TERM LOANS QUES
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is the primary purpose of a term loan in banking?
A term loan is extended to finance capital expenditure or long-term investment needs of borrowers, repayable over a defined period exceeding one year.
What is the minimum Debt Service Coverage Ratio (DSCR) generally acceptable for term loan sanction?
Minimum acceptable DSCR is 1.25 to 1.50 times.
How is the repayment period of a term loan typically classified?
Term loans are classified as short-term (up to 3 years), medium-term (3–7 years), and long-term (above 7 years), depending on the nature of the asset financed.
What is the difference between short-term and long-term term loans based on tenure?
Short-term is up to 3 years; long-term exceeds 3 years.
What does Debt Service Coverage Ratio (DSCR) indicate in term loan appraisal?
DSCR measures the borrower's ability to service debt (interest + principal) from net cash accruals; a ratio of 1.5 to 2 is generally considered adequate by lenders.
What is the purpose of a pre-disbursement inspection in term loan management?
To verify end-use of funds and asset creation before disbursement.
What is the significance of Loan-to-Value (LTV) ratio in term lending?
LTV ratio indicates the proportion of the loan amount to the appraised value of the security; a lower LTV reduces credit risk and provides a larger margin of safety to the lender.
What is a 'balloon payment' in the context of term loan repayment?
A large lump sum payment due at the end of loan tenure.
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