Banks Loans and Advances

Banks Loans and Advances

Banks are providing credit facilities in multiple ways according to the purpose of the loan and the security that is offered by the customer. The end use of the loan is important as banks funds are meant to be productively employed in order that the borrower is able to repay the amount of loan with interest. For this to happen the borrower should either generate surplus funds by utilizing the loan for profitable purpose or he should have sufficient repaying capacity as in case of personal loans,consumer loans, travel loans, credit card usage etc. It must be remembered that loans need to repaid as only then can the funds be recycled for further use or else the bank loans which are its assets would not be able to pay its liabilities which are the bank deposits. If such a situation arises and persists then the failure /collapse of the bank is inevitable.

Bank loans and advances can be of the following types—
Overdrafts /loans against Fixed deposits, Recurring deposits, Post office National Savings Certificates, LIC policies, Stocks of reputed listed companies: a fixed percentage of the face value/ surrender value of the security is allowed as overdraft which can be a revolving facility or loan to be repaid before maturity of the security in question subject to execution of documents as prescribed by the bank. The security has to be pledged to the bank for availing the loan. For loans against deposits the interest charged on the loan is linked to the deposit rate whereas in case of others the overdraft rate is generally applicable.

Personal loans, Consumer loans, Travel loans etc are part of retail loans promoted by banks to customers who have the repaying capacity based on their monthly income. The interest rates for such loans are comparatively higher as it is generally unsecured. Unsecured loans are those where the bank does not have any security for the loan given. In the event of non payment by the borrower the prospects of recovery become that much difficult.

Automobile loans, Home loans are given to acquire two/three wheelers, cars and residential property respectively. These are secured loans as the automobile is hypothecated to the bank and the property is mortgaged. They are released only when the respective loan account is adjusted in full with interest. The respective interest rates are reasonable in view of the security and also the fact that the industry/economy needs to be pushed. While auto loans can stretch upto seven years, home loans can be availed in certain cases upto 30 years also. There is considerable competition among banks for providing loans in this category and hence it is essential that the customer chooses the bank which provides the best rates over the entire tenure of the loan including a check of other charges/fees and exit routes if necessary. There is also the concept of floating and fixed interest rates which the customer should carefully examine for the overall interest cost during the period of the loan.

Educational loans are being encouraged by banks for higher studies in India and abroad. Each bank has its own rules but usually there are different monetary limits for availment which determine the nature of security to be provided. For educational loans it is necessary for one of the parents to be a coapplicant with the candidate who is to pursue the study. These are generally loans for seven years with reasonable interest rates and repayment starts after the study is over.

All loans are subject to the discretion of the bank and fulfillment of the stipulated criteria for being eligible. However banks are covered by Fair Practices Code for Lenders and customers have the right to be adequately informed in case they are aggrieved. It is also critical to have a satisfactory credit history of borrowing as customers of dubious reputation and doubtful integrity are rejected.. Credit Information Bureau India Ltd is maintaining the credit profile of each individual customer for reference of banks while taking lending decisions.

Credit card use is also a form of availing bank funds which come at very high cost as they are totally unsecured with a revolving facility over an extended tenure till non renewal or cancellation.

Fair Practices Code for Lenders

Fair Practices Code for Lenders

This code has been adopted by banks for setting out the fair practices expected during lending by banks. The code applies to the following areas---
# application for loan and their processing

it gives the time schedule for acceptance and disposal of the loan application. Reasons for rejection are required to be intimated to the applicant. The borrower is also informed about the fees/charges that are levied according to the nature of loan.
# loan appraisal and terms and conditions

the terms and conditions under which the loan is granted is suitably informed along with copies of documents executed by the borrower, on request, is given. Any changes in interest rates during the loan period is also to be intimated by the bank.
# post disbursement handling


# list of recovery agents.

The detailed information from the above perspective is available to the borrower customer so that there is complete understanding of the loaning process of banks. The borrower also has a responsibility in strictly complying with the terms and conditions in order that the bank’s funds are appropriately utilized for the purpose it is meant. The end use of funds is a critical component of bank lending and is required to be strictly adhered

Banker’s Code of Commitment to Customers

Banker’s Code of Commitment to Customers

It is a voluntary code signed by banks, which lays down standards of fair banking practices to be followed by banks while dealing with individual customers. It is a ready reckoner for customers to know what they can expect from banks in their dealings with them in the following areas---

Current, savings and all deposit accounts,
Pension, PPF accounts,
Collection and remittance facilities
Loans and overdrafts
Foreign exchange services
Currency exchange facilities
Card products

Third party products offered through bank’s networks

The signatory banks have pledged to act fairly and reasonably in all dealings with the customer; to help customers understand the nature of financial products and services being offered and to deal quickly and with care all cases of wrongdoing.

It is a significant tool empowering the customers to get the best possible services from banks in a transparent and satisfactory manner. The banks are committed to publicize this code by making available copies thereof to their customers. All areas of possible conflicts and doubts are covered by this code for the customer to make an informed and considered decision while dealing with banks.

The banks are committed to share with the customers the details of their fees and charges for the different services that are available, the normal time taken for cash receipts and payments, the cheque collection facility and the options available and the procedure to be followed in case of grievance redressal of the customer.

The customer additionally has the right to approach the Banking Codes and Standards Board of India, which is the monitoring agency approved by RBI and participating banks, in case they feel that the bank is falling short of the commitments enumerated in the subject code.

Banks in News

Axis Bank has cut its benchmark prime lending rates by 50 basis points to 15.25% wef 1st April 2009. The bank has also cut home loan rates which are now 9.25% for loans upto Rs 30 lacs and above Rs 30 lacs it is 10.25%. (BL040409)

State Bank of India has recruited 30,000 recently despite the depressed economic conditions. During the last 2 years the bank has opened around 2,000 branches in the country taking the total number of branches to 11,500.(FE290309)

Corporation Bank has associated with LIC in launching LIC credit cards. Two variants of the LIC card, Gold and Classic were launched. They can be used for payment of premium by the policy holders.(HINDU310309)

Fresh Social Measures adopted by Banks

Fresh Social Measures adopted by Banks

PNB and Guruvayoor Dewaswom have entered into an agreement to provide online VAZHIPADU booking through its internet banking services. Through this facility, a devotee can make offerings from anywhere by logging on to www.guruvyurdewaswom.org. Nineteen offerings that can be booked online are listed on it

Corporation Bank has opened the Alagappa University- Corporation Bank Public Library at Karaikudi in December 2008 even though the bank has no presence there.

Corporation Bank has also announced an yearly awarding of ‘Corp Bank Scholar’ gold medal for best outgoing student of Alagappa University every session.

State Bank of Travancore has activated an internet banking facility for online payment of donation to Guruvayoor Temple.

PNB has offered convenient schemes for rickshaw pullers by providing a means of self employment to the poor and deprived rickshaw pullers community. Under this scheme started at Varanasi rickshaw pullers can become owners of the vehicle after 3 years. Health and medical insurance cover is also provided. They are required to open a no frills account with PNB.
Under yet another scheme at Patna, rickshaws are given free of cost to the pullers while they pay a maintenance cost of Rs 10/- per day. They also sell water, soft drinks and other merchandise to the riders, profits from which are shared equally between the rickshaw pullers and a NGO. They are also given insurance cover, uniforms etc.

The TRAM campaign of Canara Bank involves contribution of Rs 10/- a month from all staff members which is meant to be distributed among the disabled and the sick. Every year around Rs 6 lacs is given to the needy people.

Canara Bank also has welfare activities for students. Every year around Rs 10 lacs is spent for primary education by giving note books, scholarships, uniforms and other educational aids to the poor meritorious students of government schools.

There would be heritage galleries at historical branches of State Bank of India shortly . These galleries would exhibit old furniture, letters and currency notes of earlier times including the accounts of Annie Besant, Motilal Nehru and others.

State Bank of Hyderabad has recently donated a pick up van as part of bank’s community service campaign, to Centre for Social Service. The van would be used for transport needs of girls for sending them to schools.