RelationDigest

Thursday, 10 August 2023

[New post] CAIIB ABM Module C Unit 4 : Term Loans

Site logo image neerajsingh18 posted: "CAIIB Paper 1 (ABM) Module C Unit 4 : Term Loans (New Syllabus)  IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 1 (Advanced Bank Managem" Ambitious Baba

CAIIB ABM Module C Unit 4 : Term Loans

neerajsingh18

Aug 10

CAIIB Paper 1 (ABM) Module C Unit 4 : Term Loans (New Syllabus) 

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 1 (Advanced Bank Management) includes an important topic called "Term Loans". Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 1 (ABM) Module C (CREDIT MANAGEMENT) Unit 4 : Term Loans, Aspirants must go through this article to better understand the topic, Term Loans and practice using our Online Mock Test Series to strengthen their knowledge of Term Loans. Unit 4 : Term Loans

Important Points about Term Loans

  • Working capital loans are normally sanctioned for one year but are payable on demand. Term loans are payable as per the agreed repayment schedule, which is stipulated in the terms of the sanction. Therefore, for the purpose of matching assets and liabilities of the bank, term loans are considered long term assets while working capital loans are considered as short term assets.
  • Banks provide term loans normally for acquiring the fixed assets like land, building, plant and machinery, infrastructure etc., (personal loans, consumption loans, educational loans etc. being exceptions)
  • As a term loan is expected to be repaid out of the future cash flows of the borrower, the D S C R assumes great importance while considering term loans, while for working capital loans, the liquidity ratios assume greater importance.
  • In exceptional cases, banks provide term loans for current assets This is called Working Capital Term Loan (WCTL)
  • There is no uniform repayment schedule for all term loans. Each term loan has its own peculiar repayment schedule depending upon the cash surplus of the borrower.

Deferred Payment Guarantees (DPGs)

  • When the purchaser of a fixed asset does not pay to the supplier immediately, but pays according to an agreed repayment schedule, and the bank guarantees this repayment, the guarantee is called DPG. This is a Non-fund based method for financing purchase of fixed assets.

Difference Between Term Loan Appraisal And Project Appraisal

The differences can be summarized as under:

  • In project finance all the financial needs of the enterprise, including working capital requirements, are appraised. This is because the total requirement of long term funds includes margin money for working capital. After assessing the total requirement of long term funds, the banks decide upon the amount of term loan to be sanctioned and the contribution of the promoters.
  • If an existing enterprise wants to purchase a few machineries, which are not going to have a major impact on the volume or composition of the business, it will serve little purpose to have a detailed examination of techno- economic feasibility, managerial competence, I R R etc. It may be enough for the bank to examine the projections for next 2 to 3 years to find out that D S C R is at satisfactory level. In case of loans to individuals also, like housing loans, educational loans etc., it may be enough to examine the projected D S C R to judge the viability. However, the basic principles of appraisal of a project or a standalone term loan are not different and if one is clear about project appraisal, the appraisal of a standalone term loan proposal is even simpler.

Project appraisal

Project appraisal can be broadly taken in the following steps:

  • Appraisal of Managerial Aspects
  • Technical Appraisal
  • Economic Appraisal

Appraisal of Managerial Aspects: The appraisal of managerial aspects involves seeking the answer to the following questions:

  • What are the credentials of the promoters'?
  • What is the financial stake of promoters in the project? Can they bring additional funds in case of contingencies arising out of delay in project implementation and changes in market conditions?
  • What is the form of business organization? Who are the key persons to be appointed   to run the business?

Technical Appraisal: The technical feasibility of a project involves the following aspects:

  • Location
  • products to be manufactured, production process
  • availability of infrastructure
  • provider of technology
  • details of proposed construction
  • contractor for project execution
  • waste-disposal and pollution control
  • availability of raw materials
  • marketing arrangements

Economic Appraisal: The economic or financial feasibility of a project involves the following aspects:

  • Return on Investment: The usual methods used are the NPV, IRR, payback period, cost benefit ratio, accounting rate of return etc.
  • Break-even Analysis: A project with a high break-even point is considered more risky compared to the one with lower break-even point.
  • Sensitivity Analysis: As market conditions are uncertain, a small change in the prices of raw materials or finished goods may have a drastic impact on the viability of a project. Sensitivity analysis examines such impact.

Appraisal and Financial of Infrastructure projects

  • Transport
  • Energy
  • Water & Sanitation
  • Communication
  • Social and Commercial Infrastructure

Types of Financing by Banks

  • Take-out Financing
  • Inter-institutional
  • Financing Promoter's Equity

Appraisal

  • In respect of financing of infrastructure projects undertaken by Government owned entities, banks or Financial Institutions should undertake due diligence on the viability of the projects. Banks should ensure that the individual components of financing and returns on the project are well defined and assessed. State government guarantees may not be taken as a substitute for satisfactory credit appraisal and such appraisal requirements should not be diluted on the basis of any reported arrangement with the Reserve Bank of India or any bank for regular standing instructions or periodic payment instructions for servicing the loans or bonds.
  • Infrastructure projects are often financed through Special Purpose Vehicles. Financing of these projects would, therefore, call for special appraisal skills on the part of lending agencies. Identification of various project risks, evaluation of risk mitigation through appraisal of project contracts and evaluation of creditworthiness of the contracting entities and their abilities to fulfill contractual obligations will be an integral part of the appraisal exercise.
  • In this connection, banks or Financial Institutions may consider constituting appropriate screening committees or special cells for appraisal of credit proposals and monitoring the progress or performance of the projects.

Prudential Requirements

  • Prudential Credit Exposure Limits
  • Assignment of Risk Weight for Capital Adequacy Purposes
  • Asset Liability Management
  • Administrative arrangements

Take-out Financing or Liquidity Support

  • Take-out Financing or Liquidity Support
  • Liquidity support from IDFC

 

Download PDF from Below

CAIIB Paper 1 (ABM) Module C Unit 4- Term Loans (Ambitious_Baba)

  • Click here to Fill the form for Free CAIIB Study Materials
  • Join CAIIB Telegram Group
  • For Mock test and Video Course Visit: test.ambitiousbaba.com
  • Join Free Classes: JAIIBCAIIB BABA
  • Download APP For Study Material: Click Here
  • Download More PDF
Buy CAIIB MAHACOMBO

 

Comment

Unsubscribe to no longer receive posts from Ambitious Baba.
Change your email settings at manage subscriptions.

Trouble clicking? Copy and paste this URL into your browser:
https://ambitiousbaba.com/caiib-abm-module-c-unit-4-term-loans/

WordPress.com and Jetpack Logos

Get the Jetpack app to use Reader anywhere, anytime

Follow your favorite sites, save posts to read later, and get real-time notifications for likes and comments.

Download Jetpack on Google Play Download Jetpack from the App Store
WordPress.com on Twitter WordPress.com on Facebook WordPress.com on Instagram WordPress.com on YouTube
WordPress.com Logo and Wordmark title=

Automattic, Inc. - 60 29th St. #343, San Francisco, CA 94110  

at August 10, 2023
Email ThisBlogThis!Share to XShare to FacebookShare to Pinterest

No comments:

Post a Comment

Newer Post Older Post Home
Subscribe to: Post Comments (Atom)

The Edgar Poe You Never Knew: a Mere Writer of Horror or a Humanist Master of the Mind

Rising Tide Foundation cross-posted an episode from Through A Glass Darkly Rising Tide Foundation Aug 4 · Rising Tide Foundation Cynthia Ch...

  • [New post] Wiggle Kingdom: April Earnings on Spring Savings!
    Betsi...
  • [New post] Balancing the ‘E’ and ‘S’ in Environment, Social and Governance (ESG) crucial to sustaining liquidity and resilience in the African loan market (By Miranda Abraham)
    APO p...
  • Something plus something else
    Read on bl...

Search This Blog

  • Home

About Me

RelationDigest
View my complete profile

Report Abuse

Blog Archive

  • August 2025 (3)
  • July 2025 (59)
  • June 2025 (53)
  • May 2025 (47)
  • April 2025 (42)
  • March 2025 (30)
  • February 2025 (27)
  • January 2025 (30)
  • December 2024 (37)
  • November 2024 (31)
  • October 2024 (28)
  • September 2024 (28)
  • August 2024 (2729)
  • July 2024 (3249)
  • June 2024 (3152)
  • May 2024 (3259)
  • April 2024 (3151)
  • March 2024 (3258)
  • February 2024 (3046)
  • January 2024 (3258)
  • December 2023 (3270)
  • November 2023 (3183)
  • October 2023 (3243)
  • September 2023 (3151)
  • August 2023 (3241)
  • July 2023 (3237)
  • June 2023 (3135)
  • May 2023 (3212)
  • April 2023 (3093)
  • March 2023 (3187)
  • February 2023 (2865)
  • January 2023 (3209)
  • December 2022 (3229)
  • November 2022 (3079)
  • October 2022 (3086)
  • September 2022 (2791)
  • August 2022 (2964)
  • July 2022 (3157)
  • June 2022 (2925)
  • May 2022 (2893)
  • April 2022 (3049)
  • March 2022 (2919)
  • February 2022 (2104)
  • January 2022 (2284)
  • December 2021 (2481)
  • November 2021 (3146)
  • October 2021 (1048)
Powered by Blogger.