Regulation of Bank Finance^407
l Sub-loan: Under this method, each participant grants a loan directly to the
lead bank on the condition that the lead bank repays only to the extent of
receipts from the borrower.
l Assignment: The lead bank assigns a proportion of the loan and of the benefit
of the loan agreement to the participants in consideration of the Purchase price
or pro rata share of the loan to be contributed by them.
Non performing assets
Under the new RBI monitoring system, Bankís performances have been crucially
dependent on recognition of income and non-performing assets. On the recommendations
of high level committee under the Chairmanship of Sri M. Narasimhan, the RBI had
issued circulars from time to time under the heading ìincome recognition, asset
classification, provisioning and other related mattersî. The recommendations of
the Committee highlights that the policy of income recognition should be based on
objective and based on recovery rather than any subjective consideration.
The non-performing asset, as used in banking parlance, mean an asset the income
(interest) of which is overdue for at least two quarters. Banks are not permitted to book
income on accrual basis on such assets but only on realisation basis in respect of non-
performing assets. For provisioning, the assets (loans and advances) are to be classified
as (i) Standard (ii) Sub-standard (iii) Doubtful, and (iv) loss as per the RBI circular
issued in this regard. The RBI has also introduced similar circular for revenue recognition,
classification of assets, provisioning and other related matters applicable to Non-banking
Finance Companies (NBFCs) registered with RBI.
Security for short-term financing
In normal course of business, the short-term loans will be provided by the banks against
on some specific assets offered to the lender as security for repayment. Accounts
receiv≠ables and inventory are two types of current assets offered for financing working
capital requirements. The following points are worthnoting in providing security of the
above current asset.
Pledge of accounts receivables
l The lender evaluates the quality of receivables and the risks involved taking
accounts receivable as security.
l Generally the security will be given on the balances lying in debtors in the
Books of Account. In specific cases, any special accounts may be pledged to
the lender for a particular loan.
l The borrower will continuously reporting the lender of the debtors paid and
new debtors balances added in the records.