Documentation validity and aod concept

Strange as to how banks are immediately giving placements to the employees without experiencience and without training on such important tasks such as credit.

You wish to know the validity of the documents.

Each bank has prescribed printed formats of promissory note, Hypothication agreement, general form, guarantee agreement  and with a check list.   The concerned officials have to personally call the borrowers and get the documents signed in the Bank in their presence, authenticating all documents.  The task of filling the document and checking at lower levels is the first step and the second step is verification. This is for Hypothication, which you say WC, which means working capital.   Generally the type of credit is given like CC, and verification of stocks through personal inspection, and maintaining some margins is most essential.

The same course is following in case of term loans and the addition is Hypothication of machinery and obtaining separate term loan agreement incorporating sanction terms and conditions including insurance.

Depending on the constitution of the business there are separate forms for Sole Prop/individual, firm, companies, associatins etc.

In case of Limited companies one has to look into maximum power to borrow, get documents signed with common seal, registering the charge with Registrar of companies, obtaining guarantee of Directors in personal guarantee is most essential.

In certain banks, they provide check list with sanctions, and all these documents are sent to a centralized hub, and the third verification takes place.   On receiving the confirmation, such Head provides confirmation of correctness of documents to the superior of the sanctioning authority, and then the limits comes into operation.  (In certain banks, as this reduced safety points and verification every time)

Internal auditors, concurrent auditors, statutory auditors verify these documents, as it is their duty to go through documents.

There is one most important case known as rule in CLAYTON case regarding limitation and appropriation of credits to debits which you have to thoroughly go through and understand.

Maintaining sufficient stocks as per margins every month, keeping force of insurance both for primary and collateral securities is most important and that has to be followed through proper diarizing atleast one week in advance.

The collateral securities must be mostly immovable properties.  The mortgages should be as per sanction terms and conditions.  The principle DEVIL T should be followed. (Document (TItle deed and link deed),  Encumberance certificate,  Valuation report, Inspection and insurance,, Tax period receipts (latest) are broad / general terms..  The mortgage should be created as per laid down norms for deposit of title deeds in case of equitable mortgage.   In addition to avoid future problems, all those parties who offered third party guarantee individually or those offered their properties as security must execute guarantees individually in prescribed format.

The limitation period of any loan is 3 years from date of promissory note, or cause of action, which includes issuance of notice recalling the advance.

  To extend the limitation period, within such limitation period, bank must obtain acknowledgment of Debt from the borrowers and guarantors  to extend the time of limitation for further three years.  The AOD must be in prescribed format, being signed by all parties concerned with such date and amount outstanding on that date of AOD,  

When this is so vast subject, you can not acquire knowledge through one reply in on line forum.   Go through Manual of instructions, documentation manual invariably, and the most esential part is having a good subordinate in case of officers, and having expert officer in case of subordinates.