Banking Business

8/4/2019 Banking Business

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BANKING BUSINESS

y PRESENTED BY:

y ADITYA V. SINGH (MBA/1005/2010)

y UJJAWAL KR. SINGH (MBA/1038/2010)y HRISHIKESH KR. SINGH(MBA/1065/2010)

y GANESH PRASAD (MBA/1112/2010)

y RAVI SHANKER (MBA/1115/2010


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Banking business

Banking business" means the business of receiving moneyon current or deposit account, paying and collecting

cheques drawn by or paid in by customers, the making of

advances to customers, and includes such other business

like forex business , investment banking, etc.


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Banking business

There are two types of banking business-

1. Fund based business

2. Non-fund based business


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Fund based business

1. Loans and advances

A loan is a type of advance guaranteed by a banker

whereby the entire amount is paid to the borrower and

the borrower agrees to repay the money along with

interest at some future points in time .

Advance is a loan taken out against a line of credit or

credit card, typically imposing higher-than-normal

interest charges.


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Types of loans

1. Cash credit

cash credit is a credit given in cash to business firms. It

is essentially a drawing account against credit granted

by the bank. It is generally allowed against the pledge,

hypothecation of goods, against book debts or personalsecurity. A person has no need to open a new a/c to

withdraw money.


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Types of loans

2. overdraft

y In overdraft the account holder withdraws more money froma Bank Account than has been deposited in it.

y overdraft facility is allowed for current account holders only.A cheque book is issued in an overdraft account.

y There is no restriction on the number of withdrawals that canbe made from this account.

y The security in an overdraft account may be either personalor tangible. The tangible security may be in the form of shares,government paper, life insurance policies, fixed depositsreceipts etc.


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Types of loans

3. Term loans

y A loan from a bank for a specific amount that has a

specified repayment schedule.

y The period of the loan is arrived on the basis of estimated

future earning and/or cash flow of the borrower. Term

loans almost always mature between 3 and 10 years.


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Non fund based business

1. Letter of credit

A letter of credit is a letter from a bank guaranteeing that

a buyer's payment to a seller will be received on time

and for the correct amount. In the event that the buyer is

unable to make payment on the purchase, the bank willbe required to cover the full or remaining amount of the

purchase.


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Non fund based business2. Bank guarantee

Bank guarantee means that the bank opens a written certificate to the

beneficiary at the consignor's request. As the guarantor, bank has theresponsibilities to handle the debt or obligations instead of theconsignor. The rights and obligations of both parties would be

prescribed by the contract.

A bank guarantee enables the customer (debtor) to acquire goods, buyequipment, or draw down loans, and thereby expand business activity.

Bank guarantee are be of two types-financial bank guarantee

performance bank guarantee


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Securities

It is any assets which are set aside to secure servicing of a

credit facility. Usually owner of assets cedes some chargeon assets in favour of the creditor. The charge can be

mortagage, pledge, lien, hypothecation etc. depending on

nature of assets (movable/immovable) and on legal

provisions.securities are of two types-

primary security

collateral security


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Primary securities

It is the assets created out of the credit facility extended tothe borrower and/or which are directly associated with

business/project of borrower for which credit facility has

been extended.


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Collateral securities

It is any other assets earmarked to secure the payment of internet& repayment of loan.

The borrower executes collateral securities in any of thefollowing ways-

Mortgage

PledgeLien

hypothecation


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Securities

y Mortgage

Loans are advanced against the security of immovableassets such as land and building, plant and machinery, etc.

No transfer of assets, the document of title to such assets

is, however transferred to the banker and remain in the

bankers custody till the repayment of the loan. In theevent of the non repayment of the loan, the ownership of

the mortgaged property automatically get transferred to

the bank.


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Securities

y Pledge

Banker grants loans against valuables such as jewellery etc.

The security goes into the bankers custody and is released

upon the repayment of the loans. If default committed by

the borrower, the banker would auction the valuables and

can compensate itself with the proceeds accruing from theauction.


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Securitiesy Lien

A legal claim against an asset which is used to secure a loan and whichmust be paid when the property is sold. Liens can be structured in

many different ways. In some cases, the creditor willhave legal claim against an asset, but not actually hold itin possession, while in other cases the creditor will actually hold onto the asset until the debt is paid off. The former is amore common arrangement when the asset is productive, since thecreditor would prefer that the asset be used to produce a streamof income to pay off debt rather than just held in possession and notused. A claim can hold against an asset until all the obligations to thecreditor are cleared (a general lien), or just until the obligationsagainst that particular assets are cleared (a particular lien).


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Securities

y Hypothecation

Loans are granted on the strength of movable assets likeinventory of finished goods, delivery van etc. the security

remain under the custody of the borrower. The documents

of title to those assets are, handed over to the banker,

which remains under the custody of the banker. Thedocuments are returned to the borrower after the due

repayment of the loan.


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thank

you

Banking Business

Documents

Transcript of Banking Business