Principles of Lending
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
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.
What is meant by 'Profitability' as a principle of lending?
Profitability means that the interest earned on loans must be sufficient to cover the bank's cost of funds, operating expenses, and provide a reasonable return. Banks lend to earn profits while balancing risk.
What is 'Capital' as one of the 5 Cs of credit?
Net worth or financial strength of the borrower.
What is the principle of 'Purpose' in bank lending?
Banks should lend only for productive, lawful, and genuine purposes. Loans for speculative, antisocial, or unproductive activities should be avoided to ensure sound credit deployment.
What is 'Conditions' as a credit appraisal factor?
Economic environment affecting borrower's repayment capacity.
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