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DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : Sreenivasa Rao B.
Designation : Lecturer in CCP
Branch : Commercial and
Computer Practice
Institute : S.U.V.R&S.R GPW,
Ethamukkala
Semester : VI Sem
Subject Name : Banking II
Subject code : CCP-604(B)
Major Topic : Loans and Advances-short
term & Long term
Duration : 50 minutes
Sub Topic : Principles of sound lending
policy
Teaching Aids : PPTs CCP604(B).1 1
Objectives :
On completion of this period you will be able
to explain:
 Main advances offered by banks.
 The Purposes for which banks are giving loans
and advances.
 The Important precautions to be taken while
lending.

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What do you know about types of
Loans and advances offered by
Banks ?
Loans

 Cash Credit
 Overdraft
 Discounting of Bill of Exchange
 Hire Purchase advances etc.,

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For what purposes banks are giving
loans?

 To earn incomes / profits

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Are there any precautions that banks
take while lending money?
Yes, they are
 Safety
 Liquidity
 Profitability, etc.,

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Are there any precautions that banks
take while lending money – If so –
Why?

 Yes, Safety, Liquidity, Profitability etc.,

 In order to prompt repayment of loans and


minimizing the bad and doubtful debts.

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General principles of sound lending of
Loans & Advances

Introduction

1. The main business of a banking company is to


receive deposits and lend money.
2. Banks act as a financial intermediaries between the
saving public and investors.
3. The financial resources mobilized by banks will be
lent to various productive sectors in the form of
loans and advances.

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General principles of sound lending of
Loans & Advances…

4. Receiving deposits involves no risk since it is


the banker’s duty to repay the deposit,
whenever it is demanded.
5. Lending always involves much risk because
there is no certainty of repayment.
6. A banker earns a bulk of his income only
through lending.

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General principles of sound lending of
Loans & Advances…

7. A banker should be very cautious in lending.


2. A major portion of the money lent comes from the
deposits received from the public.
9. These deposits are mostly repayable in demand.
10. Confidence of safety will play a key role in banking
business.
11. Banks have to create confidence to public that their
deposits are safe with them.
CCP604(B).1 9
General principles of sound
lending of Loans & Advances…

Hence, while lending loans and advances a


banker should follow very cautious policy and
some general principles of sound lending.

 The general principles of sound lending loans


and advances will be discussed in the next
class.

CCP604(B).1 10
Summary

 A major part of the money lent by the banker


comes from the deposits of public.
 These deposits are repayable on demand.
 Income is essential to pay the interest on
deposits and other expenditure etc.
 It is inevitable to lend money in order to earn
income.

CCP604(B).1 11
Summary
 All loans entail a credit risk .
 In order to be safe of repayments of loan
amounts the banker has to follow certain
principles of sound lending.

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Quiz

1. What is the main source of banks to earn


income ?
a) Internet banking
b) Drafts
c) Lending of loans
d) Deposits

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Quiz
2. What precaution should be taken while
lending
a) Safety
b) Liquidity
c) Profitability
d) All the above

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Frequently Asked Questions

1. Who will deposit money in banks?

2. What is the main business of a banking?

3. Which factor will play a vital role in Banking


Business?

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