Which of the following is a non-fund based credit facility of a bank?
- A.Cash credit
- B.Overdraft
- C.Letter of credit
- D.Term loan
Correct answer
Explanation
The correct answer is C, letter of credit. In a non-fund based facility the bank does not part with money at the time the facility is granted; it only undertakes to pay if the customer fails to, and it charges a commission for that undertaking. A letter of credit is such an undertaking given to a seller that the buyer's bill will be paid, and a bank guarantee is the other common example. The exposure becomes a funded one only if the promise is invoked.
Option A, cash credit, is a fund based running limit against stock and receivables. Option B, overdraft, is fund based because the customer actually draws money beyond the balance in the account. Option D, term loan, is plainly fund based, since the sanctioned amount is disbursed for a fixed asset. Bill discounting too is fund based, as the bank pays the seller at once.
Read the full article: Loans, Advances and Interest Rates: MCLR to NPA
Practice Questions
View allIn the context of rural credit and micro finance, KCC stands for:
- A.Krishi Credit Card
- B.Kisan Credit Card
- C.Krishi Credit Corporation
- D.Kisan Credit Corporation
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The Kisan Credit Card scheme was introduced in 1998 on the recommendation of the R V Gupta Committee and is worked by commercial banks, regional rural banks and cooperative banks.
Read the full explanation →Which model of self help group is also known as the international model?
- A.CDF model
- B.SEWAA model
- C.SAPAP model
- D.DWCRA model
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The South Asia Poverty Alleviation Programme model is called the international model of self help group formation because it was taken up with the support of the United Nations Development Programme and followed the same design across South Asian countries, beginning in India in the districts of Andhra Pradesh.
Read the full explanation →From which date did banks in India begin pricing new floating rate loans on the marginal cost of funds based lending rate, MCLR?
- A.1 July 2010
- B.1 April 2016
- C.1 October 2019
- D.1 April 2003
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The Reserve Bank introduced the MCLR from that date so that the price of a loan would follow the marginal, that is the latest, cost of raising funds rather than the average cost of old deposits.
Read the full explanation →The base rate system introduced by the Reserve Bank of India in July 2010 replaced which of the following?
- A.Marginal cost of funds based lending rate
- B.Benchmark Prime Lending Rate
- C.External benchmark lending rate
- D.Bank rate
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Under the BPLR system a bank announced a prime rate for its best customers and then lent to many borrowers below it, so the announced rate told a customer very little and the lending book was not transparent.
Read the full explanation →In which of the following charges on movable property does the possession of the goods remain with the borrower?
- A.Pledge
- B.Hypothecation
- C.Lien
- D.Mortgage
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In hypothecation a charge is created on movable property, such as a financed vehicle or the stock in a trader's shop, while the borrower keeps and uses the goods.
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