Class 11 & 12

Class 11 & 12

Exposure Norms for Bank

Do not put all eggs in one box

Exposure – Bank has commitment (fund / non-fund / agent exposure) towards customer

ü Avoid concentration of credit (at a particular industry)

ü Individual (Telco) / Group borrower (Tata) (wrt corporate – See the exposure to a group as a whole)

NBFCs

ü Non banking financial corporations

ü Banks can give loans (lend) to NBFCs and can invest in NBFCs

ü NBFC is a financial institution

ü Supplementing the role of a bank

ü Since, many NBFCs failed in the last 10-12 years period, hence, from now on, they need capital adequacy of 12%.

ü NBFCs can’t lend at a rate above what is prescribed by RBI

ü Role –

§ Lending

§ Holding company – Hold shares of its own group company

§ Investment company – invests in shares (buys & sells)

§ Holding cum investment

§ Asset financing company – lending against Long term liabilities

§ Example – Commercial vehicle loan, leasing, financing

Grant – Consumption finance. Bank doesn’t give grant, it gives loans

Lending Method

· Consocium

§ A permanent central lender arranges for loan from many banks

§ The central bank is called the lead bank who evaluates the total loan portfolio & decides how much loan portfolio to be distributed to each participating bank & type of security to be given by the company

· Multi-banking

§ Borrower takes loans from many banks without a lead bank

· Syndication

§ Only initial arrangement of finance

Real Estate –

§ Problem with price speculation – Buy & Sell land

§ Real estate development – Township development. Banks are allowed to fund real estate development and not real estate. It should not exceed 10% of total portfolio

§ Equity investment in real estate is not more than 5%

Bridge loan – Temporary short term loan to finance long term projects