Various Types of Loans & Advances :-

1 Difference between loans & advances :

a) Loan is allowed for term repayment only.
b) One bullet repayment
c) Monthly Instalments / EMI
d) Quaterly Instalments
e) Half yearly instalments
f) Annual instalments
- EMI takes care of interest
- Equated monthly instalments may be for principal amount and interest to
be repaid separately
Advances :
a) On going loans – working capital loan
b) Limit is sanctioned the account will be running in nature.
c) Renewal of limits generally after one year/3 years etc.
d) Against Liquid security e.g. fixed deposits, NSCs, KVP – Only Interest can be
paid on monthly basis and running account can be renewed/closed
depending on continuing/renewal of securities or its closure.

- Types of loans & advances depends on purposes for which loan is required.
Primarily – 3 segmments were there :
- Agricultural advance
- Industrial Finance : Large, medium, small
- Industries : large corporates, mid corporates, SSF, SME, MSME, Micro
enterprise etc.
- Service Centre – Professionals, business enterprises consumer loans,
consumption loans retail trade etc.
- Road Transport Loans categorized in Industries sector loans.
- Lately, personal loan came from salaried person and businessman against
balance sheet with higher rate of interest.
- At present individual loans are treated as retail lending :-
1) Housing loans
2) Educational loans
3) Vehicle Loans
 4) Loan against Gold ornaments(non agricultural)
5) Loans against FDs, NSCs, KVPs, LIC policies
6) Loans against shares of selected companies.
7) Clean loan & consumer loans
8) Loans earlier defined in service sectors, e.g. retail trade, professional &
self employed, small business loans(other than Micro & small industries
loan)
9) Mortgage Loans against specified purpose
- The above loans are all fund based loan. Direct release of Bank Fund is
made.
- Non Fund based loans are :
1) Letter of credit
2) Letter of guaranters
3) Underwriting and credit guarantee
4) Issuing comfort letters(guarantee)
- Letter of credit may be inland & foreign
- It is issued DP or DA basis
- DP means Delivery against payment
- DA means Delivery against Acceptance
- Letter of credit is of various types
- Back to back LCs, Revolving LCs, Revolving LCs etc.
- Bank guarantee can be foreign or inland.
- Broadly two types – (1) performance (2)Non performance – e.g. against
margin money, security deposits(In lieu of cash margin)
(3) Deferred payment guarantee for Turn-Key projects.
(4) Guarantee for turn key projects

- These are non funded in nature – Liability arises as and when they are
involked. Then bank has to pay the amount irrespective of whether
payment made by their amount holder/ borrower.
- Fund based Credit facilities:-
1) Demand/short term loans
2) Medium & long term loans
3) Bridge Loans
4) Cash credit advances – open,key etc
 5) Overdrafts – secured and Unsecured (clean)
6) Bill finance
a) Bill purchased
b) Bills discounted
c) Export Finance
- Pre shipment credit (packing credit)
- Post shipment credit (bills)

Working Capital & Term Loan – Features

1) Working Capital : To meet day to day expenses – running account in
nature.
2) Withdrawal is allowed and deposits are also allowed within limit.
3) WC is for manufacturing units, traders to run their regular sales and
purchases within the sanctioned limit.
4) For cash Credit : Bank hypothecates the stocks for which advance is
allowed.
5) WC also allowed for the book debts of the units leaving some margin to
be brought in by borrowers. Book debts should not be for longer period,
normally it is allowed against debtors of 90 – 180 days outstanding,
depending on nature of business.
6) In cash credit account : Limits are fixed depending on
business/production cycle of the unit, e.g. against Raw materials, Semi
finished goods, finished goods, sales, level of inventories etc. Unit’s
books of accounts, integrity, market reputation, products marketability,
availability of Raw materials & labours, factory or go down assets,
machinery conditions etc. are judged for allowing limits. Party’s stake to
be there for running the unit, and the remaining WC needs are fulfilled
by bank. Past performance and bank’s satisfactory operation are looked
into.
- Since hypothecation of stocks are there which remains with borrower’s
possessions, bank may obtain other securities by mortgage of land and
building, hypothecation of plant and machinery, lien on other fixed assets
of the units or the proprietor/ partners depending on availability and
requirement.
- Additional guarantee is obtained from partners/proprietor individually or
from a 3rd party.
- Payable on demand or renewed from time to time by enhancement or by
reduction of limit.
- KCC : Key Cash Credit(KCC) is no longer entertained – pledge of goods.
Term Loan :-
1) Credit allowed for specific purposes
2) For predetermined period
3) For fixed assets like machinery, plant, furniture & fixture, imterior
decoration moderniastion of factory/manufacturing unit etc.
4) Assets are created by repayment of such term loans.
5) In agriculture, farm mechanization, tractors, power fillers etc are allowed
under TL.
6) It may be short term loan, bridge loans, medium and long term loan.
7) In case of non payment of EMI/installment withine due date, penal
interests are charged.
8) Major retail loans are TL in nature, e.g. Housing loan, Vehicle loan,
Educational loan.
9) Assets are hypothecated to bank. Additional security, guarantee can be
obtained.
10) Insurance of asset purchased are done.

Retail Loans :
- Recent trend
- Retail lending _______ - specialized branches are opened exclusively for
small loans
- More individual clients are added.
- Quantum of NPAs will be less in comparison to big size advances.
- Hypothecation/mortgage of assets in question are availed (primary
security)
- Govt. is encouraging housing and education loans as a policy to provide
house and education. Hence stress is more.
- Vehicles/cars are on rise for rich and middle class people along with
improvement of salary and other income and banks extend support on
easier terms and due to higher level of standard of living.
- Other business houses(smaller), professionals, self employed, retail trading
etc are benefitted by retail loan due to lower interest rates.
- People have been attracted towards various consumer products like TV,
Fridge, Furnitures etc. for which they prefer repayment by EMI.
- Students are getting opportunity for higher studies both within the county
or abroad, for their education loan is very handy as they will payback the
principal amount only after completion of study and after getting jobs.
- For emergency need, gold loans are being availed from banks by pledging
gold to the bank. It can be renewed if unable to pay the amount withine
due date.
- Mortgage loans are also availed for business pupose by small enterpreners
who do not have proper books of accounts or tax returns but having regular
income and running business as builders, contractor, retailers etc.
- Credit card advance is also coming under retail loan segment.
- Loans against shares and securities to HNIs and middle class group
- Personal or clean loan to salaried persons and businessman against their
declared income.

Housing Loan :-
- For construction of house or purchase of flat
- For purchase of land for construction of house. (A portion is sanctioned for
land purchase)
- Half of total retail loans are in housing sector.
- Mostly salaried people avail. Businessman can avail by producing 2-3 years
IT Return showing average income.
- Sanctioned on the basis of income, repaying capacity, mortgable property
etc.
- Advantage of banks for SERFASI Act (Securitisation Act), as they not need to
go to count to sell the property incase of defaults, but quick disposal of
property by public notice and auction.
- Legal opinion and valuation of property purchased are to be taken by bank
through their approved lawyer/valuer
- Flat purchased will have to be registered on or before completion, which
will be mortgaged to the bank.
- Amount of loan determined by cost of construction or acquiring the
property less margin stipulated for borrower to pay.
- Interest rate – fixed or floating , basing on MCLR/BPLR – Low rate prevailing
- Borrower may be single, joint or corporates.
- Period : 3years to 5 years , 10years to 15years, even allowed upto 20 years.
- Security : Property purchased / to be purchased, to be mortgaged
(Registered/equitable)
- SERSEI registration is done.
- Guarantee or co obligation is normally obtained.
- Documents : Title deed, memorandum of property mortgaged, TL
agreement etc. as per bank’s own format and guidelines
- For construction in stages, bank allows credit in phases basing on stage of
construction and repayment starts after completion or after a specified
period. However interest are to be served regularly.
- Foreclosure/Repayment : Bank’s individual decision – to pay some
percentage of remaining balance as pre closure charges.
- Because bank loses the future interest income due to pre closure due to
take over by some other bank or by cash.

Vehicle Loan :
Auto loans – cars, 2 wheeler / 3 wheelers
- Not RTO Loans (commercial purpose) which comes under SME Loans.
- For own use, not to be used for hiring out
- Interest – floating rates normally higher than Housing Loans.
- Repayment normally 3 to 5 years depending on income of the individual
and repaying capacity cost and longevity of the vehicle.
- For old cars, banks extend loans with higher margin required, say 50% with
valuer’s certificate about residual period of the vehicle.
- Security – Hypothecation of the vehicle charge to be registered with RTA.
Additional security and guarantee may be asked for.
- Repayment EMI or monthly instalment, with interest separately.
Consumer Durable Loans :
- TL allowed
- Competition from Private Finance companies
- TV, Fridge, Washing Machine, Computers, Laptops, Micro Oven, Music
system, Kitchen items etc.
- Charge is hypothecation of the item purchased
- Repayment 12-18 months , 18-48 months
- EMI facility
- Interest and Floating . Little higher rate
- Guarantee or additional security calls for in some cases.
- Income criteria

Personal Loans (Consumption) :-

- Floated during early 2000-01
- Salaried people against transfer of salary to the bank directly / indirectly.
- Undertaking from employer about remitting salary to bank, even any other
dues of the employee exists and not adjusted.
- Short term or medium term repayment
- Reason is marriage, travel, medical etc
- Fixed a
- Or floating rate interest
- Rates are higher – conventional rates
- No security/guarantee normally – Guarantee taken sometimes if banks do
not get automatic credit from the employer.
- High income group normally – amount of loan is 15 – 20 – 25 months salary
- Banks faced lot of NPAs – fraud takes place – people get transferred,
suspended, dismissed – make defaults.
- Where salary is paid through the same bank where loan is given, repayment
is more assured.
Other Overdrafts :-
- In current account
- Temporary in nature
- To meet urgent requirement
- Unsecured advances
- High rate of interest
- Documents e.g. DP Note etc.
- Credit Card dues : Discussed in credit card chapter (Instalment repayment)

Agricultural Finance :-
- Poor section in rural India : Farmers and cultivators are the target group
- 70-75% of the nature is from agricultural sector. Importance given since 1st
Five Year Plan of Govt. of India.

Short Term Loan :-

- Loans repayable upto 18 months
- Crop loans through Kishan Credit Card
- For raising crop
- Agricultuaral gold loans for cultivation

Medium Term Loan / Long Term Loan :-

- Period more than 6 months
- For minor irrigation, farm/land development, farm mechanization,
plantation, Horticulture, Allied activities – dairy, poultry, fishery,
sericulture, bee keeping, bio gas plant etc.
- Indirect finance – distribution of fertilizers, pesticide, loans to electricity
Boards, Rural electrification corporation (REC), storage facilities etc.
- Loans to individual , Institutions or organizations to state corporation for
weaker section lending.

Crop Loan :-
- Seasonal – ½ times in a year
- Cost of seeds, fertilisers, pesticides etc, irrigation & labour charges etc.
- Share croppers, agricultural labourers are target borrowers
- Smalll and marginal farmers – Acres of land holding
- Eligibility : upto cost of cultivation
- No margin stipulated – or 40% of the value of production are loan
component
- Scale of finance stipulated
- Period normally 1 year. Some crops need more gestation period, e.g. sugar
cultivation is 18 months.

Agricultural Term Loan :-

- For purchase of assets – Bullocks, sheep, farm machinery
- Orchard development, dairy, pottery development
- Horticulture, plantation, animal husbandry, fisheries, sericulture etc.
- Purchase of instruments like pump set, tractors, power fillers etc.
- All category of farmers are eligible
- Documents – TL agreement etc as per bank proforma
- Insurance of cattle, bullocks, machineries are to be done through bank

Land Development :-
- Term Loan allowed for land development, reproduction, clearance,
________, drainage, land levelling, stone walling etc.
- All farmers are eligible.
- Estimated cost and value to be _________.

Minor Irrigation :-
- Underground or surface area water services are covered
- All structures and equipment connected can be financed
- Digging of wells, deepening wells, bores, oil engine, pump set, laying
pipelines, lift irrigation system etc.
- Source of water should be renown

Farm Mechanisation :-
- To purchase farm equipment and machinery
- Tractors, trailers, power filler, Sprayers etc.
- Eligibility – depends on land under cultivation
- Minimum 8 acres irrigated land is eligible
- Economic viability to be ascertained

Horticulture Finance :-
- Land for development of fruit orchards, guava, mango, chikoo, apple, litchi,
grapes etc.
- Flowers – vegetable crops like potato, tomato, brinjals, peas etc
- Farmers to have cultivable lands
- Documents required for soil test report, land records, estimates, project
report etc.

Land Purchase :-
- To small & landless farmers for purchase of land – Share croppers, tenants
are also eligible.
- Security – mortgage of land to be purchased
- Repayment – normally ½ yearly instalments depending on crops harvested,
marketing, sale.
- Gestation period allowed depending on genuine reasons e.g. development
of land, minor irrigation structure etc.

Kishan Credit Card Scheme :-

- Credit support from bank – for crop loan purpose
- Short term cultivation cost need up
- Post harvest expenses
- Produce marketing loan
- Consumption requirement of farmers
- Maintenance of farm assets, allied agricultural activities, dairy, fishery etc.
- Pump sets, sprayers etc. (long Term Credit) (Investment Credit
Requirement)