Certified Credit Professional Short Notes Part 2 – CCP Notes
CCP stands for Certified Credit Professional. Going through this course of IIBF one acquires measurable skills that are needed for a role in credit management. Certified Credit Professionals fall under the cadre of Credit Officers that can effectively perform different credit functions across banks. They have the advanced skills to handle various credit management issues including Working Capital Management, Loan Policy, Project Finance, Credit Appraisal, Credit Monitoring, Export Credits, etc.
While you prepare for IIBF CCP, going through the certified credit professional notes for CCP helps immensely in the preparations! And Learning Sessions has prepared CCP notes (pdf) so that you can easily get an overview of the CCP topics.
Important Topic:- CCP STUDY MATERIAL – CERTIFIED CREDIT PROFESSIONAL
CCP (short notes) has been prepared based on the 5 modules which are further divided into several units.
|IIBF CCP Notes||
To check out the detailed syllabus of IIBF CCP click here.
CERTIFIED CREDIT PROFESSIONAL NOTES: Part 2
MODULE-A: INTRODUCTION & OVERVIEW OF CREDIT
Chapter 3 – Types of Borrowers
Types of Borrowers: The borrowers can be divided into the following categories:
|LLP||OPC||Pvt. Ltd. Co.|
|Regulated by||Self-declaration||Register of Firms u / State Gov.||RoC under Central Govt.|
|No. of Members||1 only||2 to 20||More than 2||1 Director||2-200|
|Separate Legal Entity||No||Yes|
|Liability Protection||Unlimited Liability (Personal)||Liability to the extent of Capital|
|Foreign Participation||Not allowed||Allowed Investment||Not allowed||Allowed Investment|
Types of Credit Facilities: The credit facilities are mainly divided into two:
- Fund-based lending
The facilities like Overdrafts (OD), Cash Credit A/c (CC), Bills Finance, Demand Loans (DL), Term Loans (TL), etc, wherein a flow of funds is available to borrowers immediately are called fund-based facilities.
- Non-fund-based lending
The non-fund-based facilities include the issuance of a letter of guarantee, letter of credit (LC) wherein banks get income in the form of fees & there is no immediate outflow of funds from bank.
The above facilities of Fund & Non-Fund based lending’s are explained below:
- Cash Credit System
A cash credit account or CC is a running account just like a current account where a debit balance in the account up to a sanctioned limit or drawing power is fixed (based on stock holding whichever is less). Sanction of Limit is generally for 1 year. The limits are renewed or enhanced or sometimes even reduced based on an assessment of the customer’s actual requirement on the basis of working of the unit.
Customers are required to submit periodic Stock statements depending on the Operating Cycle, Turnover, & Cash Budget, or Projected Balance Sheet. Cash Credit facility (CC) is offered normally against pledge or hypothecation of primary security such as – book debts, stocks of raw materials, semi-finished goods, and finished goods.
Advantages of Cash Credit System:
- Flexibility: Borrower can withdraw amount whenever & whatever is needed. They are not required to withdraw full limit.
- Operative Convenience: In a cash credit account, there is no limit on the allowed no. of credit & debit entries. There is no requirement to open new account at every withdrawal.
Disadvantages of cash Credit system:
- Fixation of Credit Limit: The cash credit limits are generally prescribed once in a year.
- Bank’s inability to verify the end-use of funds: Although banks could compare the sales figure to the credits in the account to see if the limit is used efficiently.
- Lack of proper cash management
In the Overdraft facility, a customer is allowed to draw cheques over & above credit the balance in his account. Overdraft is normally allowed to Current Account Customers and in exceptional cases Saving Bank A/c holders are also allowed to overdraw from their account.
Important Topic:- CCP IIBF Exam Mock Test
A high rate of interest is charged but only on a daily debit balance. An overdraft is repayable on demand. There are 2 types of overdrafts that are prevalent in Banks i.e.
- Temporary Overdraft or Clean Overdraft
- Secured overdraft
Temporary overdrafts are allowed purely on the personal credit of the party/customer and are for the purpose of meeting some urgent commitments on rare occasions. Allowing a customer to draw against his cheques that are sent in clearing also falls under this category of overdrafts.
Secured overdrafts are allowed up to a certain limit against tangible security such as bank deposits, LIC policies, National Saving Certificates (NSCs), shares, and other similar assets. Secured overdraft is most popular with traders as they have lesser operating costs, simple application & documentation formalities.
- Demand Loans
Demand loans are secured loans that are repayable on demand. A demand loan is granted against marking a lien on the bank’s own fixed deposits (FDs of customers), Assignment of Life Insurance Policies with adequate surrender value, National Saving Certificates, and so on.
Demand loans can be gradually liquidated over a period generally in monthly, quarterly, half-yearly installments or lump-sum payments at one shot or they can be closed from maturity proceeds of the offered security.
- Bills Finance
Bills Finance is short-term in its tenure and is self-liquidating finance in nature. The demand Bill is purchased while Usance bill is discounted by the banks. The bills drawn under Letter of Credit (LC) (It might be on sight or usance draft) are negotiated by the banks.
Important Topic:- IIBF CCP Short Notes – Part 1 | CCP – Certified Credit Professional
The advantage of Bills Finance is that the seller of goods (i.e. borrower) gets immediate money from the bank for the goods sold by him irrespective of the fact whether it is a purchase, discount, or negotiation by the bank according to bill type.
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