Letter of Guarantee amp Misc Important Topic by Dr Punkaj Goyal 10042021 0830 PM Topics to be discussed Letter of Guarantee Bank Customer Relationship DSCR Calculation Wilful ID: 916687
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Slide1
IOBOA PROMOTION CLASSES - 2021
Letter of Guarantee & Misc Important Topic by Dr.
Punkaj
Goyal
– 10.04.2021 – 08:30 PM
Slide2Topics to be discussed
Letter of Guarantee
Bank Customer Relationship
DSCR
Calculation
Wilful
Defaulter
Slide3Letter of Guarantee
Minimum – 3 months
Maximum Period – Generally 10 Years
If more than 10 years?
Unsecured Guarantees / exposure
Slide4Contingent 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
.
Slide5Slide6Margin in case of Foreign LG?
*- Foreign Supplier under import license issued on Deferred Payment basis require prior approval from RBI.
Slide7Discretionary 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)
Slide8Commission
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
Slide9Limitation 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?
Slide10Expiry – 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?
Slide11Precautions 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.
Slide12Ghosh
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.
Slide13Guarantees 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.
Slide14Guarantees on behalf of Share and Stock Brokers/ Commodity
Brokers – Minimum 50% margin out of that minimum 25% cash margin
Slide15Bank – 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
Slide16Bank – 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
Slide17DSCR Calculation
NP
after tax +
Depreciation
+
Interest on TL
___________________________________________
Interest
on TL +
Instalment.
Desirable – 2:1
Average – 1.5:1
Minimum – 1.2:1
Slide18Net Profit – 11
lacs
Depreciation – 3
lacs
Interest – 1
lac
Term Loan Installment – 9
lacs
11+3+1
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________
9+1
=1.5
Slide19A 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.
Slide20Net Profit = 50
lacs
Depreciation – 10
lacs
Term Loan Installment – 24
lacs
Interest – 6
lac
50+4+6
_______________________
24+6
=60/30 = 2
Slide21Wilful
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.
Slide22Wilful 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
Slide23No 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.
Slide24Wherever 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.
Slide25Thank You!!!