Under the Turnover Method (recommended for limits up to ?5 Crore), the working capital requirement is assessed at 25% of the projected turnover. Out of this, the bank provides 20% as limits, and the borrower brings in 5% as margin.

While Domestic Commercial Banks and Foreign Banks (20+ branches) have a target of 40% of ANBC, RRBs and SFBs have a higher mandatory target of 75% of ANBC to ensure credit flow to underserved sectors.

To enforce credit discipline, RBI mandates that for large borrowers (= ?150 Cr), at least 60% of the working capital limit must be utilized as a WCL (Demand Loan) and the balance 40% as Cash Credit (CC).

Equitable Mortgage is created under Section 58(f) of the Transfer of Property Act by delivery of title deeds with an intent to create security. It is popular due to low cost (no registration needed) but can only be created in notified towns.

Classification criteria for Small Enterprise: Investment = ?10 Cr AND Turnover = ?50 Cr. Since both conditions are met (8 < 10 and 45 < 50), it is a Small Enterprise.

The KCC limit is scientific: It considers the Scale of Finance (fixed by District Level Technical Committee) multiplied by area, plus a 10% margin for household expenses and 20% for farm asset maintenance.

Income Recognition and Asset Classification (IRAC) norms state that income from NPAs is not recognized on an accrual basis but is booked as income only when it is actually received (Cash basis).

"Weaker Sections" include small/marginal farmers, SC/STs, SHGs, distressed farmers, and artisans. Medium Enterprises are part of the MSME category but not the "Weaker Sections" sub-target.

The Debt-Equity Ratio (Total Debt / Shareholder's Equity) measures the leverage of a company. A lower ratio indicates higher solvency and financial stability in the long run.

Pledge involves the bailment (delivery of possession) of goods as security for a debt. The Bank (Pledgee) holds possession, while the Borrower (Pledgor) retains ownership rights.

RBI guidelines mandate that no collateral and no margin will be charged for loans to SHGs up to ?10 Lakh. Recently, the collateral-free limit for SHGs under NRLM was enhanced to ?20 Lakh.

The LC is opened by the Issuing Bank at the request of the Buyer (Importer). Therefore, the Buyer is the Applicant who instructs the bank to open the credit in favor of the seller (Beneficiary).

Section 13(2) notice is the first step. It gives the borrower a period of 60 days to pay the dues. If they fail, the bank can take possession under Section 13(4).

For Metros (population >= 10 lakh), the housing loan limit for PSL is ?35 Lakh (provided the total cost of the dwelling unit does not exceed ?45 Lakh). For other centers, the loan limit is ?25 Lakh.

A Garnishee Order attaches debts owed BY the bank TO the customer (credit balance). An unutilized CC/OD limit is a facility to borrow; it represents money the customer CAN borrow, not money the customer OWNS. Hence, it cannot be attached.

KVIC is the single nodal agency at the national level for the PMEGP scheme. At the state level, it is implemented through State KVIC Directorates, State KVIBs, and DICs.

After becoming NPA (overdue > 90 days), an asset enters the "Sub-standard" category. It stays in this category for up to 12 months. If it remains NPA beyond 12 months, it moves to "Doubtful" category.

Surprisingly, Hypothecation was not defined in Indian law until the SARFAESI Act, 2002 (Section 2(n)). It refers to a charge on movable property without delivery of possession.

The Lead Bank assesses the borrower's needs, appraises the project, and coordinates with other member banks for documentation and disbursement.

Guarantees are of two types: Performance (ensuring work is done) and Financial (ensuring money is paid). A Financial Guarantee assures the beneficiary that the debt will be repaid if the borrower defaults.

Loans to individuals for educational purposes, including vocational courses, not exceeding ?20 lakh will be considered as eligible for priority sector classification.

The pecuniary jurisdiction of DRTs applies to cases where the debt due to any bank or financial institution is ?20 Lakh or above.

Assignment involves the transfer of rights to claim a debt or benefit. It is used for Actionable Claims like insurance policies and book debts. (Immovable = Mortgage; Goods = Pledge/Hypothecation).

MCLR replaced Base Rate in 2016. Note: EBLR later replaced MCLR for retail/MSME loans in 2019, but MCLR specifically replaced Base Rate as the internal benchmark.

This penal provision is designed to ensure timely payments to MSMEs. The interest is compounded with monthly rests at 3 times the Bank Rate.

The standard interest subvention is 2%, making the effective rate 7%. Prompt repayment gets an additional 3% subvention, bringing the effective interest rate down to 4%.

For Doubtful Assets (D1 - up to 1 year), the provision on the secured portion is 25%. For the unsecured portion, it is always 100%.

Character refers to the borrower's integrity and intent to repay. Capacity refers to ability (cash flow). Capital is their own contribution. Collateral is security. Conditions refer to economic factors.

DPG secures the payment of installments for capital goods purchased on credit. If the buyer defaults on an installment, the bank pays.

Lok Adalats are an effective forum for settling smaller NPA cases (suit-filed or pre-litigation) up to a ceiling of ?20 Lakh, offering a quick and low-cost resolution.

ANBC is defined as Net Bank Credit (NBC) plus investments made by banks in non-SLR bonds held in the HTM category, plus other investments eligible to be treated as priority sector. This ensures that banks don't shift assets to investments to lower their lending targets.

Under DAY-NULM, an interest subsidy is provided on loans to the urban poor for setting up individual or group enterprises. The subsidy is the amount of interest charged by the bank over and above 7% per annum.

For classification as MSME and to avail benefits under the PSL norms (and other government schemes), obtaining Udyam Registration is mandatory. Without it, the unit cannot be classified as MSME by the bank.

The KCC limit is sanctioned for a period of 5 years, subject to an annual review. The cardholder can draw funds within this limit as per their cropping pattern and requirements.

Loans up to ?5 crore per borrower for setting up schools, drinking water facilities, and sanitation facilities in Tier II to Tier VI centers are classified as Priority Sector Lending.

Book debts are movable current assets. Since possession cannot be handed over to the bank (unlike pledge), a charge is created by way of Hypothecation of book debts. (Assignment is also a legal mode, but Hypothecation is the common banking practice for working capital limits against receivables).

According to NABARD/RBI guidelines, the loan amount can be 4 times the corpus for the first dose, rising to 8 times (or ?20 Lakh, whichever is higher) for mature SHGs with a good repayment track record.

The coverage limit under CGTMSE was enhanced from ?2 Crore to ?5 Crore (?500 Lakh) to encourage lending to the MSE sector without collateral.

In a running account (CC/OD), credits reduce the debit balance. Without a Letter of Continuity, these credits could be legally argued to have discharged the original DP Note. This letter confirms that the security continues to cover the fluctuating balance.

For Domestic Banks, "Export Credit" is allowed as PSL only up to 2% of ANBC or CEOBE (Credit Equivalent of Off-Balance Sheet Exposure), whichever is higher. This is much lower than the limit for Foreign Banks.

Section 17 of the Registration Act mandates that any non-testamentary instrument transferring interest in immovable property of value ?100 or upwards must be registered to be legally valid.

The categories are: Shishu (up to ?50k), Kishore (> ?50k to ?5 Lakh), and Tarun (> ?5 Lakh to ?10 Lakh). This classification targets different stages of business growth.

Special Mention Accounts (SMA) categorization helps in early recognition of stress. SMA-0 (1-30 days), SMA-1 (31-60 days) , and SMA-2 (61-90 days).

The LC limit is non-fund based. It depends on the estimated annual purchase of material (consumption) and the time taken from placing the order to the receipt of goods/retirement of bills (Lead Time/Usance period).

Under Priority Sector norms, loans for agriculture infrastructure (warehousing, market yards, cold chains) are capped at ?100 crore per borrower from the banking system.

Article 62 of the Limitation Act, 1963 provides a limitation period of 12 years for suits relating to payment of money secured by a mortgage or charge upon immovable property, calculated from when the money becomes due.

While a full renewal/assessment is annual, banks conduct Short Reviews (Quarterly or Half-yearly) to monitor the account's performance and ensure compliance with terms, based on QIS statements.

Packing Credit is a working capital advance provided *before* shipment to enable the exporter to procure raw materials, manufacture, and pack the goods based on a confirmed export order.

Udyam Registration is a one-time registration process. The certificate issued is valid for a lifetime, provided the enterprise updates its details annually.

A Loss Asset is one where loss has been identified by the bank or auditors and the asset is considered uncollectible. The entire amount (100%) must be provided for, irrespective of any collateral (since its value is negligible).

In Cash Credit, the Drawing Power (DP) is calculated based on the value of stocks and receivables declared in the monthly Stock Statement. It ensures the loan is backed by sufficient current assets.

CLSS provides interest subsidy on housing loans to eligible beneficiaries (EWS/LIG/MIG) under the PMAY (Urban) mission to promote affordable housing.

For bank recovery cases, the monetary ceiling for Lok Adalat jurisdiction is ?20 Lakh . Cases above this limit usually go to DRT.

Negative Lien is a negative covenant. It does not create a charge for the bank but prevents the borrower from pledging the assets to someone else, keeping them free for the bank if needed later.

Bank loans up to ?50 crore to Startups (as per definition of Ministry of Commerce and Industry) are eligible for finance under the priority sector.

RBI norms specify that an NPA account can be upgraded to Standard only when the entire overdue interest and principal are paid, bringing the account fully current.

Bridge loans are temporary, short-term loans meant to tide over the period until the long-term funding (like IPO proceeds or Term Loan disbursement) is received.

Under Section 18 of the Limitation Act, a written acknowledgment of liability signed by the borrower before the expiration of the prescribed period starts a fresh period of limitation from the time of signing.

DSCR measures the cash flow available to pay current debt obligations (Interest + Principal). DSCR < 1 means negative cash flow. Banks typically look for DSCR > 1.5 or 2 for Term Loans.

Banks are mandated not to accept collateral security in the case of loans up to ?10 lakh extended to units in the MSE sector. For loans above ?10 lakh up to ?2 crore, banks can use the CGTMSE guarantee cover instead of collateral.

Under Method II (which is more conservative and ensures a higher current ratio of 1.33:1), the borrower must finance 25% of the *Total Current Assets* from long-term sources. Hence, MPBF = (0.75 * CA) - CL.

Wilful default implies deliberate non-payment despite having the capacity to pay, diverting funds for other uses, or siphoning off funds without creating assets. Genuine business failure is not wilful default.

Under Section 17 of the SARFAESI Act, an appeal against the bank's enforcement action (like taking possession) must be filed with the DRT within 45 days from the date on which such measure was taken.

In "With Recourse" factoring, the factor advances money against invoices but does not indemnify the seller against bad debts. If the customer fails to pay, the factor reclaims the advance from the seller.

The critical condition under Section 58(f) of the Transfer of Property Act is that the act of delivery of title deeds must take place in a town notified by the State Government. The property itself can be located anywhere in India.

BEP analysis determines the level of sales volume at which the project makes neither profit nor loss (covers all costs). It assesses the viability and risk of a long-term project, making it crucial for Term Loan appraisal.

Stand Up India facilitates bank loans between ?10 lakh and ?1 crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up a greenfield enterprise.

It is a document issued by a parent company (or bank) to a lender, indicating its support for a subsidiary's loan obligations, but it falls short of a legally binding financial guarantee.

Previously, there were expense ceilings. Currently, under PSL norms, there is no cap on the total cost of education. Only the loan amount eligible for PSL classification is capped at ?20 Lakh.

The DRT Act empowers the Tribunal to pass interim orders (like attachment before judgment or injunction) to protect the interests of the bank and prevent the borrower from selling assets during the pendency of the case.

Financing on TReDS is "without recourse" to the seller. Once financed, the debt is assigned to the financier, and the Corporate Buyer is legally obligated to pay the financier on the due date.

Hypothecation agreements typically contain a clause empowering the bank to take possession of the goods in case of default. Once possession is taken, the charge converts from Hypothecation to Pledge.

As per RBI directives, interest on loans should be charged at quarterly or shorter rests (like monthly). Charging interest at longer rests (like yearly) is not permitted as it reduces the effective yield.

Foreign banks with less than 20 branches have a total target of 40% of ANBC, but they are exempted from specific sub-targets for Agriculture and Weaker Sections. They can achieve their target largely through Export Credit.

Technical Write-off is an accounting entry to clean the balance sheet and reduce tax liability. It does NOT mean waiver of the debt; the bank continues its recovery efforts against the borrower.

The critical parameters for SHG grading (Panchasutra) are: Regular Meetings, Regular Savings, Regular Internal Lending, Regular Recoveries, and Maintenance of Books of Accounts.

A Techno-Economic Viability (TEV) study or Project Report details the technical aspects (technology, location, machinery) and economic viability, crucial for long-term funding decisions.

For a DP Note (payable on demand), the limitation is 3 years from the date of the note , not from the date of demand (Article 35, Limitation Act).

Under Section 38 of the Insurance Act, 1938, notice of assignment must be served to the Insurer to register the bank's interest. Without this, the assignment is not binding on the Insurer.

For a smooth takeover, the new bank needs the exact outstanding amount (Foreclosure letter) and details of security documents to ensure proper transfer of liability and collateral.

SARFAESI action cannot be taken if the amount due is less than ?1 Lakh OR if the remaining debt is less than 20% of the original principal and interest (Section 31(j)). This prevents misuse for small balances.

Cluster-based financing allows banks to assess risks better, reduce transaction costs, and provide tailored services to similar units located in a geographical cluster (e.g., Tirupur textile cluster).

To promote affordable housing, RBI allows an LTV ratio of up to 90% for loans up to ?30 Lakh. For loans between ?30L-?75L, it is 80%.

Pari-Passu means "on equal footing". It ensures that in case of liquidation or asset sale, all member banks share the proceeds proportionally to their dues, without any priority to one over the other.

The RDDBFI Act bars Civil Courts from entertaining any matter which the DRT is empowered to determine, to ensure speedy recovery through the specialized tribunal.

The subsidy is kept in a TDR in the name of the beneficiary for a lock-in period of 3 years. It is adjusted against the loan only after successful verification of the unit after 3 years.

Availability of funds is the lower of the Sanctioned Limit or the Drawing Power. Since DP (backed by assets) is lower, the borrower can only draw up to ?8 Lakh.

Particular Lien (e.g., repairer's lien) is restricted to the specific goods on which labor/skill was exercised, unlike Banker's General Lien which extends to general balance.

Bank credit to NBFCs (excluding MFIs) for on-lending is allowed under PSL up to an overall cap of 5% of the individual bank's total priority sector lending.

Revolving Fund (RF) is a seed capital given to SHGs to supplement their own savings, allowing them to lend more internally and build financial discipline before accessing larger bank loans.

CISF is a corpus fund provided to community institutions like CLFs or VOs (not directly to SHGs) to be used for lending to SHGs for their livelihood plans and socio-economic development.

The Recovery Officer (RO) is the statutory authority within the DRT framework empowered to execute the Recovery Certificate by attaching and selling the debtor's assets.

Loans up to ?30 crore to borrowers for purposes like solar based power generators, biomass-based power generators, wind mills, micro-hydel plants, etc., are eligible for PSL.

WCG represents the portion of current assets that needs to be financed. It is calculated by subtracting "Other Current Liabilities" (excluding bank borrowings) from Total Current Assets. The bank finances a part of this gap.

A public company is strictly prohibited from giving any financial assistance for the purchase of its own shares or lending against the security of its own shares (Buy-back is a separate process). Banks also cannot lend against their own shares (BR Act Sec 20).

RBI has directed that penalties should be treated as "Penal Charges" and not "Penal Interest" that gets added to the interest rate and capitalized. This ensures fairness and prevents capitalization of penal components.

The MSMED Act establishes the MSEFC to arbitrate and settle disputes related to delayed payments. MSEFC awards are binding and have the effect of a court decree.

PSLCs are valid only for the financial year in which they are traded. Their validity expires on March 31st, and banks must buy fresh certificates for the next year if shortfalls persist.

CRILC reporting is mandatory for all borrowers having aggregate fund-based and non-fund-based exposure of ?5 Crore and above. This helps in early stress detection.

PMAY mandates female ownership (sole or joint) to promote women empowerment. The house must be registered in the name of the female head or jointly with the male head.

DSRA typically holds an amount equal to 3-6 months of debt service obligations (Interest + Principal). It acts as a safety buffer to ensure timely repayment even if project cash flows are temporarily disrupted.

For a continuing guarantee, the liability arises only when the guarantee is invoked. The limitation period starts running from the date the bank issues a demand notice to the guarantor invoking the guarantee.

Goods left for safe custody are entrusted for a specific purpose, making the bank a Bailee. This specific purpose overrides the general lien. A bank cannot exercise lien over items in safe custody or lockers.

A Bank Guarantee is an independent contract. The bank is obligated to pay upon proper invocation "without demur," irrespective of underlying disputes between the parties. The bank is dealing with documents, not goods or disputes.

Priority Sector includes Agriculture, MSME, Export Credit, Education, Housing, Social Infrastructure, Renewable Energy, and Others (Weaker Sections). CSR loans to corporates are not part of this.

To encourage exports, the government has mandated that "Exports of goods or services or both" shall be excluded while calculating the turnover for MSME classification purposes.

Upon restructuring (changing terms due to financial difficulty), a standard asset is immediately downgraded to Sub-standard . It can be upgraded to Standard only after satisfactory performance during the "specified period" (usually 1 year).

A decrease in assets (like selling stock or collecting debtors) releases cash, so it is a Source of funds. An increase in assets consumes cash (Use).

The SARFAESI Act definition of "Security Interest" includes hypothecation. Banks can take possession of hypothecated movables (like vehicles, stock) directly after issuing the Section 13(2) notice and waiting for 60 days.

To protect consumers, banks are prohibited from levying foreclosure charges on floating rate term loans sanctioned to individual borrowers for non-business purposes (e.g., Home Loans, Auto Loans).

CRPs are community members (usually women from successful SHGs) who provide support to new groups, driving the community-driven implementation model of NRLM.

ACABC loans are classified under Ancillary Activities within the Agriculture sector, as they provide professional extension services to farmers.

Under Section 77 of the Companies Act, 2013, charges on a company's assets (movable or immovable) must be registered with RoC. However, Pledge is exempted from this requirement. Hypothecation and Mortgage charges must be registered.

An account becomes NPA if interest/principal remains overdue for a period of more than 90 days. If unpaid on March 31, the 90-day period ends on June 29. It becomes NPA on June 30 (91st day).

Banks may allow borrowers to draw beyond the limit for urgent needs. This is known as a Temporary Overdraft (TOD) or Ad-hoc limit, usually charged at a higher interest rate.

Under Section 176 of the Contract Act, if the Pawnor defaults, the Pawnee may sell the thing pledged on giving the Pawnor reasonable notice of the sale . No court order is needed.

IRR is the break-even discount rate that equates the present value of cash inflows with the present value of cash outflows (NPV = 0). If IRR > Cost of Capital, the project is viable.

To simplify financial inclusion, RBI guidelines state that KYC verification of only the authorized office bearers (representatives) is sufficient to open an SHG account. KYC of all members is not needed.

While the limit for firms/borrowers is ?30 Crore, for individual households , the loan limit for renewable energy purposes is capped at ?10 Lakh per borrower.

Under the Security Interest (Enforcement) Rules, the authorized officer must serve a 30-day notice to the borrower informing them of the sale of the immovable property.