Principles of Lending, Different Types of Borrowers and Types of Credit Facilities
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.
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What does the principle of 'Safety' mean in bank lending?
Safety means the banker must have reasonable assurance that the funds lent will be repaid along with interest as agreed.
What is the formula for working capital requirement under the Nayak Committee (turnover) method?
25% of the projected annual turnover
Why is 'Liquidity' considered a cardinal principle of bank lending?
Liquidity ensures the bank can recover funds on demand or within a short notice period, since banks primarily lend depositors' money that may be recalled at any time.
Under the Nayak Committee method, what percentage of projected annual turnover is the bank's permissible finance?
20% of projected annual turnover
What does the principle of 'Profitability' require in bank lending?
Banks must earn sufficient interest on loans to cover costs, meet overheads, pay depositors, and generate a profit for shareholders.
Under the Nayak Committee turnover method, what is the borrower's required margin as a percentage of projected turnover?
5% of projected annual turnover
What is the principle of 'Purpose' in bank lending?
A banker must ensure the loan is sought for a productive, lawful purpose so that the advance can be repaid and does not fuel unproductive or speculative activity.
What is the aggregate sanctioned fund-based working capital limit ceiling for small enterprises eligible under the Nayak Committee turnover method?
₹5 crore
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