Banker as Lender
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Transcript of Banker as Lender
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BANKER AS LENDER
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Banker As Lender
One of the primary function of bank is to grant
loans
Whatever banks receives by way of deposits, itlends a major part of it to its customer by way of
loans, advances, cash credit,& overdraft.
Banks make a major contribution to theeconomic development of the country by
granting loans to the industrial and agricultural
sector.
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Lending
Lending means granting loans to the customers
from the deposits received by their customers.
Loans are generally granted in exchange of theownership of various types of tangible items.
Some of the securities against which the bank
lends are:
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Conti
Commodities
Debts
Financial instruments Real estate
Automobiles
Consumer durable goods
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Principles of BankLending
Safety
Liquidity
Profitability
DiversificationSecurity
Margin money
Character ofthe borrower
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Forms of Lending
Loans
Cash credit
Overdraft facilities
Discounting of bills ofexchange
Financing Book Debts
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LOANS
A loan is kind of advance made with or withoutsecurity.
It is given for a fixed period at an agreed rate of
interest The entire amount is paid on an occasion either
in cash o by credit in customer's account, which a
person can draw at any time. Repayment may be mad in installments or at the
expiry of a certain period.
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Cash credit
It refers to the arrangement where by the banks
allows the borrower to withdraw money from
time to time within a specified limit known as
cash credit limit.
The cash credit facility is granted against the
pledge or hypothecation of stock or personal
security.
The cost of raising finance by this method is
the interest charged by the bank.
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Overdraft Facility
It refers to an arrangement where by the bankallows the customer to overdraw from itscurrent deposit account with in a specified
limit. The overdraft facility is granted against the
securities of assets or personal security
Interest is charged on an amount drawn andnot on the whole amount sanctioned
It is unusual to obtain a promissory note fromthe customer to cover the overdraft.
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Purchase and discounting of bills The bank provides the customer with the facility of
purchasing their bills receivables.
When goods are sold on credit, the supplier generallydraw bills of exchange upon customers who arerequired to accept the same.
The term of bills of exchange may be 3 to 6 months.
Instead of holding the bills till the date of maturity,
companies generally prefer to get them discounted withthe bank.
The net amount after deducting the amount of discountis credited to the account of customer.
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Financing Book Debts
The book debt is sum of money due to a business in
the ordinary course of its business.
Book debts are claims arising out of credit sales.
Because of credit sales the sellers available working
funds become in inadequate to support the scale of
operations.
Under this system the bank allows the borrower todraw to the extent of limit sanctioned to him provided
the drawings are backed by adequate receivables.
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Charging of Security Bills
Creating a charge on security enables the bankerto have it as a means for making it available as asecurity for an advance.
It is very important that the charge should becomplete and all necessary formalities arecompiles with so that in case of any default bythe borrower, the security is available to thebanker.
Modes o
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Pledge
Mortgage
Assignment
Lien
Set off
Hypothecation
Modes of Creating Charge
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1. Pledge
Pledge is a bailment of movable property to
secure the payment of debt or the performance of
promise.
There are two parties in this arrangement.
Pawnor (who offers the security)
Pawnee
(who accept the security)
Pledge can be made only of movable properties.
Pledge must be supported by valid consideration.
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2. Mortgage Mortgage is a charge created on a immovable
properties, like land and buildings.
It is the transfer of legal or equitable interest in
property as security for the debt.
The transferor is called mortgager. The
transferee is called mortgagee.
While mortgaging property only legal rights
are transferred but not the possession.
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3. Assignment
It is a transfer of right , property, or a debt.
The transferor is called assignor and the
transferee, assignee.
It means the transfer of an actionable claim,
must be in writing by the assignor.
The assignor informs his debtor also inwriting, intimating the assignees name &
address.
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4. Lien
Lien is the right of a creditor to hold
possession of the goods of the debtor till he
discharges his debt.
Lien entitles the creditors to retain the security
or goods belonging to the debtor tilll thepayment of debt.
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5. Set-off
It means combining the accounts of the debtor
and creditor, to arrive at the net balance payable
to one or the other.
The right of set-off is a statutory right.
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6. Hypothecation
In this neither the ownership nor the possession
is transferred.
Instead a charge is created to give possession of
the goods to the lender whenever he asks him to
dos so.
The banker enjoys the rights and powers of the
pledgee.