Contemporary Approaches & Norms To Financing By Banks In India

Contemporary Approaches & Norms to Financing by Banks in India


INTRODUCTION

Lending is atomic number 53 of the two principal functions of commercial banks not only because of their tender obligation to cater to the deferred payment needs of different sections of the companionship but also because lending is the most profitable activity, for the come to rates realized on business contributes have endlessly been well above those realized on investment. Having sterilized a portion of deposits in cash reserves and tallly legato assets, which yield little or no earnings for the aspiration of satisfying the liquidity requirements, a bank has to deploy the relaxation cash in profitable show uplets so that it may be able to pay dividend to the sh areholders. This is why bank loans account for a major(ip) portion of residual funds of commercial banks.

Banks loan in India generally bear the under mentioned distinguishing bears:

As major portion of these loans are facilitated to trade and industries, banks are lackadaisical in making advances to the agricultural sector because of the relatively greater credit risk inherent in them and because of the inability of agriculturists to furnish commodity security. However, since nationalization, banks have evinced keen interest in this sector as also in infrastructure sector.





Further, a striking feature of a bank loan in India is that nearly 75% of it facilitated for a period of less than one year. This happens due to high liquidity of such loans as such loans are prolonged to finance the seasonal needs of businessmen and also for the workings capital purposes to facilitate the process of production and distribution. These loans are basically for the purpose of increasing the inventory of a business firmly and are repaid as the inventory is liquidated. Short term funds are borrowed for increasing the current assets and for expanding production. Such loans are repaid out of the net operating earnings of the firm. Working Capital loans are always for a year or less,...If you want to suffer a full essay, order it on our website: Ordercustompaper.com



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