Q. Assume a bank has sanctioned a loan commitment of Rs.200000 to one of its prime customers with a current rating of “A” at an annual interest rate of 12%. The loan commitment is for a period of one year. The bank will charge an upfront fee of .05% on the sanctioned loan amount. The bank expects the client to use 80% of the sanctioned amount on an average during the year. The bank has asked the customer to maintain a compensating balance of 15% of the sanctioned amount in an account which will earn an interest of 2% per annum for the customer. The bank will also charge a backend fee of .02% on the unused amount of loan. The current reserve requirements are 5%. Estimate the expected return for the bank from the loan commitment?
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