IOBOA PROMOTION CLASSES - 2021 - PowerPoint Presentation

Slide1

IOBOA PROMOTION CLASSES - 2021

Letter of Guarantee & Misc Important Topic by Dr.

Punkaj

Goyal

– 10.04.2021 – 08:30 PM

Slide2

Topics to be discussed

Letter of Guarantee

Bank Customer Relationship

DSCR

Calculation

Wilful

Defaulter

Slide3

Letter of Guarantee

Minimum – 3 months

Maximum Period – Generally 10 Years

If more than 10 years?

Unsecured Guarantees / exposure

Slide4

Contingent Liability

Off Balance Sheet Exposure

Footnotes

Govt

Departments – All Scheduled Commercial Banks

In regard to the guarantees furnished by the banks in favour of Government Departments in the name of the President of India, any correspondence thereon should be exchanged

with the concerned ministries/ departments

and

not with the President of India

.

Slide5

Slide6

Margin in case of Foreign LG?

*- Foreign Supplier under import license issued on Deferred Payment basis require prior approval from RBI.

Slide7

Discretionary Powers

100% margin by way of

Cash/Deposit

Upto

5 year (By Branch Manager)

Above 5 year (By RLCC)

less than 100% margin by way of deposits or

cash and

/or any other immovable properties of any value or

personal guarantee

Upto

3

year (By Branch Manager)

Above

3

year (By RLCC)

Slide8

Commission

Normally

Upfornt

for entire period including claim period.

For the

Corporate Borrower’s

, being the commission will be huge

amount at

the time of issuing LG, to reduce burden, we can collect the

commission on

deferred terms e.g.

monthly/ quarterly/ half yearly/ annual basis

with permission.

Reducing Liability

-

pro rata

commission could

be refunded on the customer producing evidence of payment

of dues

Returned / Cancelled

– 50% of original commission minus 3 months

Slide9

Limitation Clause

Suggested by IBA

Notwithstanding anything contained

herein:

Liability Amount

Valid

Upto

Written Claim / Demand

Claim Period – Minimum 1 year

Signature of Two Officials

In case of single man branch?

Slide10

Expiry – 10 days notice –

Regd

AD

Devolvement – To be

honoured

without Delay or Demur if claim is in order

Fraud

Court Order

If bank doesn’t

honour

the claim?

Slide11

 Precautions for issuing guarantees

As

a rule, banks should avoid giving unsecured guarantees in large amounts and for medium and long-term periods. They should avoid undue concentration of such unsecured guarantee commitments to particular groups of customers and/or trades.

Unsecured

guarantees on account of any individual constituent should be limited to a reasonable proportion of the bank’s total unsecured guarantees. Guarantees on behalf of an individual should also bear a reasonable proportion to the constituent’s equity.

In

exceptional cases, banks may give deferred payment guarantees on an unsecured basis for modest amounts to first class customers who have entered into deferred payment arrangements in consonance with Government policy.

Guarantees

executed on behalf of any individual constituent, or a group of constituents, should be subject to the prescribed exposure norms.

It

is essential to realise that guarantees contain inherent risks and that it would not be in the bank’s interest or in the public interest, generally, to encourage parties to over-extend their commitments and embark upon enterprises solely relying on the easy availability of guarantee facilities.

Slide12

 

Ghosh

Committee

Recommendations

October 1991 (Chaired by

Shri

A.

Ghosh

, the then Dy. Governor of RBI

):

In order to prevent unaccounted issue of guarantees, as well as fake guarantees, as suggested by IBA, bank guarantees should be issued in serially numbered security

forms.

Banks

should, while forwarding guarantees, caution the beneficiaries that they should, in their own interest, verify the genuineness of the guarantee with the issuing bank.

Slide13

Guarantees on behalf of Banks' Directors

Section 20 of the Banking Regulation Act, 1949 prohibits banks from granting loans or advances to any of their directors or any firm or company in which any of their directors is a partner or guarantor

.

Certain facilities including issuance of guarantee is not regarded as loan & advances.

Slide14

 Guarantees on behalf of Share and Stock Brokers/ Commodity

Brokers – Minimum 50% margin out of that minimum 25% cash margin

Slide15

Bank – Customer Relationship (1/2)

Type

of Transaction

Bank

Customer

Deposit Account and Credit

Balance in CC / OD account

Debtor

Creditor

Loan Account and

Debit Balance in CC / OD

Creditor

Debtor

Collection of cheques, TT, MT, Standing Instructions, sale/purchase of securities,

Maintenance of currency chest

Agent

Principal

Safe Custody

Articles

Bailee

Bailor

Leasing of Lockers

Lessor

, Landlord,

Licensor

Lessee,

Tenant, Licensee

Slide16

Bank – Customer Relationship (2/2)

Type

of Transaction

Bank

Customer

Mortgage

of immovable Properties

Mortgagee

Mortgagor

Pledge of Securities

/ Shares

Pledge

Pledgor

Pledge

Pawnee

Pawnor

Hypothecation of Articles

Hypothicatee

Hypothecator

Issu

e of Duplicate Draft

Indemnified

Indemnifier

Payment of Draft

Trustee

Beneficiary

Slide17

DSCR Calculation

NP

after tax +

Depreciation

+

Interest on TL

___________________________________________

Interest

on TL +

Instalment.

Desirable – 2:1

Average – 1.5:1

Minimum – 1.2:1

Slide18

Net Profit – 11

lacs

Depreciation – 3

lacs

Interest – 1

lac

Term Loan Installment – 9

lacs

11+3+1

___________________________________________________________________________________________________________________________________________________________________________________________________________________________________

9+1

=1.5

Slide19

A firm is having sale of Rs. 500

lacs

per year, net profit is 10% of sales. Depreciation is Rs. 4

lacs

per annum while monthly loan installment is Rs. 2

lacs

& monthly interest is Rs. 50,000. Calculate DSCR.

Slide20

Net Profit = 50

lacs

Depreciation – 10

lacs

Term Loan Installment – 24

lacs

Interest – 6

lac

50+4+6

_______________________

24+6

=60/30 = 2

Slide21

Wilful

Defaulter (1/2)

The unit has defaulted in meeting its payment / repayment obligations to the lender even

when it has the capacity to honour the said obligations.

The unit has defaulted in meeting its payment / repayment obligations to the lender and

has not utilised the finance from the lender for the specific purposes

for which finance was availed of but has diverted the funds for other purposes.

The unit has defaulted in meeting its payment / repayment obligations to the lender and

has siphoned off the funds

so that the funds have not been utilised for the specific purpose for which finance was availed of, nor are the funds available with the unit in the form of other assets.

Slide22

Wilful Defaulter

(2/2

)

The unit has defaulted in meeting its payment / repayment obligations to the lender and has also

disposed off or removed the movable fixed assets or immovable property

given for the purpose of securing a term loan without the knowledge of the bank / lender

.

Minimum - 25

lacs

,

Maximum ?

Non Cooperative Borrowers – Rs. 5 Cr & above

Sec 128 of Indian Contract Act – liability of surety is co-existence

09.09.2014

IDC – Executive Director & 2 GMs / DGMs

Review Committee

Slide23

No additional facilities should be granted by any bank / FI to the listed wilful

defaulters for

floating new ventures for a period of 5 years from the date of removal of their name from the list of wilful defaulters as published/disseminated by RBI/CICs

.

The

legal process, wherever warranted, against the borrowers / guarantors and foreclosure for recovery of dues should be initiated expeditiously. The lenders may initiate criminal proceedings against wilful defaulters, wherever necessary.

Slide24

Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the wilfully defaulting borrower unit.

A covenant in the loan agreements,

that

the borrowing company should not induct on its board a person whose name appears in the list of Wilful Defaulters and that in case, such a person is found to be on its board, it would take expeditious and effective steps for removal of the person from its board.

Slide25

Thank You!!!