Principles of lending, Working Capital Assessment and Credit Monitoring
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Small Finance Bank — Small Finance Bank.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the primary 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 must assess creditworthiness before sanctioning any advance.
What is the '5 Cs of Credit' framework used in lending decisions?
Character, Capacity, Capital, Collateral, and Conditions.
What does the principle of 'Liquidity' mean in the context of bank lending?
Liquidity means the bank should lend funds that can be recovered within a reasonable time period when needed. Banks prefer self-liquidating loans, especially for working capital, where repayment comes from the business cycle itself.
What is the principle of 'Social Responsibility' in bank lending?
Banks must ensure credit benefits society and supports national priorities.
What is the principle of 'Profitability' in lending decisions?
Profitability means the interest and fee income earned from a loan must exceed the cost of funds and administrative expenses. Banks must ensure lending generates adequate return to remain viable.
What is 'Security' as a principle of bank lending?
Tangible or intangible assets offered as backup against loan default.
What is 'Purpose' as a principle of sound lending?
Purpose refers to the end-use of the loan funds, which must be productive, legal, and clearly defined. Banks should not lend for speculative or unproductive purposes.
What is the 'Second Method of Lending' under the Tandon Committee recommendations?
MPBF = 75% of current assets minus current liabilities other than bank borrowings.
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