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The term is used while referring to accepting deposits or lending to those who are not individuals like you and I. Often some specialised services provided by the bank also fall under Wholesale Banking even though the facility is meant for individuals. Examples are: agricultural loans to farmers and to those related to farming. Non-individual categories include Proprietorship Concerns, Partnership Firms, Limited Liability Partnerships (LLP), Private Limited and Public Limited Companies. Banking where funds are used for commercial purposes falls under Wholesale Banking. Government business activities also fall under Wholesale Banking. Business activities of MNCs fall under Wholesale banking. But there is an exception: trusts, charities, co-operative housing societies, NGOs, clubs and associations etc fall under Retail Banking as these are non-commercial, non-profit activities.

Wholesale Banking usually indicates to borrowings by large corporates belonging to the Public Sector (Indian Oil Corporation Ltd, Rural Electrification Corporation Ltd), Private Sectors (Tata Motors Ltd, Cipla Ltd) or MNC (Pfizer, Samsung). The sector underlines huge amount of borrowings which might go in multiples of billions of rupees. However, Wholesale banking division of a bank might also deal with the neighbourhood garment manufacturing unit requiring a mere Rs. 500 lacs working capital loan. To assess the financial requirements (borrowings) of each such borrower, there is a set process.

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Working Capital Finance is given to business entities for building Current Assets (CA). Currents Assets are either processed and then sold or are directly traded. The purchaser of such goods often insists upon getting a credit period and pays after some days. This entire cycle of spending cash to buy current assets and to sell these processed goods is known as Working Capital Cycle. The more the cycles in a year, the less the requirement of Working Capital Finance. In any business there are three parties funding the day to day requirements: owner (capital), market (from whom the raw material is purchased) and bank (working capital finance).

Working Capital Finance is calculated under many methods but the second method of arriving at the Maximum Permissible Bank Finance (MPBF) is most used. In this method, 25% of the CA are to be self-financed. The put simply:   MPBF=(0.75% x Total CA) minus CL other than Bank Borrowings. Under this method, Current Ratio (CR) works out to be 1.33:1.

Under Turnover Method (Nayak Committee Method), 5% of sales to be the borrower margin and 20% of the sales to be the Working Capital Finance by the banks.

The banks offer many loan facilities to their wholesale banking clients. These are known as Funded (cash credit, overdraft, term loans, export credit, bills discounting, purchase order financing) and Non- Funded (bank guarantee, letters of credit, buyers credit). The facilities are generally covered by Primary Security (where the end use of the loan has happened such as raw material or receivables) and Collateral Security (the land and building, residence, shares, fixed deposits, personal guarantees etc). The movable assets which are generally Current Assets are secured under a Hypothecation Agreement while the immovable property is secured under a Mortgage Agreement. Liquid security if offered is kept with the bank (shares, fixed deposit, insurance policies) under a Pledge Agreement. All loans are classified under ‘Assets’ in the bank’s balance sheet. All loans are commonly referred as assets in popular language.

Interest Income from loans to customers is foremost in Bank’s Sources of Income. The other sources include Commission, Fees, Discount Income and Rent.

When interest or principle or both become overdue for 90 days, the asset is presumed to be non-productive. Such assets are classified as Non-Performing Assets (NPA). The market reputation, scope for further business, market capitalisation and liquidity of a bank depends heavily upon its level of NPA. A Net NPA level above 1% is supposedly crossing the proverbial danger mark. Our country is currently facing a huge NPA problem with its PSU Banks.

Credit Rating Agencies (CRA) play a major role in deciding whether a customer should be extended a loan or not. In our country, the most famous rating agency is CRISIL. In the retail front, instead of assigning a rating to an individual, a score is assigned and such assigning companies are called bureaus. CIBIL is the most popular credit information bureau.

Foreign Exchange (Forex) is required for all import and export transactions. We all know the country fulfills 80% of its petroleum requirements through imports. To cater to this need, substantial exports are required. Our maximum foreign currency trade takes place in US Dollars (USD) which is also our reserve currency. The country perennially faces trade deficit (imports being more than exports)

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Course Curriculum

Wholesale Banking: Working Capital Finance
WBS1U1 – Meaning and Cash Cycle of Working Capital Details 00:12:00
WBS1U2 – Lending Principles and Certain Fundamentals Details 00:07:27
WBS1U3 – Pre Sanction Documents and Ratio Analysis Details 00:12:59
WBS1U4 – Maximum Permissible Bank (MPBF) and MSME Details 00:14:29
WBS1U5 – How To Calculate Working Capital Finance Details 00:08:48
WBS1U6 – Maximum Permissible Bank Finance Details 00:13:33
WBS1U8 – Turnaround Method – Part 2 Details 00:14:11
WBS1U9 – Anti Money Laundering Details 00:12:22
WBS1MCQ1 – Quiz 00:30:00
WBS1R1 – Reference Document Details 00:00:00
Bank’s Sources of Income
WBS2U1 – Bank Sources of Income – 1 Details 00:15:58
WBS2MCQ1 – Quiz 00:20:00
WBS2R1 – Reference Document Details 00:00:00
Non-Performing Asset (NPA).
WBS3U1 – NPA – A Serious Matter! Details 00:09:57
WBS3U2 – Prevention – ABCDE and 5Cs Details 00:16:23
WBS3MCQ1 – Quiz 00:26:00
WBS3R1 – Reference Document Details 00:00:00
PHIRST
WBS4U1 – P – Productivity (Technical/ Objective side) Details 00:10:13
WBS4U2 – H – Housekeeping (Technical/ Objective side) Details 00:11:52
WBS4U3 – I – Income (Technical/ Objective side) Details 00:09:07
WBS4U4 – R – Relationship Manager (Technical/ Objective side) Details 00:10:18
WBS4U5 – S – Stress Management (Technical/ Objective side) Details 00:08:48
WBS4U6 – Stress Management Part 2 (Technical/ Objective side) Details 00:06:05
WBS4U7 – T – Turn Around Time (Technical/ Objective side) Details 00:04:49
WBS4U8 – Relationship Manager’s Work Profile Details 00:10:49
WBS4U9 – Summary of PHIRST (Technical/ Objective side) Details 00:09:22
WBS4U10 – P – Passion (Soft/ Subjective side) Details 00:03:50
WBS4U11 – H – Hard Work (Soft/ Subjective side) Details 00:03:15
WBS4U12 – I – Integrity (Soft/ Subjective side) Details 00:03:50
WBS4U13 – R – Resilience (Soft/ Subjective side) Details 00:02:28
WBS4U14 – S – Simplicity (Soft/ Subjective side) Details 00:03:37
WBS4U15 – T – Trust Worthy (Soft/ Subjective side) Details 00:03:23
WBS4MCQ1 – Quiz 00:30:00
WBS4R1 – Reference Document Details 00:00:00
Credit Rating Agencies (CRA)
WBS5U1 – About CRA and it’s process Details 00:07:57
WBS5U2 – CRA’s in India and its Advantages and Disadvantages Details 00:08:19
WBS5MCQ1 – Quiz 00:24:00
WBS5R1 – Reference Document Details 00:00:00
Foreign Exchange
WBS6U1 – Foreign Exchange Part 1 Details 00:15:40
WBS6U2 – Foreign Exchange Part 2 Details 00:18:57
WBS6U3 – Foreign Exchange Part 3 Details 00:09:06
WBS6U4 – Foreign Exchange Part 4 Details 00:07:31
WBS6U5 – Foreign Exchange Part 5 Details 00:12:18
WBS6U6 – Foreign Exchange Part 6 Details 00:13:01
WBS6MCQ1 – Quiz 00:30:00
WBS6R1 – Reference Document Details 00:00:00

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