How Banks do credit? Ahmedabad

Banking, and specially credit is a specialised function. After having worked on around 15 proposals in last 40 days I can say with confidence that when the non-bankers find it hard to grasp what banking is all about, we must sympathise with them. I mean, Banking has been made so jargon led and regulated that a lay man will get in to the trap.

For example, a person undertands simple interest rate and compounding interest rate. One can also make sense of flat interest rate. But what is "interest rate at monthly rests"? It is a mix of simple interest rate and compounding interest rate. In otherwords, it is the simple interest rate compounded monthly.

Another example- There is something called processing fee and file charge. The borrower bears one or both in each case (in case of term loans, there may not be such income for bank in case of cash credit proposals, but that depends on client's profile). So, customer pays 1-2% as processing fees/ file charges. Then comes the valuation report and title clearance expenses, which may be anywhere between Rs. 20,000/- to Rs. 50,000/-. This is also borne by the borrower. Last one is the mortgage registratioon charges, which fluctuate between 0.25% to 1.50%, depending upon the state statutes.

If the loan is disbursed (i have doubts, and keep the reservation intact till the time payment reaches the borrower), there will be Pre-EMI generated by the SYSTEM. Then there will be late charges on registration fee, the cheque bounce charges if something goes wrong (like, if there is an extra dot in the signature, if account is under funded, etc etc - please note that ETC means end of thinking capacity). God forbid if the borrower is late in repaying installment, there will be penal interest charged @36% per month. There is generally a pre-payment charge also, charged @ 3% of the prepaid amount so that the borrower is discouraged to repay in advance.

So, Banks take care of every way that the borrower can default and have put some restrictions by way of financial charges.

Will write more on the way I am being modeled in looking at credi proposals in next blog. On the personal front, I am working with Kotak mahindra Bank, Ahmedabad. I came to this city on 10th April 2006 and I am staying with Harsh and Gandhiji.