Different type credit facilities those a banker/financer extends to clients. June 2015
Ans: Credit Facility is an agreement with bank that enables a person or organization to be taken
credit or borrow money when it is needed. All types of credit facilities may broadly be classified into two groups on the basis of Funding – 1. Fund Base Credit 2. Non Fund Base Credit
1. Fund Base Credit is the any credit facility which involves direct outflow of Bank’s fund to the
borrower. Various types of it are as follows:-
(i) Loan: – It refers to credit facility that is repayable in a definite period. (e.g. Term Loan ,
Demand Loan)
(ii) Cash Credit: – It refers to credit facility in which borrower can borrow any time with in the
agreed limit for certain period for their working capital need. It secured by way of Hypothecation of
Stock(goods) and Debtors and all other current Assets of the business generated during the course
of business. Cash credit can also be secured by way of mortgage of immovable properties (as
collateral security).
(iii) Over Draft: – An overdraft allows a current account holder to withdraw in excess of their credit
balance up to a sanctioned limit. It secured by way of Mortgage of immovable properties and pledge
of F.D., Bonds, Shares, securities, Gold & silver and any physical asset and Hypothecation of Stock
and Debtors and all other current Assets of the business generated during the course of business.
(iv) Packing Credit: – It is a credit facility which sanctioned to an exporter in the Pre-Shipment
stage. Such credit facilitates the exporter to purchase raw materials at competitive rates and
manufacture or produce goods according to the requirement of the buyer and organize to have it
packed for onward export. It secured by way of Hypothecation of Stock of goods and Debtors and all
other current Assets of the business generated during the course of business.
(v) Some other fund based credit facilities are Bill Discounted , Bill Purchased , Advance against
hypothecation of Vehicles ( Transport Loan) , House Building Loan , Consumer Loan , Agriculture
Loan -Farming -Non Farming , Consortium Loan , Lease Financing , Hire Purchase , Import Financing
– Loan Against Imported Merchandise (LIM) – Payment Against Document (PAD) .
Ans: Credit Facility is an agreement with bank that enables a person or organization to be taken
credit or borrow money when it is needed. All types of credit facilities may broadly be classified into two groups on the basis of Funding – 1. Fund Base Credit 2. Non Fund Base Credit
1. Fund Base Credit is the any credit facility which involves direct outflow of Bank’s fund to the
borrower. Various types of it are as follows:-
(i) Loan: – It refers to credit facility that is repayable in a definite period. (e.g. Term Loan ,
Demand Loan)
(ii) Cash Credit: – It refers to credit facility in which borrower can borrow any time with in the
agreed limit for certain period for their working capital need. It secured by way of Hypothecation of
Stock(goods) and Debtors and all other current Assets of the business generated during the course
of business. Cash credit can also be secured by way of mortgage of immovable properties (as
collateral security).
(iii) Over Draft: – An overdraft allows a current account holder to withdraw in excess of their credit
balance up to a sanctioned limit. It secured by way of Mortgage of immovable properties and pledge
of F.D., Bonds, Shares, securities, Gold & silver and any physical asset and Hypothecation of Stock
and Debtors and all other current Assets of the business generated during the course of business.
(iv) Packing Credit: – It is a credit facility which sanctioned to an exporter in the Pre-Shipment
stage. Such credit facilitates the exporter to purchase raw materials at competitive rates and
manufacture or produce goods according to the requirement of the buyer and organize to have it
packed for onward export. It secured by way of Hypothecation of Stock of goods and Debtors and all
other current Assets of the business generated during the course of business.
(v) Some other fund based credit facilities are Bill Discounted , Bill Purchased , Advance against
hypothecation of Vehicles ( Transport Loan) , House Building Loan , Consumer Loan , Agriculture
Loan -Farming -Non Farming , Consortium Loan , Lease Financing , Hire Purchase , Import Financing
– Loan Against Imported Merchandise (LIM) – Payment Against Document (PAD) .
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