•The main business of banking company is to grant loans and advances to traders as well as commercial and industrial institutes. The former depends on his tangible assets and the success of his business. Otherwise, they run to their full term of 10 years or more and changes in the market rate of interest do not affect them much. Political stability and peace and security are the prerequisites for this. During 1946, non-farm mortgages under $20,000, recorded, totalled io.6 billion dollars of … SBI Prime Credit Card – Benefits, Rewards, Offers, Review 2020. In order to submit a comment to this post, please write this code along with your comment: 941796110305078c02f7e183463591ff, Subscribe to our newsletter & get update right in your inbox. Image Courtesy : farm8.staticflickr.com/7164/6551525739_cea94562f0.jpg. It can be helpful to understand each of the “C”s and the importance they play in making a business loan. Hence, lending activity has to necessarily adhere to certain principles. The business of lending, which is main business of the banks, carry certain inherent risks and bank cannot take more than calculated risk whenever it wants to lend. Every lending officer in a bank is taught the “C”s of lending. The underlying purpose for which an applicant is seeking a loan should be productive. Commercial banks also engaged in extensive lending on mortgages. But the shares and debentures of ordinary firms are not easily marketable without bringing down their market prices. The Lending Code applies to personal and small business customers, whilst the Lending Principles have been created for larger business customers. Report a Violation, Useful notes on Unit Trust of India (UTI), Portfolio Management of a Commercial Bank: (Objectives and Theories). Lean Principles in Banking – Commercial Lending Operations Transformation in Without New Technology. How to Add/Delete Beneficiary Account in Canara Internet Banking? 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"Safety first" is the most important principle of good lending. ‘Bank Lending: Principles and Practice,’ discusses the practicality of bank lending and the challenges faced by the industry. So the banks should make investments in government securities and shares and debentures of reputed industrial houses. A bank should follow the maxim: “Do not keep all eggs in one basket.” It should spread it risks by giving loans to various trades and industries in different parts of the country. (a) Safety: Advances should be expected to come back in the normal course. Principles of Lending in Banking. Principles of Liquidity A commercial bank offers two types of deposits Demand deposits which the bank has to repay on demand like a Savings Account and Time deposits which the bank has to repay after the expiry of a certain period To minimize the risk, bank should lend to borrowers from different trades, industries like agriculture, education, IT, pharma, educational etc. But the degree of risk varies with the type of security. The criteria for lending get changed or modified from time to time in response to changing the state of the economy. Also Read : What is the difference between Cash Credit and Overdraft ? Purpose of loan 5. Banks deal with public money so safety of money from public is first priority of bank. As such, the banks are required to follow certain principles of sound lending. 6 Best Credit Cards for Fuel in India 2020, How to Open FD Online in Canara Bank | Latest FD Rates April 2020, 6 Step Guide to Reset Canara Mobile Banking Passcode/MPIN. Image Courtesy : lexingtonlaw.com/blog/wp-content/uploads/2012/08/shutterstock_2487361.jpg. In fact, the share and debentures of industrial concerns are tied to their earnings which may fluctuate with the business activity in the country. In 1946 member bank loans to business and industry had risen more than 4 billion dollars, or more than 50 per cent. It should not invest its surplus funds in a particular type of security but in different types of securities. Prohibited Content 3. Risk is always present while extending any kind of advance to any type of borrower. They, therefore, advance loans on the security of such assets which are easily marketable and convertible into cash at a short notice. This is because shares of new companies are not safe investments. The purpose of loan helps in determining level of risk and also impact interest rate on loan. The principles of lending revolve mainly around the concepts of safety, profitability and liquidity of advance. It is very safe to invest in the securities of a government having large tax revenue and high borrowing capacity. Borrower may differ in terms of their purpose of advance, activities, financial health, repayment capacity, risk so some important principles / considerations are followed by bank before taking lending decision. This is because the resources of the central government are much higher than the state and local governments and of the latter higher than the industrial concerns. How to avail Loan against Kisan Vikas Patra ? • They therefore advances loans on security of such assets which are easily marketable and convertible into the cash at … • The most important use of banks money is lending. Content Guidelines 2. Image Guidelines 5. And also after utilizing it for right purpose it should be repaid with interest. So the banks follow certain principles to minimize the risk: 1. The shares and debentures of large industrial concerns also fall in this category. 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