Banker – Customer Relationship

Indemnifier (Customer) and Indemnified (Bank)

A contract which one promises to other from loss caused to him by the conduct of the promisor himself or the conduct of any person is called a contract of Indemnity. (Section 124: Indian Contract Act 1872)

Merchant Banking (178): Merchant Bankers are financial intermediaries. They act as intermediaries of transfer of capital from those who own it (Investor or Bond Subscriber) to those who use it (Corporate or Govts)

Lease Financing (179): This means leasing out the capital purchase of assets (to another company against monthly rents for assets) consumption or use.

Advantages to Lessee			Disadvantages to Lessee
Use  of  asset  without  incurring  the			Ownership  of  the  asset  is  with  the
capital  cost  thus  saving  on  cost			Lessor and not Lessee.
benefit of capital use.			Since Lessor imposes usage terms and
As lease rentals are permitted as a			conditions  on  assets,  asset  is
permitted	business	revenue	permitted  to  be  used  for  agreed
expense they lead to depression in			business purposes only; this takes
profits and ultimately less taxation			away the leverage from Lessee for
on profits.			utilizing  the  asset  for  alternative
Since  there  is  no  capital  cost,  this			business purposes if any.
does not impact the liability side of			Possibility of Lessor Owner becoming
the balance sheet too.			insolvent or going into liquidation;
Creditworthiness  of  the  Lessee  is			thus asset may be attached by the
intact  if  Lessee  approaches  a			creditor’s official liquidator.
financial institution for other credit			Confiscation/Repossession of asset by
related facilities			Lessor  on  breach  of  terms  and
			conditions of use of asset.

Bill Factoring (180): Factoring is an arrangement between a Factor usually a bank/NBFC/bank subsidiary and his client which includes at least 2 of the following services to be provided by the factor:

Finance/Maintenance of Accounts

Collection of Debts

Protection against credit risk.

Bill Finance	Bill Factoring
Provides finance to the entrepreneur	Ideal tool for growth and development
	of expanding SMESs
Advances  are  given  against  Bill  of	There is an outright purchase of trade
exchange	debts after providing for returns.

.

Registration of charge under section	The factor is the owner of trade debt
125 is mandatory.	and no registration is payable
It is individual transaction oriented	Bulk  finance  against  several  unpaid
	trade generated invoices.
Bill  financed  are  on  Balance  Sheet	Factoring is an off-balance sheet as the
items and are listed in Current assets	client company completes the double
in Balance Sheet	entry accounting by crediting the factor
	for the consideration value.
Advantages of Factoring	Disadvantages of Factoring
The client need not undertaken any	It may result in over-aggressiveness in
responsibility of collecting the dues	the behaviour of the client resulting
from the buyer thus saving cost on	in over trading or mismanagement.
various  fronts  like maintaining of	Possible fraudulent act in furnishing the
sales ledger/supervision etc.	Invoice
Discounted value up to 80% to 85% is	Companies  having  large  number  of
available to client on the basis of	debtors for small amounts
invoices  and  balance  is  paid  on
realization of receivables
Providing  expert  credit  an  other
business related advise to clients