Credit and Loan Products
Fund-based versus non-fund-based credit, the difference between a term loan, cash credit, overdraft and bill discounting, how banks take security through mortgage, hypothecation and pledge, the loan life-cycle, and a worked drawing-power and loan-eligibility calculation.
What you will be able to do
- Separate fund-based from non-fund-based facilities with examples.
- Tell a term loan, cash credit, overdraft and bill discounting apart by use and structure.
- Distinguish mortgage, hypothecation, pledge and guarantee as forms of security.
- Compute drawing power and loan eligibility from a margin and an asset value.
What is inside this lesson
- 1How a bank extends credit
- 2Fund-based versus non-fund-based
- 3Term loan, cash credit, overdraft, bill discounting
- 4How the bank takes security
- 5The loan life-cycle
- 6Retail loan products
- 7Drawing power and loan eligibility
- 8Common confusions
- 9Quick revision
- 10Practice
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How a bank extends credit
Lending is a bank's main earning activity. Every facility answers three questions: is money paid out now or only if something goes wrong; is it a one-time loan or a running limit; and what does the bank hold as security if the borrower cannot pay.
The products below are combinations of those three choices, matched to what the borrower needs the money for — buying a machine, funding a month of raw materials, bridging a temporary gap, or backing a promise to a supplier.
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