PRINCIPLES OF LENDING, WORKING CAPITAL ASSESSMENT & CREDIT MONITORING
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 primary principle of lending that ensures a bank's funds are deployed in safe and productive assets?
The principle of safety requires that loans are extended only to creditworthy borrowers who have the capacity and willingness to repay, ensuring the bank's funds remain secure.
What is the principle of safety in bank lending?
Loans should be given to creditworthy borrowers with adequate security.
What does the principle of liquidity in bank lending refer to?
Liquidity in lending means the bank should be able to recover its funds on demand or within a reasonable period, ensuring loans are structured with clear repayment schedules aligned to the borrower's cash flows.
What is the Second Method of Lending recommended by the Tandon Committee?
Bank finances 75% of net working capital gap (Current Assets minus Current Liabilities excluding bank borrowings).
Which principle of lending balances the bank's need to earn returns against the risk taken on a loan?
The principle of profitability requires that interest rates and fees charged on loans must adequately compensate the bank for credit risk, cost of funds, and operating expenses.
What is 'Projected Annual Turnover' method used for in working capital assessment?
It is used to assess working capital needs of small borrowers based on 20% of projected sales turnover.
What does the principle of purpose mean in the context of bank lending?
The principle of purpose requires that loans are granted only for legitimate, productive, and legally permissible end-uses, ensuring funds are not misutilised for speculative or antisocial activities.
What is the First Method of Lending as per Tandon Committee norms?
Bank finances 75% of total current assets minus current liabilities excluding bank borrowings.
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