BANKER AS LENDER

Banker As Lender
One of the primary function of bank is to grant loans Whatever banks receives by way of deposits, it lends a major part of it to its customer by way of loans, advances, cash credit,& overdraft. Banks make a major contribution to the economic development of the country by granting loans to the industrial and agricultural sector.

Lending
Lending means granting loans to the customers from the deposits received by their customers. Loans are generally granted in exchange of the ownership of various types of tangible items. Some of the securities against which the bank lends are:

Conti
Commodities Debts Financial instruments Real estate Automobiles Consumer durable goods

Safety

Character of the borrower

Liquidity

Principles of Bank Lending

Margin money Profitability

Security

Diversification

Forms of Lending
Loans Cash credit Overdraft facilities Discounting of bills of exchange Financing Book Debts

LOANS
A loan is kind of advance made with or without security. 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.

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.

Overdraft Facility
It refers to an arrangement where by the bank allows the customer to overdraw from its current 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 and not on the whole amount sanctioned It is unusual to obtain a promissory note from the customer to cover the overdraft.

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 generally draw bills of exchange upon customers who are required 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 with the bank. The net amount after deducting the amount of discount is credited to the account of customer.

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 to draw to the extent of limit sanctioned to him provided the drawings are backed by adequate receivables.

Charging of Security Bills

Creating a charge on security enables the banker to have it as a means for making it available as a security for an advance. It is very important that the charge should be complete and all necessary formalities are compiles with so that in case of any default by the borrower, the security is available to the banker. Modes o

Modes of Creating Charge

Pledge
Hypothecation

Mortgage

Set off Lien

Assignment

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.

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.

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 in writing, intimating the assignees name & address.

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 the payment of debt.

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.

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.