ACCOUNTING AND FINANCE FOR BANKERS
​( AFB) 

Unit 25: Operational Aspects of Loan Accounts

JAIIB - AFB - MODULE - D - Operational Aspects of Loan Accounts
Unit - 25 : Operational Aspects of Loan Accounts
Types of Borrowers
An individual Sole Proprietary Firm Partnership firm and joint venture HUF Companies Statutory Corporations Trusts and Co-Op societies

Go through these following terms in details with book
 Funded and Non-Funded Credit Facilities
Term Loans
Demand Loans
Bills Purchased
Bills Discounted
End use of funds
Primary Securities
Collateral Securities
Personal Security of Guarantor
Fixed Charges
Floating Charges
Margin
Priority Sector
Refinance
Credit Risk Management
Credit Exposure Norms
Base Rate System of Interest on Advances
Fixed/Floating Rate of Interest on Loans
Penal Rate of Interest
Security
Documents of Title of Goods
Banker’s General Lien
Negative Lien
Restrictions on Advances
Rehabilitation
Recovery
Fair Practice Code

Operational Process of Loans in the Banks:
 Receipt of Loan Application
Assessment of viability and credit worthiness
Sanction
Disbursement Monitoring and supervision
Inspections
Review of the conduct of the account
Renewal of advances

Operating instructions – Advance against Goods and Warehouse Receipts
Go through these following operating instructions in details with book
Documentation
Margin
Valuation
Marketability
Godown Board
Insurance
Godowns in a Pledge Account
Pledging of Stocks
Storage of goods pledged in the godowns where goods not pledged are also stored
Delivery of stocks pledged
Submission of stock statements in Hypothecation accounts
Goods hypothecated in the godowns where goods not hypothecated are also lying
Staff accountability
Charges for inspection of Godowns/Assets/Securities etc.
Godown charges
Selective credit control
Advances against warehouse receipts

Operational aspects of few common loan products Gold Loans :
Must be covered under policy framed by Bank’s Board
Prohibited from granting any advance against bullion/primary gold
End use of the funds to be ensured
Ownership of the ornaments to be ensured
Valuation of gold ornaments to be done
Prefer hallmarked jewellery
Purpose of loan can be for both Agriculture and non-agriculture purposes
Loan to Value (LTV) to be maintained (Max. 75 % of value of gold ornaments)
Maximum amount of loan should be within board approved limit
Record of security
Custody of ornaments
Repayment should not be more than 12 months (other than agriculture)
Return of ornaments on repayment
Delivery to third parties should be by a letter of authority from the buyer
Default is to be informed to the borrower that the ornaments would be auctioned
Should be insured for the approved value
Surprise verification of the pockets to be carried out

Educational Loans
Service area norms
Eligibility criteria
Student eligibility
Expenses considered for loan
Quantum of finance
Margin
Security
Documentation
Sanction
Disbursement
Repayment
Follow up
Processing charges
Capability certificate

Home Loans
 Valuation of property
Eligibility
Loan to Vale (LTV) ratio
Interest rate
Security
Insurance
Disbursal – for purchase of constructed property/built up property
Disbursal – for building construction
Repayment
No Foreclosure charges/Prepayment penalty for floating rate individual borrowers

Vehicle Loans
Purpose of Auto Loan – New/used Car, MUVs, SUVs, Two wheelers
Eligibility
Documents required to be submitted
Loan Tenure Loan to Vale (LTV) ratio
Interest rate – Fixed/Floating
Calculation of interest
Penal interest
Bounced cheque/ECS or SI dishonorurs
Intimation of change in base rate
Repayment
Security
Insurance
Prepayment penalty is waived
Inspection
Fees and charges
Disbursement

Apart from the above, all the loans sanctioned must comply with :
KYC – proper verification of KYC
CIBIL disclosure – Borrower should agree and give consent for disclosure by the Bank
Default – In case of default, the borrower must be sent with reminders through post, fax, email, SMS
​Time taken for disposal of allocations – should be disposed within stipulated time .

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