Question

CBSE,Economics--- Money and Credit.

Discuss the loan activities of the bank ....

Answer 1

                        Discussion of loans given by Banks

          A Bank gives a loan to an individual or a group of persons or an organization on mutual agreements of Terms of Credit.

            A loan is the money or goods that the Bank supplies to the borrower for a pre-determined duration. The loans given by Banks are very crucial in an economic system of any country.  They play an important role in the development of the country.  A bank gives loans for earning profit as well as to fulfil its obligation of service to the society.  A bank gives loans on the advice of a state government or central government to farmers, self help groups etc.  

         In India the public banks and private banks are bound by the rules established by the Reserve Bank of India.  RBI monitors the loaning activities through regular audits of the banks.  Banks have to obey a maximum ratio for the loans they can give, to the deposit reserves they have.  The reserve bank sees that the interest rates are reasonable and are fitting to the current inflation and other development indices.  If the interest on loans is very high or very less then it will be difficult for the borrower to pay back or for the bank to survive.  Nationalized banks offer loans at lower rates compared to the private banks.   

          A bank offers loans to individuals (personal loans) money for some days or months or years with repayment terms being periodical (like monthly, quarterly or yearly).  Before issuing a loan, the bank may take assurances or guarantee from a third person or body for the recovery of the loan.  A bank gives a loan after procuring some legal documents (like house sale deed or land ownership documents) etc. The bank also has a limit on the amount of loan against the value of the ownership documents submitted.  Such loans are called mortgages.

          A bank may be offering credit card services.  In these services an account holder is allowed to spend up to a limit in shopping etc using the credit card.  The bank pays the trader.  The money is repayable by the card holder in 4 weeks or so without an interest and with interest afterwards.

             A bank may give an educational loan to students for a long duration, for the purpose of higher studies.  The bank may take a guarantee and some documents from the student.  The student may have to repay the money periodically after some years after getting employed.            A bank may loan is given at a higher rate of interest to a borrower than the interest a bank pays to a depositor.  This is how the bank earns its profit and pays for its expenses.

         A bank offers loans at a low interest on the fixed or term deposits that an account holder has.  The amount of loan and the duration depend on the deposited amount and its duration.

        A bank gives loans to poor farmers on advice and assurance of government towards expenses for cultivation every year.  Nowadays women and self help groups are given loans at reduced rates for their development.  This is done as a service towards the society.

       A bank gives a housing loan to a person so that a person can buy a house or apartment.  The bank holds the legal documents until the end of the duration of repayment schedule.  The borrower can occupy the property.

      A bank offers a loan for purchase of a vehicle like a car or van or a truck for personal or commercial use.

      Often when borrowers fail to repay as per the terms agreed initially, the bank takes control of the properties and sells them to recover its loan amount.  Banks are rated also for the credit system that they have and the services they offer.  The banks provide a loan interest calculator and other terms on web sites to be transparent.