After studying this chapter you will be able to understand: Overdraft, discounting of bills, lending policies, evaluation of loan proposals, negotiable instrument. | Revise Lecture 21 Loans and Advances Overdraft Loans and Advances Overdraft Overdraft also is a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in it. It is a temporary arrangement Loans and Advances Overdraft Overdraft facility with a specified limit may be allowed either on the security of assets or on personal security, or both. If there is a prior agreement with the account provider for an overdraft protection plan and the amount overdrawn is within this authorized overdraft, interest is normally charged at the agreed rate. Loans and Advances Overdraft If the balance exceeds the agreed terms, fees may be charged and higher interest rate apply. Overdraft is an efficient form of borrowing as the customer pays interest only for the time he uses the money. It gives him flexibility. Loans and Advances Discounting of Bills Loans and Advances Banks provide short-term finance by discounting . | Revise Lecture 21 Loans and Advances Overdraft Loans and Advances Overdraft Overdraft also is a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in it. It is a temporary arrangement Loans and Advances Overdraft Overdraft facility with a specified limit may be allowed either on the security of assets or on personal security, or both. If there is a prior agreement with the account provider for an overdraft protection plan and the amount overdrawn is within this authorized overdraft, interest is normally charged at the agreed rate. Loans and Advances Overdraft If the balance exceeds the agreed terms, fees may be charged and higher interest rate apply. Overdraft is an efficient form of borrowing as the customer pays interest only for the time he uses the money. It gives him flexibility. Loans and Advances Discounting of Bills Loans and Advances Banks provide short-term finance by discounting bills, that is, making payment of the amount before the due date of the bill after deducting a certain rate as discount. The party gets the funds without waiting for the date of maturity of the bills. In case any bill is dishonoured on the due date, the bank can recover the amount from the customer. Loans and Advances Lending Policies Loans and Advances Lending Policies While lending decisions are crucial for a bank, it is neither feasible nor desirable for the top management to review and clear every single loan proposal that the bank receives. Furthermore, for most of the loan proposals, whichever industry they may belong to, the modus operandi remain the same, analyzing, selecting, sanctioning and monitoring. Loans and Advances Lending Policies Hence the top management needs to set the standards. Standards relating to the exposure limits for individual / company/ industry, credit quality of the borrowers, lending rate, risk level, etc, enable decentralized decision making by the .
