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Principles of Lending
What is the principle of 'Safety' in bank lending?
Safety means the bank must ensure that the borrower has the ability and willingness to repay the loan along with interest. The bank should lend only when it is reasonably sure of recovering the principal and interest.
What is 'Character' as a credit appraisal parameter?
Borrower's integrity and willingness to repay debt.
What does the principle of 'Liquidity' mean in the context of bank lending?
Liquidity refers to the bank's ability to convert its assets into cash quickly without significant loss. Banks must ensure that loans are repayable on demand or within a short period so that liquidity is maintained.
What is 'Capacity' in the context of credit assessment?
Borrower's ability to generate income to repay loan.
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