Ever wondered how banks disburse loans or why some borrowers get loans faster while others struggle? Credit delivery is a crucial aspect of banking, affecting businesses and individuals alike.
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- Term loans & disbursement guidelines
- Consortium lending vs. multiple banking
- Loan syndication & risk management
- RBI guidelines on project loan disbursement
If you’re a banker, banking aspirant, or JAIIB/CAIIB candidate, this video is a must-watch to ace your exams and understand real-world banking scenarios.
🎥 Before we dive in, watch the full breakdown here:
Understanding Credit Delivery & Loan Disbursement
1️⃣ What is a Term Loan & Its Disbursement Guidelines?
A term loan is a fixed amount sanctioned for a specific purpose, repayable over time.
- Used for capital expenditure like machinery, real estate, business expansion, etc.
- Loan disbursement can be one-time or stage-wise.
Term loans are structured to help businesses manage their financial requirements efficiently, ensuring stability and growth. A borrower must meet specific eligibility criteria, including credit history, repayment ability, and collateral requirements.
For example, if a business needs ₹10 crore to expand operations, the bank may assess their balance sheets, revenue generation, and risk factors before sanctioning the loan. The repayment period may range from 5 to 15 years based on terms agreed upon.
2️⃣ Loan Disbursement Process
Banks disburse loans directly to suppliers/dealers or to borrowers in specific cases. The entire process involves:
- Loan application and documentation verification
- Risk assessment and credit approval
- Fund disbursement in lump sum or phases
- Monitoring of loan utilization
Failure to utilize the loan as intended may result in penalties or loan recall by the bank.
3️⃣ Multiple-Stage Disbursement for Projects
Large projects like Delhi Metro Rail (DMRC) require funds in stages to ensure proper utilization. Banks conduct site inspections and project progress tracking before releasing the next installment.
4️⃣ RBI Guidelines on Project Loan Disbursement
Banks follow 3 methods for project funding:
- Full upfront contribution – The borrower contributes the required margin money before any disbursement.
- Partial upfront contribution – Some funds are contributed initially, and the rest follows as per project milestones.
- Proportionate equity contribution – The borrower provides a set percentage of equity at each stage of the loan disbursement.
These methods help reduce the risk of fund misutilization and ensure project completion.
5️⃣ Consortium Lending vs. Multiple Banking
🔹 Consortium Lending (Formal Agreement)
Multiple banks finance a single borrower under a formal agreement. The lead bank takes responsibility for due diligence and loan monitoring.
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🔹 Multiple Banking (No Formal Agreement)
Borrower takes loans independently from multiple banks. This can increase financial risk as banks may not share credit exposure information.
6️⃣ Loan Syndication – How It Works?
A single large loan is shared among multiple banks. The lead bank negotiates terms and conditions and distributes risks among participating lenders.
7️⃣ Key Differences: Consortium vs. Multiple Banking vs. Loan Syndication
| Feature | Consortium Lending | Multiple Banking | Loan Syndication |
|---|---|---|---|
| Agreement Type | Formal | No formal agreement | Formal |
| Lead Bank | Yes | No | Acts as an arranger |
| Risk Sharing | Equal among banks | Higher fraud risk | Based on bank participation |
Conclusion
Understanding credit delivery, term loans, and loan disbursement is crucial for bankers and finance professionals.
Key Takeaways:
- Banks disburse term loans in one-time or stage-wise payments.
- RBI guidelines ensure risk mitigation in project loans.
- Consortium lending & loan syndication reduce risks through shared financing.
- Multiple banking arrangements carry high fraud risks.
💬 What are your thoughts on credit delivery? Share your questions in the comments!
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