Very IMPORTANT QUESTIONS to know
1.Lien Vs Negative Lien Lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. Negative Lien is an undertaking by the borrower not to create any charge on his assets without the consent of the bank. It does not confer any right on the bank.
2. Pledge Vs Hypothecation Under pledge the ownership remains with the borrower but the possession passes on to the bank whereas in case of hypothecation, both ownership and possession remains with the borrower. While under pledge the bank can sell the asset without going to court, under hypothecation it can be done only through the legal process.
3.Supplier Finance Vs Dealer Finance Extending credit facility to the suppliers of the Corporate for the supplies made is called as ‘Supplier Finance’ where as credit facility provided to the dealers for the goods delivered by the corporate is known as ‘Dealer Finance’.
4. What is EPC and BOT? Government entrusts the projects to the private players where they undertake Engineering, Procurement and Construction (EPC) activities. They have no role in the ownership of the roads, toll collection and maintenance of the roads. These activities will be taken care by the government. Under BOT (Build, Operate and Transfer) model, the cost of the project is to be borne by the private players and in turn they collect toll revenue or annuity fee from the government at agreed terms.
5. Tell about Infrastructure Investment Trusts (InvITs).It is an instrument available to infrastructure companies to raise funds from High Networth Investors to unlock capital from older assets, de-leverage balance sheets and receive upfront cash to deploy in upcoming projects. The minimum investment in the primary offer (IPO) and secondary market is `10 lakh `5 lakh respectively. Recently SEBI relaxed the norms to allow InvITs to raise funds by issuing debt securities which include Debentures and Bonds but excludes bonds issued by Government,Security Receipts and Securitized Debt instruments.
6. How Financial Guarantee differs from Performance Guarantee? Financial Guarantee is a direct credit substitute wherein a bank irrevocably undertakes to guarantee the payment of a contractual financial obligation where as Performance Guarantee is essentially deal with transactions related to contingencies that involve an irrevocable undertaking to pay to third party in the event the counterparty fails to fulfill or perform a contractual obligation. Financial guarantee essentially carry credit risk where as in case of performance guarantee the risk of loss depends on the event (internal / external factors) need not necessarily be related to the creditworthiness of the counterparty involved.
7. State the salient features of Revolving Credit. It is a letter of credit where the amount is revived or reinstated without requiring specific amendment to the credit. Once drawing is made, the credit reverts to its original amount for re-use by beneficiary. There are two types of revolving credit viz., credit gets reinstated immediately after a drawing is made and credit reverts to original amount only after it is confirmed by the Issuing Bank.
8. What is Joint Lending Arrangement (JLA)? The scheme shall be applicable to all lending arrangements, with a single borrower with aggregate credit limits (both fund & non-fund) of `150 crore and above involving more than one bank. Borrowers having multiple banking arrangements below `150 crore may also be encouraged to come under JLA, so that the wholesome view of the assessment of credit requirement as well as the entire operations of the customers can be taken by banks. The Bank from which the borrower has sought the maximum credit will be the designated Lead Bank for the JLA. The Lead bank will be responsible for preparation of appraisal note, its circulation, and arrangements for convening meetings, documentation, etc.
9. Briefly state about Consortium of Banks. All banks come together and collaborate with each other in assessing the credit requirements of the borrower duly sharing the credit facilities as well as sharing securities with “Pari Pasu” charge. Normally, the bank which has larger exposure act as leader who conduct meetings, assess the credit requirements of the borrower and share all the information with member banks from time to time. The minimum threshold limit for participating bank now stipulated is 10% of the total exposure. The lead bank will review financial covenants of the borrower in quarterly consortium meetings on the basis of progress report submitted by the borrower.
10. State the important features of new “Credit Delivery System”? Borrowers having aggregate fund based working capital limit of `150 crore and above from the banking system, a minimum level of ‘loan component’ of 60 percent in the form of Working Capital Demand Loan (WCDL) with effective from 1st April 2019. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. The undrawn portion of cash credit / overdraft limits sanctioned shall attract a credit conversion factor of 20 percent. These measures are aimed to enhance credit discipline among large borrowers and to prevent perpetual rollovers, which is the need of the hour.
11. Norms for takeover of loan accounts from other banks. The take over of accounts should be as per approved Board policy of the bank and the account should be a Standard Asset with Positive Networth & Profit record. P&C Report is mandatory preferably before sanction, if not, at least before disbursement. Banks should ensure that TOL/TNW shall not exceed 4:1 and the collateral coverage should be minimum 125% for working capital limits and 100% for term loans and the external rating shall not be more than 6 months old. Enhancement of limits beyond 50% not allowed
12.Tell about Multiple Banking?
Under Multiple Banking, borrower avails credit facilities across banks. Each bank undertakes their own assessment of risk, decide the mix of credit facilities and stipulate their own terms and conditions. Each of the banks takes the security and gets the charges registered with the ROC in theirfavour.
13. What are the approved Credit Information Reports (CIR) that banks will accept for the purpose of sanction of credit limits? CIR received from Credit Information Bureau India Limited (CIBIL) and EQUIFAX companies are treated as valid scores. The minimum acceptable scores for CIBIL and EQUIFAX are 700 and 730 respectively
1.Lien Vs Negative Lien Lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. Negative Lien is an undertaking by the borrower not to create any charge on his assets without the consent of the bank. It does not confer any right on the bank.
2. Pledge Vs Hypothecation Under pledge the ownership remains with the borrower but the possession passes on to the bank whereas in case of hypothecation, both ownership and possession remains with the borrower. While under pledge the bank can sell the asset without going to court, under hypothecation it can be done only through the legal process.
3.Supplier Finance Vs Dealer Finance Extending credit facility to the suppliers of the Corporate for the supplies made is called as ‘Supplier Finance’ where as credit facility provided to the dealers for the goods delivered by the corporate is known as ‘Dealer Finance’.
4. What is EPC and BOT? Government entrusts the projects to the private players where they undertake Engineering, Procurement and Construction (EPC) activities. They have no role in the ownership of the roads, toll collection and maintenance of the roads. These activities will be taken care by the government. Under BOT (Build, Operate and Transfer) model, the cost of the project is to be borne by the private players and in turn they collect toll revenue or annuity fee from the government at agreed terms.
5. Tell about Infrastructure Investment Trusts (InvITs).It is an instrument available to infrastructure companies to raise funds from High Networth Investors to unlock capital from older assets, de-leverage balance sheets and receive upfront cash to deploy in upcoming projects. The minimum investment in the primary offer (IPO) and secondary market is `10 lakh `5 lakh respectively. Recently SEBI relaxed the norms to allow InvITs to raise funds by issuing debt securities which include Debentures and Bonds but excludes bonds issued by Government,Security Receipts and Securitized Debt instruments.
6. How Financial Guarantee differs from Performance Guarantee? Financial Guarantee is a direct credit substitute wherein a bank irrevocably undertakes to guarantee the payment of a contractual financial obligation where as Performance Guarantee is essentially deal with transactions related to contingencies that involve an irrevocable undertaking to pay to third party in the event the counterparty fails to fulfill or perform a contractual obligation. Financial guarantee essentially carry credit risk where as in case of performance guarantee the risk of loss depends on the event (internal / external factors) need not necessarily be related to the creditworthiness of the counterparty involved.
7. State the salient features of Revolving Credit. It is a letter of credit where the amount is revived or reinstated without requiring specific amendment to the credit. Once drawing is made, the credit reverts to its original amount for re-use by beneficiary. There are two types of revolving credit viz., credit gets reinstated immediately after a drawing is made and credit reverts to original amount only after it is confirmed by the Issuing Bank.
8. What is Joint Lending Arrangement (JLA)? The scheme shall be applicable to all lending arrangements, with a single borrower with aggregate credit limits (both fund & non-fund) of `150 crore and above involving more than one bank. Borrowers having multiple banking arrangements below `150 crore may also be encouraged to come under JLA, so that the wholesome view of the assessment of credit requirement as well as the entire operations of the customers can be taken by banks. The Bank from which the borrower has sought the maximum credit will be the designated Lead Bank for the JLA. The Lead bank will be responsible for preparation of appraisal note, its circulation, and arrangements for convening meetings, documentation, etc.
9. Briefly state about Consortium of Banks. All banks come together and collaborate with each other in assessing the credit requirements of the borrower duly sharing the credit facilities as well as sharing securities with “Pari Pasu” charge. Normally, the bank which has larger exposure act as leader who conduct meetings, assess the credit requirements of the borrower and share all the information with member banks from time to time. The minimum threshold limit for participating bank now stipulated is 10% of the total exposure. The lead bank will review financial covenants of the borrower in quarterly consortium meetings on the basis of progress report submitted by the borrower.
10. State the important features of new “Credit Delivery System”? Borrowers having aggregate fund based working capital limit of `150 crore and above from the banking system, a minimum level of ‘loan component’ of 60 percent in the form of Working Capital Demand Loan (WCDL) with effective from 1st April 2019. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. The undrawn portion of cash credit / overdraft limits sanctioned shall attract a credit conversion factor of 20 percent. These measures are aimed to enhance credit discipline among large borrowers and to prevent perpetual rollovers, which is the need of the hour.
11. Norms for takeover of loan accounts from other banks. The take over of accounts should be as per approved Board policy of the bank and the account should be a Standard Asset with Positive Networth & Profit record. P&C Report is mandatory preferably before sanction, if not, at least before disbursement. Banks should ensure that TOL/TNW shall not exceed 4:1 and the collateral coverage should be minimum 125% for working capital limits and 100% for term loans and the external rating shall not be more than 6 months old. Enhancement of limits beyond 50% not allowed
12.Tell about Multiple Banking?
Under Multiple Banking, borrower avails credit facilities across banks. Each bank undertakes their own assessment of risk, decide the mix of credit facilities and stipulate their own terms and conditions. Each of the banks takes the security and gets the charges registered with the ROC in theirfavour.
13. What are the approved Credit Information Reports (CIR) that banks will accept for the purpose of sanction of credit limits? CIR received from Credit Information Bureau India Limited (CIBIL) and EQUIFAX companies are treated as valid scores. The minimum acceptable scores for CIBIL and EQUIFAX are 700 and 730 respectively
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