FUND AND NON FUND BASED BANKING

Introduction. Fund based. Cash credit. Overdraft facilities. Bills finance. Term loans. Packing credit. Non fund based. Letter of credit. Guarantee. Deferred payment guarantees. Conclusion.

 Bank offers an easy access to a common man  Banking is a service industry  Bank provides financial services to :A. B. C. People. Business. Industry. Merchant banking.. Money transfer. Credit cards. ATMs.

Financial services :A. B. C. D.

 Bank give advances to people in

various ways.  Advances are divided as :-

Current assets.

Fixed assets.

 Cash credit.  Overdraft facilities.  Bill financing.  Term loans.  Packing credit.

 Long term loans.  Guarantees payments.  Letter of credit.

    

Facility provided to:Availability of the amount:Credit facility to the banker:Deposits and withdrawal:Flexibility:-

 An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero.  Pay interest: Overdrafts occur for a variety of reasons. These may include: Intentional short-term loan . Failure to maintain an accurate account register ATM overdraft .

 Smaller banks: Parties involved: Pre-determined interest:-

 Repayable.  Term loans are further classified in three categories depending upon the period of repayment as under: Short term repayable in less than 3 years. Medium term loans repayable in a period ranging from 3 years to 7 years. Long term loans repayable in a period over 7 years.

 Facility.  Period of 90 days.  Facilitates the exporter.

Current assets.

Fixed assets.

 Letter of credit.

 Guarantees.  Deferred payment guarantees.

 Instrument of trade payment.  Buyer and seller.  'Uniform Customs & Practice for Documentary Credits' (UCPDC).  Issuing bank for payment.  Many disputes have arisen.

Bank guarantee classified according to period,

purpose, performance,& financial guarantees.   Guarantee may be specific or continuing. Specific guarantee means only limited to

certain sum or a particular specific agreement.  Under section 129,Continuing guarantee means

guarantee which extends to Series of transaction.

 Commercial bank should be stringent in

supervision with respect to performance guarantee.  Maximum period of 10 yrs can be provided by any commercial bank.  Banks can maximum mantain 20% of banks outstanding unsecured guarantee plus total of its outstanding unsecured advances should not exceed 15% of its total outstanding advances.  In the case of financial guarantee the credit conversion factor is 100% & for performance guarantee 50%.  In case of guarantee & counter guarantee the advance will attract zero risk weight for capital adequacy.

 Deferred Payment Guarantee is issued for payment of a specified amount over a period of time.  The required margin security & commission payable are determined on the basis of type of guarantee & credit worthiness of the customers.  The Deferred Payment Guarantee is bank facility where bank extends a guarantee to the eqipment manufacturers in behalf of its clients.

 Banks in India have the responsibility of fulfilling social obligation.  Therefore , banks has to provide certain advances to industrialist, agriculturist, traders against security.  Fund and non fund based banking activities are part of advances which are provided for development of people.  Fund and non fund banking is a service provided by bank against security.