Loans and advances ppt

loan and advances basics

1. LOANS AND ADVANCES Submitted To: Rahul Kumar(Asst. Professor) Submitted by:Sanjana Rastogi , Jaypee University, Anoopshahr . Nikita, Rushali

2. OBJECTIVES To study different types of Loans and Advances 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. INTRODUCTION

4. MEANING OF 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. LOANS

5. Contd …. 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. Contd …. Advances are granted against Securities:

8. UTILITY OF LOANS AND ADVANCES 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. CATEGORIES OF LOAN

10. Contd …

11. Contd …

12. FORMS OF ADVANCES

13. LOANS Vs ADVANCES 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.

14. TYPE OF SECURITIES

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. PROCEDURE FOR GRANTING LOANS AND ADVANCES

17. INTRODUCTION TO NON-PERFORMING ASSETS(NPAs)

18. WHAT IS A NON-PERFORMING ASSET-NPA?

19. CLASSIFICATION OF ASSETS

20. CAUSES 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.

21. WHO IS THIS?

22. VIJAY MALLYA CASE Vijay Vittal 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.

23. Kingfisher Airlines 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 . Contd ….

24. CHARGES AGAINST MALLYA Mallya left India on 2 nd 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 18 th 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.

25. HOW ARE INDIAN BANKS CAUGHT IN THIS MESS? 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).

26. WAS THERE NO SECURED ASSETS ON THESE LOANS?

27. 7000 crores , KFA OWES TO THE BANKS, NOT MALLYA!!! 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.

28. Contd …. 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.

29. CONCLUSION 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.

30. SUGGESTIONS 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.