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Corporate Loans: IDBI Bank

Introduction

Corporate loans are basically the money given to any corporates, small enterprises or start-ups to meet requirement of fund and for making their functioning easier. This loan can be any short term, long term, secured or unsecured it can for expansion, to cater their routine expense, for purchasing any assets etc. corporate loans interest is also charge according to market conditions and its risk.

If the corporate take secured loans then they get benefit of low interest, can borrow huge amount easily and more days for loan payment but corporate have to give collateral security to the bank in exchange of loan so if corporate falls to give loan then bank can recover the amount.

In India mostly secured loans are only given by banks.

Unsecured loans are mostly given to corporate at the time of emergency to meet the capital requirement seeing the creditability of the corporate but the interest charge by the bank for availing such services to corporate is higher and the time for repayment of loan is small and there is no requirement of giving collateral security to bank for taking this type of loan.

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PRIVATE SECTOR BANK: – IDBI

IDBI BANK

IDBI was established in 1964 under the act of parliament initially owned and operated by RBI later its ownership was transferred to government of India and it is made financial institution for coordinating the activities with the one who providing the finance to the development and progress of industries. With the industrial development bank act 2003IDBI attained the status of LTD Company.

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In 2004 formally entered in the banking system and RBI incorporate IDBI as scheduled bank under the RBI act 1934. Its establishment was mainly to provide funds to industries.

  •  It provides cheap and easy funds along with low interest to industries.
  •  It has specialty in corporate project appraisal
  •  It provides short term advances for industries
  •  It provides loans to corporates and their employees
  • There is more demand for corporate loans in metro cities rather than small cities the demand is not frequent and in Gujarat corporate high in Ahmedabad, Vadodara, Surat etc. cities only
  •  Usually the demand for working capital loans are higher than the other type of loans
  •  Bank provide short term credit loan for 25 to 30 days
  •  It takes usually 20 to 25 days for completing the procedure of loan of any type.
  •  It can provide maximum 5 to 7 years loan
  • Interest Rate (Loans up to Rs. 2 cr) 10.95% onwards
  • Interest Rate (Loans above Rs. 2 cr) 9.95% onwards
  • Loan Amount Up to Rs. 2 crores, can exceed as per business requirements
  • Processing Fee:- Nil, until Rs. 5 lakh & 1% of the loan amount above Rs. 5 lakhs

Types of corporate loan given by bank

Term loans

Term loans can be sanctioned for project loan (green field or brown field) or non-project loan. Project loans are sanctioned for setting up a new unit or for expansion of existing units whereas Term Loans (Non-project) are extended for the purpose of acquisition of fixed assets. Viz., Building, Plant and Machinery etc.

The Bank provides term loan assistance in both rupee and foreign currencies for Greenfield projects as also for expansion, diversification and modernization. Interest rate on rupee term loan is fixed or floating based on BBR plus a fixed spread, as per creditworthiness of borrower, rating, risk perception, tenure of loan and other relevant factors. Interest Rate on Foreign Currency Loan is normally floating rate based on LIBOR plus a fixed spread according to creditworthiness of borrower, rating, risk perception, tenure of loan and other.

 Short Term loans

Short Term Loans (STL) is sanctioned to existing clients with investment grade rating, having good track record of relationships. STL is generally granted for meeting short-term cash flow mismatches or as bridge finance against financial closure, the take out is envisaged from the RTL, to be sanctioned, at times, by the Bank.

Working capital loans

IDBI Bank provides Working Capital facility to the industry to finance day-to-day requirement. The working capital funds are generally required for purchase of raw materials, stores, fuel, for payment of labour, power charges, for storing finished goods till they are sold out & for financing the sales by way of sundry debtors / receivables. Cash Credit facility is granted to the customers to bridge working capital They can utilize whenever they want and they had to pay the interest on the amount they utilize gap.

Packing credit to exporters

The scheme is intended to make short-term working capital finance available to exporters at internationally comparable interest rates.

Types of Export Credit: (1) Pre-shipment Export Credit/ Packing Credit (RPC/PCFC), (2) Post-shipment Export Credit – both in Foreign Currency (FCY) and Rupees.

Pre-shipment / Packing Credit also known as ‘Packing credit’ is a loan/ advance granted to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment. Packing credit can also be extended as working capital assistance to meet expenses such as wages, utility payments, travel expenses etc.; to companies engaged in export or services. Packing credit is sanctioned/granted on the basis of letter of credit or a confirmed and irrevocable order for the export of goods / services from India or any other evidence of an order for export from India.

‘Post-shipment Credit’ means any loan or advance granted or any other credit provided by a bank to an exporter of goods / services from India from the date of extending credit after shipment of goods / rendering of services to the date of realization of export proceeds as per the period of realization prescribed by Reserve Bank of India (RBI) and includes any loan or advance granted to an exporter, in consideration of, or on the security of any duty drawback allowed by the Government from time to time. As per extant guidelines of RBI, the period prescribed for realization of export proceeds is 12 months from the date of shipment.

Buyout of Receivables – IDBI Bank Receivable Buyout with Recourse

Receivable Buyout with recourse aims to provide working capital finance by converting domestic receivables into cash, thus, helping companies to tide over constraints of cash flow and working capital. Under the scheme, Bank only providing advances to suppliers (with large pool of receivables) against domestic trade receivable (age of receivables should not exceed 90 days) and other services such as debt collection and administration of sales ledger etc. shall be taken by the company.

Supplier/Borrower shall draw bills of exchange/invoice for goods supplied and the purchaser shall accept the same. After acceptance of bills of exchange/invoice, Bank shall advance discounted value of the receivable for the tenor of the receivable. If purchaser fails to pay the due amount on due dates, the supplier shall make payment. Borrower/Supplier Company shall submit list of receivables confirming that the documentary proof are with the company. An agreement would be entered into with supplier for assignment of the debts before providing advance. Supplier/Borrower should also enter into agency agreement for collection of debts with the Bank.

Supply chain finance-IDBI Bank Channel Financing for Dealers

With a view to provide finance to dealers towards the invoices raised by corporate on dealers, Bank has devised a product for Channel Finance to the dealers of corporate for inventory funding facility for Authorized Dealers (ADs) of well-established corporates. The amount of Line of Credit (LOC) for the corporate is generally fixed with reference to annual turnover of the corporate. Sub limits to dealers is allocated as recommended by the corporate and would be linked to turnover of dealers with the corporate25 to 30 days.

Cash dispenser suppliers – IDBI Bank Cash Dispenser Vendors

In order to finance ATMs/CDs installed and maintained by vendors under transaction cost model with minimum 1000 ATMs/CDs, a suitable product for financing to ATM/CD Vendors has been devised for installation and managed services for ATMs/Cash Dispensers where Bank provide finance to the successful bidders/vendors of public sector banks who would install and maintain the ATMs/Cash Dispensers (Brown Label ATMs) under the transaction cost model

Bill Discounting and Invoice Discounting – IDBI Bank Bill Discounting and Invoice Discounting

IDBI Bank Fund Based assistance offers both Purchase and Sale Bill Discounting and also Invoice Discounting for OEM /vendors to large Corporates. Under this type of lending, Bank takes the bill drawn by borrower on his (borrower’s) customer and pay him immediately deducting some amount as discount/commission. The Bank then presents the Bill to the borrower’s customer on the due date of the Bill and collects the total amount. If the bill is delayed, the borrower or his customer pays the Bank a pre-determined interest depending upon the terms of transaction.

Bills are classified into four categories as LCBD (Bill Discounting backed with LC), CBD (Clean Bill Discounting), DBD (Drawee bill discounting) and IBD (Invoice bills discounting).Bill Finance constitutes a vital part of the working capital finance and is a major Trade Finance activity.

Bill Discounting Features

  • IDBI Bank offers discounting of bills up to original tenor of 180 days
  • Bill discounting facility offered as Sale bill discounting or Drawee bill discounting
  • Bills under LCs issued by domestic banks/branches (LCBD) under simplified procedure
  • Invoice Discounting Features
  • Especially useful for OEM / vendors to large corporate
  • No bill of exchange / No acceptance
  • As an overdraft facility or bill discounting facility
  • FIFO method for interest calculation.

 Letter of credit

Documentary Credits, more commonly known as letters of credit are a widely used method to effect payments in domestic and international trade. A written undertaking is issued by a bank (usually referred to as the issuing bank) on the instructions of the buyer of goods to the seller. The use of documentary credits provides enough safeguards for the parties involved. The seller is ensured payment, provided he complies with terms he agreed to while the buyer can include all terms and conditions within the documentary credits that satisfy him on the quality and quantity of the goods without having to sight / inspect the goods themselves. Since banks act as trustworthy third parties/ intermediaries, the issues relating to trust between the buyer and the seller are taken care of. Documentary Credits can be either sight or usance depending on whether credit period is extended to the buyer by the seller.

 Fund scheme for textile and Jute industries-TUF Scheme

  •  A reimbursement of 5% on the interest charged by the lending agency on a project of technology upgradation in conformity with the Scheme. However, for spinning machinery the Scheme will provide 2% for new stand-alone / replacement / modernization of spinning machinery; and 5% for spinning units with matching capacity in weaving / knitting / processing / garmenting.
  • In weaving – (i) 6% Interest Reimbursement (IR) and 15% Capital Subsidy (CS) on brand new shuttle less looms or 30% Margin Money Subsidy (MMS) for power loom sector. (ii) 2% IR or 8% MMS on second hand imported shuttle less looms with 10 years vintage and with a residual life of 10 years; (iii) for 30% MMS- capital ceiling of Rs. 5 crore and subsidy capp of Rs. 1.5 crore would be adhered to encourage adequate investment by MSME sector.
  • Cover for foreign exchange rate fluctuation / forward cover premium not exceeding 5% for all segments except for new stand-alone / replacement / modernization of spinning machinery for which the foreign exchange rate fluctuation / forward cover premium will be 2%.
  • An option to MSME textile and jute sector to avail of 15% Margin Money subsidy in lieu of 5% interest reimbursement (2% Interest Reimbursement for stand Alone spinning machinery) on investment in TUF compatible specified machinery subject ceiling on margin money subsidy of Rs. 75 lakhs. A minimum of 15% equity contribution from beneficiaries will be ensured.
  •  5% interest reimbursement plus 10% capital subsidy for specified processing, garmenting and technical textile machinery.
  • Interest subsidy / capital subsidy / Margin Money subsidy on the basic value of the machineries excluding the tax component for the purpose of valuation.
  •  30% capital subsidy in lieu of 5% interest reimbursement on benchmarked machinery of silk sector as applicable for Handloom sector.
  • The Scheme will cover only automatic shuttle less looms of 10 years vintage and with a residual life of minimum 10 years.
  • Investments like factory building, pre-operative expenses and margin money for working capital will be eligible for benefit of reimbursement under the Scheme meant for apparel sector and handloom with 50% cap. In case apparel unit / handloom unit is engaged in any other activity, the eligible investment under this head will only be related to plant & machinery eligible for manufacturing of apparel / handlooms.
  • Interest reimbursement will be for a period of 7 years including 2 years implementation / moratorium period.
  •  The subsidy in restructured cases will be restricted to the quantum approved in the initial loan repayment schedule by the lending agency to the Office of the Textile Commissioner.
  • Common Effluent Treatment Plant (CETP) and other investments like, energy saving devices, in-house R&D, IT including ERP, TQM including adoption of ISO / BIS standards, CPP and electrical installations etc. will not be eligible under RR- TUFS.

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Corporate Loans: IDBI Bank. (2019, Nov 25). Retrieved from http://studymoose.com/corporate-loans-idbi-bank-essay

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