## Advances in Banks

### Meaning

Advances are amounts of money or credit given as loans from a bank to another party, with an agreement that the money will be repaid.

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### Types of Advances

Funded Loans	Non-Funded Loans
Actual transfer of funds from bank to borrower	Do NOT involve actual transfer of funds
Examples: Term Loans, Cash Credits, Overdrafts, Demand Loans, Bills Discounted & Purchased, Participation on Risk Sharing basis, Interest-bearing Staff Loans	Examples: Letters of Credit, Bank Guarantees

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### Legal Disclosure Requirements in the Balance Sheet

Advances are disclosed in the Balance Sheet under three schedules:

Schedule A — By Type of Advance

(i) Bills purchased and discounted
(ii) Cash credits, Overdrafts and loans repayable on demand
(iii) Term Loans

Schedule B — By Security

(i) Secured by tangible assets
(ii) Covered by Bank/Government guarantees
(iii) Unsecured

Schedule C — By Geography

Advances in India	Advances Outside India
(i) Priority sectors	(i) Due from Banks
(ii) Public sector	(ii) Due from others:
(iii) Banks	(a) Bills Purchased & Discounted
(iv) Others	(b) Syndicated loans
	(c) Others

Worked example

### Example 1

Example — Classification Exercise: A bank issues a Letter of Credit to a customer importing goods. No funds have yet been disbursed. Is this a funded or non-funded advance?

Answer: Non-funded. A Letter of Credit is a contingent commitment — the bank does not transfer funds unless the LC is drawn upon. It appears in the balance sheet as a contingent liability, not under advances, until funded.

### Example 2

Example — Balance Sheet Disclosure: A bank has: Term loans ₹500 cr, Cash Credits ₹200 cr, Bills Discounted ₹50 cr. Of these, ₹400 cr is secured by tangible assets, ₹100 cr by government guarantee, and ₹250 cr unsecured. How are these disclosed?

Answer: Schedule A: Term Loans ₹500 cr, Cash Credits/OD ₹200 cr, Bills Discounted ₹50 cr — Total ₹750 cr. Schedule B: Secured by tangible assets ₹400 cr, Covered by Govt guarantee ₹100 cr, Unsecured ₹250 cr — Total ₹750 cr. Both schedules must reconcile to the same total.

⚠️ Common exam mistakes

Classifying Bank Guarantees or Letters of Credit as funded loans — they are non-funded as no actual transfer of funds occurs at issuance.
Forgetting that Balance Sheet disclosure requires the SAME total to appear under three different schedules (by type, by security, by geography) — a common exam trap.
Confusing 'Bills Purchased and Discounted' (a funded loan) with 'Bank Guarantee' (a non-funded facility).

Reference:

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Advances — Meaning, Types, and Balance Sheet Disclosure

Worked example

⚠️ Common exam mistakes