Article:The Reserve Bank of India (RBI) has issued a directive prohibiting banks and other regulated entities from levying pre-payment penalties on floating rate loans availed by individual borrowers for non-business purposes. The new framework, titled Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025, will come into effect from January 1, 2026. This move…
IntroductionCredit underwriting is a critical process through which lenders evaluate a borrower’s creditworthiness and ability to repay a loan. With the advent of technology, traditional manual underwriting methods are increasingly being replaced by automated solutions. One such innovation is Straight-Through Processing (STP), which enables end-to-end automation of financial transactions, thereby improving speed, accuracy, and customer…
Introduction In the evolving landscape of credit delivery, the mechanisms of consortium lending, multiple banking arrangements, and syndicated loans serve as important frameworks for financing large borrowers. These arrangements enable sharing of credit exposure among financial institutions and contribute to risk mitigation. However, they also necessitate strong inter-bank coordination and transparency to function effectively and…
Meaning of Loan Disbursement Loan disbursement refers to the actual release of funds by the lender following the approval of a loan application. It marks a crucial step in enabling the borrower to utilize the loan for the intended purposes—such as purchasing assets or property, funding education, undertaking home renovations, covering travel expenses, or financing…
The Indian Credit Rating agencies are governed by the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999 (“the Regulations”). SEBI however recognizing the need for more stringent oversight introduced the SEBI (Credit Rating Agencies) Regulations, 2018, which replaced the earlier regulations. These updated regulations aimed to reinforce the credibility and accountability of…
A credit rating is an opinion of a particular credit agency regarding the ability and willingness of an entity (government, business, or individual) to fulfill its financial obligations in completeness and within the established due dates. A credit rating also signifies the likelihood a debtor will default. Credit ratings date back to the early 20th…
Introduction A third-party guarantee is a legal commitment made by an external party—the guarantor—to assume responsibility for a borrower’s debt or obligation in the event of default. This form of financial assurance adds an additional layer of security to loan transactions, enhancing the lender’s confidence and reducing credit risk. Commonly used in personal, commercial, and…
Introduction Straight-Through Processing (STP) in credit delivery refers to the end-to-end automation of the lending lifecycle—from loan application to disbursement—without the need for manual intervention. This digital transformation facilitates seamless data capture, rule-based processing, automatic routing, transaction confirmation, and final settlement, thereby enabling an efficient, accurate, and scalable credit delivery system. To ensure the successful…
IntroductionIn both business and personal finance, the need for funds often arises to meet various requirements such as working capital, large purchases, or expansion projects. Among the various funding options available, term loans remain one of the most commonly utilized instruments, offering structured financing with defined repayment schedules. Types of Term Loans Common Applications of…
In consortium lending system, two or more lenders join together to finance a single borrower. The lending banks formally join together, by way of an inter-se agreement to meet the credit needs of a borrower. Here, the sanction of limits to a borrower is completed with common appraisal, common documentation and monitoring the advance with…
