If the borrower fails to repay the loan then the bank can sell the asset with the help of court. In choosing its investment portfolio, a commercial bank should follow the principle of diversity. The banks accept deposits from people and then lend that money to the needy people in the form of loans, advances, cash credit and overdraft.
If adequate margin is not maintained, the loan might become unsecured, in case the borrower fails to pay the interest and return the loan. This is because shares of new companies are not safe investments. The bank should also take into consideration the debt repaying ability of the governments while investing in their securities.
Hence, the securities should be clearly identifiable be easily marketable, have stability and their title should be clear and easily transferable.
The banker, thus, diversifies the risk involved in lending. A bank chooses such securities in its investment portfolio which possess sufficient liquidity.
A bank chooses such securities in its investment portfolio which possess sufficient liquidity. The repayment of the loan depends upon the nature of security, the character of the borrower, his capacity to repay and his financial standing. Like other investments, bank investments involve risk.
Collateral Security - It is additional security given by the borrower where the primary security is not enough to recover the loan amount at the time of realization, e.
The loan transaction must deliver a benefit to the customer. There was an immediate need for a second well, but the owners had virtually no additional cash to allocate towards completing a second well.
For example, goods and commodities are easily marketable while fixed assets like land and buildings and specialized types of plant and equipment can be liquidated after a time interval. They, therefore, advance loans on the security of such assets which can be easily converted into cash at a short notice.
A bank should follow the maxim: Bank lend for short periods only because they lend public money which can be withdrawn at any time by depositors. Securities of the central government are safer than those of the state governments and local bodies. Otherwise, they run to their full term of10 years or more and changes in the market rate of interest do not affect them much.
In fact, the share and debentures of industrial concerns are tied to their earnings which may fluctuate with the business activity in the country.
This means the investor must feel comfortable with the historical performance, collateral that can be quickly monetized to provide security for the investor if the borrower does not perform.This research work will create awareness on the importance of bank lending to the development of the economy.
To farmers, bank lending is a major source of credit facilities for expansion and commercialization. Oct 10, · Proverbs This video is unavailable. Watch Queue Queue. The Shakespearean tragedy ‘Julius Caesar’ and Rob Sitch’s film ‘The Castle’ are two such pieces of literature that examine a range of conflicting perspectives.
Etta Heine’s character has been constructed to represent the strong social and culturally based upbringing she has experienced.
Etta’s role as the wife of a white strawberry farm owner colours and creates bias in perspectives towards the role of Kabuo Miyamoto in the death of her son, Car Heine.
Therefore, the banker should follow the cardinal principles of lending while lending money and make sure all the norms of sound financial lending are practised. To put it simply banks make money by lending money to borrowers, so it becomes very important for banks to follow the cardinal principles of lending.
Edited Transcript of Panel Discussion on Developing the Securities Lending and Borrowing Market in India Mumbai, September 3, National Stock Exchange of India Limited.Download