Types of credit facilities

Types of Credit Facilities



1) Fund based lending

2) Non fund based lending



Fund based lending, where the lending bank commits the physical outflow of funds.

The various forms in which fund based lending may be made by banks.



The facilities like Overdrafts,Cash Credit A/c, Bills Finance, Demand Loans, Term Loans etc, wherein immediate flow of

funds available to borrowers, are called funds based facility. The non fund based facilities like issuance of letter of guarantee, letter of credit wherein banks get fee income and there is no immediate outfow of funds from bank.



Overdrafts: Overdraft means allowing the customer to draw cheques over and above credit balance in his account. Overdraft is normally allowed to Current Account

Customers and in exceptional case SB A/c holders are also allowed to overdraw their account. The high rate of interest is charged but only on daily debit balance. An

overdraft is repayable on demand. There are two types of overdraft prevalent in Banks i.e. (i) Temporary overdraft or clean overdraft (ii) Secured overdraft. Temporary

overdrafts are allowed purely on personal credit of the party and it is for party to meet some urgent commitments on rare occasions. Allowing a customer to draw against

his cheques sent in clearing also falls under this category. Secured overdraft is allowed up to a certain limit against some tangible security like bank deposits, LIC policies,

National Saving Certificates, shares and other similar assets. Secured overdraft is most popular with traders as lesser operating cost, simple application and document

formalities are involved in this facility.



Cash Credit Account (CC A/C): Cash credit account is a running account just like a current account where debit balance in the account up to a sanctioned limit or drawing



power �xed based on stock holding whichever is less. Sanction of Limit generally for 1 year. The limits are renewed or enhanced/reduced based on assessment ofcustomer’s actual requirement on the basis of working of the unit. Customer has to submit periodic Stock statements depending on Operating Cycle, Turnover, and Cash

Budget or Projected Balance Sheet. Cash Credit facility is o�ered normally against pledge (Key Cash Credit) or hypothecation of prime security such as, book debts

(receivables), stocks of raw materials, semi �nished goods and �nished goods. In some cases, customers, mainly traders �nd it di�cult to maintain stock register and

submitting periodic stock statements. For such customers also CC facility is provided by banks against pledge of gold jewellary, assignment of Life policies, or against security

of customer’s deposit in the same bank. When prime security is, jewels or life policies, NSC, bank deposits, there is no need to submit periodic stock statements. In case of

manufacturing units this facility is required for purchase of raw materials, processing and converting them into �nished goods. In case of traders, the limit is allowed for

purchase of goods which they deal.

Bills Finance: Bills finance is short term and self liquidating finance in nature. Demand Bill is purchasedand Usance bill is discounted by the banks. The bills drawn under

Letter of Credit (LC may be on sight draft or usance draft) are negotiated by the banks. The advantage of bills �nance is that the seller of goods (borrower) gets immediate

money from the bank for the goods sold by him irrespective of whether it is a purchase, discount or negotiation by the bank according to type of bills.Demand bills can be

documentary or clean. Usually banks accept only documentary bills for purchase. However purchase of clean bills from good parties also permitted by banks based on

sanction terms of the limit. Usance bills means bills maturing on a future date. Documentary usance bills may be on D/P (Delivery against payment) or D/A (Delivery against

Acceptance) terms. In case of D/P terms the documents of title to goods are delivered to the buyer of the goods (drawee) against payment of bill amount. In case of D/A bills,

the documents to the title of goods are to be delivered to the drawee (Buyer) against acceptance of bills. Hence a banker will take into consideration the credit worthiness

not only of the borrower but also of the drawee because bills become clean after it is delivered to drawee on acceptance.

Demand Loans: Demand loans are secured loans repayable on demand. Demand loan is granted against marking lien on bank’s own fixed deposits (Not against deposits of

other banks), Assignment of Life Insurance Policies with adequate surrender value ( loan can not be granted against policies issued under married woman property act or

beneficiary is a minor etc) , National Saving Certificates and so on. Demand loans can be gradually liquidated over a period generally in monthly, quarterly, half yearly

installments or lump-sum payment at one shot or it can be closed from maturity proceeds of the security offered.



Term Loans: The nature of a term loan commitment is long term. Maximum maturity for a term loan including moratorium is normally 10 years and in exceptional cases 15

years. Repayment of loan is from the cash generation out of operation of the unit/company. Term Loan appraisal must cover appraisal of the borrower and appraisal of the

project. Appraisal of the borrower must cover integrity, standing of the borrower, business capacity, managerial competence, �nancial resources in relation to size of the

project. The sources of information for the above may be from Merchant reports, Bank reports, CIBIL report, declaration received from the promoters about their assets and

liabilities, internal and external Credit rating and so on. Assistance from venture capitalists like UTI venture, ICICI ventures etc. can also be solicited. Appraisal of a

project would cover market demand for the product, competition, quality and price sensitivity of the product, terms of sales and after sales services arrangements envisaged

by the company. Competition perception according to minds of customer and bankers can be di�erent. Technical feasibility like location that is proximity to raw material,

availability of infrastructure should be favorable to the unit/company. Production Process should be contemporary and spare parts whether easily be available lest there

would be stoppage of production due to non availability of spare parts. Issues like arrangement of working capital �nance, break even point of sales are to be discussed.

Working capital �nance has to be decided before sanctioning of term loan to the borrower. Regulatory issues: As per sec1 of the banking regulation act a bank can not lend

beyond 30% of paid up capital of the company or 30% of paid up reserve of the bank whichever is lower.

Retail Credit: Retail credits are Car Loans, Consumer Durables/, Educational Loans, Housing Loans, House improvement Loan, Professionals Personal Loans, Clean Loans,

Jewel Loan, Pensioners Loan, Credit Cards etc. KYC formalities like verification of proof of identity and proof of address etc, are important and �rst step to entertain loans

under retail schemes. SB pass book or statement of account is to be verified to match the details submitted by the applicant. In case of employed persons, normally loan will

be considered only to confirmed employees. Employer’s no objection certificate/salary certificates are other requirements for retail loans. In case of self employed, IT return

for past 2-3 years would be verified to asses the repayment capacity of the applicant. No due certificate from existing banker, CIBIL report is the other requirement to

consider retail loans.

Leasing Finance: A lease is a contract between the owner (lessor) and the user (lessee). There is various type of lease viz. operating lease, finance lease etc. In terms of lease

agreement the lessor pays money to the supplier who in turn delivers the article to the lessee. The lessee (hirer of the article) makes periodical payment to the lessor. At the

end of lease period the asset is restored to the lessor. Commercial banks in India have been financing the activities of leasing companies, by providing overdraft/Cash credit

account/Demand loan against fully paid new machineries or equipment by hypothecation of security. The repayment should be from rentals of machineries/ equipment

leased out. The maximum period of repayment is �ve years or economic life of the equipment which ever is lower. The bank is allowed to periodical inspection of the asset.

Lease contracts are only for productive purpose and not for consumer durables.

Hire-Purchase _nance: Hire-Purchase transactions are very similar to leasing transactions. In hire –purchase agreement, at the end of the stipulated period, the hirer(lessee)

has options either to return the asset to leasing company while terminating the agreement or purchase the asset upon terms set out in the agreement In terms of leasing

agreement the ownership continues to remains with the Leasing company(Lessor). Since hire-purchase finance takes place predominantly in automobile sector, banks have

started direct finance to transport operator as the nature of advance being classified as priority sector lending.





Non Fund Business



Bank Guarantee: As a part of Banking Business, Bank Guarantee (BG) Limits are

sanctioned and guarantees are issued on behalf of our customers for various

purposes. Broadly, the BGs are classified into two categories:

i) Financial Guarantees are direct credit substitutes wherein a bank irrevocably

undertakes to guarantee the payment of a contractual financial obligation. These

guarantees essentially carry the same credit risk as a direct extension of credit i.e.

the risk of loss is directly linked to the creditworthiness of the counter-party against

whom a potential claim is acquired. Example – Guarantees in lieu of repayment of

financial securities/margin requirements of exchanges, Mobilization advance,

Guarantees towards revenue dues, taxes, duties in favour of tax/customs/port/excise

authorities, liquidity facilities for securitization transactions and deferred payment

guarantees.



ii) Performance Guarantees are essentially transaction-related contingencies that

involve an irrevocable undertaking to pay a third party in the event the counterparty

fails to fulfill or perform a contractual obligation. In such transactions, the risk of loss

depends on the event which need not necessarily be related to the creditworthiness

of the counterparty involved. Example – Bid bonds, performance bonds, export

performance guarantees, Guarantees in lieu of security deposits/EMD for

participating in tenders, Warranties, indemnities and standby letters of credit related

to particular transaction.

Though, BG facility is a Non-fund Facility, it is a firm commitment on the part of the

Bank to meet the obligation in case of invocation of BG. Hence, monitoring of Bank

Guarantee portfolio has attained utmost importance. The purpose of the guarantee is

to be examined and it is to be spelt out clearly if it is Performance Guarantee or



Financial Guarantee. Due diligence of client shall be done, regarding their experience

in that line of activity, their rating/grading by the departments, where they are

registered. In case of Performance Guarantees, banks shall exercise due caution to

satisfy that the customer has the necessary experience, capacity and means to

perform the obligations under the contract and is not likely to commit default. The

position of receivables and delays if any, are to be examined critically, to understand

payments position of that particular activity. The financial position of counter party,

type of Project, value of Project, likely date of completion of Project as per

agreement are also to be examined. The Maturity period, Security Position, Margin

etc. are also to be as per Policy prescriptions and are important to take a view on

charging BG Commissions.

Branches shall use Model Form of Bank Guarantee Bond, while issuing Bank

Guarantees in favour of Central Govt. Departments/Public Sector Undertakings. Any

deviation is to be approved by Zonal Office. It is essential to have the information

relating to each contract/project, for which BG has been issued, to know the present

stage of work/project and to assess the risk of invocation and to exercise proper

control on the performance of the Borrower. It is to be ensured that the operating

accounts of borrowers enjoying BG facilities route all operations through our Bank

accounts. To safeguard the interest of the bank, Branches need to follow up with the

Borrowers and obtain information and analyze the same to notice the present stage

of work/project, position of Receivables, Litigations/Problems if any leading to

temporary cessation of work etc.

The Financial Indicators/Ratios as per Banks Loan Policy guidelines are to be

satisfactory. Banks are required to be arrived Gearing Ratio (Total outside

liabilities+proposed non-fund based limits / Tangible Networth - Non Current Assets)

of the client and ideally it should be below 10.

In case where the guarantees issued are not returned by the beneficiary even after

expiry of guarantee period, banks are required to reverse the entries by issuing

notice (if the beneficiary is Govt. Department 3 months and one month for others) to

avert additional provisioning. Banks should stop charging commission on expired

Bank Guarantees with effect from the date of expiry of the validity period even if the

original Bank Guarantee bond duly discharged is not received back.

Letter of Credit: A Letter of Credit is an arrangement by means of which a Bank

(Issuing Bank) acting at the request of a customer (Applicant), undertakes to pay to

a third party (Beneficiary) a predetermined amount by a given date according to

agreed stipulations and against presentation of stipulated documents. The

documentary Credit are akin to Bank Guarantees except that normally Bank

Guarantees are issued on behalf of Bank’s clients to cover situations of their non

performance whereas, documentary credits are issued on behalf of clients to cover

situation of performance. However, there are certain documentary credits like

standby Letter of Credit which are issued to cover the situations of non performance.

All documentary credits have to be issued by Banks subject to rules of Uniform

Customs and Practice for Documentary Credits (UCPDC). It is a set of standard rules

governing LCs and their implications and practical effects on handling credits in

various capacities must be possessed by all bankers. A documentary credit has the

seven parties viz., Applicant (Opener), Issuing Bank (Opening of LC Bank),

Beneficiary, Advising Bank (advises the credit to beneficiary), Confirming Bank –

Bank which adds guarantee to the credit opened by another Bank thereby

undertaking the responsibility of payment/negotiation/acceptance under the credit in

addition to Issuing Bank), Nominated Bank – Bank which is nominated by Issuing

Bank to pay/to accept draft or to negotiate, Reimbursing Bank – Bank which is

authorized by the Issuing Bank to pay to honour the reimbursement claim in

settlement of negotiation/acceptance/payment lodged with it by the paying /

negotiating or accepting Bank. The various types of LCs are as under:

i) Revocable Letter of Credit is a credit which can be revoked or cancelled or

amended by the Bank issuing the credit, without notice to the beneficiary. If a credit

does not indicate specifically it is a revocable credit the credit will be deemed as

irrevocable in terms of provisions of UCPDC terms.

ii) Irrevocable Letter of credit is a firm undertaking on the part of the Issuing

Bank and cannot be cancelled or amended without the consent of the parties to letter

of credit, particularly the beneficiary.

iii) Payment Credit is a sight credit which will be paid at sight basis against

presentation of requisite documents as per LC terms to the designated paying Bank.

iv) Deferred Payment Credit is a usance credit where payment will be made by

designated Bank on respective due dates determined in accordance with stipulations

of the credit without the drawing of drafts.

v) Acceptance Credit is similar to deferred credit except for the fact that in this

credit drawing of a usance draft is a must.

vi) Negotiation Credit can be a sight or a usance credit. A draft is usually drawn in

negotiation credit. Under this, the negotiation can be restricted to a specific Bank or

it may allow free negotiation whereby any Bank who is willing to negotiate can do so.

However, the responsibility of the issuing Bank is to pay and it cannot say that it is

of the negotiating Bank.

vii) Confirmed Letter of Credit is a letter of credit to which another Bank (Bank

other than Issuing Bank) has added its confirmation or guarantee. Under this, the

beneficiary will have the firm undertaking of not only the Bank issuing the LC, but

also of another Bank. Confirmation can be added only to irrevocable and not

revocable Credits.

the amount is revived or reinstated without requiring specific amendment to the

credit. The basic principle of a revolving credit is that after a 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.

ix) Installment Credit calls for full value of goods to be shipped but stipulates that

the shipment be made in specific quantities at stated periods or intervals.

x) Transit Credit – When the issuing Bank has no correspondent relations in

beneficiary country the services of a Bank in third country would be utilized. This

type of LC may also be opened by small countries where credits may not be readily

acceptable in another country.

xi) Reimbursement Credit – Generally credits opened are denominated in the

currency of the applicant or beneficiary. But when a credit is opened in the currency

of a third country, it is referred to as reimbursement credit.

xii) Transferable Credit – Credit which can be transferred by the original

beneficiary in favour of second or several second beneficiaries. The purpose of these

credits is that the first beneficiary who is a middleman can earn his commission and

can hide the name of supplier.

xiii) Back to Back Credit/Countervailing credit – Under this the credit is opened

with security of another credit. Thus, it is basically a credit opened by middlemen in

favour of the actual manufacturer/supplier.

xiv) Red Clause Credit – It contains a clause providing for payment in advance for

purchasing raw materials, etc.

xv) Anticipatory Credit – Under this payment is made to beneficiary at preshipment

stage in anticipation of his actual shipment and submission of bills at a

future date. But if no presentation is made the recovery will be made from the

opening Bank.

xvi) Green Clause Credit is an extended version of Red Clause Credit in the sense

that it not only provides for advance towards purchase, processing and packaging

but also for warehousing & insurance charges. Generally money under this credit is

advanced after the goods are put in bonded warehouses etc., up to the period of

shipment.

Other concepts

i)Bill of Lading: It should be in complete set and be clean and should generally be

to order and blank endorsed. It must also specify that the goods have been shipped

on board and whether the freight is prepaid or is payable at destination. The name of

the opening bank and applicant should be indicated in the B/L.

ii) Airway Bill: Airway bills/Air Consignment notes should always be made out to

the order of Issuing Bank duly mentioning the name of the applicant.

iii)Insurance Policy or Certificate: Where the terms of sale are CIF the insurance

is to be arranged by the supplier and they are required to submit insurance policy

along with the documents.

iv) Invoice: Detailed invoices duly signed by the supplier made out in the name of

the applicant should be called for and the invoice should contain full description of

goods, quantity, price, terms of shipment, licence number and LC number and date.

v) Certificate of Origin: Certificate of origin of the goods is to be called for. Method

of payment is determined basing on the country of origin.

vi) Inspection Certificate: Inspection certificate is to be called for from an

independent inspecting agency (name should be stipulated) to ensure quality and

quantity of goods. Inspection certificate from the supplier is not acceptable





Multiple Banking / Consortium / JLA



Large banks do have the capability to meet the credit needs of most of their business

clients. However, when the amount involved is huge, the bank may ask the borrower

to approach other banks for the part of the credit requirements as they may not wish

to take up the risk of lending the entire amount. Multiple banks may finance the

borrower under two arrangements viz., Consortium arrangement and multiple

banking arrangements.

i) Consortium of Banks – Under this the 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. However, the decisions taken at the consortium meetings

are not binding on the individual banks and the management of each bank has to

approve in its respective boards.

ii) Multiple Banking – Under this, the borrower approaches various banks and

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

their favour. Practically there is no co-ordination between the banks and they

compete with each other to protect their business and interests. This is giving scope

to the borrowers to take undue advantage from the banking system i.e. excess

borrowings and interest concessions. In order to ensure financial discipline RBI

issued guidelines on sharing of information between banks and making the lead bank

responsible for ensuring proper assessment of credit requirements of the borrower so

that over financing can be averted.

Joint Lending Arrangement (JLA) – Under the existing system of Credit Delivery,

it is observed that high value borrowers have been availing credit limits through

Multiple Banking over the years which has led to dilution of asset quality as well as

control on the borrowers. In order to address the challenges associated with Multiple

Lending, Govt. of India has introduced ground rules governing Joint Lending

Arrangements. The scheme shall be applicable to all lending arrangements, with a

single borrower with aggregate credit limits (both fund and non-fund based) of `150

crore and above involving more than one Public Sector Bank. Further, all borrowers

with external rating of below BBB or equivalent, are to be brought under JLA

irrespective of the amount of exposure. 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. If a member-bank is unable to take up its enhanced share, such enhanced share

in full or in part could be reallocated among the other existing willing members. In

case of any contentious issue, the decision will be taken by member banks having

more than 50% share in the exposure to the borrower. An existing member-bank

may be permitted to withdraw from the JLA after two years provided other existing

member-banks and/or a new bank is willing to take its share by joining the JLA. It is

necessary that lead bank and member bank(s)/institution(s) ensure that formal JLA

does not result in delay in credit delivery. The Lead Lender will make all efforts to tie

up the Joint Lending Arrangement within 90 days of taking a credit decision

regarding the proposal. Lead bank will be responsible for preparation of appraisal

note, its circulation, and arrangements for convening meetings, documentation, etc.

In case of any contentious issue, the decision will be taken by the member banks

having more than 50% share in the exposure to the borrower.

Takeover of accounts from other Banks

Corporates seeking better facilities/higher credit from Banks often approach different

lenders for sanction of credit facilities. Central Vigilance Commissioner observed that

sometimes existing accounts with one bank already showing signs of sickness are

taken over by another bank and such accounts predictably turn NPA within a short

time. To arrest unethical/unjustified practice of takeover of accounts, Department of

Financial Services, Govt. of India has issued the following guidelines to all Banks.

_ For taking over of any accounts, Banks must put in place, a Board approved

Policy with regard to take over of accounts from another Bank and the same

should be incorporated in the credit policy of the Bank.

_ Normally, the accounts having ratings above the level approved by the Board

should only be taken over and the concessionary facilities should be extended

only in extremely deserving cases with specific reasons recorded in writing.

_ In all cases of takeover of accounts, it is necessary to do proper due diligence

including visit to the premises of the customer, if needed, before the account

is considered for takeover by the bank.

_ The guidelines of joint lending should be strictly applied in all cases where the

borrower seeks to have additional exposure from the bank after taking over

the account.

_ No cases should be taken over by a Bank from any Bank where any of its ED

or CMD had worked earlier. In case, any such cases need to be taken over,

the proposal will need to be put up to the Board with specific reasons

justifying the need for taking over the accounts.

The operational guidelines with regard to Take over of accounts are as under:

_ The account should be a Standard Asset with Positive Net Worth & profit

record. P & C Report is mandatory preferably before sanction, if not, at least

before disbursement.

_ Obtain credit information in prescribed format, which enables the transferee

bank to be fully aware of irregularities, if any, existing in the borrower’s

account with the transferor bank.

_ Account Statement – The account copies of all the borrowal accounts with

the present bankers/financial institution shall be obtained at least for the last

12 months and ensure that the conduct of the a/c is satisfactory and no

adverse features are noticed.

_ Existence & Previous profit track record - i) In existence for a minimum

of 3 years with Audited B/S ii) Profit making in preceding 2 years & iii)

Availing Credit facilities with the previous Banker at least for 3 years.

_ Enhancement on Existing Limits with the present Banker: i)

Enhancement not beyond 50% ii) No further Enhancement/Additional Limits

till one year or next ABS, whichever is earlier.

_ TOL/TNW should not exceed 4:1 in case of takeover accounts.

_ Group Accounts – In case of having Sister / Associate concerns, Groups

consolidated position has to be examined.

Branches should ensure that Assessment is to be made independently as per our

Loan Policy guidelines. Administrative clearance is to be obtained from Zonal Office /

Head Office. To take all existing securities and to complete the documentation

expeditiously duly complying with our loan policy guidelines on takeover norms,

compliance, legal audit, permission for release of limit etc. While other bank is taking

over our borrowal account, Branches are advised to inform adverse features if any,

in the conduct of the accounts to the transferee bank duly obtaining permission from

competent authority for issuing P & C Report.

White and brown label ATM

White Label ATM



White Label ATMs are purely managed by third party service providers and have their label. These are branded non

bank ATM machines. Cash handling, management and logistics are provided by third party. Debit cards of all banks can be

operated through these machines. The role of the concerned bank is only limited to provide account information and back

end money transfers to the third parties managing these ATM machines. This initiative will enable the excluded segments

to avail ATM services as at present majority ATMs are confined to Urban/Metro areas only.

However, service provider levy charges which are to be either bear by the Bank or the customer. RBI has allowed

white label ATM's in India to have more penetration of ATM machines. Tata Communications Payment Solutions has

become the first company to launch this service in India under the brand name "Indicash". It has a tie up with

majority commercial banks and now you will soon see branded non bank third party white label ATM machines in

your vicinity.







 Brown Label ATM — We always think that the bank branded ATM machines operated by the bank concerned,

but this is not the case. Banks only handle part of the process that is cash handling and back-end server

connectivity. The ATM machine is owned by the third party service provider along with the physical

infrastructure. This type ATM is called as "Brown Label ATM" and acts as intermediate between Banks owned

ATM and White Label ATM.


Iibfadda.blogspot.com 

Loans and advances CCP exam

Loans and Advances::(Useful for Certified credit officers( professionals)  , Caiib also)) very important for bankers

1. ˜Credit Rating Agencies in India are regulated by: RBI
2. ˜CRISIL stands for: Credit Rating Information Services of India Ltd.
3. ˜Deferred Payment Guarantee is : Guarantee issued
when payment by applicant of guarantee is to be made in installments over a period of time.
4. ˜If Break Even Point is high, it can be construed that the margin of safety is ____: Low.
5. ˜Long Term uses – 12; total Assets – 30; Long Term source 16; What is net working capital : 4
6. ˜On which one of the following assets, depreciation is applied on Straight line method: Computers.
7. ˜Projected Turnover is Rs.400 lacs, margin by promoter is Rs. 20 lacs. What is maximum bank
finance as per Annual Projected Turnover method: 80 lakhs.
8. ˜Rohit was a loanee of the branch and news has come that he has expired. On enquiry, it was
observed that he left some assets. Upto what extent the legal heirs are liable to the Bank? Legal heirs are
liable for the liabilities upto the assets inherited by them.
9. ˜The appraisal of Deferred Payment Guarantee is same as that of a) Demand Loan b) OD c) Term
Loan d) CC : Term Loan.
10. A cash credit account will be treated as NPA if the CC limit is not renewed within ___days from the
due date of renewal: 180 days.
11. A director of a bank wants to raise loan of Rs 10 lakh from his bank against Life Insurance Policy with
surrender value of more than Rs 15 lakh. What will be done?: Bank can sanction.
12. A firm is allowed a limit of Rs.1.40 lac at 30% margin. It wants to avail the limit fully. How much will
be the value of security : Rs.2 lac
13. A guarantee issued for a series of transactions is called: Continuing guarantee
14. A lady who has taken a demand loan against FD come to the branch and wants to add name of her
minor son, as joint a/c holder. What you will do?: Name can be added only after adjustment of the loan.
15. A letter of credit which is issued on request of the beneficiary in favour of his supplier: Back to Back
LC
16. A loan is given by the bank on hypothecation of stock to Mr. A. Bank receives seizure order from
State Govt. What should bank do?: Bank will first adjust its dues and surplus if any wilt be shared with
the Govt.
17. A loan was sanctioned against a vacant land. Subsequently a house was constructed at the site.
What security is available now to the bank? : Both
18. A minor was given loan. On attaining majority he acknowledges having taken loan and promises to
pay. Whether the loan can be recovered? : He can not ratify the contract. Hence recovery not possible.
19. A negotiating bank and issuing bank are allowed days each for scrutiny of documents drawn
under Letter of credit to ensure that documents are as per LC: 5 banking days each.
20. Age limit staff housing loan: 70 years;
21. An L/C is expiring on 10.05.2008. A commotion takes place in the area and bank could not open.
Under these circumstances can the LC be negotiated?: The L/C can not be negotiated because expiry date
of LC can not be extended if banks are closed for reasons beyond their control.
22. As per internal policy of certain banks, the net worth of a firm does not include: a. Paid up capital b.
Free Reserve c. Share Premium d. Equity received from Foreign Investor : Revaluation Reserves
23. Authorised capital is Rs.10 lac. Paid up capital Rs.6 lac. The loss of previous year is Rs.1 lac. Loss in
current year is Rs3 _ lac. The tangible net worth is : Rs.2 lac
24. Authorised capital= 10 lac, paid-up capital = 60%, loss during current year = 50000, loss last year =
2 lacs, what is the tangible net worth of the company? : 3.5 lac
25. Bailment of goods by a person to another person, to secure a loan is called : Pledge
26. Balance outstanding in a CC limit is Rs.9 lakh. Value of stock is Rs.5 lakhs. It is in doubtfUl for more
than two years as on 31 March 2012. What is the amount of provision to be made on 31-03-2013?: Rs.9
lakhs (100% of liability as account is doubtful for more than 3 years)
27. Balance Sheet of a firm indicates which of the following – Balance Sheet indicates what a firm
owes and what a firm owns as on a particular date.
28. Bank limit for working capital based on turn over method: 20% of the projected sales turnover
accepted by Banks
29. Banks are required to declare their financial results quarterly as per provisions of : SEBI
30. Banks are required to maintain -a margin of ___ for issuing Guarantee favouring stock exchange on
behalf of share Brokers.
31. Banks are required to obtain audited financial papers from non corporate borrowers for granting
working capital limit of: Rs.25 lakh &above
32. Banks provide term loans and deferred payment guarantee to finance capital assets like plant and
machinery. What is the difference between these two: Outlay of funds.
33. Benchmark Current Ratio under turn over method is: 1.25
34. Break Even Point: No profit no loss. ( TR-TC=Zero)
35. Calculate Debt Equity ratio – Debenture – Rs 200, capital 50; reserves – 80; P& L account credit
balance – Rs 20: 4: 3 ( 200 divided by 150).
36. Calculate Net working capital– Total assets 1000; Long Term liabilities 400; Fixed assets, Intangible
assets and Non current assets (i.e. long term uses) Rs 350; What is net working capital : 400- 350= Rs
50
37. Calculate Tangible Net Worth: Land and building: 200 Lacs; Capital:80000 intangible asset:15000:
65,000
38. CALCULATION OF INTEREST IN LOAN ACCOUNT: MONTHLY
39. CARE stands for : Credit Analysis & Research Ltd
40. Cash Budget method is used for sanctioning working capital limits to : Seasonal Industries
41. CC limit Rs 4 lacs. Stock 6 lacs. Margin 25% . What is drawing power? : NOTIONAL - 4.5 lacs, BUT
ACTUAL Rs. 4 LAC.
42. Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) is a
government company licensed under Section 25 of the Companies Act, has been incorporated to operate
and maintain the Central Registry under the provisions of _____: SARFAESI Act 2002.
43. CIBIL is the agency that provides information to the member banks on (i) Credit Rating (ii)
Information on credit History: Information on Credit History of borrowers
44. Contribution means : profit + fixed cost
45. Current Assets 600, Long Term sources - 600, Total Assests1000, what is NWC and Current Ratio: CR
1.5 : 1; NWC = 200 .
46. Current Liabilities are those liabilities which are to be paid: within one Year
47. Current Ratio = 2:1, Net working Capital=60000, What is the Current Liability of the firm? : 60000
48. Current ratio indicates: Liquidity of the firm (ability of a firm to pay current liabilities in time)
49. Current Ratio is 1.33:1, Current Assets is 100, what will be the amount of Current Liability: 75 lakhs

50. Debt Equity Ratio indicates: Long term solvency or capital structure of the firm.
51. Debt Securitization refers to: Conversion of receivables into debt instruments.
52. Debt Service coverage ratio is used for: Sanction of Term Loans
53. Deferred Payment guarantee is: Financial Guarantee
54. Deferred payment guarantee issued by a bank is a : Contingent Liability.
55. Difference between Long Term Source and Long Term Use is called: Net Working capital.
56. DSCR indicates: Ability of firm to repay term loan instalments
57. DSCR is for evaluating: Term Loan repayment-surplus generating capacity.
58. Duty of confirming bank: Only to verify the genuineness of L/C.
59. Equitable Mortgage is created by deposit of title deeds with bank at – (a) any where in India; (b)
state capital; (c) only at Mumbai, Chennai or Kolkatta; (d) Any place notified by state government for this
purpose: Correct answer is (d).
60. Excess of current liability over current assets means the firm may face difficulties in meeting its
financial obligations in short term.
61. Expand CRILC: Central Repository of Information on large credits.
62. Expand IRR : Internal Rate of Return
63. Finance for construction of road and port is classified as: Infrastructure Finance.
64. For ascertaining that a firm will be able to generate sufficient profit to repay instalments of term
loan, which ratio is computed?: Debt Service Coverage Ratio
65. For assessing Fund Based Working Capital limit for MSME upto _______Turnover method is followed
under Nayak committee: Rs.5 crore.
66. For classification of assets in consortium accounts, which of the following is to be considered?: In
consortium accounts, each bank will classify the account as per its record of recovery.
67. For Takeover of accounts from other Banks, the account copies of all the borrower accounts with the
present bankers / financial institution shall be obtained at least for the last ______: 12 months.
68. Formation of consortium, when essential : When bank touches its exposure ceiling
69. Full form of DSCR: Debt Service coverage ratio;
70. Gold is pledged with bank as security for a Bank Guarantee by a borrower. Bank Guarantee stands
expired. Whether a temporary overdraft availed by the borrower which is overdue can be got adjusted by
selling the Gold held as security for issue of guarantee: Yes, because Bankers lien is a general lien and is
an implied pledge. Further, the Gold was deposited in the ordinary course of business.
71. Green field project is related to : setting up new projects
72. Guarantee issued by a bank in favour of Custom department that party will fulfill export obligation for
availing exemption from custom duty regarding tax. Such guarantee is called: Financial Guarantee
73. Guarantee issued by a bank which is still outstanding is shown in the Balance Sheet as: Contingent
Liability.
74. Guarantors Liability: Recall the a/c and cause demand against the borrower and guarantor. Balance
in guarantor's SB a/c cannot be appropriated directly.
75. Holiday period given for repayment of installements in a loan is termed as: Moratorium period
76. How DSCR is calculated?: (Profitafter tax + Depreciation + Interest on Term Loan) divided by (Annual
instalment of term loan+ interest on term loan)
77. How much additional risk weight has been provided on restructured loans?: 25%
78. Hypothecation can be converted to pledge by: taking possession with the consent of the borrower.
79. Hypothecation described under SARFEASI Act.
80. If a businessman start a business with a Capital investment of Rs.3,00,000/- and withdraw
Rs.25,000/- later. If Net Profit is Rs.1,20,000/- and income tax paid thereon is Rs.30,000/-, what is the
position of capital account (net worth) at the end of the year – 395000; 365000; 360000; nil:
Rs.3,65,000/-
81. If a LC contains a clause "about" regarding the amount and quantity of goods, how much tolerance is
permitted?: 10%
82. If current ratio is 2:1, net working capital is Rs 20,000, current asset will be: Rs 40,000
83. If debtors are Rs 4 lac, annual sale is 60 lac, what is the Debt collection period: 0.8 months
84. If Debtors velocity ratio increases, it means debt collection period has increased or sales have
decreased.
85. If documents are to be presented in about July month: these can be presented within 5 days before
or 5 days after.
86. If in a Guarantee issued is silent, what will be the limitation period: 3 yrs and in case of Govt
guarantee it is 30 years.
87. If in a LC words around is written with date then variation of is allowed in the period: +/- 5 calendar
days
88. If limit is 3 lacs, margin is 25% what should be stock to avail full limit?: Rs4 lac
89. If on a letter of credit it is not mentioned whether it is revocable or irrevocable, then as UCPDC 600, it
will be treated as : Irrevocable LC
90. If on a Letter of Credit, date is mentioned as "end of the month", then as per UCPDC 600, it will
mean: 21st to last day of the month.
91. If stock statement is not submitted for 3 months from its due date and DP is allowed on the basis of

old stock report, then the account will be considered NPA after:90 days
92. If the projected sale of a-small (manufacturing) enterprise is Rs 80 lakh, margin available with the
borrower is Rs 4 lakh, then as per turnover method, working capital limit will be: Rs 16 lakh.
93. If working capital limit to a borrower is Rs 10 crore and above, then as per RBI guidelines, the loan
component should be at least: as per bank's discretion.(earlier it used to be 80%).
94. In a company, the registration of charges is required for: a)loan against FD b)lien on Govt Securities
c) assignment of Book Debts d) lien on Shares : Book Debts
95. In A current account OD of Rs. 12000 is made. The FDR has become due later on if the right of
appropriation can be used. The borrower has objected that he never requested for overdraft, hence
payment can not be appropriated. The customer is right.
96. In a letter of credit, it is written that documents can be negotiated about 30th June. In this case, the
documents can be negotiated: Before or after 5 clays of 30th June.
97. In case of a loan under consortium, each bank can have Maximum working capital limit of Rs-No
rule in this regard. Rules of consortium to be framed by members of consortium.
98. In case of loan given by more than one bank under a consortium, how the asset classification is done
by various banks?: Each bank will classify the account based on its record of recovery.
99. In case of revaluation of fixed assets, what percentage of revaluation reserve will be added to Tier
II capital of the bank?: 45%
100. In Letter Of Credit jmporter is called: Opener of Letter of Credit
101. In project finance, Debt Equity Ratio requirement for other than Infrastructure finance is: 2:1
102. In respect of a project report, the feasibility which is given least importance by the preparers of the
report, but very important for a banker is : a) Commercial b) Technical c) economic d) financial Ans: C
103. In the Balance Sheet of a bank, Contingent Liabilities are shown as: footnote to the Balance Sheet.
104. In the case of advance to a limited company for purchase of vehicle, the charge is registered with
Regional Transport Authority in addition to registration of charge with. Registrar of Companies. Why this is
done?:So that borrower can not sell the vehicle without intimation to the bank
105. Interest rate on advances is related to – Bank rate; Base Rate; PLR: MCLR Rate
106. Limit sanctioned Rs 5 lac; Stock Rs 6 lac; Margin 25%; What will be Drawing power: Rs 4.5 lac
107. Loan Delivery System is not applicable to: a) Loan to Soft ware industry b) export credit: export
credit
108. Loan Delivery System suggested by Rashid Mani Committee is applicable on borrowers with working
capital limits of: Rs 10 crore and above
109. Loan is in the name of A&B. Both have signed documents. A signs the Balance Confirmation but B
does not. In this case limitation will extend against: both
110. Lorry Receipts issued by Transport Operators approved by IBA are preferred. The reason is the
Transport Operators will take care of: Carriers Risk.
111. Stand by LC is just like : Financial guarantee (A guarantee of payment issued by a bank on behalf of a
client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with
a third party. Standby letters of credit are created as a sign of good faith in business transactions, and are
proof of a buyer's credit quality and repayment abilities)
112. Standard Score under CIBIL: 300 to 900
113. Stock Audit is required in respect of loans of : Rs.1.00 crore & above
114. Subordinate Debt is shown as part of in the Balance Sheet of a bank: Other Liabilities and
Provisions
115. Tangible Net Worth (TNW) is calculated as: Total paid up capital + Reserves – Intangible Assets.
116. The appraisal of deferred payment guarantee is similar to term loan: The difference is outlay of funds.
117. THE APPRAISAL OF DEFERRED PAYMENT GUARANTEE IS SIMILAR TO: TERM LOAN
118. The Audited Balance sheet for the latest financial year is to be obtained within ______ to finalise
credit rating and re-fix interest accordingly: 6 months.
119. The Bank did not disclose all material facts regarding loan to the guarantor while obtaining
guarantee. Can guarantor escape liability?: Guarantor cannot escape from his liability as it is not
necessary to disclose all the materials facts with regards to the loan.
120. The Borrower has to bring funds as his contribution for loan from: Long term Sources
121. The charge on stocks is created by: Hypothecation ( also by pledge or lien)
122. The concept of Base Rate is not applicable in the case of: Loan against Bank’s own deposit
123. The limitations of financial statements are : only quantitative not qualitative.
124. The long term liability to tangible net worth ratio implies : Long term solvency of the firm .
125. The main distinction between Hypothecation and Pledge is on accountof : Possession
126. The Meaning of Debtor Velocity Ratio is: Cycle of Debt Collection Period
127. The procedure used for ascertaining Customers Credit worth is called: Credit Rating
128. Time Limit for registration of equitable mortgage with CERSAI: 30 days from date of deposit of
title deeds. (Normally 30days and then delay can be condoned up to 30days on payment of penalty).
129. To improve Current Ratio of 2:1, what has to be done? a) Recover cash from Receivables b) Cash
sales c) Decrease the Bills payables.
130. Total Indebtedness Ratio is represented by: Total outside liabilities divided by Tangible Net Worth
131. What is "pari passu" means: Sharing in the ratio of outstanding.
132. What is a Break even point-The level of sales at which a firm does not earn any profit and does not
incur any loss.
133. What is cash loss : net loss before depreciation (Net loss minus depreciation)
134. What is Deffered Payment Guarantee?: Guarantee issued when payment by applicant of
guarantee is to be made in instalments over a period of time.
135. What is Mortgage? Transfer of interest in specific immovable property to secure an existing
or future debt.
136. What is nature of Banker's Lien?: It is implied pledge because Banker can dispose-off the goods after
giving notice to the borrower.
137. What is Pari Passu charge?: In case of consortium advance sale proceeds of security will be
shared among banks in proportion to their outstanding.
138. What is Real Rate of Interest?: Prevailing interest rate minus inflation rate
139. What is the meaning of Group in Exposure Norms: Commonality of management & Effective Control
140. What is the relationship between bank and customers in case of overdraft?: Creditor and Debtor
141. What is the risk weight for Personal Loans? 125%
142. What is the risk weight for Unrated companies?: 100%
143. What is the type of liability for the bank on account of issue of Bank Guarantee?: Contingent Liability
144. What type of bank gaurentee bank gives when a customer purchases a machine on instalment basis?:
Deferred Payment guarantee.
145. What type of Guarantee is Deffered Payment Guarantee: Financial Guarantee
146. What type of liability is represented by Bank Guarantee?: Contingent Liability and shown as a
footnote in the Balance Sheet.
147. What will be the tangible net worth if total assets are Rs 35 crore; total outside liability Rs 30 crore;
intangible assets Rs 3 crore: Rs 2 crore
148. What will happen in case of negative working capital limit: Current Liabilities are more than
Current Assets
149. Which is not a Credit Rating Agency – CRISIL, CARE, SMERA, ICRA, CIBIL: CIBIL
150. Which is not found in operating expenses statement of P&L statement - Salaries, Rent, Power: Power
151. Which is not included in Contingent liability – Bank Guarantee; Letter of Credit; Forward Contract;
Bills Payable: Bills payable
152. Which of the following is a contingent liability – deposits, borrowings, capital, guarantee: Bank
Guarantee
153. Which of the following is a Credit Information company – CIBIL, FIMDA, AMFI, CRISIL: CRISIL
154. Which of the following is part of the Solvency Ratios: debt equity ratio.
155. Which of the following represent Debt Service Coverage Ratio: (Net Profit after tax + Depreciation
+ Interest on Term loan) divided by (Annual instalment of term loan + interest on term loan)
156. Which of the items will not be an asset in banks bal sheet: Advances/Fixed Asset / Deposits :
Deposits
157. Which one of following is credit information company?: Equifax
158. Which system replaced Benchmark Prime Lending rate in banks: Base Rate
159. While arriving Drawing Power for financing against book debts, only Book Debts _____and below are
to be taken in to consideration. (other than MSME advances): 90 days
160. While doing Project Appraisal, sensitivity analysis is useful for: Viability and sustainability of project.
161. While financing for TL, Bank should look for the ability of the firm to generate the income to service
the debt
162. While granting loans to a partnership, banks generally insist that the firm should be registered
whereas registration of a partnership firm is optional. What is the reason for the same?: An
unregistered firm can not sue its debtors for recovery of its dues whereas other can sue the
firm for recovery of their dues
163. While undertaking technical appraisal, the following is not considered: cost of production and sales (it
is used for economic viability).
164. Who is bound to file particulars of charge with the Registrar of Companies under MCA 21, when a
company creates charge of somebody on its movable or immovable property except by way of
pledge?: officials of the company.
165. Why banks do not grant loan to a minor?: A minor is not competent to contract Therefore, Ioan given
to a minor can not be recovered.
166. Why banks ensure that charge created on any asset of the company should be registered with ROC
within stipulated period?: If charge is not registered, bank will become unsecured creditor.
167. Why banks prefer financing of bills?: because the advance is self liquidating
168. Why fund flow statement is taken from the borrower?: To know sources from where funds have been
raised and how funds have been utilized and to know changes in net working capital position.
169. Why loan against Partly Paid Shares are not preferred by banks?: Because partly paid shares
represent contingent liability. In case company makes demand and the borrower does not pay the
amount then the bank will have to pay the amount otherwise share may be forfeited. Moreover it is
prohibited by RBI
170. Working capital requirement of a firm is required to be met through : Short term sources and surplus

Policy framework for international frame work

1. Introduction to India’s Foreign Trade:

International business operations at firm level are considerably influenced by various policy measures employed to regulate trade, both by home and host countries. Exportability and importability of a firm’s goods are often determined by trade policies of the countries involved. Price-competitiveness of traded goods is affected by import and export tariffs.

The host country’s trade and FDI policies often influence entry decisions in international markets. Policy incentives help exporters increase their profitability through foreign sales. High import tariffs and other import restrictions distort free market forces guarding domestic industry against foreign competition and support indigenous manufacturing.

Therefore, a thorough understanding of the country’s trade policy and incentives are crucial to the development of a successful international business strategy.

Trade policy refers to the complete framework of laws, regulations, international agreements, and negotiating stances adopted by a government to achieve legally binding market access for domestic firms. It also seeks to develop rules providing predictability and security for firms. To be effective, trade policy needs to be supported by domestic policies to foster innovation and international competitiveness.

Besides, the trade policy should have flexibility and pragmatism.

Trade in developing countries is characterized by heavy dependence on developed countries, dominance of primary products, over-dependence on few markets and few products, and worsening of terms of trade and global protectionism, all of which make formulation and implementations of trade policy critical to economic development.

The strategic options for trade policy may either be inward or outward looking. As a result of liberalization and integration of national policies with WTO agreements, there has been a strategic shift in trade policies. Like other developing countries, India’s trade policies have also made a gradual shift from highly restrictive policies with emphasis on import substitution to more liberal policies geared towards export promotion.

India’s foreign trade policy is formulated under the Foreign Trade (Development and Regulation) Act, for a period of five years by the Ministry of Commerce, Government of India. The government is empowered to prohibit or restrict subject to conditions, export of certain goods for reasons of national security, public order, morality, prevention of smuggling, and safeguarding balance of payments.

Policy measures to promote international trade, such as schemes and incentives for duty-¬free and concessional imports, augmenting export production, and other export promotion measures are discussed in-depth

The multilateral trading system under the WTO trade regime significantly influences trade promotion measures and member countries need to integrate their trade policies with the WTO framework. The WTO trade policy review mechanism provides an institutional framework to review trade policies of member countries at regular intervals.


Trade Policy Options for Developing Countries:


There exists a huge gap in per capita income between the developed and the developing countries. Most of the world’s population lives in countries that are considerably poor.

Efforts to bridge the income gap between developed and developing countries, to raise living standards by increasing income levels, and to cope with the uneven development in the domestic economy, remain the central concern of economic and trade policies of developing countries. With low production base and constraints in value addition, most developing countries remain marginal players in international trade

Key characteristics of developing countries’ trade include the following:

(i) Heavy Dependence Upon Developed Countries:

Developing countries’ trade is often dependent upon developed countries which form export destinations for the majority of their goods. Moreover, developing countries also heavily depend on developed countries for their imports. Trade among developing countries is relatively meagre.

(ii) Dominance of Primary Products:

Exports from developing countries traditionally comprised primary products, such as agricultural goods, raw materials and fuels or labour-intensive manufactured goods, such as textiles. However, over recent years, dependence on primary products has considerably decreased, especially for newly industrialized countries, such as South Korea and Hong Kong.

India’s dependence on agro exports has also declined considerably from 44.2 per cent in 1960-61 to about 10 per cent in 2006-07.

(iii) Over-dependence on a Few Markets and a Few Products:

A large number of developing countries are dependent on just a few markets and products for their exports. For instance, Mexico is heavily dependent on the US which is the destination for 89 per cent of its total exports whereas the Dominican Republic exports 80 per cent and Trinidad and Tobago 68 per cent of its goods to the US.

In terms of product composition, petroleum accounts for 96 per cent of total exports from Nigeria, 86 per cent of total exports from Saudi Arabia, and 86 per cent of total exports from Venezuela. Over the years, India’s basket of export products has widened remarkably with decreased dependence on any single product category

(iv) Worsening Terms of Trade:

Distribution of gains from trade has always been disproportionate and therefore, a controversial issue. Developing countries often complain of deterioration in their terms of trade, mainly due to high share of primary products in their exports.

(v) Global Protectionism:

Developed countries often provide heavy subsidies to their farmers for agricultural production and shield them from competition from imported products, besides imposing tariffs. Moreover, a number of non-tariff barriers such as quality requirements, sanitary and phytosanitary measures, and environmental and social issues, such as child labour offers considerable obstacles to products emanating from developing countries.

Trade Policy Strategic Options for International Trade:

‘Economic dualism’, where a high-wage capital-intensive industrial sector co-exists with a low-wage unorganized traditional sector, prevails in most developing countries. Promoting indigenous industrialization and employment generation become key concerns of their economic policies. A country may adopt any of the following strategic options for its trade policy

i) Inward Looking Strategy (Import Substitution):

Emphasis is laid on extensive use of trade barriers to protect domestic industries from import competition under the import-substitution strategy. Domestic production is encouraged so as to achieve self-sufficiency and imports are discouraged.

Import- substitution trade strategy is often justified by the ‘infant industry argument’, which advocates the need of a temporary period of protection for new industries from competition from well-established foreign competitors.

Most developing countries, such as Brazil, India, Mexico, Argentina, etc., during the 1950s and 1960s employed an inward-looking trade strategy.

The uses of high tariff structure and quota restrictions along with reserving domestic industrial activities for local firms rather than foreign investors were the key features of this import substitution policy. The pros and cons of such strategy are given below.

Pros:

i. Protecting start-up industries so as to enable them to grow to a size where they can compete with the industries of developed nations

ii. Low risk in establishing domestic industry to replace imports especially when the size of domestic market is large enough to support such industries

iii. High import tariffs that discourage imports but provide foreign firms an inbuilt incentive to establish manufacturing facilities, leading to industrial development, growth in economic activities, and employment generation

iv. Relative ease for developing countries to protect their manufacturers against foreign competition compared to getting protectionist trade barriers reduced by developed countries, in which they have little negotiating power

Cons:

i. Overprotection of domestic industries against international competition tends to make them inefficient

ii. Protection primarily available to import substituting industries which discriminates against other industries

iii. Manufacturers based in countries with relatively small market size find it difficult to take advantage of economies of scale and therefore have to incur high per unit costs

iv. Industries that substitute imports become competitive because of government incentives and import prohibitions, leading to considerable investment. Any attempt to reduce incentives or liberalize trade restrictions face strong resistance

v. Government subsidies and trade restrictions tend to breed corruption

Since independence, India’s trade strategy had been largely inclined to import substitution rather than export promotion. Earning foreign exchange through exports and conservation thereof had always been a high-priority task for various governments, irrespective of their political ideologies. Till 1991, India followed a strong inward-oriented trade policy to conserve foreign exchange

In order to facilitate industrialization with the objective of import substitution, important instruments used by the government included outright ban on import of some commodities, quantitative restriction, prohibitive tariff structure, which was one of the highest in the world and administrative restrictions, such as import licensing, foreign exchange regulations, local content requirements, export obligations, etc.

The policy makers of India had long believed that these policy measures would make India a leading exporter with comfortable balance of trade. In reality, these initiatives did not yield the desired results, rather gave rise to corruption, complex procedures, production inefficiency, poor product quality, and delay in shipment, and, in turn, decline in India’s share in world exports.

The protectionist measures of the inward-oriented economy increased the profitability of domestic industries, especially in the import substitution sector. The investment made to serve the domestic market was less risky due to proven demand potential by the existing level of imports.

Formidable tariff structure and trade policy barriers discouraged the entry of foreign goods into the Indian market. There was little pressure on domestic firms to be internationally competitive.

(ii) Outward Looking Strategy (Export-led Growth):

Under the outward looking strategy, the domestic economy is linked to the world economy, promoting economic growth through exports. The strategy involves incentives to promote exports rather than restrictions to imports.

Major benefits of an outward looking strategy include:

i. Industries wherein a country has comparative advantage are encouraged, for instance labour-intensive industries in developing countries

ii. Increase in competition in the domestic market leads to competitive pressure on the industry to increase its efficiency and upgrade quality

iii. Facilitating companies to benefit from economies of scale as large output can be sold in international markets

The economic liberalization during the last decade paved the way for access of foreign goods to Indian market, applying competitive pressure even on purely domestic companies. In order to make exports, the engine of growth, export promotion, gained major thrust in India’s trade policies, especially in recent years


With the integration of national trade policies and export promotion incentives with the WTO, promotional measures to encourage international marketing efforts, rather than export subsidization, have gained increased significance.

Accordingly, policies were aimed at creating a business-friendly environment by eliminating redundant procedures, increasing transparency by simplifying the processes involved in the export sector, and moving away from quantitative restrictions, thereby improving the competitiveness of Indian industry and reducing the anti-export bias.

Steps were taken to promote exports through multilateral and bilateral initiatives. With the decline in restrictions on trade and investment, constraints related to infrastructure and regulatory bottlenecks became increasingly evident.

Instruments of Trade Policy for International Trade:


Various methods employed to regulate trade are known as instruments of trade policy, which include tariffs, non-tariff measures, and financial controls

(i) Tariffs:

These are official constraints on import or export of certain goods and services and are levied in the form of customs duties or tax on products moving across borders. However, tariffs are more commonly imposed on imports rather than exports. The tariff instruments may be classified as below.

On the basis of direction of trade: import vs. exports tariffs:

Tariffs may be imposed on the basis of direction of product movement, i.e., either on exports or imports. Generally, import tariffs or customs duties are more common than tariffs on exports However, countries sometimes resort to impose export tariffs to conserve their scarce resources. Such tariffs are generally imposed on raw materials or primary products rather than on manufactured or value-added goods.

On the basis of purpose: protective vs. revenue tariffs:

The tariffs imposed to protect the home industry, agriculture, and labour against foreign competitors is termed as protective tariffs which discourage foreign goods. Historically, India had very high tariffs so as to protect its domestic industry against foreign competition.

A tariff rate of 200 to 300 per cent, especially on electronic and other consumer goods

created formidable barriers for foreign products to enter the Indian market.

The government may impose tariffs to generate tax revenues from imports which are generally nominal. For instance, the UAE imposes 3-4 per cent tariffs on its imports which may not be termed as protective tariffs.

On the basis of time length: tariff surcharge vs. countervailing duty:

On the basis of the duration of imposition, tariffs may be classified either as surcharge or countervailing duty. Any surcharge on tariffs represents a short term action by the importing country while countervailing duties are more or less permanent in nature. The raison d’etre for imposition of countervailing duties is to offset the subsidies provided by the governments of the exporting countries.

On the basis of tariff rates: specific, ad-valorem, and combined:

Duties fixed as a specific amount per unit of weight or any other measures are known as specific duties. For instance, these duties are in terms of rupees or US dollars per kg weight or per meter or per liter of the product. The cost, insurance, and freight (c.i.f.) value, product cost, or prices are not taken into consideration while deciding specific duties.

Specific duties are considered to be discriminatory but effective in protection of cheap- value products because of their lower unit value.

Duties levied ‘on the basis of value’ are termed as ad-valorem duties. Such duties are levied as a fixed percentage of the dutiable value of imported products. In contrast to specific duties, it is the percentage of duty that is fixed. Duty collection increases or decreases on the basis of value of the product. Ad-valorem duties help protect against any price increase or decrease for an import product.

A combination of specific and ad-valorem duties on a single product is known as combined or compound duty. Under this method, both specific as well as ad-valorem rates are applied to an import product.

On the basis of production and distribution points:

These are as below:

Single stage sales tax:

Tax collected only at one point in the manufacturing and distribution chain is known as single stage sales tax. Single stage sales tax is generally not collected unless products are purchased by the final consumer.

Value added tax:

Value added tax (VAT) is a multi-stage non-cumulative tax on consumption levied at each stage of production, distribution system, and value addition. A tax has to be paid at each time the product passes from one hand to the other in the marketing channel.

However, the tax collected at each stage is based on the value addition made during the stage and not on the total value of the product till that point. VAT is collected by the seller in the marketing channel from a buyer, deducted from the VAT amount already paid by the seller on purchase of the product and remitting the balance to the government.

Since VAT applies to the products sold in domestic markets and imported goods, it is considered to be non-discriminatory. Besides, VAT also conforms to the WTO norms.

Cascade tax:

Taxes levied on the total value of the product at each point in manufacturing and distribution channel, including taxes borne by the product at earlier stages, are known as cascade taxes. India had a long regime of cascade taxes wherein the taxes were levied at a later stage of marketing channel over the taxes already borne by the product.

Such a taxation system adds to the cost of the product, making goods non-competitive in the market.

Excise tax:

Excise tax is a one-time tax levied on the sale of a specific product. Alcoholic beverages and cigarettes in most countries tend to attract more excise duty.

Turnover tax:

In order to compensate for similar taxes levied on domestic products, a turnover or equalization tax is imposed. Although the equalization or turnover tax hardly equalizes prices, its impact is uneven on domestic and imported products.

(ii) Non-Tariff Measures:

Contrary to tariffs, which are straightforward, non-tariff measures are non-transparent and obstruct trade on discriminatory basis. As the WTO regime calls for binding of tariffs wherein the member countries are not free to increase the tariffs at their will, non-tariff barriers in innovative forms are emerging as powerful tools to restrict imports on discriminatory basis. The major non-tariff policy instruments include.

Government participation in trade:

State trading, governments’ procurement policies, and providing consultations to foreign companies on a regular basis are often used as disguised protection of national interests and barrier to foreign firms. A subsidy is a financial contribution provided directly or indirectly by a government that confers a benefit.

Various forms of subsides include cash payment, rebate in interest rates, value added tax, corporate income tax, sales tax, insurance, freight and infrastructure, etc. As subsidies are discriminatory in nature, direct subsidies are not permitted under the WTO trade regime.

Customs and entry procedure:

Custom classification, valuation, documentation, various types of permits, inspection requirements, and health and safety regulations are often used to hinder free flow of trade and discriminate among the exporting countries. These constitute an important non-tariff barrier.

Quotas:

Quotas are the quantitative restrictions on exports/imports intended at protecting local industries and conserving foreign exchange. The various types of quotas include

Absolute quota:

These quotas are the most restrictive, limiting in absolute terms, the quantity imported during the quota period. Once the quantity of the import quota is fulfilled, no further imports are allowed.

Tariff quotas:

They allow import of specified quantity of quota products at reduced rate of duty. However, excess quantities over the quota can be imported subject to a higher rate of import duty. Using such a combination of quotas and tariffs facilitates some import, but at the same time discourages through higher tariffs, excessive quantities of imports.

Voluntary quotas:

Voluntary quotas are unilaterally imposed in the form of a formal arrangement between countries or between a country and an industry. Such agreements generally specify the import limit in terms of product, country, and volume.

The multi-fibre agreement (MFA) had been the largest voluntary quota arrangement wherein developed countries forced an agreement on economically weaker countries so as to provide artificial protection to their domestic industry.

However, with the integration of multi-fibre agreement with the WTO, the quota regime got scrapped by 1 January 2005. Summarily, all sorts of quotas have a restrictive effect on free flow of goods across countries.

Other trade restrictions:

Other trade restrictions include minimum export price (MEP), wherein the government may fix a minimum price for exports so as to safeguard the interests of domestic consumers. Presently, India’s trade policy does not impose any restriction of minimum export price.

(iii) Financial Controls:

Governments often impose a variety of financial restrictions to conserve the foreign currencies restricting their markets. Such restrictions include exchange control, multiple exchange rates, prior import deposit, credit restrictions, and restriction on repatriation of profits. India had long followed a stringent exchange control regime to conserve foreign currencies.

(iv) Demand vs Supply Side Policy Measures:

Policy instruments for promoting exports may also operate on the supply and demand side. Initiatives for creating and expanding export production, developing transportation networks, port facilities, tax and investment systems form parts of supply side policies.

The demand side initiatives for export promotion include programmes to alert companies to the opportunities present in international markets and to strengthen the commitment and skills of those already involved.

________________________________________

Policy Initiatives and Incentives by the State Governments for International Business:

State governments generally do not distinguish between production for domestic market and production for export market. Therefore, there had been few specific measures taken by state governments targeted at exporting units.

Though, state governments have taken a number of policy measures so as to encourage industrial activity in the state which mainly relate to:

i. Capital investment subsidy or subsidy for preparation of feasibility reports, project reports, etc.

ii. Waiver or deferment of sales tax or providing loans for sales tax purposes

iii. Exemption from entry tax, octroi, etc.

iv. Waiver of electricity duty

v. Power subsidy

vi. Exemption from taxes for certain captive power generation units

vii. Exemptions from stamp duties

viii. Provision of land at concessional rate

These concessions extended by state governments vary among policies of individual state governments and have broadly been based on the following criteria:

(a) Size of the unit proposed (cottage, small and medium industry)

(b) Backwardness of the districts or area

(c) Employment to weaker sections of society

(d) Significance of the sector, for example, software, agriculture

(e) Investment source, such as foreign direct investment (EDI) or investment by NRIs

(f) Health of the unit (sick), etc.

Therefore, it may be noted that most of the exemptions tend to encourage capital- or power-intensive units though some concessions are linked to turnover. Most of the concessions in the state industrial policies have been designed keeping in view the manufacturing industries.

An analysis of industrial policies of various states indicates that most state governments do compete among themselves in extending such concessions. On examination of export promotion initiatives by the state governments, it is difficult to find commonality among various states.

However, some of the common measures taken by the state governments are:

i. Attempting to provide information on export opportunities

ii. Preference in land allotment for starting an EOU

iii. Planning for development of Export Promotion Industrial Parks

iv. Exemption from entry-tax on supplies to EOU/EPZ/SEZ units

v. Exemption from sales tax or turnover tax for supplies to EOU/EPZ/SEZ units and inter-unit transfers between them.

________________________________________

WTO and India’s Export Promotion Measures for International Business:

The emergence of the rule-based multilateral trading system under the WTO trade regime has affected India’s trade policies and promotional efforts. It provides a rule based framework as to which subsidies are prohibited, which can face countervailing measures, and which are allowed. The impact of WTO agreements on trade policy and export promotion measures is examined here.

The framework of the GATT is based on four basic rules:

(i) Protection to Domestic Industry Through Tariffs:

Even though GATT stands for liberal trade, it recognizes that its member countries may have to protect domestic production against foreign competition. However, it requires countries to keep such protection at low levels and to provide it through tariffs. To ensure that this principle is followed in practice, the use of quantitative restrictions is prohibited, except in a limited number of situations.

(ii) Binding of Tariffs:

Countries are urged to reduce and, where possible, eliminate protection to domestic production by reducing tariffs and removing other barriers to trade in multilateral trade negotiations. The tariffs so reduced are bound against further increase by being listed in each country’s national schedule. The schedules are integral part of the GATT legal system.

(iii) Most-Favoured-Nation Treatment:

This important rule of GATT lays down the principle of non-discrimination. The rule requires that tariffs and other regulations should be applied to imported or exported goods without discrimination among countries. Thus it is not open to a country to levy customs duties on imports from one country, at a rate higher than it applies to imports from other countries. There are, however, some exceptions to the rule.

Trade among members of regional trading arrangements, which are subject to preferential or duty-free rates, is one such exception. Another is provided by the Generalized System of Preferences; under this system, developed countries apply preferential or duty-free rates to imports from developing countries, but apply MFN rates to imports from other countries.

(iv) National Treatment Rule:

While the MFN rule prohibits countries from discriminating among goods originating in different countries, the national treatment rule prohibits them from discriminating between imported products and equivalent domestically produced products, both in the matter of the levy of internal taxes and in the application of internal regulations.

Thus it is not open to a country, after a product has entered its markets on payment of customs duties, to levy an internal tax (for example, sales tax or VAT) at rates higher than those payable on a product of national or domestic origin.

The four basic rules are complemented by rules of general application, governing goods entering the customs territory of an importing country.

These include rules which countries must follow:

i. In determining the dutiable value of imported goods where customs duties are collected on an ad-valorem basis

ii. In applying mandatory product standards, and sanitary and phytosanitary regulations to imported products

iii. In issuing authorizations for imports

In addition to the rules of general application described above, the GATT multilateral system has rules governing:

i. The grant of subsidies by governments

ii. Measures which governments are ordinarily permitted to take if requested by industry

iii. Investment measures that could have adverse effects on tirade

The rules further stipulate that certain types of measures which could have restrictive effects on imports can ordinarily be imposed by governments of importing countries only if the domestic industry which is affected by increased import petitions that such actions be taken.

These include:

i. Safeguard actions

ii. Levy of anti-dumping and countervailing duties

Under safeguard action the importing country is allowed to restrict imports of a product for a temporary period by either increasing tariffs or imposing quantitative restrictions. However, the safeguard measures can only be taken after it is established through proper investigation that increased imports are causing serious injury to the domestic industry.

The anti-dumping duties can be imposed if the investigation establishes that the goods are ‘dumped’.

The agreement stipulates that a product should be treated as being ‘dumped’ where its export price is less than the price at which it is offered for sale in the domestic market of the exporting country, whereas the countervailing duties can be levied in cases where the foreign company has charged low export price because its product has been subsidized by the government.

The WTO’s Trade Policy Review Mechanism:

In order to enhance transparency of members’ trade policies and facilitate smooth functioning of the multilateral trading system, the WTO members established the Trade Policy Review Mechanism (TPRM) to review trade policies of member countries at regular intervals.

Under annexure 3 of the Marrakesh Agreement, the four members with largest shares of world trade (i.e., European communities, the US, Japan, and China) are to be reviewed every two years, the next sixteen to be reviewed every four years, and the others be reviewed every six years. For the least developed countries a longer period may be fixed.

Reviews are conducted by the Trade Policy Review (TPR) Body on the basis of a policy statement by the member under review and a report prepared by staff in the WTO Secretariat’s TPR Division. Although the secretariat seeks cooperation of the members in preparing the report, it has the sole responsibility for the facts presented and the views expressed.

The TPR reports contain detailed reports examining the trade policies and practices of the member and describing policy-making institutions and the macroeconomic situation. The member’s subsidies contained in the TPR is of particular interest for the purpose of the report.

Information on subsidies distinguished in the subsidies and countervailing measures (SCM) can be found in the following three parts of the TPR report:

i. Measures directly affecting exports

ii. Trade policies and practices by sector

iii. Government incentives or subsidies that do not directly target imports and exports but nevertheless have an impact on trade flows

The contents of the report are mainly driven by the member’s main policy changes and constraints rather than subsidy-related issues and problems. Besides, the coverage of the report is determined to a large extent by the availability of data.

As a result, the amount of information contained in the reports varies from member to member. The TPR reports normally do not attempt to assess the effects of the subsidies on trade.

Due to limited availability of detailed information, in many cases, it is difficult to identify the extent to which a benefit is actually being conferred or the identity of the recipient of the subsidy.

Despite the shortcomings, especially with respect to cross-country comparability, the TPR report constitutes one of the few sources that systematically collects and compiles information on subsidies for a broad range of countries and economic activities.

Micro finance recollected

Q1.C.rungrajan committee on microfinance

Q2. Breath length and depth meaning.

Q3. Difference between poverty lending approach and financial system approach.

Q4. Microfinance focus on poorest of the poor.

Q5. Nabard and it's role.

Q6. Nationalization of banks and it's purpose.

Q7.IRDP programm substitute the SJGSY program.

Q8.what is facilitater and it's role.

Q9.what is GRT group recognition test and it's purpose.

Q10.one question on Money lenders.

Q11.break even analysis and CPV analysis 3 questions.

Q12.what is microcredit.

Q13.what is microfinance.

Q14. What is sustainability.

Q15 what is BRI bank Ryat Indonesia.

Q16 .what is unit diseas.

Q17.chikola group of Kenya is example of which model.

Q18.Difference between SHG and JLG model

Q19 detailed question on grameen bank model.

 Q20. What is SHG bank linkage model...

Q22. Assumptions of grameen bank model of Bangladesh.

 Q23.diffrence between direct cost indirectcost setupcost and cost of fund.

Q24 .capital=assets-liability.

Q25.for NBFC model minimum networth requires rs.5 crore.

Q26.malegam committee and its recommendation.

Q27.qualifying assets and its significance

Q28.what is most accepted and widely usedmodel of microfinance in india.

 Q29.what is ghostborrower or multiple lending.

Q30.details of BC model.

Q31.what is reckless lending.

Q32. Details of SHG2 model part2.

 Q33. What is refinancing.

Q34. National rural livelihood mission.

 Q35 .Swarn jayanti gramin Swarojgar yojna

Q 36.what is mutual fund.

 Q37. What is merchant banking.

Q38.details of Revolving Fund.

 Q39. Financial inclusion definition and scope.

Q40. What is kyc and it's purpose

Q41 .Illiterate person can open which type of exam.

Q42 .Difference between impact accessment and social performance.

Q43.what is social rating

Q44. What is minimalist and integrated approach.

Q45.what is micro Insurance.

 Q46. Role of SEBI.

 Q47.role of IRDA.

 Q48. What is cash flow statement

.Q49. What is flat rate of interest.

 Q50. What is travel expanses.

 Q51.what is operating expense Ratio.

 Q52. What is asset depricitation.

 Q53 what is accounting stanard 2

. Q54. What is average case load.

Q55. What is Target group.

Q56. What is PAR.

Q57. What is market risk.

Q58. What is bank rate.

Q59.what is reprising risk.

 Q60. What is riskmanagement loop

Q61 what is schedule and nonshedule bank.

Q62. What is human risk.

 Q63.what is operational risk.

Q64.what is merchant banker.

 Q65. What is trading in stock exchange.

 Q66.two questions on mutual fund.

Q67.three question on Break Even Analysis.

Q68. What is regulatory risk.

 Q 69.what is Repayment rate.

 Q70.trust and Trust feed and what NBFC banking Model and what is business Correspondent model (BC Model)...... these All are 70 Recollected Questions of microfinance held on 15 july 2018. best of luck to All

Credit thrust

Credit Thrust: It means the main focus area for a bank or a specific branch should

give. If a branch is in rural, thrust should be on agri sector loans, and so on. This gives

an opportunity for a bank/branch to gather maximum profit with minimum staff, as the

customer is ready. Precaution: While disbursement, the financials and history to be

checked to prevent NPA in future.

Credit Priorities are Same as Credit thrust.

Credit Acquisitions: It means sanctioning the loans to customers by closing their

loans with other banks. In short, acquiring other bank‘s customers for business growth.

Points to remember:

1 Whether the loan in other bank is in standard condition

2 Why is the other bank ready to let go the loan

3 Credit history of the borrower

4 Adequate collateral

Statutory & Regulatory restrictions on Advances :

No banking company shall-

(a) grant any loans or advances on the security of its own shares, or

(b) enter into any commitment for granting any loan or advance to or on behalf

of-

(i) any of its Directors,

(ii) any firm in which any of its Directors is interested as Partner, Manager,

Employee or Guarantor, or

(iii) any company(proprietor/partner/pvt ltd/public) in which any of the

Directors of the banking company is a Director, Managing Agent,

Manager, Employee or Guarantor or in which he holds substantial

interest, or

(iv) any individual in respect of whom any of its Directors is a partner or

guarantor.

Restrictions on Grant of Loans & Advances to Officers and Relatives of Senior

Officers of Banks

The following guidelines should be followed by all the banks with reference to the

extension of credit facilities to officers and the relatives of senior officers:

(i) Loans & advances to officers of the bank

No officer or any Committee comprising, inter alia, an officer as member, shall, while

exercising powers of sanction of any credit facility, sanction any credit facility to his/her

relative. Such a facility shall ordinarily be sanctioned only by the next higher sanctioning

authority. Credit facilities sanctioned to senior officers of the financing bank should be

reported to the Board.

(ii) Loans and advances and award of contracts to relatives of senior officers of the bank

Proposals for credit facilities to the relatives of senior officers of the bank sanctioned by

the appropriate authority should be reported to the Board.

Credit Appraisal :



CREDIT RISK ASSESSMENT (CRA)

The CRA models adopted by the Bank take into account all possible factors into

appraising the risks, associated with a loan.

These have been categorized broadly into financial, business, industrial & management

risks are rated separately.





These factors duly weighted are aggregated to arrive at a credit decision whether loan

should be given or not

Validation of proposal:

It is done considering 5 key factors below:

1. CIBIL Score and Report: It is one of the most important factor that affects your

loan approval. A good credit score and report is a positive indicator of your credit

health.

2. Employment Status: Apart from a good credit history, banks also check for

your steady income and employment status.

3. Account Details: Suit filed or written off cases are carefully examined by banks.

4. Payment History: Banks check for any default on payments or amount overdue

cases, which might project a negative overview of your overall report.

5. EMI to Income Ratio: Banks also consider the proportion of your existing loans

when compared to your salary at the time of loan application. Your chances of loan

approval gets reduced if your total EMI‘s exceed your monthly salary by 50%.

Apart from your CIBIL Score, loan eligibility criteria differs from bank to bank and across

loan types. However, some of the basic requirements in terms of documentation are:

 Identity Proof: Aadhar Card, Valid Passport, Driving License, Voters ID or PAN

Card

 Address Proof: Aadhar Card, Valid Passport, Driving License, Voters ID or Utility

Bills

 Proof of Employment: Salary slip, Official ID card or letter from company

 Income Proof: Latest 3 months Bank Statement, salary slip for last 3 months

 3 Passport size photographs





Dimensions of Credit Appraisals

Six ―C‖ s

1. Character



You are considered to have good credit character when you live up to your

financial and credit agreements. Paying bills on time and meeting financial

obligations are signs of good character.

Your credit score and your credit history are good ways for a bank to learn about

your character or credit reputation and how well you pay your credit obligations.

2. Capacity

Capacity reflects your ability to repay a loan or other financial agreement.

Potential creditors want to see that you‘ll have enough cash left over after paying

your fixed monthly expenses to repay a new credit or loan account.

3. Capital

A potential bank also will assess your capital. Wondering if you have any?

Subtract all your debts from your assets, including any property that you may own,

and this is your capital. Banks and creditors like to see that you have enough

capital to handle another loan or credit account before approving you for new

credit.

4. Conditions

Banks look at conditions such as the stability of your employment, your other

debts and financial obligations, and how often you‘ve moved in the past year when

considering whether to approve you for a loan. The longer you‘ve been in a job

and the less frequently you‘ve moved the more stable your life conditions appear

to potential creditors and banks.

5. Collateral

Collateral is any property or possession that can be used as security for a

payment of a debt. For example, a home or automobile serve as collateral against

the loans you might take out to purchase them. Banks like collateral because it

guarantees them against a total loss if you fail to repay your loan. If that happens,

your collateral may be sold or repossessed to repay your financial obligation.

6. Cash Flow

adequate cash flow to repay a new loan.

Income in each month

Are you paid regularly, or does your income fluctuate based on seasonality or

other factors?

A Bank wants to make sure you have enough cash flowing your way on a regular

basis so that you can pay for a new credit obligation.