TYPE OF FACILITIES

 

•      OVERDRAFTS

 

•      LOANS

 

•      LOCAL BILLS PURCHASED

 

•      FOREIGN BILLS PURCHASED

 

•      POST-DATED CHEQUES PURCHASED

 

•      LETTERS OF CREDIT (SIGHT & USANCE)

 

•      REVOLVING IMPORT LOANS

 

•      PLEDGE LOANS

 

•      PACKING CREDIT LOANS

 

•      EXPORT BILLS PURCHASED

 

•      BANK GUARANTEES

–      ORDINARY GUARANTEES

–      TENDER GUARANTEES

–      PERFORMANCE GUARANTEES

–      ADVANCE PAYMENT GUARANTEES

–      RETENTION GUARANTEES

–      PCC GUARANTEES

 

•      LEASES

 

Overdraft

 

Brief Description:

This is a facility where the client is allowed to obtain funds more than what is in the account

Purpose:

Is to finance working capital requirements of a business or any personal requirement of an individual

Tenure:  Revolving

Comments:

Could be accommodated under permanent or temporary basis. Temporary Overdrafts are granted for temporary working capital requirements or temporary personal requirement and should be settled within a period of 30 – 60 days depending on the management approval. Permanent Overdrafts are accommodated for the client’s permanent requirements on a revolving basis, to be reviewed annually.

 

 

 

Loans

 

Brief Description:

A facility where a block of funds is made available to client and the client is expected to repay this loan over a period of pre-determined time frame.

Purpose:

To finance working capital / Fixed capital / capital infusion /purchase of consumer durables / housing and to finance Projects.

Tenure: 

Depends on the type of loan and to a maximum of 25 years

Comments:

All loans such as Housing Loans, PAL Loans, and Commercial Loans are included in the category.

 

 

Local Bills Purchased (LBP)

Brief Description:

An Advance given against a locally drawn cheque or a Pay Order/Bank Draft.

Purpose:

To finance working capital requirements/personal requirements.

Tenure: 

Period taken for the clearance of the instrument.

 

Comments:

Usually Banks will purchase/advance cheques drawn on reputed companies or government bodies. Bank may also purchase cheques drawn by other Banks (Pay Orders/Bank Drafts)

 

 

FOREIGN BILLS PURCHASED (FBP)

Brief Description:

Purchase of instruments drawn by foreign Banks.

Purpose:

To finance working capital requirements/personal requirements

 

Tenure: 

Period taken for the clearance of the instrument

 

Comments:

Usually Banks do not prefer to purchase the cheques drawn by parties other than Banks, as it is impossible to ascertain the standing of the drawer.

 

 

POST-DATED CHEQUES PURCHASED (PDC)

Brief Description:

An Advance against trade related cheques drawn on future dates (post-dated)

Purpose:

To finance working capital requirements

Tenure: 

30 – 60 days (may be extended on the management discretion on exceptional basis)

Comments:

The tenure of the post-dated cheques and the percentage of the advance is determined by the approving authority.

 

 

 

LETTERS OF CREDIT (LC)

Brief Description:

A Method used to carry-out import transactions with the implication of the Bank to satisfy both the buyer and seller..

Purpose:

To carry-out imports.

Tenure: 

To a maximum of 90 days. (May be extended under exceptional basis with the approval of the Exchange Control Dept.)

Comments:

There are various types of Letters of Credit mentioned in UCP 500. The most frequently used one are:

Letter of Credit (Sight) – Documents released against payment

Letter of Credit (Usance) - Documents released against acceptance

 

 

 

REVOLVING IMPORT LOANS (RIL)

Brief Description:

A loan granted to retire import documents received under Letter of Credit or DP terms.

Purpose:

To finance Imports / working capital requirements

 

Tenure: 

90 days. May increase to 120 days with the approval of the Management.

 

 

PLEDGE LOANS (PLN)

Brief Description:

A loan generally granted for imports where the imported goods are held under the custody of the Bank.

Purpose:

To finance Imports / purchase of periodical produce and/or goods.

 

Tenure:

3 –4 months

Comments:

In addition to holding imported cargo under pledge, pledge loans are  granted to stocking of seasonal stocks such as paddy, etc… to help wholesaler. It is also important to note that pledge goods should not be perishable and storing instructions should be carried-out without exception. Pledge store should be in dual control and should be insured with the financial interest to the bank and warranties complied with.

 

 

 

PACKING CREDIT LOANS (PCL)

 

Brief Description:

A loan granted to an Exporter with a Export Letter of Credit in hand.

Purpose:

To finance exports.

Tenure:

3 months. However, should not exceed the validity of the export LC.

Comments:

When a Packing Credit Loan is granted, the original Export LC should be handed over to the Banks and only a percentage (i.e., 60% - 75%) of the value of the Export LC will be advanced to the client. This loan will be recovered from the proceeds of the export bill send on collection

 

 

EXPORT BILLS PURCHASED (EBP)

 

Brief Description:

A facility where the set of export bills are purchased by the bank and sent on collection.

Purpose:

To finance exports.

Tenure: 

Depending on the tenure of the export bills

Comments:

Export bills are purchased when there are discrepancies against the LC and the maturity of the export bill is determined on the validity of the export LC and the country of destination.

 

 

BANK GUARANTEES (GTEE)

 

Brief Description:

Bank Guarantee is a facility where the bank undertakes to pay a certain sum of money (unconditionally and on demand) to a third party on behalf of a customer.

Purpose:

To finance contracts and credit transactions.

Tenure: 

To a maximum of 02 years

Comments:

Various types of guarantees:

TYPES OF GUARANTEES

Ordinary Guarantee:

Issued on behalf of a customer to obtain various types of credit facility from a third party. Secures the third party in case our client fails to repay as agreed.

Tender Guarantee:

Issued on behalf of a Principal to participate in a tender. Secures the Principal in case the customer does not take-up the contract if awarded.

Performance Guarantee

Issued favoring a Principal at the time of taking-up the contract.  Assures the Principal, diligent performance of the contract by the customer.

Advance Payment Guarantee:

Issued on behalf of a customer to obtain an advance from the principal for the performance of the contract. Secures the Principal the sum advanced and assures diligent performance of the contract.

Retention Guarantee:

Issued on behalf of a customer to obtain the retention money from the Principal. Assures the Principal that they will still have the hold on the contractor even though the retention money is released.

PCC Guarantee:

Issued favoring Principal collector of customs for the purpose of releasing imported consignments when cleared without duty or with duty concession.

Please note that although these guarantees carry an expiry date, it is a practice that not to cancel these guarantees even after the said guarantee has expired.

 

LEASES

 

Brief Description:

This a method of financing of vehicles, equipment where a security itself is the asset leased.

Purpose:

Maximum 5 years.

Tenure: 

To finance capital expenditure / personal requirements.

Comments :

In addition to the asset, the bank prefers to obtain additional collateral such as guarantors to secure the lease facility. Absolute ownership of the asset will remain in the bank’s name till the lease is fully paid. It should be noted the type of asset, the depreciation value, etc… when determining the tenure of the lease. This is important on a worse case scenario where the bank will have to repossess the asset if the client fails to comply with the repayment schedule

By

Sanjeeva Pieris