Fund-based facilities refer to the facilities for drawing cash and funds as per the requirement of the concerned borrower. In other Non-fund based facilities given by the bank where actual funds are not involved. Through these facilities, banks facilitate trade transactions by offering their commitment/ promise/undertaking to pay in case the buyer (banks customer) fails to pay the seller and the seller remains unpaid.
The financial guarantee/ assurance is offered by banks to facilitate the trade transaction through a suitable instrument to cater to the needs of buyer and seller. Nonfunded instruments are designed in such a way whereby the seller of the goods or services gets a financial commitment by a solvent person like a bank subject to the compliance of terms and conditions as mentioned in the related trade instrument.
Non-fund-based facilities are not sanctioned in isolation. For example, a customer wanting to import a machine would be sanctioned a term loan and the LC will be opened to import the machinery. Alternatively, it could be a customer with working capital who will need to open an LC for importing some material. A guarantee will be given to a customer who is executing an order and is enjoying a working capital or term lending facilities.
Given this non-fund facilities will, eventually, get converted into term loans or working capital. In view of this non-fund facilities will call for an almost equal level of credit appraisal.
In addition to it there will be due diligence which is unique to the type of non-fund limit. The non-fund facilities are divided into three broad categories as under:
- Letter of Credit
- Guarantees
- Co-acceptance of Bills
How the non-fund limits play a role in Business:
この記事は BANKING FINANCE の June 2022 版に掲載されています。
7 日間の Magzter GOLD 無料トライアルを開始して、何千もの厳選されたプレミアム ストーリー、9,000 以上の雑誌や新聞にアクセスしてください。
すでに購読者です ? サインイン
この記事は BANKING FINANCE の June 2022 版に掲載されています。
7 日間の Magzter GOLD 無料トライアルを開始して、何千もの厳選されたプレミアム ストーリー、9,000 以上の雑誌や新聞にアクセスしてください。
すでに購読者です? サインイン
ICICI Bank partners with PhonePe to offer instant credit on UPI
ICICI Bank announced that it has partnered with PhonePe to offer instant credit on UPI to its pre-approved customers on the app of the digital payments company.
Indiagold Eyes Major Expansion in India's Gold Loan Market
Indiagold, a prominent fintech company specialising in gold loans, is set to disrupt the gold loan industry with its ambitious expansion plans and innovative product offerings.
RBI CIRCULAR
Facilitating accessibility to digital payment systems for Persons with Disabilities Guidelines
Legal News
The Supreme Court announced the launch of a new webpage on its official website providing summaries of landmark judgments.
The Role and Impact of the Insolvency and Bankruptcy Code (IBC) in NPA Recovery
Indian banks, especially grappling with the mounting challenge of Non-Performing Assets (NPAs) within Scheduled Commercial Banks (SCBs), are experiencing a significant downturn in their capacity for credit recycling, resulting in reduced business opportunities and declining profits. However, various factors contributing to the severity of NPA problem are including macro-economic, political, and internal factors, emphasizing the complexity of the issue. With this background, the present study puts an effort to look at the role of the Insolvency and Bankruptcy Code (IBC) in NPA recovery and also showcasing its significance in resolving insolvency and maximizing creditor recovery.
Big Data in Banking: Analysing its Role, Advantages and Challenges
Globally Inflation started rising post April 2021 and went above the target range set by most of the Central Banks. It had remained low and dormant for a substantial duration since the global financial crisis. CPI inflation in developed countries such as US, UK and Euro zone, began to exceed their traditional target of 2% and continue to stay at these elevated levels till recent time.
Is SIP Always the Best Option? A Look into Lump-Sum vs SIP During Volatile Markets
SIP is a method of investing a fixed amount at regular intervals, typically monthly, into a mutual fund. It allows investors to buy more units when prices are low and fewer when prices are high, a process known as rupee cost averaging.
Strategies for Mutual Fund Retail Investors during market downturns
When stock markets experience a decline, mutual fund investors often face a sense of insecurity and apprehension. The volatility can lead to impulsive decisions, which, rather than securing financial health, may impair long-term investment objectives.
The Rise of Green Marketing: Driving Sustainable Change
Green marketing refers to the practice of promoting products or services that are environmentally friendly or sustainable. It involves incorporating eco-friendly elements into various aspects of marketing strategies, including product development, packaging, advertising, and distribution.
Fraud Risk Management In Banking
Fraud risk management is a fundamental aspect of overall Risk Management within the banking sector. In India, banks adhere strictly to guidelines set forth by the Reserve Bank of India (RBI) to prevent, detect, and promptly report fraudulent activities.
