Cash

Keeping idle cash does not earn any asset or can be called a dead asset.

However, banks have to keep some hard cash with themselves to ward-off liquidity risk.

 So, Banks keep some percentage of cash, which is linked to total deposits.

 We cannot arrive at an exact number for keeping the cash and it is left to the experience of the bank depending upon the:

• Nature of the customers (higher the CASA portion, higher the chances of withdrawal)
• Nature of the trading centre where the bank branch is situated (Surat, Tirupur, high cash centres)
•  Support from other banks (village branches may not have this support)
• Seasonal withdrawals (during Diwali or festive seasons, the cash withdrawal will always be more)

Cash Reserve Ratio (CRR)

In terms of Section 42(1) of the RBI Act, 1934 the Reserve Bank, having regard to the needs of securing the monetary stability in the country, prescribes the CRR for SCBs without any floor or ceiling rate. 

• At present, effective from the fortnight beginning February 09, 2013, the CRR is prescribed at 4.00% of a bank's total of DTL (consisting of demand, time and other liabilities of the bank) adjusted for the exemptions as stipulated by RBI.
• During the Covid Pandemic period it was reduced to 3% but again brought back presently to 4%
• In terms of Section 42(1A) of RBI Act, 1934, the SCBs are required to maintain, in addition to the balances prescribed under Section 42(1) of the Act, an additional average daily balance, the amount of which shall not be less than the rate specified by the Reserve Bank in the notification published in the Gazette of India from time to time.  Presently it is 90%.
• From the fortnight beginning June 24, 2006, penal interest is charged as under in cases of default in maintenance of CRR by SCBs. 
• In case of default in maintenance of CRR requirement on a daily basis which is currently 90% of the total CRR requirement, penal interest will be recovered for that day at the rate of 3% per annum above the Bank Rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day and if the shortfall continues on the next succeeding day/s, penal interest will be recovered at the rate of 5% per annum above the Bank Rate. 

Statutory Liquidity Ratio (SLR)

• Consequent upon amendment to the Section 24 of the Banking Regulation Act, 1949 through the Banking Regulation (Amendment) Act, 2007 replacing the Regulation (Amendment) Ordinance, 2007, effective January 23, 2007, the Reserve Bank can prescribe the SLR for SCBs in specified assets. 
• The value of such assets of a SCB shall not be less than such percentage not exceeding 40% of its total NDTL in India as on the last Friday of the second preceding fortnight as the Reserve Bank may, by notification in the Official Gazette, specify from time to time. 
• RBI cuts SLR by 25 basis points to 19.25% from January 5, 2019, adding that it would be reduced by 25 basis points every quarter until it reaches the 18% level.
• The present SLR is 18% of NDTL of banks.
• SLR securities would include:
• (a) Cash or (b) in Gold valued at a price not exceeding the current market price, or (c) Investment in the following instruments which will be referred to as "Statutory Liquidity Ratio (SLR) securities": 

(i) Dated securities of Government of India issued by RBI. 

(ii) Treasury Bills of the Government of India; 

(iii) Dated securities of the Government of India issued from time to time under the market borrowing programme and the Market Stabilization Scheme;

(iv) State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing programme; and 

(v) Any other instrument as may be notified by RBI. 

• In practice, most of the banks keep their SLR portion invested in Govt. securities because cash and gold are dead assets and would not fetch any interest. 
• In addition, investing in Govt. securities also helps the Government in its borrowing program.
• The procedure to compute total NDTL for the purpose of SLR under Section 24 (2A) of Banking Regulation Act, 1949 is broadly similar to the procedure followed for CRR.
• If a banking company fails to maintain the required amount of SLR, it shall be liable to pay to RBI in respect of that default, the penal interest for that day at the rate of 3% per annum above the Bank Rate on the shortfall and if the default continues on the next succeeding working day, the penal interest may be increased to a rate of 5% per annum above the Bank Rate for the concerned days of default on the shortfall. 

Money Market

• Having discussed CRR & SLR, let us now discuss money markets.
• Money Market is a market for short-term financial assets that are close substitutes of money.
• The most important features of money market instruments are:
  • They are liquid instruments.
  • Can be turned over quickly to cash at low cost.
  • Provides an avenue for equilibrating the short term surplus funds of depositors and the requirement of borrowers.
  • They are mostly discounted instruments (P-I)
  • For banks, the money markets instruments normally give a negative return when compared to their deposits. 
• Now we shall discuss the instruments available under this market.

RBI’s LAF
RBI’s LAF consist of four products:

• Reverse Repo, Repo, Marginal Standing Facility (MSF) and Bank Rate.

1. Bank Rate which was once the benchmark rate, over a period of time lost its relevance and its place is now taken over by Repo. 

2. Reverse Repo: Reverse Repo is a money market instrument whereby Commercial Banks can park their surplus funds over and above CRR with RBI for one day at an interest rate of 3.35%. RBI generates and gives one day treasury bills as collateral for the money accepted from the banks. Reverse Repo Rate has been kept deliberately low by RBI in order to encourage banks to go for lending instead of parking the funds with RBI by adopting the lazy banking process. 

3. Repo is a money market instrument whereby RBI lends money to the commercial banks for one day at an interest rate of 4% against the collateral security of SLR rated Govt. Securities.  Banks who have got surplus SLR, that is, more than 18% can avail this facility from RBI by pledging the surplus SLR with RBI.

4. Marginal Standing Facility (MSF): As per RBI dated February 05, 2021, on MSF, wherein the banks were allowed to avail of funds under the MSF by dipping into the Statutory Liquidity Ratio (SLR) up to an additional 1% of their net demand and time liabilities (NDTL), i.e., cumulatively up to 3% of NDTL. This facility, which was initially available up to June 30, 2020, was later extended in phases up to September 30, 2021, providing comfort to banks on their liquidity requirements and also to enable them to meet their Liquidity Coverage Ratio (LCR) requirements. As announced in the Statement on Developmental and Regulatory Policies of August 06, 2021, with a view to providing comfort to banks on their liquidity requirements, banks are allowed to continue with the MSF relaxation for a further period of three months, i.e., up to December 31, 2021.

Clearing Corporation of India CCIL

• Clearcorp is  a wholly owned subsidiary of CCIL, was incorporated in June, 2003 to facilitate, set up and carry on the business of providing dealing systems/platform in Collateralised Borrowing and Lending Obligation (CBLO), Repos and all money market instruments of any kind and also in foreign exchange (FX-CLEAR) and currencies of all kinds. 
• Clearcorp has been set up to facilitate CCIL, to segregate its other activities from Clearing and Settlement activities, a risk bearing activity. 
• Accordingly, the Shareholders of CCIL at their meeting held on June 4, 2003 resolved to transfer all activities of the Company relating to Forex Dealing Platform (FX-CLEAR) and Collateralised Borrowing and Lending (CBLO) dealing platform to Clearcorp. 
• TREPS, facilitates borrowing and lending of funds against Government securities, in a Tri Party Repo arrangement. This  has replaced the previous CBLO and is operational from 4th November, 2018.
• TREPS is an anonymous electronic order matching platform. Entities who are admitted to Clearcorp’s Party Repo (Dealing) Segment, and having access to the INFINET network, access the dealing system through INFINET. 
• Member’s orders to borrow and / or lend under Triparty Repo are matched on Amount to borrow / lend, Interest rate-and Time priority. All the matched orders i.e. trades of the members flows seamlessly to CCIL for settlement. 
• CCIL settles the trades from TREPS, in terms of its Securities Segment Regulations.

Cash Management Bills (CMBs)

• CMB is the most flexible instrument for a Central Bank because it can be issued when needed, allowing the Central Bank to have lower cash balances and issue fewer long-term notes/bonds.
• Government of India in consultation with RBI had decided to issue this new short term instrument to meet the temporary cash-flow mismatches of the Government.
• CMBs in India are non-standard, discounted instruments issued for maturities less than 91 days.
• RBI in August 2013 used the issue of CMBs to suck out excess liquidity from the banking system  in order to stop the rupee volatility.

Features of CMBs:

1. CMBs have a maturity of less than 90 days.

2. The CMBs have the generic character of Treasury Bills as the CMBs are issued at a discount and redeemed at face value at maturity. For example, if the face value of a CMB is Rs 100, we can get the bill at Rs 97 and at the end of the maturity date, say 60 days after, we can get Rs 100. Here, there is no separate interest payment as at the maturity of the bond, we get Principal + Interest.

3. The tenure or maturity, notified amount (how much total CMBs to be issued) and date of issue of the CMBs depends upon the temporary cash requirement of the Government.

4. CMBs are eligible as SLR securities. Investment in CMBs is also recognized as an eligible investment in Government securities by banks for SLR purposes under Section 24 of the Banking Regulation Act, 1949.

Treasury Bills (T.bills)

Treasury Bills:

• Types: Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year. They are thus useful in managing short-term liquidity. At present, the Government of India issues four types of treasury bills, namely, 14-day, 91-day, 182-day and 364-day.
• Amount: T-bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. T-bills are issued at a discount and are redeemed at par.
• Auctions: While 14-day and 91-day T-bills are auctioned every week on Fridays, 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays. The Reserve Bank of India issues a calendar of T-bill auctions. It also announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.
• Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by RBI on behalf of the Government of India and are presently issued in four tenors, namely, 14 day, 91 day, 182 day and 364 day. 
• Treasury bills are zero coupon securities and pay no interest. 
• They are issued at a discount and redeemed at the face value at maturity. 
• For example, a 91 day Treasury bill of Rs. 100/- (face value) may be issued at say  Rs. 98.20, that is, at a discount of say,  Rs. 1.80 and would be redeemed at the face value of  Rs. 100/-. 
• The return to the investors is the difference between the maturity value or the face value (that is  Rs. 100) and the issue price and in this case, it is Rs. 1.80.
• Implicit Yield will be: 
• (100 x 365 x 1.80)/ (98.20 x 91) = (65,700/8936.20) = 7.35%

Dated Securities

Dated Securities:

• Government paper with tenor beyond one year is known as dated security. At present, there are dated securities with a tenor up to 20 years in the market.

Auction/Sale:

• Dated securities are sold through auctions or through sale. Actually, the sale or auction in dated security would mean that the coupon for the security is either auctioned or is fixed. Fixed coupon securities are sometimes also sold on tap that is kept open for a few days.

Announcement:

• Though there is no calendar for G-secs sale, the Government of India and the Reserve Bank issue a press release to announce the sale. The press release is widely reported in the print media and wire agencies. The government of India also issues an advertisement in the leading financial newspapers. The announcement of auctions/sales and their results are also published on the Reserve Bank website.

Amount:

• Subscriptions can be for a minimum amount of Rs.10,000 and in multiples of Rs.10,000.
  

Call Money

The prudential limits in respect of both outstanding borrowing and lending transactions in call/notice money market are:

For Banks: 

• Borrowing: On a fortnightly average basis, borrowing outstanding should not exceed 100% of capital funds (sum of Tier 1 and Tier II) of the latest audited balance sheet.
• However, banks are allowed to borrow a maximum of 125% of their capital funds on any day, during a fortnight.

For Banks – Lending:

• On a fortnightly average basis, lending outstanding should not exceed 25% of their capital funds, however, banks are allowed to lend a maximum of 50% of their capital funds on any day, during a fortnight.

For Co-operative Banks – Borrowing:

• Borrowing outstanding by State Co-operative Banks / District Central Co-operative Banks / Urban Co-operative Banks on a daily basis should not exceed 2% of their aggregate deposits as at the end of March of the previous financial year.
• Lending: No limit
• Non-Bank Institutions are not permitted in the call / notice money market with effect from August 6, 2005.

Interest Rate:

• Eligible participants are free to decide on the interest rates in the call/notice money market.

Dealing Session:

• Deals in Call / notice money market can be done upto 5.00 pm on weekdays and on working Saturdays or as specified by RBI from time to time.

Certificate of Deposits (CDs)

CD is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note against funds deposited at a bank or other eligible institutions defined by RBI.

• Introduced by RBI in the year 1990.
• CDs can be issued by:
  • Scheduled commercial banks (excluding RRBs and Local Area Banks) depending upon their fund requirements.
  • Select All-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.
• As per the revised norm released by RBI in June, 2021, Certificate of Deposit (CD) shall be issued in minimum denomination of Rs 5 lakh and in multiples of Rs 5 lakh thereafter. 
• CD is a negotiable, unsecured money market instrument issued by a bank as a usance promissory note against funds deposited with it for a maturity period up to one year. 
• CDs shall be issued only in dematerialized form and held with a depository registered with the Securities and Exchange Board of India (Sebi).
• CDs can be issued to all persons resident in India and the tenor of the instrument at issuance should not be less than seven days. 
• NRIs can also subscribe to CDs on a non-repatriable basis. CDs subscribed by NRIs cannot be endorsed to another NRI in the secondary market.
• Further, banks are not allowed to grant loans against CDs, unless specifically permitted by the Reserve Bank. 

As per the RBI, issuing banks are permitted to buy back CDs before maturity, subject to certain conditions.
Banks/FIs are allowed to issue CDs on a floating rate basis provided the methodology of compiling the floating rate is objective, transparent and market-based.

• The issuing Bank/FI is free to determine the discount / coupon rate.
• Banks have to maintain appropriate CRR and SLR on the issue price of the CDs.
• CDs in demat form can be transferred as per the procedure applicable to other demat securities.
• There is no lock-in period for the CDs and they are freely transferable.
• The standard form of CD is prescribed by RBI.

Commercial Papers (CPs)

• CP is an unsecured money market instrument issued in the form of a promissory note.
• CP, as a private placed instrument, was introduced in Indian in 1990 with the following objectives:
  • To enable highly rated corporate borrowers to diversify their sources of short-term borrowing requirements.
  • To provide an additional instrument to investors.
• Later on, PDs and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements.
• CPs shall be issued in denominations of Rs.5 lakhs and multiples thereof.
• The amount invested by a single investor should not be less than Rs. 5 lakhs (face value).
• CP has to be issued at a discount to face value as determined by the issuer.
• Underwriting or co-acceptance facilities for CPs is not permitted.
• Put / Call options are not permitted.

Tenor of CP:

• • Minimum 7 days and maximum one year from the date of issue.
  • Maturity date of the CP shall not go beyond the date upto which the credit rating of the issuer is valid.
• Every issuer of CP must appoint an Issuing & Paying Agent (IPA) for issuance of CP.
• The issuer should disclose to the potential investors its latest financial position.
• Once a deal is confirmed, the issuer should arrange to credit the CP to the demat account of the investor through IPA.

Rating requirement:

• The minimum credit rating shall be ‘A3’ as per the rating symbol and definition prescribed by SEBI.
• The issuer should ensure that at the time of issuance of the CP that the rating so obtained is current and has not fallen due for review.

Eligible Issuers (RBI Cir. of 10/08/2017)

• Companies, including Non-Banking Finance Companies (NBFCs) and All India Financial Institutions (AIFIs), are eligible to issue CPs subject to the condition that any fund-based facility availed of from bank(s) and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue. 
• Other entities like co-operative societies/unions, government entities, trusts, limited liability partnerships and any other body corporate having presence in India with a net worth of Rs. 100 crore or higher subject to the condition as specified under 3 (a) above. 
• Every issue of CP and every renewal of CP should be treated as a fresh issue.
• CP has to be issued as a ‘stand alone’ product.
• It is not obligatory on the part of the Banks to provide standby facility to the issuers of CP.
• However, Banks are permitted to provide standby facility/backstop assistance by way of credit enhancement for the CPs.
• Non-bank entities (including other corporates) can provide unconditional and irrevocable guarantee as credit enhancement for the CPs provided:
  • The issuer fulfils the eligibility criteria.
  • The guarantor has a credit rating at least one notch higher than the issuer by an approved ECAI.
  • The offer document should in a transparent way  disclose the full details of the guaranteeing company as to its net worth, total guarantees given by the company and how to invoke the guarantee.

Who can invest in CP?

• Individuals, banks, other corporate bodies and unincorporated bodies, NRIs, FIIs can invest in CP.
• FIIs can invest in CPs subject to compliance of:
  • SEBI guidelines.
  • FEMA guidelines.
  • Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
  • CPs should be issued in the form of promissory notes as per the standard format prescribed by RBI.
• CPs can be held in physical form or in demat form.
• RBI prefers keeping CPs only in demat form with any of the depositories approved by SEBI.

Buyback of CP:

• The buyback of a CP, in full or part, shall be at the prevailing market price. 
• The buyback offer should be extended to all investors in the CP issue. The terms of the buyback should be identical for all investors in the issue. 
• The buyback offer may not be made before 30 days from the date of issue. 
• CPs bought back shall stand extinguished.

Non-Convertible Debentures (NCDs)

• RBI permits Banks to invest in Non-Convertible Debenture (NCD) means a debt instrument issued by a corporate (including NBFCs) with original or initial maturity up to one year and issued by way of private placement; 
• “Corporate” means a company as defined in the Companies Act, 2013 (including NBFCs) and a corporation established by an act of any Legislature. 
• NBFCs shall also adhere to the directions/guidelines issued by the Department of Non-Banking Regulation, RBI. 

Eligibility to issue NCDs 

• A corporate shall be eligible to issue NCDs if it fulfills the following criteria, namely, 
• the corporate has a tangible net worth of not less than Rs.4 crore, as per the latest audited balance sheet; 
• the corporate has been sanctioned working capital limit or term loan by bank/s or all-India financial institution/s; and 
• The borrowal account of the corporation is classified as a Standard Asset by the financing bank/s or institution/s. 
• However, point 2 (i) above shall not be applicable to Non-Banking Financial Companies (NBFCs) including Primary Dealers (PDs). 

Rating Requirement :

• An eligible corporate intending to issue NCDs shall obtain credit rating for issuance of the NCDs from one of the rating agencies, viz., the Credit Rating Information Services of India Ltd. (CRISIL) or the Investment Information and Credit Rating Agency of India Ltd. (ICRA) or Credit Analysis and Research Ltd. (CARE) or the FITCH Ratings India Pvt. Ltd or such other agencies registered with SEBI or such other credit rating agencies as may be specified by RBI from time to time, for the purpose. 
• The minimum credit rating shall be ‘A2’ as per rating symbol and definition prescribed by SEBI. 

Denomination:

• NCDs may be issued in denominations with a minimum of Rs.5 lakh (face value) and in multiples of Rs.1 lakh. 
• Maturity: 
• NCDs shall not be issued for maturities of less than 90 days from the date of issue. 
• The exercise date of option (put/call), if any, attached to the NCDs shall not fall within the period of 90 days from the date of issue. 
• The tenor of the NCDs shall not exceed the validity period of the credit rating of the instrument. 
• Preference for Dematerialization :
• While the option is available to both issuers and subscribers to issue/hold NCDs in dematerialized or physical form, they are encouraged to issue/ hold NCDs in dematerialised form. 
• However, banks, FIs and PDs are required to make fresh investments in NCDs only in dematerialized form. 
  Inter-Bank Participation Certificates (IBPCs)
• IBPC is yet another short-term money market instrument whereby the banks can raise money/deploy short-term surplus. In the case of IBPC the borrowing bank passes/sells on the loans and credit that it has in its book, for a temporary period, to the lending bank.

IBPCs are of two types:

They are:

(i) With risk sharing,

(ii) Without risk sharing, and 

Only Scheduled Commercial Banks can issue IBPCs.

The various features of this instrument are given below:

• The minimum period shall be 91 days and maximum period 180 days in the case of IBPCs on risk sharing basis and in the case of IBPCs under non-risk sharing basis the total period is limited to 91 days.

The various features of this instrument are given below:

• The maximum participation in loan/cash credit under IBPC would be 40% of the amount outstanding or the limit sanc­tioned whichever is lower. The participation however, should be in “standard asset” only.
• Documents to be executed by the borrower in favor of the Issuing Bank shall provide a clause that the issuing bank shall have liberty to shift at its discretion without notice to the borrower, from time to time during the subsistence of the cash credit/loan account, a part or portion of the out­standing in the said account, to another bank/bank’s partici­pating in the scheme.
• Interest rates are determined between the issuing bank and the participating bank.

The various features of this instrument are given below:

• The issuing bank and the participating bank have to enter into participation contracts in the format prescribed.
• IBPCs are not transferable.
• IBPCs cannot be redeemed before the due date.
• On the date of maturity the issuing Bank makes payment of the IBPC along with agreed rate of interest to the participat­ing bank except in the case where risk has materialized where the issuing bank in consultation with the participating bank may share the recoveries proportionately.
• RBI has permitted foreign banks and private sector banks to treat their investments in interbank participatory certificate (IBPC) to treat it as direct lending to the priority sector. 
• A bank missing its target for priority sector lending will be able to reach the target by buying IBPCs issued by the fellow banks that have already exceeded in achieving their regulatory targets of priority sector advances and issued IBPCs for excess of lending under various categories of priority sector.
• As stated already, there are two types of Inter-Bank Participation certificates (IBPCs); one on risk sharing basis and the other without risk sharing.  
• In case of IBPC without risk sharing, a bank missing the target can always buy an IBPC instrument issued by another bank at a price for a month or so. Later, the seller bank can buy back the portfolio. 
• The IBPC on risk sharing can be issued for 91-180 days and only in respect of advances classified under standard Status where the conduct of account is satisfactory, the safety of advance is not in doubt, and all the terms and conditions are complied with.  
• The aggregate amount of such IBPCs under any loan account at the time of issue is not to exceed 40 per cent of the outstanding in the account. 
• RRBs can also issue Inter‐Bank Participation Certificates (IBPC) of a tenor of 180 days on risk sharing basis to scheduled commercial banks against their priority sector advances in excess of 60% of their outstanding advances 

Loans

Loan: A loan is a type of Fund-Based Credit where the Borrower has to repay the Credit within the pre-agreed time & interest. Loans are given to the business to meet their various running expenses such as production, distribution, expansion etc. 

Let’s take a look at different types of loans.

Term Loan: These loans come with a predefined repayment schedule and tenure. As the tenure is fixed, the Borrower will have to pay some pre-payment charges in early payments. They are generally offered for the large funding requirements such as:

• Home Loans 
• Loans for purchase of fixed assets such as Plant & Machinery for the manufacturing entities.
• Loans given for infrastructure projects

Cash Credit: Cash credit is provided to the business owners to carry out their regular business ventures. Normally, Cash Credit facilities are fitted in the working capital cycle of the borrower.  Most of the Cash Credit given by the banks are against stock-in-trade.  This can be sanctioned in two types:

• Cash Credit Pledge: In this, the stocks are kept under the control or lock and key of the Banks. As and when required, Bank representatives would come and release the stocks.
• Cash Credit Hypothecation: Most Cash Credits fall under this type.  Since Pledge has got a lot of operational difficulties for the banks, they trust the borrowers and allow them to operate the account or handle the stocks on the bank's behalf. 
  

Overdrafts & Credit Cards

Overdraft: This Credit Facility is offered to Current Account holders by the banks, to borrow the fund more than their existing balance for a specific period. These credits are secured by the physical assets, pledge of FDs, Securities or Mortgage of some immovable property in some cases.

Credit Card: Under this facility, a Credit Cardholder can spend within the limit fixed by the bank using the card offered to him/her by the Bank. Normally, Banks encourage the borrowers to pay only 5% or 10% of the total outstanding (minimum amount required) and the balance is allowed to be carried forward to next month. This facility is purely unsecured and hence, the probability of the account turning into NPA is there. Therefore, Banks charge a high rate of interest on these advances. 

Export Advances

Export Finance: Export finance is the financing facility which is provided by the banks to fund exporters to meet their production and export needs. The different type of export finance are

A) Packing Credit Advances: These types of credits are offered to exporters to meet the expenses for manufacturing and packing the goods for export as per the buyer’s need. The credit is offered against hypothecation of goods stock, and any other assets of the Borrower.

B) Post Shipment Finance: These types of credits are offered to the exporters once they export their product to the importers. These credits are offered to meet the interim cash requirement of the exporter. It is offered based on the document and invoices once the export is made.

Bill Finance

Bill finance is called Self-Liquidating Advances.

• Normally this is fit into credit sales of the customers.  This facility would also form part of the working capital cycle of the borrowers.
• When the credit sales are made by the customer to their clients, the documents can be produced to the bank. Normally, the following documents evidence the credit sales:
  • Commercial Invoice
  • Demand Promissory Notes, if the transactions is on Document against payment (DP)
  • Hundies, if the transaction is on Acceptance basis (DA).
  • Documents of title to goods such as Motor Lorry Receipts, Railway Receipts.
• Once the buyer makes the payment, the Bank would close this advance.