Ever wondered how banks decide loan limits and ensure credit discipline? If you’re preparing for CAIIB’s ABM Module C, understanding credit management and loan delivery systems is crucial. This video is part 3 of our detailed series, where we break down essential loan structuring concepts, RBI guidelines, and how banks classify working capital limits.
- Banking professionals preparing for CAIIB/CAIIB exams
- Finance enthusiasts wanting deeper insights into loan management
- Business owners seeking clarity on bank credit facilities
What you’ll learn in this video:
- How banks structure loans (CC Limit vs. Term Loan)
- RBI guidelines for large borrowers (₹150 Cr+ working capital)
- Cash credit facility exclusions & bifurcation rules
- Interest rate benchmarks (MCLR vs. EBLR)
- Comparison of fixed and floating interest rates
- How banks determine capital market exposure limits
🔔 Watch the full breakdown below:
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🏦 Understanding Loan Systems for Bank Credit
📌 Loan Structure & RBI Guidelines
When banks sanction a loan, it’s not just about transferring money. A structured approach is followed to maintain financial discipline. For large borrowers (₹150 Cr+), RBI mandates that at least 60% of the sanctioned amount must be taken as a working capital term loan.
🚫 Exclusions in Loan Structuring
- Pre-shipment & Post-shipment Credit (Export credit limits)
- Bill limits for inland sales
- Commercial Papers (CPs) – Unsecured money market instruments used for short-term funding
📊 Interest Rates on Advances – MCLR vs. EBLR
🏦 What is MCLR?
MCLR (Marginal Cost of Funds Based Lending Rate) was introduced in April 2016 to ensure monetary policy benefits reach borrowers.
📌 Understanding EBLR & Its Impact
| Feature | MCLR | EBLR |
|---|---|---|
| Benchmark | Internal (Bank decided) | External (Market-driven) |
| Speed of Rate Change | Slow | Immediate |
| Customer Benefit | Delayed | Faster |
🏡 Fixed vs. Floating Interest Rates: Which is Better?
📌 Fixed Interest Rates
- Predictable EMI payments
- Higher initial rates than floating interest
- Beneficial in times of rising interest rates
🔄 Floating Interest Rates
- EMI may change based on market fluctuations
- Usually lower than fixed interest rates initially
- Best for long-term loans like home loans
ABM | Module C | Chapter 17 | Part 2 | Caiib Exam [FREE EPDF]
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