Credit, Debt, and Finance

Factoring is indeed a financial arrangement where a business sells its receivables (accounts receivable) to a third party (factor) at a discount in exchange for immediate cash. This helps businesses improve cash flow by converting credit sales into cash.

Working capital loans are specifically designed to finance a company's day-to-day operational expenses like inventory, payroll, and accounts payable. These are short-term loans that help businesses manage their cash flow cycle between payables and receivables. They are distinct from term loans used for long-term asset acquisition.

Standard assets (classified as performing loans) do carry some risk, even if minimal. No loan is completely risk-free as economic conditions, borrower circumstances, and market dynamics can change. The term 'perceptible risk' appropriately acknowledges that even good loans have measurable default probability, which is why banks maintain provisions and capital reserves.

The unit holder owns units in the mutual fund, not the underlying securities. The mutual fund is the legal owner of the debentures and has the creditor relationship with the company. The unit holder's relationship is with the mutual fund (trustee), not with the companies whose securities the fund holds. This separation of ownership is a key feature of mutual fund structure.

Bank deposits have contractual guarantees from the bank (and deposit insurance in many countries). Secured debentures have collateral backing and specific repayment terms. Debt funds, however, invest in debt securities but pass the credit risk to investors - there is no guarantee of principal or interest repayment. If underlying bond issuers default, debt fund investors can suffer losses. Option B is the correct answer because debt funds lack contractual guarantees unlike bank deposits and secured debentures.

The interest rate on debentures depends primarily on the company's credit rating, which reflects its ability to repay the debt. Higher-rated companies can borrow at lower interest rates due to lower perceived risk, while lower-rated companies must offer higher rates to attract investors. SEBI guidelines govern disclosure but don't set rates, and market conditions or amount raised have secondary influence compared to credit risk.

The loan disbursed by a bank to an individual for purchasing a house is called a retail loan.

Loan of very small amounts given to low income groups is called micro credit.

A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

In banking and finance, a credit rating is an assessment of the creditworthiness of a borrower. It is used by banks and financial institutions to evaluate the risk of lending money to individuals or companies. The rating helps banks determine whether to approve a loan and what interest rate to charge based on the borrower's ability to repay.

A reverse repo rate is the rate at which the central bank borrows money from commercial banks within the country. This involves the absorption of liquidity from the market, typically achieved by the central bank selling government securities to commercial banks.

Sub-prime lending refers to lending (including mortgages) made to borrowers who do not meet the standard creditworthiness criteria - typically lower credit scores, insufficient income documentation, or higher debt-to-income ratios. This sector was at the center of the 2008 financial crisis. Sub-prime does NOT refer to lending below PLR, sub-Libor rates, or non-prime bank classifications.

Call money refers to funds borrowed or lent for a very short period, typically overnight or for one day. It's a key component of the money market where banks and financial institutions borrow and lend to manage daily liquidity needs. The interest rate for such transactions is called the call money rate.

(4) The risk weightage for capital adequacy purpose, in case of credit card is 100%.

Option (1) is incorrect: A time barred debt cannot be claimed as a set off. Option (2) is incorrect: A time barred debt cannot be claimed as a counter claim. Option (3) is incorrect: A time barred debt cannot be claimed as a fresh suit. Option (4) is correct: A time barred debt can never claimed as a set off, a counter claim and a fresh suit.