Types of Loans &

Advances
Presented By
Baqui Md. Omar Faruk
Assistant Vice President
Gulshan Branch, Dhaka.

Loans & Advances can be dertermined in many

ways based different factors.

Depending on whether exposure is of direct or

indirect

Funded & Non-funded

Funded: Direct exposure against the borrower
thus requiring booking the exposure as in the
balance sheet. Banks fund are involved.

Non-funded: Indirect exposure against the

borrower thus requiring booking the exposure in
the off-balance sheet. Banks fund are not
involved.

Depending on characteristics of withdrawal/

repayment/maturity/objectives,
loans
&
advances can be categorized in following :

Loans:
When an advance is made in a lump sum
repayable either in fixed monthly/quarterly
installments or in lump sum and no subsequent
debit is usually allowed except by way of
interest, incidental charges, etc, it is called a
loan. Loans are normally allowed to those
parties who have either fixed source of
income or who desire to pay it in lump sum.

Overdraft:
The overdraft is a kind of advance always a
account operated by cheques. The customer is
sanctioned a certain limit upon which he can
overdraw his account within a stipulated
period. Here withdrawals or deposits can be
made any number of times at the convenience
of the borrower, provided the total amount
overdrawn does not, at any time, exceed the
agreed limit. Interest is calculated and
charged only on the actual debit balance on
daily product basis. Thus the borrower in this
case can save interest by reducing the debit
balance.

Cash Credit:
Cash Credit is the favorite mode of borrowing
by traders, industrialists, agriculturists, etc.
for
meeting
their
working
capital
requirements. There are two types of cash
credit: CC (Pledge) and CC (Hypo).

When facility is given against pledge of

goods/produce and merchandise is called CC
(Pledge). In CC (Pledge), possession remains
with the bank but ownership lies with the
borrower.

Whereas if it is given against hypothecation

of goods then it is called CC (Hypo).

In a manufacturing company, whose stocks of

raw-materials
and
manufactured
goods
constantly fluctuate, it is difficult for the
bank to control such change; so CC (hypo) is
allowed to them. In this case, both ownership
and possession of the goods remain with the
borrower although by virtue of the
hypothecation agreements, the bank can take
possession of the goods if defaulted.

Bills Purchased and Discounted:

Purchase and discounting of bills of exchange

is another way of employing the bank funds.
Such bills of exchange arise out of commercial
transactions both in inland trade and foreign
trade.
They are categorized into 1) demand bills and
usance bills, 2) clean bills and documentary
bills. Where a bill is repayable at sight or on
demand or on presentation, it is called a
demand bill. If a bill matures for payment
after a certain period of time, it is called a
usuance bill. Demand/sight bills are purchased
and usance bills are discounted.

Clean bills are those bills which are not

supported by documents of title to goods.
Cheques, Dividend Warrants and Pension bills
are considered as clean bills. Documentary
bills are those bills which are supported by
documents of title to goods, like Railway
Receipts, Truck receipts, Delivery challan and
Bills of Lading together with invoice, insurance
policy etc.

Bank gives advance to importers & exporters in the

international trade as under:

Import Finance:
Payment against Documents (PAD)
Loan against imported merchandise (LIM)
Loan against Trust Receipt (LTR)

Export Finance:
Export Cash Credit (ECC)/Packing Credit
Foreign Documentary Bills Purchased (FDBP)
Export Development Fund (EDF)

We may categorize export finance into two categories

Pre-shipment credit &
Post-shipment credit

Depending on providing credit to individuals, loans

can be of many types under Retail Loans like
Personal/Any purpose loans, Car loans, and
Education loan, and other consumer loans.
Mortgage loans are also given to individual(s).
Objective of such loans is to improve the
standard of living of limited income group.