Banker as Lender

download Banker as Lender

of 19

Transcript of Banker as Lender

  • 8/12/2019 Banker as Lender

    1/19

    BANKER AS LENDER

  • 8/12/2019 Banker as Lender

    2/19

    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.

  • 8/12/2019 Banker as Lender

    3/19

    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:

  • 8/12/2019 Banker as Lender

    4/19

    Conti

    Commodities

    Debts

    Financial instruments Real estate

    Automobiles

    Consumer durable goods

  • 8/12/2019 Banker as Lender

    5/19

    Principles of BankLending

    Safety

    Liquidity

    Profitability

    DiversificationSecurity

    Margin money

    Character ofthe borrower

  • 8/12/2019 Banker as Lender

    6/19

    Forms of Lending

    Loans

    Cash credit

    Overdraft facilities

    Discounting of bills ofexchange

    Financing Book Debts

  • 8/12/2019 Banker as Lender

    7/19

    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.

  • 8/12/2019 Banker as Lender

    8/19

    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.

  • 8/12/2019 Banker as Lender

    9/19

    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.

  • 8/12/2019 Banker as Lender

    10/19

    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.

  • 8/12/2019 Banker as Lender

    11/19

    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.

  • 8/12/2019 Banker as Lender

    12/19

    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

  • 8/12/2019 Banker as Lender

    13/19

    Pledge

    Mortgage

    Assignment

    Lien

    Set off

    Hypothecation

    Modes of Creating Charge

  • 8/12/2019 Banker as Lender

    14/19

    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.

  • 8/12/2019 Banker as Lender

    15/19

    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.

  • 8/12/2019 Banker as Lender

    16/19

    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.

  • 8/12/2019 Banker as Lender

    17/19

    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.

  • 8/12/2019 Banker as Lender

    18/19

    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.

  • 8/12/2019 Banker as Lender

    19/19

    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.