Credit Monitoring Tools: The Role of Loan Review Mechanism (LRM) in Strengthening Credit Risk Management
IntroductionIn a dynamic and increasingly complex financial environment, ensuring the soundness and quality of a bank’s credit portfolio is critical. One of the key instruments in achieving this objective is the Loan Review Mechanism (LRM), also referred to as Credit Audit. This structured process plays a vital role in detecting early signs of stress in…
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What is securitisation?
The ‘Securitisation’ is a two-stage process in which pool of assets are structured or packaged and sold by an originator(Banks and financial institutions) to a bankruptcy remote* special purpose vehicle (SPV). In the first stage there is sale of single asset or pooling and sale of pool of assets to a SPV in return for…
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Voluntary Pledge of Gold and Silver for Collateral-Free Agriculture and MSME Loans: RBI Clarification
The Reserve Bank of India (RBI) has issued a clarification regarding the treatment of loans extended to borrowers in the Agriculture and Micro, Small, and Medium Enterprises (MSME) sectors, where gold or silver is voluntarily pledged as collateral. Background As per existing norms, banks are required to provide collateral-free loans up to a prescribed limit…
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What is factoring?
Factoring is commonly identified as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. Factoring service is a service that covers (i).Collection of bills, (ii).discounting of bills (iii).maintenance of accounts books in domestic and international trade. Factoring enables companies to sell their outstanding book debts for cash. They sell invoiced receivables at a discount…
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Comparative overview of factoring and forfaiting
Though financial transactions involved in ‘factoring’ and ‘forfaiting’ appears alike, these two terms are different in their nature, perception and scope. From the below table, let us find out the key difference between factoring and forfaiting; FACTORING FORFAITING Factoring is a financial arrangement whereby a supplier of goods sells its trade receivables to the factor…
What is forfaiting?
The term forfaiting refers to a form of trade finance involving discounting of export bills receivables such as drafts drawn under LC, bills of exchange, promissory notes, or other instruments on without recourse basis. The export of capital goods involves account receivables of medium and long term maturities. It is a general practice that the…
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