3. Loan management system: A
loan management system is a
digital platform that helps
automate every stage of the
loan lifecycle, from application
to closing.
According to dictionary of
Banking and Finance loans can
be defined as, “the landing
of a sum of money by a lender
to a borrower to be repaid with
a certain amount of interest.”
A Loan is when you receive
money from friend, bank or a
financial institution for future
repayment of the principal plus
interest.
Definition of Loan
4. Security: Loans are sanctioned against collateral. But, sometimes small amount of loans can be sanctioned on the basis of
personal guarantee.
Parties: There are two parties involved in the loan transactions. One is the bank and the other is the loan applicant.
Amount of loan: Loan amount may vary small, medium or large.
Mode of Loan: Generally, loans are given in cash. But in exceptional cases, the same may be provided in kind, for
example, raw materials, machineries, other inputs, etc.
Nature of Distribution: Generally, banks disburse loans or installment basis.
Process of Disbursement: Banks often disburse their loan against the existing current account of the client. If the client is
new; bank asks him/her to open a current account. Then, the bank provides the sanctioned loan through that account.
Loan Price: Banks never sanction loan without interest or profit. But, interest rate can vary on the basis of types of loan or
status a Periodicity of Bank Loan: . Loan may be sanctioned for immediate use, short term, mid-term or long-term basis.
Characteristics of Bank Loan
5. Classification of Bank Loan
Continuous loan Demand Loan Fixed Term and
Short Term
Agriculture and
Micro credit
1 2 3 4
6. Functions of Bank Loans
Provided to individuals:
a. Consumption Loan
b. House Loan
c. Automobile Credit N non my
d. Probate Loan
e. Education and Medical Loan
f. Holiday Tour Loan
g. Wedding and Social Ceremony Loan
Provided to Business Organizations:
a. Working Capital Loan
b. Seasonal Deficit Loan
c. Asset Replacement
d. Bridge Loan Export-Import Loan
7. Importance of Bank Loan in Business and Commercial sector: Currently, businessmen get financial support through the
bank loan .Creation of credit deposits, increased formation of capital, increased volume of investment of capital &
working capital, Raise the proportion of the sectorial GDP to the total GDP.
In the field of international business, banks are providing financial support to businessmen by giving bank loans in
various ways for import and export.
Crop credit, Horticulture credit, Warehouse credit, rural housing credit, Poultry and fisheries, Small and cottage
Industries credit, improved technology credit, improved seed credit, Chemical fertilizer credit, Other tools & machines
credit etc. are the most popular bank loan in our country. Middle class and lower class families are encouraged to do
business by this
Besides Housing loan, Education loan, Car loan, Marriage loan etc. loans banks are helping customers in various ways by
giving loans etc.
A part from international business agricultural sector, it has also provided special loans for self-employment and women
self-employment loan.
Banks now have special arrangements for cottage industries, encouraging low-income families to grow their businesses
by getting financial support.
Importance of Bank Loan
8. A. Internal factors:
1. Amount of loanable fund
2. Amount of risk of loan and cost of risk
3. Amount of bad debt
4. Overhead expenses
5. Expenses for credit investigation and credit analysis
6. Security maintenance of expenses
7. Supervision and collection expenses
8 Cost of bank fund
9. Administrative and transaction cost
10. Bank customer relation
11. Earning possibility from the alternative use of fund
12. Shareholders expectation of dividend
B. External Factors:
I. Guidance of the government and bank regulatory agencies
2. Number of competitors and their capacity to control the loan market
3. Nature of loan price by competitors
4. Risk of increase and decrease of interest rate
5. Possibility of raising funds through other alternatives
Consideration in Loan Pricing
9. ► According to Edward W. Reed, a bank scholar, "A loan policy establishes the
direction and use of the funds of a bank that have derived from stockholders and
depositors and influences the decision on whether or not to lend"
Bank Loan Policy
10. ► Loan administration means a lender's Processing of a loan and include review, under
writing and evaluation of the loan application, document processing and preparation and
administration of the loan closing.
Loan administration
11. Loan operations are defined as the process of lending money by banks, mortgage lenders, credit
unions or other financial institutions to those in need of additional funds--incurring debt by the
borrower.
Steps in Loan Operations
Generally, loan operations are executed by the nine steps, which are stated below:
Loan Operations
1.
Receiving
loan
application
2.
Collecting
loan
information
3.
Credit
analysis
4. Final
decision
about the
loan
5. Loan
document-
ation
6. Loan
agreement
7. Recording
loan
transactions
8. Review
and
monitoring
of loan
agreement
execution
9.
Collection
of loan
12. ► Credit analysis, we mean analysis of the eligibility for getting loan in the
light of applications. At the time of credit analysis, the loan officer should
carefully examine logic and purpose of the credit.
Credit Analysis
13. 1. Original loan
agreement.
2. Filled up the loan
application form
3. Financial statements
of the borrower
4. Credit analysis report
5. Proofs of certificates
and documents of the
collateral
6. The name and
signature of the
authorized
person/attorney of the
borrower.
7. A copy of the
resolution of the board
of directors of the
borrowing company.
8. The copy of the
partnership deed and the
statement of the assets
in case of partnership
business.
9. The surety from the
authorized person of the
company
10. Financial statements
of the person or the
company providing
surety in favor of the
potential borrower.
Documentation of loan
For successful credit activity a bank should collect necessary documents from the borrowers.
These are as follows:
14. ► According to the writer supervision means, "the process through which
lending institutions disburse loan to the right people, ensure proper use of the
credit, and more importantly make the borrower capable to repay the loans by
improving his financial condition is called supervision’
Loan Supervision
15. ► Credit rating is an evaluation of the credit risk of a prospective debtor,
predicting their ability to pay back the debt, and an implicit forecast of the
likelihood of the debtor defaulting.
Credit Rating
16. 1. Identification of actual & potential problem loans
2. Encouraging loan executives in the recovery of loans
3. Facilitating the loan executive in making report about the conduct of the borrowers Purposes of loan review
4. Creation of adequate reserve against bad & doubtful loans
5. Ensuring identical documentation among the banks
6. Ensuring compliance of loan policy procedures, etc.
7. Keeping the board of directors updated about the trend of latest conditions of the problem loans.
Review and identification
of loan problems
Quantitative causes Qualitative causes
Identification of Problems Loan
17. To know about
borrowers of
financial
condition and
repayment
capacity.
To accurate
action of the
legal and
statutory
regulations.
To Proper
maintenance of
all the necessary
loan documents.
To know
Context to loan
policy.
To Design and
to apply realistic
profit planning.
To obtain
reliable
securities and to
ensure income
from the
collaterals
thereof without
any loss.
Consideration for
Loan review
18. ►A loan made to a borrower where the lender has extended the
repayment period.
►Rescheduled loans are most common when the borrower informs the
lender that he/she will be unable to repay the loan in time, or when the
borrower cannot afford payments.
Rescheduling of Loans