Welcome to this detailed analysis of Chapter 17 from the JAIIB/CAIIB syllabus. In this article, we will cover important updates related to the Credit Guarantee Scheme (CGS), loan takeovers, fair lending practices, and the significance of financial statements in banking. These topics are crucial for anyone preparing for JAIIB, CAIIB, bank promotions, or other financial certifications.
Watch the full session here:
📚 CAIIB Study Resources 📚
👉 Check Here
👉 Check Here
👉 Check Here
👉 Get Tests Here
👉 Check Here
👉 Click Here
👉 Click Here
Modification in Credit Guarantee Scheme (CGS)
The government has made key modifications to enhance the extent of guarantee cover for credit facilities. These changes aim to provide better access to finance, especially for underserved categories like micro and small enterprises (MSEs), SC/ST entrepreneurs, and women-led businesses.
How the Credit Guarantee Works?
- Banks hesitate to provide loans to MSEs due to lack of collateral.
- The CGTMSE (Credit Guarantee Fund Trust for Micro & Small Enterprises) acts as a guarantor.
- Banks get a cover percentage based on loan amount and borrower category.
Updated Credit Guarantee Coverage
The revised guarantee structure is as follows:
| Borrower Category | Loan Amount | Guarantee Coverage (%) |
|---|---|---|
| Micro Enterprises | Up to ₹5 Lakh | 85% |
| Micro Enterprises | ₹5 Lakh – ₹50 Lakh | 75% |
| Women Entrepreneurs | Up to ₹2 Crore | 85% |
| SC/ST Entrepreneurs | Up to ₹2 Crore | 85% |
| Other Borrowers | Up to ₹2 Crore | 75% |
Loan Takeover Policy & Transparency Measures
Many complaints have arisen regarding the transparency of loan takeovers, where borrowers shift their loans from one bank to another for better terms.
RBI Guidelines for Loan Takeovers
- Banks must have a Board-approved loan takeover policy.
- Eligibility of loan accounts should be clearly defined.
- Credit Information Sharing is mandatory between the transferring and receiving banks.
- Proper due diligence must be done to ensure the borrower’s credibility.
Fair Practices Code for Lending
To maintain ethical lending standards, the RBI has issued guidelines under the Fair Practices Code. Banks must:
- Ensure transparency in loan processing.
- Provide clear information on terms and conditions.
- Avoid unfair discrimination based on gender, caste, or religion.
- Adopt ethical loan recovery practices.
Interest Rate Calculation & Agricultural Loans
Banks charge interest on loans based on different resting periods. Most loans follow monthly rest calculations, but agricultural loans differ.
Interest Calculation for Agricultural Loans
- Short-duration crops: Interest is charged at the end of each harvesting season.
- Long-duration crops: Interest is calculated annually.
- Allied activities (poultry, fisheries, dairy): Interest depends on cash flow cycles.
Understanding Financial Statements in Banking
Banks analyze financial statements before granting loans to assess a borrower’s repayment capacity.
Key Financial Statements
- Balance Sheet: Shows assets and liabilities.
- Profit & Loss Account: Displays income and expenses.
- Cash Flow Statement: Reveals actual cash inflows and outflows.
Why Financial Analysis Matters?
- Helps banks assess working capital requirements.
- Identifies a business’s solvency position.
- Ensures the borrower is not already over-leveraged.
Conclusion
Understanding these banking concepts is essential for finance professionals, business owners, and bank aspirants. The Credit Guarantee Scheme, loan transparency policies, and financial statement analysis play a crucial role in ensuring smooth banking operations.
For more detailed explanations and FREE PDFs, message “CEB 2025 PDF” to 8360944207 on WhatsApp.
Stay connected with Learning Sessions for more insights!
Also Like:
