What are non performing assets:

Non performing assets means a credit facility in

respect of which the interest or installment has
remained due for a specific period.
The credit facility given by the bank ceases to
generate income for bank is termed as non
performing asset.
The RBI has issued guidelines for provision for loss
on advances or credit facilities by the banks .
Classification of Non performing assets:
Substandard assets:
The amount of advance which is not exceeding
18 months is considered as substandard assets.
The security available to the bank is
inadequate.
The bank will suffer loss if the deficiencies are
not corrected immediately.

Doubtful assets:
The amount of advance which is due for period
exceeding 18 months is considered as doubtful
assets.
This type of asset is considered as weak as its
collection is improbable.
For this purpose the unsecured and secured
portions are to be considered.
Loss assets:
The amount of advance which is
identified by the bank but which is not
yet written off.
The bank must write off the loss assets
even though there is remote possibility of
recovery of certain amount.

Fund based:
Term loan:
The bank advances a lump sum amount for a
certain period at an agreed rate of interest.
The entire amount is credited to the borrower.
The interest is charged for the full amount of
loan.
Term loan may be medium term or long term.

Short Term And Medium Term:
Banks provide short term credit to the banks.
They have also started providing medium term
loans to the business.
The loan once repaid in full cannot be drawn
again by the borrower unless the bank sanctions a
fresh loan.
The short term and medium term loans are
granted for meeting the working capital
requirements.
Short term and medium term loans are granted
from a period of one year to five years.
Long term loans:
Long term loans vary from a period of five years to
twenty five years.
The rate of interest is higher on such loans.
There is a certain loan agreement Which protects the
interest of the loan and binds the company(Borrower).


Cash credit:
It is an arrangement by which the borrower is allowed
to borrow up to a certain limit.
It is an arrangement for long term and medium term
and the borrower need not draw the sanctioned
amount at once.
He can draw the loan amount as and when required.
Cash credit is a running account to which deposits and
withdrawals can be made.
Interest is charged only on the amount drawn.






The arrangement for loans can be made
against the goods.
It is a more favorable form of loan.
Export Import financing:
Every business requires finance
Export finance refers to the finance of the
goods from the home country to the importers
port.
The export financing begins as soon as an
export order is received an d accepted.
The importer sometimes purchases the goods on payment of cash in
advance.
On many occasions payments are made on shipment of goods.
Thus the importer needs finance for importing goods.
Export finance means the credit required by the exporters for
financing their export transactions from the time of getting export
order to the time of full realization of payment from the importer.
Importers also need finance for making payments for their
imports.




Rural financing:
Agriculture is the back bone of the Indian
economy.
Being the largest industry, it provides
employment to the total workforce of the
country.
The financial requirements of the farmers is
known rural credit.
Rural credit can be classified into three
categories on the basis of time.


Short term credit is required for the purpose of
seeds,fertilizers,pesticides,fodder of live stock,
payment to labourers,marketing of agricultural
products.
The period of this credit is less than 15 months.
Medium term loans are generally used for the purpose
of purchasing cattle,equipments,repairs and
reconstruction.


The period of such credit ranges from 15 months to 5
years.
Long term loans are provided for improvement of
land, digging of tube wells, repayment of old debts.
The period of this loan is more than 5 years.
Rural credit needs of the farmer can be classified into
productive and nonproductive
Productive needs are
seeds,fertilizers,equipments,livestock,repairs,pay
ments.

At the time of floods,draughts,crops are
destroyed and the farmers need to take loan
for their consumption.
Farmers also require loan for marriages,
festivals etc.


Bank guarantee:
A Bank guarantee is defined under section 126 of the Indian
contract act 1872 as A contract to perform the promise or
discharge the liability of the third person on case of default.
The person who gives the guarantee is called the surety.
The person in respect of whose default the guarantee is given
is called the principal debtor.
The person to whom the guarantee is given is called the
creditor.
The bank extends guarantee on behalf of their clients.


The following are the different types of guarantees a
bank is required to issue.
Financial guarantees:
The bank guarantees its customers credit worthiness.
The financial guarantees are typically issued for the
following purposes.
In lieu of retention money, tender deposit.
Issue to the government department for releasing
disputed claim.
Performance guarantee:
The bank guarantees obligations that relate to
the technical,managerial,administrative
experience capacity of the customer.
Performance guarantees cover the following:
For performance of machinery.
For satisfied performance of projects for a
specified period.



Shipping guarantee:
A bank is requested to issue a shipping
guarantee.
This is issued only on behalf of very
respectable customers and against 100%
margin.
the shipping company agrees to deliver the
goods against the production of bank
guarantee.