers to a classification for loans on the books of
financial institutions that are in default or are in arrears
on scheduled payments of principal or interest.
In most cases, debt is classified as non-performing
when loan payments have not been made for a period
of 90 days.
In simple words, NPAs are those categories of assets
which cease to generate income for the banks.
Standard Asset
(which does not carry more than normal risk)
Provision required : 0·4 %
Sub- Standard Asset
( Remains NPA upto 12 months)
Provision required : 15%
DoubtfulAssets
( Remains NPA more than 12 months but upto 36 months.)
Provision required : 25%
Loss Assets
(Remains NPA more than 36 months)
Provision required : 100%
NPA arises due to number of factors or causes like
 Speculation : Investing in high risk assets to earn high
income.
 Default: Willful default by the borrowers.
 Fraudulent Practices: Advancing loans to ineligible
persons, advances without security or references, etc.
 Diversion of Funds: For unnecessary expansion and
diversion of business.
 Internal Reasons: Inefficient management,
marketing failure, inappropriate technology, etc
resulting in poor performance of the companies.
 External Reasons : Recession in the economy, price
rise, infrastructural problems, etc.
WHO ISTHIS?
 VijayVittal Mallya is an Indian businessman and
politician who is subject to face charges of financial
crimes.
 He inherited United Breweries (UB) from his father
and turned it around into India’s biggest spirits
maker.
 The co. known as Kingfisher beer, among the
highest selling brands across the world, is, however,
no longer his.
 He has dues of more than Rs. 900 crore to pay to
various banks.
 KingfisherAirlines was
grounded in 2012 after
failure to pay salaries to
employees.
 This airline never made
profit in its 8 years of
operation.
 The airline is now also
being investigated for
suspected diversion of
funds and financial
irregulatories.
 Mallya left India on 2nd March 2016.A
group of 17 Indian banks are trying to
collect approximately Rs. 9000 crore.
 Several agencies including the Income
Tax Department and the Central
Bureau of Investigation are
investigating Mallya for charges
including financial fraud and money
laundering.
 On 18th April 2017, Mallya was arrested
by the UK Metropolitan Police
extradition unit “ on behalf of
the
Indian authorities in relation to
accusations of fraud “, and he was then
released on bail pending further
consideration of the case.
 When Mallya approached the group of lenders for
further lending in 2010, there was serious
differences of opinion among the group of senior
bankers in SBI and other banks in the consortium,
on why should they lend to the airline again.
 But, the majority decision was to take the big risk
again and lend to Mallya.
 It was like throwing good money after bad (since
KFA exposure was already stressed).
When the loans were granted, Kingfisher Airlines was a
brand at its peak.
In 2010, Mallya surrendered Goodwill andTrademarks of
the kingfisher brand to the bank as security in the event of
non-payment of dues.
At that time, the brand value was about Rs. 3500 cr. which
has now reportedly come down to Rs. 6 cr. and banks are
struggling to find even a single buyer for trademark.
 Mallya did not borrow any
money, it was KFA that
borrowed the money from
public sector banks.
 All shareholders (Mallya is one
of them) are equally liable to
repay the loans, but their
liability is restricted to the
shares they held, no more.
 This is the concept of Limited
Liability that Mallya is
quoting.
 But, the main clause is, Mallya became guarantor
of all these Loans in his personal capacity.
 It means, Mallya was supposed to repay loan out of
individual asset if any of these companies defaulted.
 That’s why, all banks are are behind him.
 But now, Mallya wants to escape.
 If he had not been a guarantor, he would not have
been asked to pay loans taken by company in which
he owns share.
 Bank’s chances of getting their money back from
Mallya are very less since Kingfisher hardly has any
assets left for banks.
 Even if banks go ahead and sell Kingfisher assets, it
will fetch only a fraction of what is at stake.
 The only hope for banks is if Mallya himself have a
change of mind and decides to pay back banks from
his personal wealth.
 But all that will happen if he returns to the country
and say he will pay back.
 In order to avoid non-performing assets it is suggested that
names of the defaulters should be sent inter banks
 Banks should find out the original reasons/purposes of the loan
required by the borrower.
 Proper identification of the guarantor should be checked by
the bank including scrutiny of his/her wealth.
 Framing reasonably well documented loan policy and rules.
 Banks should ensure credibility of the borrower.
 Appropriate SWOT analysis should be done before
disbursement of the advance.
Loans and Advances Process and NPAs Analysis (35

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Loans and Advances Process and NPAs Analysis (35

  • 1. Submitted To: Rahul Kumar(Asst. Professor) Submitted by:Sanjana Rastogi, Jaypee University, Anoopshahr. Nikita, Rushali
  • 2. To study the process involved in sanctioning Loans And Advances to a customer To study the concept of NPAs To make suggestions on the basis of the analysis
  • 3. Money is an essential element for any business because it fulfills the short term and long term requirement of funds. It is not possible for the owner to bring all the money himself, so he/she take Loans and Advances.
  • 4.  The amount lent by the lender to the borrower for a specific purpose, for a particular period of time.  The purpose may be like construction of the building, capital requirements etc.  Loans carries an interest rate on the debt advanced.
  • 5.  In general, Loans are granted by the banks and financial institutions.  It is an obligation which needs to be repaid back after the expiry of the stipulated period.  Before advancing loans, the lending institution checks the credit report of the customer, to know about his credibility, financial position and capacity to pay
  • 6.  Advances are the source of finance, which is provided by the banks to the companies to meet the short-term financial requirement.  It is a credit facility which should be repaid within one year as per the terms, conditions and norms issued by RBI and also by the schemes of the concerned banks. ADVANCES
  • 7. 1) Primary Security 2) Collateral Security 3) Guarantees Advances are granted against Securities:
  • 8.  These are utilized by individuals, firms, companies and industries.  These are used for growth and diversification of business activities.  These are used for making payment of current liabilities, wages and salaries of employees, and also the tax liability of business.  These are used for meeting short-term and long- term financial needs of business enterprise.
  • 9. 1) On the basis of Security a) Secured Loan The loan which is backed by securities. b) Unsecured Loan The loan on which no asset is pledged as security.
  • 10. 2) On the basis of Repayment a) Demand Loan Loan which is repaid on demand of the lender. b)Time Loan Loan which is repaid in full at a future specified date. c) Instalment Loan Loans which are to be repaid in evenly distributed monthly instalments.
  • 11. 3) On the basis of Purpose a) Home Loan b) Car Loan c) Education Loan d) Commercial Loan e) Industrial Loan
  • 12. Short term Loans Overdraft Cash Credit Bills Purchased
  • 13. BASIS LOANS ADVANCES Meaning Funds borrowed by an entity from another entity, repayable after a specific period carrying interest rate. Funds provided by the banks to an entity for a specific purpose, to be repayable after a short duration. What is it? Debt Credit facility Term Long term Short term Legal formalities More Less Security May or may not be secured. Primary Security, Collateral Security and Guarantees.
  • 15.  Personal Securities These are Intangible securities.The banker has a personal right of action against the borrower.  Tangible Securities Forms of impersonal security such as land, buildings and machinery.  Primary Securities Securities or assets created with the help of finance made available by the bank.  Collateral Security Additional security given by borrower where the primary security is not enough to recover the loan.
  • 16. Filling up of loan application form. Submission of form along with documents. Sanctioning of Loan Executing the agreement Arrangement of security for loan
  • 17.
  • 18. NPA refers to a classification for loans on the books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as non-performing when loan payments have not been made for a period of 90 days. In simple words, NPAs are those categories of assets which cease to generate income for the banks.
  • 19.
  • 20. Standard Asset (which does not carry more than normal risk) Provision required : 0·4 % Sub- Standard Asset ( Remains NPA upto 12 months) Provision required : 15% DoubtfulAssets ( Remains NPA more than 12 months but upto 36 months.) Provision required : 25% Loss Assets (Remains NPA more than 36 months) Provision required : 100%
  • 21. NPA arises due to number of factors or causes like  Speculation : Investing in high risk assets to earn high income.  Default: Willful default by the borrowers.  Fraudulent Practices: Advancing loans to ineligible persons, advances without security or references, etc.  Diversion of Funds: For unnecessary expansion and diversion of business.  Internal Reasons: Inefficient management, marketing failure, inappropriate technology, etc resulting in poor performance of the companies.  External Reasons : Recession in the economy, price rise, infrastructural problems, etc.
  • 22.
  • 24.  VijayVittal Mallya is an Indian businessman and politician who is subject to face charges of financial crimes.  He inherited United Breweries (UB) from his father and turned it around into India’s biggest spirits maker.  The co. known as Kingfisher beer, among the highest selling brands across the world, is, however, no longer his.  He has dues of more than Rs. 900 crore to pay to various banks.
  • 25.  KingfisherAirlines was grounded in 2012 after failure to pay salaries to employees.  This airline never made profit in its 8 years of operation.  The airline is now also being investigated for suspected diversion of funds and financial irregulatories.
  • 26.  Mallya left India on 2nd March 2016.A group of 17 Indian banks are trying to collect approximately Rs. 9000 crore.  Several agencies including the Income Tax Department and the Central Bureau of Investigation are investigating Mallya for charges including financial fraud and money laundering.  On 18th April 2017, Mallya was arrested by the UK Metropolitan Police extradition unit “ on behalf of the Indian authorities in relation to accusations of fraud “, and he was then released on bail pending further consideration of the case.
  • 27.  When Mallya approached the group of lenders for further lending in 2010, there was serious differences of opinion among the group of senior bankers in SBI and other banks in the consortium, on why should they lend to the airline again.  But, the majority decision was to take the big risk again and lend to Mallya.  It was like throwing good money after bad (since KFA exposure was already stressed).
  • 28. When the loans were granted, Kingfisher Airlines was a brand at its peak. In 2010, Mallya surrendered Goodwill andTrademarks of the kingfisher brand to the bank as security in the event of non-payment of dues. At that time, the brand value was about Rs. 3500 cr. which has now reportedly come down to Rs. 6 cr. and banks are struggling to find even a single buyer for trademark.
  • 29.  Mallya did not borrow any money, it was KFA that borrowed the money from public sector banks.  All shareholders (Mallya is one of them) are equally liable to repay the loans, but their liability is restricted to the shares they held, no more.  This is the concept of Limited Liability that Mallya is quoting.
  • 30.  But, the main clause is, Mallya became guarantor of all these Loans in his personal capacity.  It means, Mallya was supposed to repay loan out of individual asset if any of these companies defaulted.  That’s why, all banks are are behind him.  But now, Mallya wants to escape.  If he had not been a guarantor, he would not have been asked to pay loans taken by company in which he owns share.
  • 31.  Bank’s chances of getting their money back from Mallya are very less since Kingfisher hardly has any assets left for banks.  Even if banks go ahead and sell Kingfisher assets, it will fetch only a fraction of what is at stake.  The only hope for banks is if Mallya himself have a change of mind and decides to pay back banks from his personal wealth.  But all that will happen if he returns to the country and say he will pay back.
  • 32.  In order to avoid non-performing assets it is suggested that names of the defaulters should be sent inter banks  Banks should find out the original reasons/purposes of the loan required by the borrower.  Proper identification of the guarantor should be checked by the bank including scrutiny of his/her wealth.  Framing reasonably well documented loan policy and rules.  Banks should ensure credibility of the borrower.  Appropriate SWOT analysis should be done before disbursement of the advance.