GUIDELINES FOR BANK'S LENDING FOR SETTING UP A NEW UNIT
|Application for finance||Rate of Interest||Security||Mode of Execution|
One of the main objectives of a Bank is to lend money as lending has always been one of principal sources of income for commercial banks. Credit extension is essential to the growth and prosperity of a bank. Bank is always eager to utilize its fund for generating income & thereby looks forward to extend credit for setting up a new unit.
|Area of Finance||a) For acquisition of Fixed assets like land, building, plant & machinery & utilities.|
|b) For financing working capital funds blocked in the operating cycle.|
|c) Name of some industries/sectors.
i) Mini Cement Units ii) Mini paper plant iii) Steel re-rolling mills iv) Large Mini Steel plants v) Construction of cinema & theatres vi) Film production vii) Real Estate Promoters/Developers viii) Infrastructure ix) Film industry x) IT & Software xi) Agro based food industries xii) Hosieries xiii) Cold storage xiv) Rice mill etc.
|Categories of finance||
In general term Banks finance for procuring of fixed assets which is named as Term Loan & Banks also issue Deferred Payment Guarantee for Procuring indigenous plant & machinery & import of the same. And financing the working capital fund in the form of CASH CREDIT.
Banks may sanction term finance loans to all projects within the overall ceiling of the prudential Exposure Norms prescribed by RBI. Banks can also extend finances under norms to infrastructure which includes projects only in specified sectors such as power, Telecommunications, roads, ports, Highways, Bridges, Airport, Rail system, Water supply, irrigation, sanitation and sewerage system. The individual/Group exposure limit will not be applicable on Food Credit.
|Type of the borrowers/Target Groups||Any individual/Group (under prudential exposure Norm) Corporate bodies in the form of Pvt. Ltd. Cos. Public Limited Cos./Partnership etc.|
|Purpose||a) To finance small scale Industries
b) To finance Medium & Large Industries.
|Application for finance||The prospective borrower should be required to submit the
followings in general :
a) Loan application in standard form to be had from the respective Bank branches.
b) Questionnaire as devised by different Banks.
c) Project Report along with i) Technical feasibility Market survey report ii) Estimated cost of project & means of finance iii) Projected cost of production & profitability iv) Projected funds & cash flow statements v) Projected balance sheet.
d) Documents in connection with constitution of individual/group/corporate body.
After submission of the application with other requisites Bank will apprise the proposal in connection with i) Management ii) Commercial aspect of the project iii) Technical aspect of the project & iv) Financial aspect of the project.
Banks will dispose of the proposal as early as possible within the time limit of 60 days.
|Margin||With exception of Govt. sponsored schemes Banks may stipulate the Margins as given hereunder :|
|a) SSI Ancillary units and Export Oriented SSI units (EOU)||upto & inclusive of Rs. 25,000/- - Nil
Over Rs. 25,000/- - 15% - 20%
|b) Medium & Large Industries||Variable in different Banks depending on nature of industries.|
|Amount of Loan||Need Based, not against value of security.|
|Rate of Interest||
Since the Regulated interest rate was diluted by Reserve Bank of India Banks may stipulate interest rate depending prime lending Rate (PLR) which is changeable from time to time. In some cases Banks may allow concessional rate. However Bank's are bound by RBI's. directive on interest rates on loans & advances as & when issued. Banks may also impose penal rate of interest if any non-compliance of term & condition & repayment of loan installments are found.
|Security||The security should be one having a good title, stability of
value & good marketability.
a) Principal security :
Hypothecation of all assets of the unit either owned or generated by way of Bank's finance.
b) Collateral :
i) No collateral security/third party guarantee for limits upto Rs. 25,000/-.
ii) Above Rs. 25,000/- except Govt. sponsored schemes collateral security may be insisted upon.
iii) However, it is to be noted that bank advance is not made against security but to a borrower since a security cannot make a bad loan a good loan, but it will make a good loan better. Security is obtained as an insurance against unforeseen development. Security may be in the form of land & building having clear title & non-encumbrances or in the form of Deposits/assignment of LIC/Pledge of NSC/KVP etc.
|Repayment of loan||a) Repayment of loan installment in case of Term Loan
is generally synchronized with generation of income. So it is variable as
per the project. The installment may be equated monthly/quarterly/Half yearly/Annually
within a specified period (3 years to 7 years).
b) In case of cash credit repayment term is on demand.
a) Mode of execution of documents may vary depending upon type & constitution of the prospective borrower. Agreement papers to be signed will also vary from Bank to Bank but the principle is alike. Stamp Duty is at par with stamp duty Act of West Bengal.
b) Limitation period for renewal of documents of different types of borrowal accounts are as per provision of law of limitation.