Types of Credit: Direct- indirect / Funded–Non-funded, Long Term-Short Term etc.

Depending on different criteria, nature & purpose, Loans & Advances may be categorized as follows:

On the Basis of Fund:

  • Funded Credit eg. CC(H), CC(P), Project Loans
  • Non-Funded Credit: eg. L/C, L/G

On the Basis of Duration:

  •  Long Term Credit
  • Mid-Term Credit
  • Short Term Credit

On the Basis of Security:

  •  Secured Advance
  • Unsecured Advance

On the Basis of Size of Loan & Other Conditions:

  • Retail Credit
  • Corporate Credit

On the Basis of Sectors & Target group:

On the Basis of Entrepreneurship:

  • Small & Medium Enterprise
  • Women Entrepreneurship

On the Basis of Participation & Risk Management:

  • Syndicate Finance
  • Consortium Finance
  • Bridge Finance

In the Context of Foreign Trade:

  • Import Finance : L/C, LIM, PAD, LTR
  • Export Finance: ECC(H), ECC(P), BBLC

On the Basis of Loan Classification :

  1. Up to 5 years
  2. More than 5 years
  • Short Term Loan
  1. Short Term Agricultural Loan (STAC)
  2. Micro Credit (MC)

In the Context of Foreign Trade:

  • Import Finance : L/C, LIM, PAD, LTR
  • Export Finance: ECC(H), ECC(P), BBLC

Comparative pricing of category wise deposit vs. advance / lending to maximize spread & allow mismatch beyond tolerable range:

Main Sources of Funds are:

  •  Deposits-

                Customer or Household irrespective of Time and Demand Deposits

  •  Borrowings from other Banks and Financial Institutions-

                Call, Placement, REPO, SWAP, Liquidity Support, Refinancing etc.

  •  Other Liabilities-

                 Various Payables & Adjusting Accounts Excluding Tax, VAT, Excise Duties i.e. all Government dues

  •  Capital/ Shareholders Equity-

Paid-up Capital, Reserves, Share Premium, Dividend and other Equalization Funds, Retained Earnings

Portfolio Management or Budgeting refers to diversification or distribution of assets to smother the inherit risks involve therein. The following is the main theme of portfolio management

“Don’t put all your eggs in one Basket”

Banks usually distribute their LDOs and Investments keeping the aforesaid into mind. Some sectors , shares or securities may get priorities but not the whole attention. However, the Mix or the Budget is formulated considering the following notable factors:

Factors to be considered for Portfolio Distribution

Among  several factors some major factors are:

  • Marketability
  • Comparatively better Yield
  • Environment and Climate Risk Aspects
  • Govt. and Legal Aspects
  • Risk Return Trade Off

Gap/Mismatch Risk:

  • It arises on account of holding rate sensitive assets and liabilities with different principal amounts, maturity/re-pricing rates
  • Even though maturity dates are same, if there is a mismatch between amount of assets and liabilities it causes interest rate risk and affects NII

IMPACT ON NII:

Gap

Interest rate Change

Impact on NII

Positive

Increases

Positive

Positive

Decreases

Negative

Negative

Increases

Negative

Negative

Decreases

Positive

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